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Can Kentucky Steer Clear of Charter Scams and Frauds?

By dianeravitch
July 24, 2019 //
11

Linda Blackford, a writer for the Lexington, Kentucky, Herald Leader asks whether Kentucky can somehow manage to avoid the charter scandals that have occurred with startling frequency in other states.

The Kentucky legislature authorized charters but has not yet funded them. The parents in SOS Kentucky have thus far stopped the funding of charters, because the money will defund the public schools that most students attend.

Blackford writes:

In 2016, Jeff Yass, the billionaire founder of a Pennsylvania global trading company donated $100,000 to a political action committee called Kentuckians for Strong Leadership.

The PAC, according to its website, is dedicated to preserving the political fortunes of Senate Majority Leader Mitch McConnell and in 2016, ensuring Republican victory in the Kentucky House. [Diane’s note: Yass also contributed $2.3 million to a super PAC supporting the campaign of libertarian Senator Rand Paul, according to his Wikipedia bio, and is a member of the board of the rightwing Cato Institute.]

All kinds of people donate to McConnell, of course, but Yass is interesting because he’s most well known for his passionate advocacy of charter schools and vouchers, including a plan torevolutionize the Philadelphia schools with school choice (as well as cutting teacher pay and benefits).

Yass, along with his business partners, Joel Greenberg and Arthur Dantchik, are major players in political circles in Pennsylvania, donating to pro-school choice candidates. He obviously thought $100,000 was a good investment here, and while it might be pocket change to him, it’s a pretty big donation by Kentucky standards.

I bring this up because in the past two or three years of incessant discussion about charter schools, and Kentucky’s legislation to approve them, we’ve heard a lot about the pros and cons of charter schools, but we haven’t heard that much about what other states have discovered: the vast potential that charter school management has for making money off public tax dollars.

Our charter school legislation, passed in 2017, allows interested parties to start nonprofit charter schools. Less discussed is that the law also allows for-profit management companies to operate them. This is the model around the country, and it’s caused plenty of problems. ProPublica has also detailed numerous examples of management companies that make millions because they rent space and equipment to charter schools, with little oversight or competitive bidding…

Right now, of course, any potential Kentucky charter schools are on hold because the General Assembly hasn’t been able to agree on just how much money they should be allowed to take out of public schools. That’s in part due to the work of Save Our Schools Kentucky, a group of feisty teachers and moms who have followed the money and the politics of Gov. Matt Bevin and wanna-be governor Hal Heiner as they stacked the state Board of Education with pro-charter candidates, then dumped the commissioner for a pro-charter academic with sincere beliefs about charter schools but no experience in running a statewide education system. They’ve met often with legislators to explain how much public schools have to lose from charters.

“This is really all about financial gain,” said Tiffany Dunn, a life-long Republican and teacher. “The public school system and pension system in their mind represents money and they’re all about the free market, competition will take care of everything and we know in education that competition does not improve education.”

Read more here: https://www.kentucky.com/opinion/op-ed/article232401187.html#storylink=cpy
I have two points to add to Blackford’s article. One of Jeff Yass’s hedge fund partners is billionaire Joel Greenblatt, who lives in New York City and is a major donor to Eva Moskowitz’s Success Academy charter chain.
The other point is that competition creates a few winners and many losers. Which children will be the winners, and which will be the losers? The Kentucky legislature should debate that question too. Given the high rate of charter school failure every year, the legislation may create losers and losers, with no winners at all.
Categories Accountability, Charter Schools, Education Industry, For-Profit, Fraud, Kentucky, Privatization

Tennessee: How Dark Money, DeVos, and Governor Lee Conspired to Pass a Voucher Bill—and Questions about Crime and Punishment

By dianeravitch
July 23, 2019 //
13

 

Andy Spears, publisher of the Tennessee Education Report, explains how voucher forces finally passed a bill in Tennessee.

The FBI is investigating how one vote flipped at the last minute.

But no matter the outcome of these investigations, backers of school privatization can claim public policy victory. It took a new governor, an unscrupulous house speaker, and untold dark money dollars, but after six attempts, Tennessee now has a school voucher plan—one that could shift more than $300 million away from public schools in the state.

The lesson from Tennessee is clear: Advocates for public education face privatization forces with vast resources and patience. The fight is going to be a long one.

Funny thing about these FBI investigations. Years ago, the FBI swooped into Gulen offices in Ohio, carted away many boxes, and nothing more was heard from them.

And then there’s Ben Chavis of the Oakland (CA) American Indian Model Schools, the darling of conservatives, the guy who replaced all the American Indian students with Asians and got the state’s highest scores. He was arrested after a state audit found that he had diverted nearly $4 million to his and his wife’s bank account, much of it federal money. He recently got off with one year of probation, no punishment for his theft, because he had done such good work in education. Vielka MacFarlane, head of the Celerity charter chain in California, admitted embezzling $3.2 million and was sentenced to 30 months in jail. She dealt with state authorities, not federal ones. Maybe she was sentenced, and Chavis got off with only probation because his schools had higher test scores?

Categories Accountability, California, Charter Schools, Education Industry, Education Reform, Fraud, Privatization, Tennessee, Vouchers

Bill Phillis: What Do Ohio and California Have in Common?

By dianeravitch
July 22, 2019 //
16
 

 

School Bus
More about the indictments in the $80 million California charter school scam
At least three individuals that were indicted in the California charter scam have connections with the STEAM charters in Ohio. Diane Ravitch called our attention to Mercedes Schneider’s investigation of the California fraud.
It is of interest that one of the counts against those involved is securing funds for students not receiving services. Ohioans are very familiar with that kind of scam. ECOT and other Ohio charters scammed Ohio taxpayers and students in a similar manner for a couple of decades.
If the California-based scammers had carried out their scam in Ohio, would they have been indicted?
William L. Phillis | Ohio Coalition for Equity & Adequacy of School Funding | 614.228.6540| ohioeanda@sbcglobal.net| www.ohiocoalition.org
STAY CONNECTED:
School Bus
Ohio E & A | 50 S. Young Street, Suite M102, Columbus, OH 43215
Sent by ohioeanda@sbcglobal.net in collaboration with
Categories Accountability, California, For-Profit, Fraud, Ohio, Virtual Charter Schools

Mercedes Schneider Dives into the Tax Returns of Oklahoma’s EPIC Charter Fraud

By dianeravitch
July 21, 2019 //
17

 

We learned recently that Oklahoma officials have charged the EPIC online charter with fraud, alleging that its leaders siphoned off $10 million for themselves while inflating enrollments of ghost students.

Schneider does her specialty investigation of EPIC’s tax returns and discovered that the corporation was created in 2009 for a variety of purposes, but not education. It eventually amended its filing to add education. In other words, the founders were entrepreneurs in search of a mark.

In 2010, it had revenue of $60,000.

After it went into the charter business, EPIC hit pay dirt. In 2016, it’s revenues exceeded $29 million.

Is this a great country or what?

 

Categories Accountability, Charter Schools, Education Industry, Education Reform, For-Profit, Fraud, Oklahoma, Privatization, Virtual Charter Schools

New Orleans: One of City’s Oldest Charter Organizations Closes Down Amid Multiple Scandals

By dianeravitch
July 20, 2019 //
7

 

The University of New Orleans was one of the first to jump into chartering after Hurricane Katrina, and it just announced that it is closing down its charter organization, New Beginnings, as a result of a slew of academic problems and malfeasance.

After allegations of grade-fixing and a major fiasco involving class credits that left dozens of students unable to graduate, the public charter board overseeing John F. Kennedy High voted Thursday night to surrender its charters to operate both of its schools.

The surrender of the charters, which will take place at the end of the 2019-20 school year, was approved unanimously by the New Beginnings Schools Foundation board.

The decision stemmed from a lengthy investigation into management problems at the charter network that led earlier to the resignation of its CEO, career educator Michelle Blouin-Williams, and the firing of five high-ranking administrators at Kennedy…

The problems leading to the collapse of one of the city’s oldest charter organizations first surfaced in February, when the organization’s data director, Runell King, alleged that other staff members had improperly changed grades for a group of seniors who had recently taken an Algebra III class. 

King, who was fired a month later in what he said was retaliation for reporting the alleged grade-fixing, submitted documents showing that F’s were changed to D’s and D’s to C’s, a move that ultimately could have helped the school bolster its graduation rates and, in turn, improve its performance score issued by the state…

By July, the grade issues along with other management problems resulted in a determination that more than half of Kennedy’s senior class of 177 students had not actually earned enough credits to graduate.

The seniors included 69 who walked in a graduation for 155 students, but did not actually qualify to graduate. They were given folders with no diplomas during the school’s May 17 graduation ceremony, and had college or other plans thrown into turmoil as officials tried to unravel how the problems had happened.

I wonder if the Education Research Alliance at Tulane University will revise its glowing report about dramatic improvements caused by market reforms, specifically its reference to increased graduation rates.

Perhaps an audit is needed to find out how many other charters falsified their data.

Categories Accountability, Charter Schools, Education Industry, Fraud, Graduation rates, New Orleans, Privatization

Capital & Main: Who Gutted California’s Charter Reform Bill?

By dianeravitch
July 18, 2019 //
20

 

Bill Raden of Capital & Main identifies the culprit who stripped charter reform bills of anything that offended the powerful charter lobby: Ann O’Leary, Governor Gavin Newsom’s chief of staff.

O’Leary previously served as senior education Advisor to Hillary Clinton’s 2016 campaign and made sure that the candidate stuck to the charter industry script (for-profit bad, nonprofit good). She has a long Association with the Center for AMERICAN Progress, the DC think tank that still adheres to the failed ideas of Race to the Top, including charter advocacy.

And so a bold effort to roll back the legal protections for an unregulated industry that is ridden with scandal and corruption  is blocked by faux progressive Democratic insiders.

Categories Accountability, Billionaires, California, Charter Schools, Corporate Reformers, Corruption, Democrats, Disruption, Education Industry, Fraud, Privatization

Tom Ultican: Is Reform of the Charter Law in California Still Possible?

By dianeravitch
July 18, 2019 //
5

 

Tom Ultican, retired teacher of advanced math and physics in San Diego, is a dogged investigator. In this post, he traces the ongoing efforts to reform the weak charter law in California.

California has more charter schools than any other state, with more than 1,300. The original law capped the number at 100. Since then, the money of the California Charter Schools Association has blown away the cap as well as all previous efforts to regulate charters. Billionaire Reed Hastings served as chair of the state board and demolished the meager limits that existed.

In this huge state, the law allows a district to authorize a charter in another district hundredsof miles away and collect a commission for every student who enrolls. It allows charter applicants to appeal all the way to the state board and ignore the needs and wishes of the local district. The law assures that charter schools will have little or no oversight, since the state education department does not have the staff to oversee them.

The current law is an invitation to fraud, embezzlement, and corruption. This is not to say that all charters are run by corrupt individuals, but the constant revelation of financial scandals in the charter industry demonstrates the need for revision of the law to protect the public interest. Only a few weeks ago, eleven people in the charter industry were indicted for stealing more than $50 million.

Yet, as Ultican shows, the road to charter reform has been rocky. Governor Jerry Brown, whose leadership was admirable in many other ways, adamantly refused to rein in the charter industry. Governor Newsom is indebted to powerful families in the charter industry, and his chief of staff is a charterista.

Yet Ultican holds out hope that some actual reform might yet survive. Anything, he says, is better than the complete deregulation that has currently allows unscrupulous grifters to feast on the money intended to pay for education.

Categories Accountability, California, Charter Schools, Corporate Reformers, Corruption, Disruption, Education Industry, Fraud, Privatization

Oklahoma: Investigators Accuse Virtual Charter of Stealing Millions

By dianeravitch
July 18, 2019 //
2

The Oklahoma State Bureau of Investigation says that the EPIC virtual charter school has stolen millions of dollars. 

Investigators say the co-founders of the school embezzled $10 million, based on “ghost students” who never enrolled.

Just days ago, a state legislator asked where the money was going but was rebuffed by the state Department of Education.

Oklahoma’s largest charter school is a “blended learning school” that has received so much money that a legislator asked where the money was going. The state Department of Education said it wouldn’t tell him unless he paid a fee of $850 to find out.  The school claims a 99% attendance rate, which in itself is bizarre.

Oklahoma state Sen. Ron Sharp is questioning funding the state’s largest charter school has received in the past two years.

This comes after Sharp said Epic Blended Charter School received a total of $63 million in its first two years of operation.

FOX 25 sat down with Sharp Thursday who said the school was provided allocation money through the Oklahoma State Department of Education (OSDE) for grade levels the school doesn’t provide.

“The first year they were in existence we gave them $23 million. For the second year now, we gave them $40 million. That is an excessive amount of money particularly for kids that’s aren’t being accommodated in the school. That is a problem,” Sharp said….

Sharp said he submitted an Open Records Request to the Oklahoma State Department of Education in March.

“In June, I received an email that they would not provide that information to me because of the extensive hours involved without an $850 fee. Which again, as a state senator, I found that to be a little bit unusual. Now I have been requesting quite a bit of documentation here from the OSDE,” Sharp said….

Sharp also questioned how many students actually show up to Epic Charter School on-site locations.

“Are there enough individuals? If 7,000 are showing up to two sites at any one period of time that, you have to make sure you have proper facilities for them. Individuals of which are able to monitor them and again, how many kids are coming in before school and after school?” Sharp said. “They even say at all these sites they have a 99% attendance rate. Which is absolutely amazing as a 38-year teacher — you cannot get 99% of your kids there at a school each day.

Categories For-Profit, Fraud, Oklahoma, Virtual Charter Schools

Jeff Bryant: Why Won’t the Charter Industry Admit Its Failures and Clean House?

By dianeravitch
July 15, 2019 //
6

Jeff Bryant notes the escalating scandals surrounding the charter industry, creating a stench that can’t be covered up and hidden.

Yet the charter industry refuses to acknowledge its problems and act to correct them and to oust the bad actors from its big tent.

Case in point: when the Network for Public Education released a study of the federal Charter Schools Program which showed that about one-third of all federally-funded charters had never opened or had closed soon after opening, at a cost of taxpayers of $1 billion, the charter industry was at first silent. Then it responded by attacking the report and NPE, claiming that NPE was “union-funded,” which it is not. NPE has indeed received contributions from unions, but the overwhelming bulk of its funding comes as voluntary gifts from individual supporters.

The attack came from paid employees of the National Alliance for Public [sic] Charter Schools, whose job seems to be to deny any charter misdeeds and to attack all critics and criticism. They were outraged that NPE would criticize the federal Charter Schools Program, which under Betsy DeVos has directed the bulk of its $440 million a year to support of large corporate chains like KIPP, IDEA, and Success Academy. It is now a charter slush fund, controlled by DeVos and her merry band of privatizers.

Bryant, who was a co-author of the NPE report with Carol Burris, writes:

As charter reform in California takes one step forward and two steps back, charter proponents operating at the national level show no signs of being willing to consider the need for more regulatory oversight.

For instance, months after the report Burris and I published about waste in the federal government’s charter school grant program, officials from the National Alliance for Public Charter Schools, a charter school lobbyist and advocacy group, attacked our report in a national media outlet supportive of charter schools.

The critique by Christy Wolfe and Nathan Barrett is a slog through a mostly unsubstantiated defense of a program their organization does not even administer and does not seem to have any greater understanding of than Burris and I’ve demonstrated. But what Wolfe and Barrett have written can serve as a useful example of how charter industry operatives continue to respond disingenuously to criticism of their schools no matter how reasonable and well-founded the criticism is.

Now, why would the National Alliance for Public [sic] Charter Schools respond so defensively to any criticism of the federal Charter Schools Program?

Surely it can’t be because the NAPCS received a grant of $2.385 million from that same program in 2018.

The charter slush fund must be protected at all costs, regardless of where the money goes or how it is spent and misspent. Accountability be damned!

 

 

Categories Charter Schools, Corruption, Education Reform, Fraud

Law Journal: “Are Charter Schools the Second Coming of Enron?”

By dianeravitch
July 14, 2019 //
65

This law journal article about the self-dealing and corruption in the charter sector was written by Professors Preston C. Green III, Bruce D. Baker, and Joseph Oluwole.

Since it was written, there have been so many examples of scandals, conflicts of interest, and outright theft of public dollars that this prediction seems remarkably prescient.

Here is the table of contents:

INTRODUCTION

OVERVIEW OF ENRON

A. ENRON AND DEREGULATION

B. THE LJM SPES

C. ENRON’S COLLAPSE

II: ENRON’S GATEKEEPER PROBLEMS

A. ARTHUR ANDERSEN

B. INDEPENDENT ANALYSTS

C. CREDIT RATING AGENCIES

D. ENRON’S BOARD OF DIRECTORS

E. SECURITIES AND EXCHANGE COMMISSION (SEC)

III: CHARTER SCHOOLS AND RELATED-PARTY TRANSACTIONS

A. CHARTER SCHOOL DEREGULATION AND PRIVATE INVESTORS

B. EXAMPLES OF ENRON-LIKE RELATED-PARTY TRANSACTIONS

1. IMAGINE SCHOOLS

2. IVY ACADEMIA CHARTER SCHOOL

3. AMERICAN INDIAN MODEL CHARTER SCHOOLS

4. GRAND TRAVERSE ACADEMY

5. PENNSYLVANIA CYBER CHARTER SCHOOL

C. THE FEDERAL GOVERNMENT, RELATED-PARTY TRANSACTIONS, AND THE NEED FOR STRONG GATEKEEPING

IV: CHARTER SCHOOL GATEKEEPERS

A. AUDITORS

B. CHARTER SCHOOL GOVERNING BOARDS

C. CHARTER SCHOOL AUTHORIZERS

D. STATE EDUCATION AGENCIES (SEAS)

E. U.S. DEPARTMENT OF EDUCATION

CONCLUSION

Here is the Introduction to the article:

INTRODUCTION

In December 2001, Enron rocked the financial world by declaring bankruptcy due to the effects of an accounting scandal. Earlier in the year, Enron had been the sev- enth largest corporation in the country.1 This energy trading and utilities giant had become a dominant player by aggressively benefitting from the federal deregulation of the energy markets.2 Enron’s collapse erased more than $60 billion in shareholdervalue and caused thousands of employees to lose their jobs and pensions.3

Enron proved not to be an anomaly. Soon after the corporation’s collapse, thefinancial markets were further roiled when WorldCom, Adelphia, and Tyco, among others, declared bankruptcy because of accounting fraud.4 Congress responded to this wave of scandals by passing the Sarbanes-Oxley Act of 2002, which imposed greater accountability on publicly traded companies and their auditors.5

Andrew Fastow, Enron’s CFO, was a pivotal figure in Enron’s collapse. He cre- ated two special purpose entities (SPEs)—LJM1 Cayman LP (LJM1) and LJM2 Co- Investment LP (LJM2)—to serve as a hedge against potential downturns in Enron stock.6 Fastow and his associates served as the managers of these SPEs.7 Because ofFastow’s dual management roles, Enron should have disclosed to its shareholdersthat the partnerships were related-party transactions, defined as deals between enti- ties with special, preexisting relationships,8 which Enron failed to do.9 Although re- lated-party transactions are legal, they can create conflicts of interest that have the potential of harming their shareholders.10 Specifically, these transactions “can createthe impression that an insider is using company assets for personal benefit, and that the company is getting the short end of the stick.”11 Indeed, Fastow did take ad- vantage of this conflict of interest by making millions of dollars from the SPEs and using the illegal proceeds to invest in other interests.12

Enron’s collapse was significant because it exposed the deficiencies of gatekeep- ers that had the responsibility of protecting the integrity of the markets.13 These gate-keepers included Enron’s auditor Arthur Andersen, independent analysts, credit rat- ing agencies, corporate boards, and the Securities and Exchange Commission (SEC).14 In the case of the Enron debacle, all of these watchdogs failed to detect thedangers caused by Fastow’s conflict of interest.

Related-party transactions are now posing a threat to the charter school sector. Charter schools are a deregulated departure from traditional public schools because they are exempted from laws governing budgets and financial transparency.15 Similar to Fastow, unscrupulous individuals and corporations are using their control over charter schools and their affiliates to obtain unreasonable management fees for their services and funnel money intended for charter schools into other business ventures.16

In spite of this evidence, the federal government has consistently attempted to increase the number of charter schools without pushing for oversight.17 This policy approach is alarming because it will create more opportunities for illegal related- party transactions.18 Also, this approach runs the risk of harming students in low- income and minority communities—the very children whom charter schools are sup- posed to serve.19 Therefore, charter school gatekeepers must learn from the Enron debacle by becoming more prepared to guard against the dangers posed by related- party transactions.20 These gatekeepers include auditors, governing boards, authoriz- ers, state education agencies (SEAs), and the U.S. Department of Education.

In this Article, we discuss how some charter school officials have engaged in Enron-like related-party transactions to defraud charter schools. We also identify several measures that can be taken to strengthen the ability of charter school gate- keepers to protect against this danger. This Article is divided into four Parts. Part I describes how Fastow used his management of Enron and the SPEs to obtain illegal profits contrary to the interests of the former company. Part II discusses why the gatekeepers in the financial sector failed to stop the related-party transactions be- tween Enron and the LJM entities. Part III provides examples of how individuals in the charter school sector are benefitting from their control over charter schools and their affiliates in a manner similar to Fastow. Part IV analyzes, inter alia, pertinent statutory and regulatory provisions that apply to state and federal gatekeepers. We perform this task to identify the steps that legislators and policymakers can take to increase the gatekeepers’ ability to protect against harmful related-party transactions.

If you want to understand the deep potential for financial corruption at the heart of deregulated private charter schools, you must read this article.

Here is a small excerpt:

Major philanthropic organizations have invested heavily in the charter school sec- tor.112 For example, the Walton Family Foundation, which was established by the founder of the Walmart retail chain, has pledged $1 billion to support charter schools.113 Reed Hastings, the founder of Netflix and a long-time supporter of charter schools, has created a $100 million education foundation.114 Hedge funds and other private investors have also become interested in investing in charter schools.115

The attention of philanthropic groups and private investors has dramatically im- pacted the charter school sector. For example, the education management organiza- tions (EMOs) that these groups operate have become the dominant players in the charter school sector.116 EMOs are for-profit or nonprofit entities that provide edu- cational and management services to charter schools.117 EMOs manage between thirty-five to forty percent of all charter schools, accounting for about forty-five per- cent of charter school enrollments.118

Charter schools attract investors because of the potential for new revenue streams.119 For instance, the New Market Tax Credits (NMTC) program provides investors the opportunity to make profits from charter-school real estate transac- tions.120 Enacted as a component of the Community Relief Tax Credit Act of 2000,121the NMTC was designed to encourage investment in low-income communities.122The NMTC accomplishes this goal by providing investors in a community develop- ment entity (CDE) a thirty-nine percent tax credit over a seven-year period.123 A CDE is a corporation or partnership that provides capital for investment in low-income communities.124 An educational organization such as a charter school foundation can use NMTC funding to build a charter school.125

For-profit entities can double their investment in charter-school real estate pro- jects by taking advantage of the NMTC as well as other federal tax credits.126 For- profit entities can also obtain revenue from charter schools through lease payments for the use of the facilities. For instance, the Robert Bacon Academy (RBA), a for- profit EMO operating in North Carolina, received $1.5 million in rent, as well as almost $549,000 for maintenance during the 2013–14 school year—from one char- ter school alone.127

Investors can also obtain profits through the management fees that EMOs charge for their services.128 Management fees can be very generous. In the 2013–14 school year, RBA received a management fee of sixteen percent of its school’sexpense as well as “additional incentive payments based on student achieve-ment.”129 Two charter schools paid RBA nearly “$2.4 million in fees and incentivesout of just $13 million in total revenue.”130

Please send copies of this law review article to the Center for American Progress, the Brookings Institution, the New York Times editorial board, the Washington Post editorial board, your Senators and members of Congress, and to the campaigns of every Democrat running for President.

Categories Accountability, Charter Schools, Corruption, Education Industry, Fraud, Privatization
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