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Federal investigators say leaders of two shuttered Indiana online charter schools spun a tangled web of shell companies over several years to defraud at least $44 million from the state through inflated student enrollment claims.
The alleged wrongdoing led to a complex investigation that began as the fraud claims became public in 2019 against Indiana Virtual School and Indiana Virtual Pathways Academy. It resulted in a criminal indictment against three top officials of those schools last week and a guilty plea on fraud charges by another.
The indictment charges Thomas Stoughton, who owned the schools, with directing school employees to compile enrollment counts to the state Department of Education that included more than 4,000 students who had never completed enrollment or had not logged in to online classes for months.
Results of lengthy federal investigation
More than $18 million in state money from those padded enrollment counts were funneled through what U.S. Attorney Zachary Myers on Thursday called shell companies and eventually into bank accounts, many of which were controlled by Stoughton or his family members.
Herb Stapleton, special agent in charge of the FBI’s Indianapolis office, said the volume of documents investigators had to plow through was “enormous.”
“It's really difficult to overstate how challenging these cases can be,” Stapleton said. “Hundreds of thousands of records potentially relevant to the case had to be reviewed and analyzed and categorized. Several hundred bank accounts required forensic attention to determine whether or not any payments being made were payments in furtherance of a fraud. And hundreds of interviews had to be conducted, many of which included interviews of fraudulently enrolled students or their parents.”
The federal indictment charges:
- Stoughton, 74, of Carmel, with one count of conspiracy to commit wire fraud; 16 counts of wire fraud; and 57 counts of money laundering.
- Phillip Holden, 62, of Middletown, the school director overseeing enrollment, with one count of conspiracy to commit wire fraud and 16 counts of wire fraud.
- Percy Clark, 81, of Carmel, superintendent of the online schools, with one count of conspiracy to commit wire fraud; 16 counts of wire fraud; and 11 counts of money laundering.
Christopher King, 61, who prosecutors say oversaw enrollment processing for the schools, has pleaded guilty to conspiracy to commit wire fraud over his role in the alleged scheme and is awaiting sentencing. Myers declined to say whether King was cooperating with investigators.
Stoughton, Holden and Clark face potential prison sentences of 10 to 20 years on each count. A federal magistrate judge has allowed them to remain free pending further court proceedings.
Indianapolis defense attorney James Voyles, who is representing Stoughton, declined State Affairs’ request for comment about the indictment. Defense attorneys for Holden and Clark have not responded to requests for comment.
Total size of the fraud
The federal indictment includes allegations of wrongdoing from 2016 into 2019 and that the schools received at least $44 million fraudulently from the state.
That total is about one-third less than the $69 million in improper payments between 2011 and 2019 alleged in a 2021 lawsuit filed by the state attorney general’s office against Stoughton and others. That lawsuit remains pending in a Hamilton County court — and it is unclear whether any money could be recovered for the state.
Myers said the federal investigation covered a shorter timeframe for the criminal charges.
“We're limited to the scope of the charges that we brought at this time,” Myers said. “I believe that the attorney general's lawsuit is more expansive in terms of the time period.”
Some of the money laundering counts alleged Stoughton was involved in improper payments of about $270,000 toward the purchases of gold coins, a Cadillac sedan and jewelry and tuition payments to Park Tudor school in Indianapolis.
Questions of state oversight
Indiana Virtual School was formed in 2011 soon after a Republican-driven state education overhaul expanded the availability of charter schools, which are privately operated but receive taxpayer funding.
Myers said he was “not really in a position to comment” about whether state officials should have discovered the inflated enrollment counts sooner.
Republican legislative leaders have turned aside complaints from Democrats that some responsibility for the fraud rested with lax state regulations.
Republican House Speaker Todd Huston said Thursday he was glad that prosecutions were moving forward in the case and defended state policies.
“Since that all took place, I know we've worked and passed multiple bills dealing with providing more oversight by the [charter school] authorizer, in particular in regards to financial matters,” Huston said.
House Democratic Leader Phil GiaQuinta said he believed the state continued inadequately monitoring the hundreds of millions of dollars going to privately operated charter schools and the state’s private school voucher program.
“Anytime public funding leaves that sphere of oversight, you're just asking for trouble,” GiaQuinta said.
Senators rejected a proposal Monday to remove strict limitations on what legal research Indiana’s public access counselor could consider in reviewing open government matters. That means House Bill 1338 could face a full Senate vote on Tuesday with provisions that supporters of the access counselor’s office argue would hamstring its ability to answer questions about …
Indiana doctors performed fewer than four abortions a week during the final three months of 2023, continuing the sharp downturn under the state’s near-total abortion ban.
Doctors reported 46 abortions from October through December, according to the state Department of Health’s latest quarterly report on abortions.
The ban that took effect in August allows abortions only in cases of rape or incest before 10 weeks post-fertilization or to protect the life and health of the mother or because of a lethal fetal anomaly up to 20 weeks of pregnancy. It also voided the state licenses of all Indiana abortion clinics, allowing abortions only in hospitals or hospital-owned surgery centers.
Of the abortions reported during the fourth quarter of last year, 22 were because of lethal fetal anomalies, 21 were attributed to health risks to the pregnant woman and three were due to rape or incest, according to the state report released last week.
The 46 abortions during the fourth quarter represented a 97% drop from the 1,724 reported during the same three months in 2022 while the abortion ban was blocked by a judge’s order later overturned by the state Supreme Court.
Indiana Right to Life, the state’s most prominent anti-abortion group, hailed the decline but joined criticism of the Department of Health for not releasing individual terminated pregnancy reports as it had done before the ban went into effect.
The agency has said it no longer releases those reports under state law that declares medical records confidential because of more detailed information required from doctors.
“The Indiana Department of Health is blocking public access to terminated pregnancy reports,” Indiana Right to Life President Mike Fichter said in a statement Monday. “This manipulation creates a lack of transparency, making it impossible to verify these numbers are accurate — and that Indiana law is being followed related to abortion activity.”
Abortion-rights supporters have argued that the ban wrongly limits access to health care. They’ve also maintained that abortion care would largely be unavailable outside Indianapolis even in situations meeting the limited exceptions, with the procedure no longer available at abortion clinics.
All but two of the 46 abortions during the reporting period were performed at Indianapolis hospitals, with the most at Riley Health Maternity Tower (21) and Eskenazi Hospital (10). The only hospital-performed abortions outside Indianapolis were one each at Dupont Hospital and Parkview Regional Medical Center, both in Fort Wayne.
The Senate has backed off a proposal that would block lawyers who’ve faced recent serious misconduct sanctions from running for state attorney general. A Senate committee had added a provision to an elections-related bill last week as Republican Attorney General Todd Rokita remains under scrutiny from the state’s attorney disciplinary commission after being reprimanded by …
The scope of what Indiana’s public access counselor could consider in reviewing open government matters would be strictly limited under provisions added to legislation in the closing days of the legislative session.
Amendments that a Senate committee made this week to House Bill 1338 would also reduce the office’s independence by eliminating the four-year term the access counselor has after being appointed by the governor.
The Legislature in 1999 established the access counselor position to review questions from the public, government officials and others about the state’s open meetings and public records laws.
The public access counselor’s office, with two attorneys and one other staff member, issues dozens of advisory opinions each year but has no authority to enforce the access laws or punish violators.
Advocate says amendment ‘guts’ counselor’s authority
Sen. Aaron Freeman, R-Indianapolis, offered the amendment allowing the access counselor’s advisory opinions to consider only “the public access laws, as plainly written,” and “valid opinions of Indiana courts.”
Freeman, chair of the Senate Corrections and Criminal Law Committee, expressed frustration with Public Access Counselor Luke Britt’s opinions without giving specifics during the Tuesday meeting when the provision was added.
“The public access counselor, it says that he, in this case, shall liberally construe the code,” Freeman said. “He’s issued some opinions that I vehemently disagree with and I think others in our body and in this building vehemently disagree with.”
The amendment “functionally guts” the access counselor’s ability to consider the context of a situation unless it has been directly addressed by the Legislature or court, said Amelia McClure, executive director of the Hoosier State Press Association.
“The code can never contemplate all of the different circumstances that public access concerns are going to arise,” McClure said. “So the public access counselor has to consider new technologies, what location, the circumstances of the conversation in a way that a civil code will never be able to contemplate.”
Britt was appointed access counselor in 2013 by then-Gov. Mike Pence and reappointed by Gov. Eric Holcomb in 2017 and 2021.
Britt, whose current term runs until Oct. 31, 2025, declined to comment to State Affairs on Freeman’s amendments. The governor’s office didn’t immediately reply Thursday to a request for comment.
The restrictions on the access counselor’s office were not raised during the first seven weeks of this year’s legislative session and became public only two days before the Senate committee’s deadline to take action.
Public access counselor’s role at issue
Some conservatives criticized an opinion Britt released last fall in which he concluded the Hamilton East Public Library Board in Fishers violated the open meetings law when two board members met with their attorneys at a coffee shop.
That opinion came amid public debate over a push by conservative members of that board to review all youth-section books and move those with “inappropriate” content to adult sections.
The opening section of Indiana’s public records law states it should be “liberally construed to implement this policy and place the burden of proof for the nondisclosure of a public record on the public agency that would deny access to the record.”
Freeman said during the committee meeting that he favored striking the “liberally construed” phrase from the law, but other senators thought that went too far.
The amendment limiting the access counselor’s authority was added to the bill on a 5-3 vote as Democratic Sen. Greg Taylor joined Freeman and other Republicans Mike Bohacek, Cyndi Carrasco and Eric Koch. Republicans Liz Brown and Sue Glick and Democrat Rodney Pol voted against the amendment.
Glick said the restriction on what the access counselor could consider didn’t make sense.
“You’re paying an attorney for their opinion, and now you’re limiting that,” Glick said.
Change would eliminate term of office
Freeman also advocated for an amendment eliminating the access counselor’s four-year term and making the position one that serves “at the pleasure of the governor.”
“When we have a new governor … I believe the governor should be able to pick the person that they’re choosing to serve,” Freeman said. “As any other appointed office, we serve at the privilege of the governor. So I believe this should be no different.”
Those people appointed to lead state departments can typically be removed at the governor’s discretion. However, hundreds of appointments to state boards and other positions, such as the state Election Division’s co-directors, are made for set terms.
McClure, the Hoosier State Press Association’s director, said eliminating the four-year term would take away some of the office’s independence from political concerns.
“That’s important when it’s an advisory opinion that’s interpreting actions of all kinds of different bodies that have all kinds of different political affiliations,” McClure said.
The full bill, which initially focused only on allowing local government boards to establish meeting decorum rules, could be taken up by the full Senate next week. The additions would still also need approval from the House before this year’s legislative session ends by March 14.