CHARTER SCHOOL SUES PARENT CO.

Inspire-affiliated entity alleges millions stolen, money transferred

An Inspire-affiliated charter school is suing its parent company, alleging it stole millions of state education dollars from the school’s accounts and that it transferred the school’s money to other entities without the school’s knowledge or permission.

An Inspire official says the allegations are false and will be fought in court.

The lawsuit adds to at least two investigations involving the Inspire charter school network in California, including an ongoing state audit and an ongoing investigation by the U.S. Securities and Exchange Commission.

Charter schools are public schools run independently of a school district.

Two Inspire-affiliated schools are based in in San Diego County — Pacific Coast Academy and Cabrillo Point Academy — which together enrolled about 8,500 students last school year.

In the lawsuit, Granite Mountain Charter School, which is based in San Bernardino County, is alleging that its parent corporation, Inspire District Office — also known as Provenance and formerly known as Inspire Charter Schools — moved $70 million in and out of Granite Mountain’s bank account during the last school year.

The school only generated about $28 million in state school revenue last school year, according to the lawsuit filed on Sept. 3.

More than $5 million of Granite Mountain’s money was transferred to Provenance itself, while several million dollars were wired to other Inspire schools and more than $30 million was wired out to unidentified recipients and accounts, the lawsuit says.

Granite Mountain estimates that $5 million to $10 million is missing from its account due to Provenance’s activities, the lawsuit alleges.

Earlier this year Provenance reported to Granite Mountain and other Inspire schools that it is more than $25 million in the red, the lawsuit said, and it proposed increasing the amount of fees it collects from Inspire schools to cover that shortfall.

Granite Mountain refused to pay Inspire more money and terminated its relationship with Provenance on Feb. 29.

Within a few weeks, Provenance registered Granite Mountain’s domain names and told the school that it owned the Granite Mountain logo, website and domains — if the school wanted to own them, Granite Mountain would have to pay Provenance $200,000, the lawsuit says.

The lawsuit demands a jury trial and seeks the return of Granite Mountain’s domains and damages of at least $5 million.

In California, public education dollars follow the student to the school they attend. Districts and charter schools are not supposed to move students’ money from one school to another, experts have said.

“These are state funds that are allocated for a very specific purpose and based on students in chairs, and so you can’t just take money from one school that has X number of students … and simply move it around,” said Marc Greenberg, the attorney representing Granite Mountain in the lawsuit.

Greenberg previously served as a federal prosecutor for 11 years, specializing in white-collar crime.

The U-T asked Inspire’s executive director, Steven Lawrence, for comment. Instead, Inspire Director of Operations Kimmi Buzzard responded in an email, denying the lawsuit’s allegations.

“The accusations are false. We are very confident that the legal process will show this,” Buzzard said. “Our focus is on serving our client schools and the 20,000 students that rely on them for their education.”

Regarding the Securities and Exchange Commission investigation, Buzzard said Inspire welcomes it.

“We commit to being partners by fully cooperating with any requests made by the SEC,” Buzzard said.

Inspire is a statewide network of online charter schools that primarily serve home school students.

Inspire schools have exploded in enrollment since the network began more than five years ago. The schools allow students’ families to spend thousands of dollars a year on educational and recreational products and services, ranging from tutoring to horseback riding lessons. At the beginning of last school year, Inspire schools expected to take in roughly $285 million.

Inspire’s founder, Herbert “Nick” Nichols, created the Inspire schools through his corporation, Provenance, which was then called Inspire Charter Schools.

Provenance had total control over the schools when they began. Because Provenance was the “sole member” of the schools, it had the power to appoint and remove each school’s board members and make changes to the school’s charter.

Nichols for a time also controlled several Inspire schools’ bank accounts, including Granite Mountain, as their sole authorized check signer, according to school board documents.

After the Inspire corporation created the schools, it subsequently took 15 percent of the schools’ state funds as a fee for providing services, according to schools’ contracts with Inspire.

Provenance essentially ran the schools, recruiting employees, managing their finances and preparing their board agendas.

Granite Mountain’s lawsuit said Provenance “commingled the assets” of the Inspire schools.

Provenance and Nichols “treated the schools and the funds of all of them as one single entity of which it was a part and in control, making decisions about financial matters, personnel assignments, and operations on behalf of the schools without following appropriate procedures and controls and without approval of the schools, and specifically without the approval of [Granite Mountain],” the lawsuit says.

Money was frequently “loaned” between Inspire schools and between Inspire schools and Provenance, as well as to outside, Inspire-affiliated entities with names like Inspire University and Inspire Education Foundation, according to Inspire school board agenda documents.

The schools also have agreed to share and “lease” teachers to each other, according to a 2019 personnel services agreement among the schools.

Despite the schools’ rapid enrollment growth, the schools engaged in borrowing to make ends meet.

Eight Inspire schools are currently being audited by the state after several county superintendents requested the audit to investigate potential fraud. The state’s school fiscal agency began work on the audit this year.

The SEC also is investigating Inspire, though it’s unclear what exactly the SEC is investigating about the charter schools. Officials with the SEC declined to answer questions.

Provenance and four Inspire schools hired a San Diego law firm, Shustak Reynolds & Partners, to defend them in an investigation by the SEC, according to an engagement letter dated Feb. 18 of this year. Provenance paid a $25,000 initial deposit to hire the law firm, and the listed attorney fees range from $400 to $800 an hour.

Inspire’s founder Nichols resigned two weeks after the state audit was announced in October. It was later revealed in an independent audit that he had received more than $1 million in payroll advances from various Inspire schools, on top of about $380,000 in annual salary.

As of June, Nichols had not paid back most of the advanced money, according to the audit, which was commissioned by San Diego’s Dehesa School District.

Many Inspire schools have since removed Provenance as their sole member, removed Nichols as their authorized check signer and taken other steps to become more independent of Inspire.

Granite Mountain became a charter school in January 2019, when it became authorized by the Lucerne Valley Unified School Board. The Lucerne Valley School District has 830 students of its own and more than 8,400 students attending charter schools it has authorized.

An Inspire official brought the petition to create Granite Mountain to Lucerne Valley for consideration, along with the nowprincipal of Granite Mountain, who at the time was principal of another Inspire school.

From April to August 2019, Nichols had sole control over Granite Mountain’s bank account and the accounts of other Inspire schools, according to board agendas.

In August of last year, the Granite Mountain board voted to remove Nichols as a check signer and to add its board treasurer and Provenance Chief Financial Officer Chris Williams as signers.

But, the lawsuit alleges, Provenance never actually carried out this change at the bank, so Provenance, through Williams, retained sole control over the school’s bank account for several more months.

Williams is also an authorized signer for other Inspire schools.

Williams did not respond to a request for comment. Buzzard provided a comment on behalf of Williams: “Mr. Williams and the Inspire leadership team look forward to clearly demonstrating the falsity of the allegations.”

Inspire uses a back-office provider called Charter Impact, based in Northridge, to help manage its financial accounting, such as compiling financial reports, processing payroll and paying invoices. Charter Impact contracts directly with Provenance, not the individual schools, Greenberg said.

“Charter Impact doesn’t really work for the schools. It works for Inspire, which I think … is part of the problem,” Greenberg said.

Williams is a former employee of Charter Impact.

Charter Impact’s CEO Spencer Styles noted his company is not named as a defendant in the lawsuit.

“No allegations of improper contact were made against Charter Impact in this lawsuit,” Styles said in an email. “Charter Impact upholds the highest ethical standards, and would never facilitate alleged wrongdoing.”

Granite Mountain’s school board members — who are parents of students — decided to initiate the lawsuit, Greenberg said. Through Greenberg, they declined to comment for this story.

They started investigating their own school’s finances and relationship with Inspire in the fall of last year after hearing news of the state audit, the state’s charter school association’s expulsion of Inspire from its membership, and other related news, according to the lawsuit.

The Granite Mountain board asked Provenance for details or documentation to justify the various transfers they saw, but Provenance refused to provide any, according to the lawsuit, even though Provenance’s contract with Granite Mountain said Provenance must share information upon the school’s request.

“Where’s the documentation? Where’s the promissory notes? Where’s anything,” Greenberg asked.

kristen.taketa@sduniontribune.com