INDIANAPOLIS – The leaders of two now-closed Indiana online charter schools are accused in a new lawsuit of defrauding the state of more than $150 million by padding their student enrollments and inappropriately paying money to a web of related businesses.
The lawsuit announced Monday by the Indiana attorney general's office comes almost two years after Indiana Virtual School and Indiana Virtual Pathways Academy shut down amid a state investigation that found the two online schools improperly claimed about 14,000 students as enrolled between 2011 and 2019, even though they had no online course activity.
The lawsuit seeks repayment of about $69 million it claims the schools wrongly received in state student enrollment payments. It also seeks $86 million that officials say the schools improperly paid to more than a dozen companies linked to them by common business officers or relatives and did so with little or no documentation.
“This massive attempt to defraud Hoosier taxpayers through complex schemes truly boggles the mind,” state Attorney General Todd Rokita said in a statement.
A state audit linked much of the misspending to Thomas Stoughton, who headed the online schools from 2011 to 2017, and who owned or had business associates that operated about a dozen companies that received school payments. An attorney for Stoughton, BJ Brinkerhoff, declined to comment.
It is unclear how much of the money the state could recover. Shortly after the two schools, which had a shared administration, closed in August 2019, a notice from their then-attorney to creditors taped to the Indianapolis office door for the schools said they had “no funds and no assets.”
The lawsuit, however, casts a wide net with 13 vendors and 14 school officials named as defendants.
“The state's claims arise from systematic violations of a position of trust ... misappropriation and diversion of public funds,” the lawsuit said.
The attorney general's office said it had referred the case to federal and state agencies for possible criminal violations.
Indiana Virtual School was formed in 2011 soon after a Republican-driven state education overhaul that expanded the availability of charter schools, which are privately operated but receive taxpayer funding, and launched the state's private school voucher program.
The schools reported an enrollment of about 7,200 students before state education officials cut off funding in 2019 based on preliminary audit findings of the enrollment padding.