Lawsuit against Indiana virtual schools is allowed to continue, judge rules

Indiana Attorney General Todd Rokita's $154 million lawsuit against the people and companies linked with two defunct Indiana online charter schools can continue, a judge ruled, denying multiple defendants’ request to dismiss the case.

On Monday, Hamilton County Superior Court Judge Michael A. Casati issued four orders denying all motions to throw out or delay the case. The lawsuit alleges Indiana Virtual School and Indiana Virtual Pathways Academy inflated their student enrollment to receive millions of dollars in state funds, then paid those funds to connected companies and people.

At a court hearing on Jan. 5, attorneys for the defendants argued Rokita's complaint is not specific enough about how they allegedly committed fraud and that they should not be held personally liable, among several other reasons to dismiss.

On the issue of proving fraud, Casati wrote, it is “clear that fraud is not the lynchpin around which the entire case revolves.” The judge ruled that other wrongdoing connected to inflated enrollment by the defendants is reason enough for the state to take action against them.

Thomas Stoughton, who headed the schools until 2017, sought multiple dismissals, including a request for the state to “replead” the case because it is "vague and ambiguous." Casati countered that the complaint is a "short, plain statement" and denied the request.

Two defendants also asked for the lawsuit to be delayed because they may be under federal criminal investigation. Percy Clark, former superintendent for the schools, and Travis Lynch, the schools' former head of information technology, both said they wanted to know whether they each were the targets of a criminal investigation.

Casati denied the motion, citing discretion to delay is left up to the trial court. Plus, he wrote, “the Department of Justice has yet to indict the Defendant and there is no way to compare the charges between the cases.”

Rokita’s lawsuit stems from a 2020 State Board of Accounts investigation, which found the public schools reported about 14,000 students as enrolled but there was no evidence they attended the virtual classes. As a result, the schools inappropriately collected more than $68 million in state funds.

The schools also paid more than $85 million in public funds to companies that had links to school officials and their family members, the audit found.

“We’re talking about $154 million in monies misappropriated from the public treasury,” Rokita said in a statement Tuesday. “Hoosiers deserve a full accounting, and they deserve to have these funds returned to the state."

Indiana Virtual School and Indiana Pathways Virtual Academy abruptly closed in fall 2019 amid the state’s investigation and the resignation of the schools’ board members and other staff.

The U.S. Attorney’s Office and the Federal Bureau of Investigation previously declined to confirm or deny an investigation.

Contact WFYI education editor Eric Weddle at eweddle@wfyi.org or call (317) 614-0470. Follow on Twitter: @ericweddle.