Former employees claim fraud against Pennsylvania cyber-charter school operator
According to The Notebook, a number of former employees claim that K12, Inc., a for-profit education company, used dubious and sometimes fraudulent tactics to mask astronomical rates of student turnover in its national network of cyber charter schools. The claims made by anonymous “confidential witnesses” are spelled out in court documents filed last June as part of a class action lawsuit by the company’s investors.
K12, Inc., manages Agora, the second largest cyber charter school company in Pennsylvania. The company is also involved in pending applications to open two new cyber schools in the state. The former employees allege that the K12-managed schools aggressively recruited children who were ill-suited for the company’s model of on-line education. They say the schools then manipulated enrollment, attendance, and performance data to maximize tax-subsidized per-pupil funding.
Many of the allegations come from people who worked for the Agora Cyber Charter School. With more than 8,000 students, Agora enrolls roughly a quarter of the 32,000 Pennsylvania students that have opted to attend cyber schools, which are independently managed schools providing mostly online instruction.
The class action suit against K12, Inc., and its executives was filed in January 2012. An amended version of the complaint filed last June contains the allegations by the company’s former employees. The U.S. District Court for the Eastern District of Virginia has denied a request from K12, Inc., to dismiss the case. Trial may commence this spring.
K12′s revenues vary according to the enrollment of the schools it manages. In Pennsylvania, cyber schools bill each of their student’s home districts for the full per-pupil amount that would have otherwise been spent to educate that child. That averages out to just over $11,000 per student, making Pennsylvania one of the most lucrative states in the nation for cyber schools to operate.
At the beginning of the 2010-11 school year, the K12-managed Agora Cyber Charter School enrolled 5,353 students. By the end of that year, the school’s enrollment had increased to 6,475. The overall increase masked a high “churn rate.” Almost 2,400 students withdrew from Agora during the school year, but were replaced by newly recruited students. Almost 2,700 students dropped out of Agora during the 2009-10 school year.
In their lawsuit, the K12, Inc., investors contend that the company did not disclose the churn rates during conference calls with investors and in documents filed by the company. As a result, they say, the company’s stock was traded at an artificially high price. According to anonymous former employees, the churn at Agora and the company’s other cyber schools was part of a self-perpetuating cycle.
To increase revenues, the suit alleges, the company aggressively recruited as many students as possible, including some who were not prepared to succeed in K12′s full-time online schools. When students struggled, the anonymous former staffers claim, company officials told teachers to keep the students on the schools’ rolls by manipulating attendance data and inflating students’ grades.
The suit also cites former employees who described the company’s “high-pressure” approach to student recruitment. Inside “call centers,” they said, “enrollment consultants” contacted parents from a list of sales leads provided each day and were awarded commissions and perks for hitting their “enrollment quotas.”
The former employees also alleged that K12 aggressively “targeted inner-city and at-risk populations” even though a senior company official acknowledged that “the K12 curriculum wasn’t built for ‘inner-city kids.” The motive, according to the lawsuit, was “higher potential profit,” mostly because the hard-to-serve students were more likely be chronically truant and would thus use fewer of the company’s resources.
K12′s motivation for manipulating the numbers, according to the suit, was to keep billing traditional public school districts for as many students as possible. According to the lawsuit, Packard, the K12 CEO, repeatedly described growing student enrollments as the company’s “manifest destiny.”
In Philadelphia, almost 5,000 Philadelphia students were enrolled in state cybers last year, resulting in almost $50 million in per-pupil payments from the District. District officials could not specify how much of that went to schools affiliated with K12.
Source: The Notebook, 1/22/13, By Benjamin Herold, for Newsworks
[Editor's Note: In January 2013, Legal Clips summarized an article in The Oregonian, which reported that Tim King and Norm Donohoe, who ran a chain of taxpayer-funded charter schools across small-town Oregon from their headquarters in Clackamas, had scammed the state out of $17 million and must repay that plus $2.7 million more, the state said in a recent court filing. The legal claim, brought by the Oregon Department of Justice in Marion County Circuit Court, accuses the pair of racketeering, money laundering and other fraud from 2007 to 2010.]
