California Attorney General Kamala Harris reached a settlement of $168.6 million with mega-virtual charter K12 Inc. This settlement reflects the good investigative reporting of Jessica Calefati of the San Jose Mercury News, whose investigative reporting led to Harris’ review of K12’s finances and practices.
There are two more investigations underway: one by the California State Department of Education and the other by the State Controller. Now that virtual charters have been discredited by studies and thrown under the bus by the rest of the charter industry, this aspect of the industry may finally be on the skids.
“California Attorney General Kamala Harris announced Friday the state Department of Justice has reached a $168.5 million settlement with for-profit online charter school operator K12 Inc. over an array of alleged violations of false claims, false advertising and unfair competition laws.
“The settlement comes almost three months after the Bay Area News Group published a two-part investigative series on the publicly-traded Virginia company, which runs a network of profitable but low-performing online charter schools serving about 15,000 students across the state.
“Harris’ office found that K12 and the “virtual” academies it operates across the state used deceptive advertising to mislead parents about students’ academic progress, parent satisfaction and their graduates’ eligibility for University of California and California State University admission.
“The Attorney General’s office also found that K12 and its affiliated schools collected more state funding from the California Department of Education than they were entitled to by submitting inflated student attendance data and that the company improperly coerced the non-profit schools it operates to sign unfavorable contracts that put them in a deep financial hole.”
Politico reports that K12 Inc. disagrees with the characterization of the settlement:
– Speaking of charter schools, California Attorney General Kamala Harris said Friday that virtual charter school operator K12 Inc. will pay $168.5 million to settle [http://politico.pro/29NP6eM] alleged violations of the state’s false claims, false advertising and unfair competition laws: http://politico.pro/29nJ0Nj . But K12 pushed back on the settlement amount – preferring not to include $160 million in financial relief that Harris’ office says will be provided to certain schools that K12 manages. Instead, K12 CEO Stuart Udell said the company will only pay $2.5 million to settle the case, and another $6 million for Harris’ investigative costs. Udell said his company admitted no wrongdoing. “The Attorney General’s claim of $168.5 million in today’s announcement is flat wrong,” Udell said. “Despite our full cooperation throughout the process, the Office of the Attorney General grossly mischaracterized the value of the settlement, just as it did with regard to the issues it investigated.”
– The settlement is another black eye for the virtual charter industry, which just last month had three reform-minded groups calling for it to be improved, or else problems such as low graduation rates will “overshadow the positive impacts this model currently has on some students.” [http://politi.co/1tyKbnt] More from Kimberly Hefling: http://politico.pro/29ImzF8
Diane Ravitch's blog 
Not only do I see commercials/advertisements on my computer for K-12, Inc. (must be the same company), I see them on television. K-12, Inc. – is it really going to go away?
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This is the cost of doing business. This is not a settlement that will change anything. It is a slap on the wrist to K12 and a slap in the face to tax payers who will continue to fund this bogus “education.”
Michael Milken (previously jailed for fraud) and Andrew Tisch will continue to rake in the profits. (Keep in mind that Andrew Tisch is Merryl Tisch’s brother-in-law. She was the head of the NY Board of Regents for 20 devastating years.)
K12 spent $26.5 million on advertising in 2010, according to an analysis prepared for The New York Times by Kantar Media.
K12 Inc. is a for-profit education company that sells online schooling and curriculum to state and local governments. Its educational products and services are designed as alternatives to traditional “bricks and mortar” education for public school students from kindergarten to 12th grade. K12 is a publicly traded education management organization (EMO) that provides online education services to charter school students. It is paid for from taxes. K12 is the largest EMO in terms of enrollment
The company was founded in 1999 by former banker Ronald J. Packard.[1] Initial investors in the company included Michael R. Milken and Lowell Milken of education company Knowledge Universe, who along with the Milken Family Foundation, invested $10 million.[1] Andrew Tisch of the Loews Corporation and Larry Ellison of Oracle Corporation also contributed venture capital
With K12 estimating the market for its schools as high as $15 billion, the company’s manifest destiny is to expand across the United States. Its newest conquest is Tennessee, where the company got legislative approval last May and began holding information sessions in July.
http://www.nytimes.com/2011/12/13/education/online-schools-score-better-on-wall-street-than-in-classrooms.html?_r=0
http://investors.k12.com/phoenix.zhtml?c=214389&p=irol-govBio2&ID=170658
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$26.5 million on advertising in 2010 – is that taxpayer dollars?
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There is a new advertising blitz for k12 inc. that made me ask the same question. This can’t be cheap and they are using taxpayer funding to promote a discredited (by research) program?
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Thanks Dawn for this good research. K12 advertises throughout California and with all media outlets. They will not slow down as long as they are making profits…despite this small fine. But it is a major victory for Kamala Harris and for public ed for it finally is reported on and discussed.
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Thank you Ellen. I understand what you are saying about how Ms. Harris even going up against this behemoth shows she has some guts and brings some sunshine to the situation…..but how much sunshine? Settling doesn’t create precedent and won’t affect public policy. If K12 is still aggressively advertising and still getting access to tax dollars and still opening more of these virtual charters across the country….what difference did the lawsuit make?
Unless the financial penalty was so great as to scare off future investors and pinch the ones already in — the fraud will go on unabated.
Unless the media coverage of this really gives K12 a black eye to the point where parents would be dissuaded from actually enrolling their children — the fraud will go on.
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I understand your perspective Dawn…and it is fair to ask how this settlement might slow the greed merchants who offer glitzy ads and little else to attract students.
However, this lawsuit established a precedent, stare decisis, and now that it is firmly in the books (though I would bet K12 will appeal), other suits could more easily prevail with far greater settlements. The trick of the trade would be for AGs nationwide to now prosecute K12…somewhat in tandem. Keep the heat on them.
Even though their deep pockets reach almost to the center of the planet, dozens of lawsuits would be be challenging…and usually during this process, many frauds show up that could be tried in criminal procedures, not civil. Prior felons like Milken have a hard time not doing illegal things on-going.
This scenario is what Broad and Co. intends to do to our side with all the Vergara-like suits they are filing in various states.
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I agree that it is a mere slap on the wrist. K12 admitted no wrong doing and are allowed to keep their proverbial doors open. KH is a class act and is on her way up but in terms of the impact of her efforts this is only one battle in the war, perhaps not even a decisive victory.
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There are two more investigations of K12 Inc underway in California.
The State Board of Education should be ashamed for allowing them to profit by providing bad education.
Close ’em down!
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I wonder why Kamala Harris decided to settle and make this case go away? And for such a measly amount? According to the article, it’s actually more like $8 million, a drop in the bucket.
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Interesting that you downplay Kamala Harris on the same day that the news is pouring out that our VP, Joe Biden, is about to endorse her for Senator in her California race.
Her opponent, the vulgar and ineffective Sanchez who has repeatedly shown her impaired judgement, is way behind Harris in the polls…but some still urge that this Congresswoman with little in the way of accomplishments, deserves the vote. Beau Biden served time in Congress with Sanchez and had nothing positive to say about her…and many others feel the same. She is a proven ‘one note’ rep.
Harris, on the other hand, has been an excellent AG and has won many cases that other AGs in the past have been too weak and fearful to even prosecute. Yes, this is a slap on the wrist to the K12 plutocrats and purveyors of academic fraud, as well as those, e.g. Milken, who committed actual Wall Street fraud and were indicted, convicted, and served time in the Federal Pen.
I do not understand critisizing a real time WIN.
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Yes that is tax dollars. There is a bill being considered which would ban that practice but since these charter school investors spend lots of money on lobbying and lots of money on political endorsements……
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Yes, the federal grant review process for charter school expansion has allowed taxpayers to be billed for adversting and cross country travel of sponsors under the heading of “recruitment” costs.
We also pay for all of the new furnitures, computers, and uniforms, and branded gear (backpacks) for start-up morale-boosting.
And we pay overhead for workers in private foundations who allocate time for monitoring the grant–a portion of pensions, salaries, and other outrageous costs.
You will not find an ounce of straight talk about the deep pockets of the sponsors of these franchises, foundation money already available that could be used for expansions.
The USDE has also permitted total blackouts on public access to the perfomance data of applicants. It has been redacted supposedly on the grounds that such information is “proprietary.”
The more you know about the collusions and rip-offs the more you wish for official charges of racketeering.
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Here is an article on the subject.
http://www.dispatch.com/content/stories/local/2015/12/13/bill-no-tax-money-for-charter-ads.html
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I hope this will be the beginning of the end for this company. Every time I see their commercials on tv, I find myself yelling at the screen and wondering how they can get away with all of this false advertising. My favorite part is when they talk about joining in on the success of the program and how they individualize instruction. If my students all got the same rigid instruction and lost a year’s worth of learning on average, I definitely wouldn’t have a job anymore.
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This will not be the end of this company. Investors are making way too much money for a little lawsuit to get in the way. Anyway, it was settled for a pittance. It will be considered the cost of doing business. This company plans on expanding into any state that allows virtual charters and is spending lots of money to put politicians into office who would legislate that into place.
With K12 estimating the market for its schools as high as $15 billion, the company’s manifest destiny is to expand across the United States. Its newest conquest is Tennessee, where the company got legislative approval last May and began holding information sessions in July.
http://www.nytimes.com/2011/12/13/education/online-schools-score-better-on-wall-street-than-in-classrooms.html?_r=0
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Can someone tell me why the charter industry thinks it’s okay to keep an underperforming charter school open when we’ve been forced to accept NCLB and RttTop in which underperforming traditional schools are closed and turned over to charter operators?
Isn’t that evidence of a double standard? Perhaps, the charter industry knows that there is a danger in the discovery of so much state funding, grants and construction bonds that have gone down the drain with the funds not recoverable from failed charters.
So, our government and the charter authorizers just keep pouring money into these failed schools. Sounds a little like a compulsive gambler. But in this case, it’s not the gambler’s own money that’s at stake, it’s the taxpayers’.
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A gambler who loses walks away with nothing. Politicians who support these schools can divert tax dollars that they would otherwise not be able to touch into their own pockets, though contributions form these same charters, whose political activities are, of course, made possible by taxpayer funding. See the many articles on this site about charter proponents funding elections. So really its more like kleptomania than compulsive gambling.
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Despite the settlement, ads were on KBLX radio this morning (SF Bay Area) making the same claims that Harris just settled with them on! This also tells us they’re targeting the black community in particular, as that’s KBLX’s primary audience.
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How could you characterize this as a 168 million dollar settlement if the two parties don’t agree on the amount owed. The school says it will only pay 8 million, admit no wrongdoing and also remain open. How is this a settlement?
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Paula,
Read the entire first article and you will see that $160 million will be spent to pay down debt.
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The best part is, we all paid for the misleading ads. Yup. We bankrolled K12’s advertising campaign, thanks to our lawmakers.
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Funny (not ha,ha funny), but I just started seeing a number of K-12 ads here in ILL-Annoy–on late-night TV & on some of the old-show stations (70s & 80s reruns).
K-12 advertises their programs to be “tuition free” (ha–it’ll cost you as a taxpayer!), then, later, qualifies it by stating, “in some areas” (or “in some school districts”). Right–because the money will be taken from…the public schools!!
I hope no one who has school-aged children is up watching late night TV.
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