Online Charter Firm Settles With State Over Inflated Claims of Attendance

A for-profit company that operates online charter schools in California has reached a $168.5 million settlement with the state over claims it manipulated attendance records and overstated the academic progress of students.

The deal announced Friday by Attorney General Kamala Harris also requires Virginia-based K12 Inc. to take a slew of corrective actions.

The settlement comes almost three months after the Bay Area News Group published an investigation of K12 Inc., which received more than $310 million in state funding for its profitable but low-performing network of California Virtual Academies, or CAVA, which serve about 15,000 students.

Harris' office found that K12 and its 14 "virtual" schools in California used deceptive advertising to mislead families about students' academic progress, parents' satisfaction with the program and their graduates' eligibility for admission at the University of California and California State University.

The attorney general's office also found that K12 collected more state funding than it was entitled to by submitting inflated student attendance data.

"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," Harris said in a statement.

Under the settlement, K12 will pay $8.5 million to settle the state's claims. It also agreed to expunge about $160 million in credits it has issued to the California Virtual Academies since 2005 that have helped the schools cover the cost of the contracts they hold with the company.

K12 said in a statement it had admitted no wrongdoing and insisted it had already planned to take up several of the corrective actions required under the agreement.

"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," K12 Chief Executive Officer Stuart Udell said in the statement.

Udell said that the credits should be called subsidies, not debts, and that the company's commitment to expunge them shouldn't be used by Harris to hike the size of the settlement. He also defended the credits, saying they had protected the schools against financial uncertainties.