ECOT founder Bill Lager could be forced to personally pay back millions of dollars to the state, which plans to go after him for some or all of the $200 million in taxpayer money paid to his for-profit companies.
Lager, who went from broke businessman to multimillionaire after opening the state’s largest online charter school, could face claims of breach of fiduciary duty, conflicts of interests in public contracts, and civil claims under Ohio’s Corrupt Practices Act.
Lager founded the Electronic Classroom of Tomorrow in 2000 and then operated a pair of for-profit businesses, Altair Learning Management and IQ Innovations, which provided management and software services to the school. He also funneled ECOT money to a video production company run by his daughter.
"ECOT’s contracts with Altair and IQ constituted corrupt activity because … there were multiple contracts, Lager participated in that pattern, and ECOT was injured by paying funds pursuant to contracts that were void as a matter of law," Attorney General Mike DeWine's office wrote in a Tuesday court filing. Damages could be tripled if it is found Lager violated the so-called "civil RICO Act."
DeWine says Lager had a "fiduciary duty of loyalty" to ECOT, which was closed by its sponsor in January as it ran out of money.
"He violated that duty by doing business with ECOT through two companies he had substantial interests in: Altair and IQ," DeWine wrote. "That entitles ECOT to recover all profits Lager realized through those companies’ dealings with ECOT."
Franklin County Common Pleas Court Judge Michael Holbrook appointed a special master to oversee the school’s closure and payments to creditors. He would have to approve DeWine’s request to pursue the lawsuit.
According to the filing, ECOT still owes the Department of Education $62 million of the $80 million it was ordered to repay for unverified enrollment, plus it owes the Department of Jobs and Family Services nearly $1.6 million for unpaid unemployment compensation claims and about $1,500 to Owens State Community College in Perrysburg for textbooks.
ECOT was liquidated via an online auction while the school and state await for the Ohio Supreme Court to decide if the Department of Education acted legally when it began requiring the school to verify its student county via log-in durations and other data. A number of students infrequently logging into the school's system, so the state found ECOT had significantly fewer kids than it claimed.
"Attorney General DeWine has consistently stated that our office will aggressively pursue collections actions against ECOT," said Dan Tierney, spokesman for DeWine. "We intend to file such actions once we are assigned claims by the court."
ECOT attorneys have asked that the court place a number of restrictions on the attempt to recover money from Lager and his companies, and delay such recovery until the Ohio Supreme Court rules.
DeWine, a Republican running for governor, says the restrictions ECOT is proposing "would insulate improper transfers involving millions of public dollars." He also argues that the Supreme Court’s decision has no bearing on the conflict-of-interest issues.
An ECOT attorney declined to comment Tuesday.
Franklin County and U.S. prosecutors also are still deciding whether to press criminal charges against Lager and other ECOT officials, following an April audit by state Auditor Dave Yost, who says officials may have committed fraud by deliberately submitting false student-participation data to the state to increase the school's per-pupil funding. A message was left with county Prosecutor Ron O'Brien.
Democrats have been hammering on Republican candidates and officeholders for failing to take action sooner against Lager, a top contributor who, with associates, gave Republicans $2.3 million.
"I guess better late than never," said Steve Dettelbach, who is running against Yost for attorney general. "There have been years to focus on this."
DeWine donated the $12,532 in campaign contributions he got from Lager, but his running mate, Secretary of State Jon Husted, has not given away $36,000 in Lager money.
Legislative Republicans last week passed a bill to study a new e-school funding model, with hopes that it could be implemented as part of the next state budget.
Democrats say they have called for reforms for years, and Republicans stepped up only after ECOT became a scandal and Lager's money largely dried up.
"DeWine should have taken this action when whistleblowers began ringing the alarm about ECOT years ago," said Ohio Democratic Chairman David Pepper.
Dispatch reporters Randy Ludlow and Marty Schladen contributed to this story.