Over the last several years, Innovation Ohio has been leading the fight to expose Ohio’s failing charter school system and sounding the alarm bells around expanding voucher programs.
FOR IMMEDIATE RELEASE
New developments in the court battle between the State of Ohio and former online chart school ECOT suggest the state’s top law enforcement official may have trouble effectively pursuing the case. Last month, Attorney General Mike DeWine filed a lawsuit against ECOT founder William Lager and other ECOT officials seeking to recover tens of millions in overpayments for students who did not participate in coursework. At the time, DeWine was criticized for waiting until just before an election to go after ECOT, when questions had been raised about the school for years.
Two weeks later, two school districts — Dayton and Logan Hocking Schools asked a court to intervene in the lawsuit, claiming it should be school districts, and not Attorney General DeWine who should seek repayment from Lager. (See: “DeWine Opposes Districts’ Intervention In Case Against ECOT Founder) They argue that because DeWine– currently running for Governor–and his running mate, Jon Husted, jointly collected tens thousands of dollars in political contribution from Lager and associates, they woud not be effective in pursuing repayment from their former contributor.
As the school districts argued, “There is no question that the AG is a friend of theses institutions … (and) is not an adequate representative of the School Districts’ interests.”
In response to the lawsuit, DeWine argued that he, and not the school districts, could lead the case against Bill Lager, denying any conflict of interest.
But last week, the schools’ argument that DeWine’s past relationship with Lager make him less likely to effectively pursue the case was unexpectedly bolstered by Lager himself.
Lager, the defendant in the lawsuit, argued in an October 9 court filing that he agreed with DeWine, stating a preference to go up against the Attorney General in court: “Leaving aside arguments dealing with the ability of the Ohio Attorney General to protect constituent interests and the conflict of interest issues … [Mr. Lager and his companies] incorporate and rely on the balance of the arguments advanced by the Ohio Attorney General,” in effect agreeing that Mr. DeWine should handle the case.
This week, Innovation Ohio sent a memo to every school district leader requesting that they take immediate action to protect their taxpayers and kids because it was clear that Lager felt more comfortable facing DeWine in court than the districts who had been hurt financially. (See “…Groups Want More Districts In ECOT Suit”)
On Tuesday, the school districts made another filing arguing that Lager’s filing simply proved their point: Mike DeWine was not best positioned to fight for a recovery from Lager. As the districts put it, “It appears that even some of the Defendants do not believe the AG will be as zealous an advocate for the School Districts as the Districts will be for themselves. “
The filing further reveals that DeWine hasn’t yet revoked any educator licenses related to ECOT, as has been done in prior cases of charter school wrongdoing. As the suit puts it: “If the AG was truly out to help the School Districts, he would already be in the process of revoking professional licenses of educators associated with ECOT’s misappropriations. Despite the fact that ECOT’s overbilling totaled more than $79,640,000 and that it has been closed since January 18, 2018, not a single ECOT-related educator license is the subject of revocation proceedings.”
The school districts argue that “the AG’s professed zeal on behalf of public schools in this state for misappropriations of the School Districts’ monies to ECOT is not genuine.”
The ECOT scandal–at $189 million, easily the state’s largest ever involving taxpayer dollars–is far from resolved. Innovation Ohio strongly urges school districts to take note and be mindful of the potential conflicts inherent in the relationship between DeWine and Lager. It appears more clear every day that it’s going to be up to districts to lead the fight to get their kids’ money back from Lager.
There’s been a lot of talk lately about why, all of a sudden, officials are declaring the relationship between ECOT founder and political super donor Bill Lager’s for-profit companies “corrupt” when we’ve known they existed for a long time.
Perhaps a little context would help illuminate the debate here.
The relationship of concern at the moment is self dealing between Altair Management — Lager’s for-profit company that ran the nation’s largest dropout factory — and IQ Innovations — Lager’s for-profit firm hired to provide the software for ECOT. So when did this relationship begin?
That’s where things get interesting.
According to an audit released Dec. 22, 2009 by then State Auditor Mary Taylor, IQ Innovations started doing the software work for ECOT Jan. 1, 2009. But it wasn’t until Taylor also mentioned in the Dec. 22 audit that “IQ Innovations, LLC and Altair Learning Management I, Inc. have the same principal owner” that it became publicly known that Lager ran both firms — a relationship now called “corrupt”.
Importantly, though, you would have had to know to look at ECOT’s audits. The only people that would have clearly and directly known about this relationship early on most likely would have been Auditors of State Mary Taylor and David Yost.
The first widely dispersed mention of IQ Innovations was in a June 12, 2010 Columbus Dispatch story about Jeb Bush speaking at ECOT’s 2010 graduation where it was passingly mentioned that “Lager … (also) founded the online learning company” IQ Innovations. However, the additional founding wasn’t referring to Altair and IQ’s now “corrupt” relationship; it was referring to ECOT and IQ’s relationship.
The first media mention that Altair and IQ Innovations were affiliated was in a July 30, 2012 story about a new CEO taking over Altair. According to the three-sentence note in the Columbus Dispatch, the new CEO “will direct daily operations of Altair and its associated companies, including IQ Innovations and ECOT, the state’s largest online K-12 charter school, the company announced last week.”
So the only way to know about the “corrupt” relationship prior to July 30, 2012 would have been to know to read ECOT’s audits from 2009 on, or know the inner workings of the company. Of course the five-alarm fire was rung May 18, 2016, when the New York Times wrote a huge ECOT expose whose headline read “Online School Enriches Affiliated Companies if Not Its Students.”
New Analysis: ECOT Stole Nearly $200 Million from State
Estimate shows ECOT scandal is largest in state history
Columbus, OH – Today, Innovation Ohio Education Policy Fellow Stephen Dyer released a new analysis of the Electronic Classroom of Tomorrow (ECOT) scandal, finding that the shuttered charter school defrauded the state by at least $189 million since 2000. This is the first published estimate of the total amount stolen by ECOT.
When ECOT was caught billing the state a total of $80 million in 2015-2016 and 2016-2017 for students they couldn’t prove they actually educated, the immediate question arose: how much more did they potentially rip off taxpayers during their entire 18 years in operation?
In 9 of the 18 years of ECOT’s existence, the Department of Education found and documented overpayments of various sizes. Based on these findings, Dyer took the percentage overpayment in each of those years, calculated an average percentage of overpayment during those FTE reviews, then applied that to the years in which ECOT’s enrollment wasn’t scrutinized. The estimated overpayment was combined with the previously reported overpayments, and the result is that approximately $189 million was overbilled during the school’s time in operation.
“This is easily the largest scandal in Ohio history,” said Dyer. “ECOT stole nearly $200 million in taxpayer money that should have gone to educate our children. Instead, this money enriched ECOT’s founder and his political allies.”
In terms of scale, the infamous Tom Noe “Coingate” scandal in 2006 involved $50 million in unemployment insurance money (technically not taxpayer money). Even with this relatively conservative estimate, the ECOT scandal could be four times larger than Coingate – likely even more.
Tom Noe was given more than 20 years in prison for his scandal. Will this much larger, taxpayer funded scandal produce similar results?
“While it is important to have this number and understand the scope of this scandal, this also raises many more questions that must be answered. The Department of Education and state Auditor owe us a full explanation of how they allowed this to happen for 18 years,” Dyer continued.
Despite the size and scope of this scandal, lawmakers have yet to address the underlying issues that allowed this to occur.
KEY NUMBERS IN THE ECOT SCANDAL
Total taxpayer dollars diverted to ECOT since 2000 – More than $1,000,000,000
Total diverted since 2012 that we can document by each school district – $591,000,000
Estimate for the total amount stolen – $189,000,000
For more information:
All of Innovation Ohio’s ECOT research can be found here: innovationohio.org/ecot
When the Electronic Classroom of Tomorrow (ECOT) was caught billing the state a total of $80 million in 2015-2016 and 2016-2017 for students they couldn’t prove they actually educated, the immediate question arose: how much more did they potentially rip off taxpayers during their entire 18 years in operation?
In 9 of the 18 years of ECOT’s existence, the Department of Education found and documented overpayments of various sizes. Based on these findings, we took the percentage overpayment in each of those years, calculated an average percentage of overpayment during those FTE reviews, then applied that to the years in which ECOT’s enrollment wasn’t scrutinized. The estimated overpayment was combined with the previously-reported overpayments, and the result is that approximately $189 million was overbilled during the school’s time in operation.*
>> Bottom Line: ECOT may have overbilled Ohio taxpayers appoximately $189 million
This estimate is likely lower than the true amount because for many years, the Ohio Department of Education simply didn’t examine ECOT’s enrollment with the same scrutiny it did in the 2000-2001, 2015-2016 and 2016-2017 school years thanks to a deal it cut with ECOT early in its existence — a deal that has been at the heart of the ECOT legal battle. However, every court that has heard this case — including judges who received political contributions from ECOT founder Bill Lager — has agreed that the Department could have kept using the standard it used in its first and final two reviews for all the other reviews.
The Department simply chose not to do so. Also telling is that in the 2016-2017 school year, after ECOT knew the Department was actually going to require participation figures, they still overbilled by about 20 percent and were actively trying to game the system, according to a whistleblower.
In terms of ripoff scale, the infamous Tom Noe “Coingate” scandal from 2005-2006 involved $50 million in unemployment insurance money — technically not even taxpayer money . And even with this relatively conservative estimate we’ve calculated, ECOT’s taxpayer ripoff could represent more than four times as much money as Coingate, likely even more.
Tom Noe was given more than 20 years in prison for his scandal. Will this much larger, taxpayer funded scandal produce similar results?
*Note: Please see attached methodology for a detailed explanation, data and reference material for how this estimate was calculated.
Ohio Taxpayers Forced to Pay $588,000 in ECOT Hush Money
Columbus, OH– The Electronic School of Tomorrow (ECOT) paid $588,000 in hush money to 201 former employees, according to records that the now-shuttered online charter school provided in response to a public records request.
Because ECOT was a public charter school, these severance packages were paid for with taxpayer dollars.
Filed by Common Cause Ohio and Innovation Ohio, the request came after a whistleblower refused to take the money, then told reporters that ECOT purchased and manipulated new software to extract millions of dollars from the state that it did not deserve. Ohio officials are attempting to recover more than $80 million from ECOT, and ECOT is in court, insisting it owes taxpayers no money at all.
All the money was paid out in 2017 as part of a “severance and release agreement,’’ the records show. In addition to “non-disclosure” clauses, the agreements also contained “non-disparagement” clauses.
“Public funds should never be used to pay hush money,’’ said Common Cause Ohio Executive Director Catherine Turcer. “A severance package is supposed to give employees a cushion when they leave – not hide problems from elected officials, administrators, the press and the public.’’
ECOT’s attendance padding has been referred to the FBI and Franklin County Prosecutor for further review, and the scandal has emerged as a central issue in this year’s statewide elections.
The agreement’s “non-disparagement” clauses stipulate that former employees receive severance packages only if they agree that they “have not and will not make statements to anyone that are in any way disparaging or negative towards ECOT, including disparaging remarks about individuals associated with ECOT or the service it provides.”
Stephen Dyer, a lawyer and Education Policy Fellow for Innovation Ohio, said the agreements are not standard.
“The agreements ban employees from making statements to ‘anyone that are in any way disparaging or negative toward ECOT, including disparaging remarks about individuals associated with ECOT or the services it provides,’” Dyer said. “ECOT’s lawyer notes that employees are free to talk with law enforcement. What he does not tell you is that these types of agreements cannot legally prevent people from cooperating with law enforcement.’’
The records request asked for the amount of hush money paid over a five-year period.
While ECOT said it fully complied with the request, charter school researcher Sandy Theis said she is aware of other former employees who signed non-disparagement agreements in exchange for money who are not included in the information that ECOT provided.
The documents turned over by ECOT are online here:
Now that we’ve released district-by-district deductions to the scandal-ridden and potentially criminal enterprise that was the Electronic Classroom of Tomorrow, it’s helpful to examine what types of districts lost money and students to the scammy school. The state has nine categories of districts it tracks. Within those categories the state classifies them based on location (urban, suburban, rural, small town) and poverty from very low to very high.
About 1/2 of the $591 million came from urban districts, but not just large ones like Cleveland and Columbus, but smaller urbans like Mansfield and Lima. Surprisingly, the next largest category of losses to ECOT — about $200 million — came from small town and rural districts which tend to be much smaller sizes.
Even large, wealthier suburban districts lost money and students to ECOT to the tune of about $100 million.
Looking at just the districts’ poverty classification, ECOT received about 2/3 of its money from poor or very poor Ohio school districts. No surprise there. However, the next largest category of funding came from low poverty districts. More money came from Ohio’s wealthiest districts than school districts with average poverty.
What does all this mean? It means that ECOT’s largest impact was on Ohio’s poorest districts and students — areas and populations that have traditionally suffered outsized portions of public scandals like ECOT. However, the scale of ECOT’s scam was so large that even Ohio’s wealthiest school districts were not immune from this school’s politically connected tentacles.
On Wednesday, June 6, Innovation Ohio was joined by local school officials to discuss the multi-year impact of state funding transfers to the Electronic Classroom of Tomorrow (ECOT), the former largest, now-closed online charter school found to have been vastly overstating its enrollment at taxpayer expense.