Three Indiana school officials taken into custody for alleged $44M virtual enrollment scam

This week, three former administrators were arrested for their alleged involvement in a scheme to defraud the Indiana Education Department. The scheme involved inflating enrollment numbers at two troubled virtual schools.

The arrests were announced by the U.S. Attorney’s Office for the Southern District of Indiana during a press conference held in Indianapolis. Thomas Stoughton, Percy Clark, and Phillip Holden were released following their court appearances this week.

The defendants played a crucial role in the operation of Indiana Virtual School and Indiana Virtual Pathways Academy, two online schools that unexpectedly shut down in 2019 due to allegations of inflated enrollment.

Indiana schools receive funding from the state education department based on their enrollment numbers. As a result, officials have a strong motivation to report as many students as they can to maximize their funding.

According to U.S. Attorney Zachary Myers, the defendants knowingly reported over 4,500 students to the state who were not actually attending the schools from the summer of 2016 to 2018.


Myers stated at the press conference that the members of the conspiracy had made false claims about thousands of students being enrolled, despite the fact that these students were not attending classes or receiving any services.

If found guilty, the defendants could potentially be sentenced to 10 to 20 years in federal prison for each count, according to Myers.

Stoughton faced charges of conspiracy to commit wire fraud, along with 16 counts of wire fraud and 57 counts of money laundering. Similarly, Clark was charged with conspiracy to commit wire fraud, 16 counts of wire fraud, and 11 counts of money laundering. Holden, on the other hand, was charged with conspiracy to commit wire fraud and 16 counts of wire fraud.

The defendants’ attorneys have yet to respond to requests for comment.

Christopher King, the former manager of school operations for AlphaCom, has pleaded guilty to conspiracy to commit wire fraud. This comes as another individual involved in the scheme faces legal consequences. While it remains undisclosed whether King is cooperating with the prosecution, the for-profit company hired to oversee the schools, as reported by Chalkbeat, has been implicated in the fraudulent activity.

According to the prosecutors, the schools have allegedly received approximately $44 million more in state funding than they should have due to the fraudulent activities. Myers stated that if the defendants are found guilty, the government may attempt to recoup the misappropriated funds.

According to Myers, the same collection tools that are used in other federal government sectors can be employed to recover as much money as possible for restitution purposes.

The schools in question were charter schools, meaning they were publicly funded but privately managed. Daleville Community Schools, a public school district, served as the authorizer and overseer of these charter schools.

Special agent Herbert Stapleton, who leads the Indianapolis office of the Federal Bureau of Investigation, described the task of unraveling the fraud as highly intricate.

Stapleton mentioned that they had to conduct hundreds of interviews, some of which involved talking to parents or students who had fraudulently enrolled. In one specific case, they even interviewed the parents of a student who had been enrolled after the student’s death.

Back in 2017, Indiana Virtual School faced public scrutiny, as highlighted by Chalkbeat’s investigative report. The investigation shed light on the school’s troubling situation, revealing that there was only one teacher for every 222 students and that a mere fraction of the school’s funding was allocated towards instruction.

In a 2020 investigation conducted by the State Board of Accounts, it was discovered that the public schools had been reporting students as enrolled, despite the lack of evidence showing their attendance in virtual classes.

In 2021, Indiana Attorney General Todd Rokita filed a lawsuit against the schools, several vendors that offered services to them, and 14 individuals connected to the schools or the companies that received improper payments.

The spokesperson for Indiana Attorney General Todd Rokita’s office expressed satisfaction with the filing of criminal charges against those responsible for misappropriating tuition support through the misuse of Indiana Virtual School and Indiana Virtual Pathways Academy.

The ongoing state lawsuit is seeking over $154 million in damages.

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