A for-profit online charter school operator agreed to pay back about $160 million debt relief to its 14 affiliated nonprofit schools known as the California Virtual Academies over alleged violations of California’s false claims, false advertising and unfair competition laws, according to the Attorney General’s Office.
However, K12 Inc. officials—the target of the state’s probe—claim that the settlement figure is significantly less than what the Attorney General’s office is stating and none of the funds are going toward any debt relief for its CAVA schools.
The Bureau of Children’s Justice and False Claims Unit of the California Department of Justice conducted the investigation into K12’s practices.
“The Attorney General’s claim of $168.5 million in (the July 8) announcement is flat wrong,” said Stuart Udell, K12’s Chief Executive Officer. “Despite our full cooperation throughout the process, the Office of the Attorney General grossly mischaracterized the value of the settlement just as it did with regard to the issues it investigated. There is no ‘debt relief’ to the CAVA schools.”
According to the Attorney General’s press release, as part of the settlement, which is subject to court approval, K12 will provide $168.5 million in debt relief to the nonprofit schools it manages—“balanced budget credits” that the schools accrued as a result of the fee structure K12 used in its contracts—and will pay $8.5 million in settlement of all claims.
“All children deserve, and are entitled under the law, to an equal education,” Attorney General Kamala Harris said. “K12 and its schools misled parents and the State of California by claiming taxpayer dollars for questionable student attendance, misstating student success and parent satisfaction, and loading nonprofit charities with debt.”
K12 Vice President Jeff Kwitowski has a completely different understanding of the agreement. K12 claims they are only required to pay $2.5 million in the settlement and an additional $6 million to cover the Attorney General’s investigation costs.
“In fact, there is no debt relief because the CAVA schools do not have any debt,” said Kwitowski in a July 22 email to The Times. “The term ‘debt’ doesn’t even exist in the Final Judgment filed with the Court. Balanced budget credits are not debt owed by the schools or to K12.”
Silicon Valley Flex, located at 610 Jarvis Drive in Morgan Hill, is “powered by K12” and the online enrollment process runs through the K12 website. The blended learning public charter school is authorized through the Santa Clara County Office of Education.
“The K12 curriculum used by Flex includes a robust catalog of core and elective courses, with over 200 choices, as well many more electives than most schools in the areas of art, science, history, business/career, and technology,” according to SV Flex staff.
In its settlement, K12 has also agreed to implement significant reforms of its contracts with the CAVA Schools, undergo independent reviews of its services for students with disabilities, ensure accuracy of all advertisements, provide teachers with sufficient information and training to prevent improper claiming of attendance dollars and change policies and practices to prevent the kinds of conduct that led to this investigation and agreement, according to the Attorney General’s release.
The California Charter Schools Association also issued a July 21 statement about the settlement.
“While we are encouraged that Attorney General Harris believes that progress has been made in the settlement of this investigation, CCSA is concerned that the agreement does not go far enough in terms of addressing the central need to ensure that for-profit entities do not operate, or control the operations of California charter schools,” according to CCSA release.
This is the first settlement by the new Bureau of Children’s Justice, a first-of-its-kind unit created by Attorney General Kamala Harris in February 2015 to enforce civil and criminal laws that protect children and to pursue solutions that help ensure all children are on track to realize their full potential.
The Bureau partnered with the False Claims Unit to investigate the matter, in which K12 and the CAVA Schools were cooperative, according to the AG press release.
The Attorney General’s Office alleged that K12 and the CAVA Schools it operates in California misled parents to induce them to enroll their children in K12 schools by publishing misleading advertisements about students’ academic progress, parent satisfaction, their graduates’ eligibility for University of California and California State University admission, class sizes, the individualized and flexible nature of their instruction, hidden costs and the quality of the materials provided to students.
“As my office continues an industry-wide examination of for-profit academic institutions, this settlement ensures K12 and its schools are held accountable and make much-needed improvements,” Harris said.
In addition, the Attorney General’s office alleged that K12 and its affiliated schools submitted inflated student attendance numbers and collected more dollars in state funding from the California Department of Education than they were entitled to.
According to a whistle blower, K12 allegedly counted a student logging on for as little as one minute as a full day of attendance, wasting taxpayer dollars and harming students by depriving them of a full day of high-quality academic instruction.
Finally, the Attorney General’s office alleged that K12 and its employees influenced nonprofit online charter schools to enter into unfavorable contracts that put them deep in a financial hole.
A recent study showed that students in virtual schools that exist solely online are far behind their peers in math and reading. In addition, reports show that the CAVA Schools collectively had a graduation rate of 36 percent, compared to the state average of 78 percent.
K12 Inc. is based in Virginia and is a for-profit, publicly traded company. The 15 nonprofit virtual charter schools it manages throughout California enroll approximately 13,000 K-12 students.
