INDIANAPOLIS — Three people are facing federal charges, indicted by a grand jury for money laundering, wire fraud and conspiracy to commit wire fraud.
The indictment involves the now-closed Indiana Virtual School and Indiana Virtual Pathways Academy.
According to the indictment, the defendants inflated enrollment numbers in order to get more money from the state for kids who did not actually attend classes. They are facing 76 counts of money laundering and wire fraud.
On Jan. 25, the U.S. Attorney's Office for the Southern District of Indiana announced a federal grand jury had indicted Tom Stoughton Sr., 74, of Carmel; Phillip Holden, 62, of Middletown; and Percy Clark, 81, of Carmel.
All three are charged with conspiracy to commit wire fraud and 16 counts of wire fraud. Stoughton Sr. and Clark were both charged with money laundering.
Christopher King, 61, of Green Fork, Indiana, has also pleaded guilty to conspiracy to commit wire fraud.
Investigators say the former school leaders used cash that was supposed to help schools to buy cars, jewelry and private school tuition.
Rep. Ed DeLaney, D-Indianapolis, said Indiana paid at least $85 million more than it should have to the schools.
"To add insult to injury, the indictment alleges that while these corporate operators of the schools were getting funding based on fraudulent attendance numbers, the real and lower attendance numbers were used when it came time to pay their teachers," DeLaney said. "The most intriguing allegation is, they kept a record of the actual student attendance and only paid the teachers per the students that actually attended, but they charged the state for people who didn't attend."
The court documents say investigators found some money was funneled to for-profit companies operated by one of the defendants. They say he gave much of those funds to his family and other defendants.
DeLaney said charter schools need more oversight.
"As is demonstrated in this indictment, we have created education policies that are subject to abuse," DeLaney said.
DeLaney is also calling for accountability.
"We have to pass legislation that's going to protect the public purse and protect the integrity of the system. We're weak on that in some cases, and we out-contract and outsource some stuff to people who are not under our daily observation. This can happen," DeLaney said. "The state has decided to depend on charter schools that use outside contractors who are not under close supervision and lack public accountability. We export our management and oversight responsibilities to people who choose not to perform the function. In the end, the taxpayers lose out."
In the Jan. 25 press conference, U.S. District Attorney Zachary A. Myers revealed more details about the scheme, saying the defendants in this case allegedly caused students to be enrolled or remain enrolled at Indiana Virtual School (IVS) and Indiana Virtual Pathways Academy (IVPA) who otherwise should not have been. Most of the "students" never actually attended either school, according to Myers.
Court documents show that shortly before the "Count Day" in September 2018, the defendants allegedly told their IT contractor to compile a list of students who were not listed in the IDOE database as attending another school and who had been unenrolled from the virtual schools for inactivity. The IT contractor allegedly gave the defendants a list of around 600 students that were later enrolled shortly before Count Day.
After IVPA's creation, the defendants allegedly transferred hundreds of students who had not been attending classes from IVS to IVPA so they could continue to count more students than they had. This was not only done to ensure more funding, but also to protect IVS from being accountable by the IDOE for students' poor or non-performance.
Court documents also show Holden and Clark fired an employee in the spring of 2017 who sent an email to the IDOE attempting to alert the department to the fraud happening at IVS/IVPA.
Further, IVS/IVPA allegedly used money from the state to pay fake for-profit companies ran by Stoughton. After funneling the money through the for-profit companies, millions were allegedly paid out to Stoughton, his family, Clark, King, and others.
After a 2019 audit by the Indiana State Board of Accounts, the findings were referred to the FBI, U.S. Department of Education Office of Inspector General, Indiana State Police and Indiana Office of Inspector General.
A trial date will be announced at a later date. If convicted, each defendant faces between 10 to 20 years in federal prison per count of fraud.