Ex-charter CEO facing up to 5 years in fraud case

Daniel K. Hughes was president and CEO of Discovery Creemos Academy in Goodyear when he abruptly shuttered his charter school in January, disrupting the learning of more than 100 students and putting dozens of teachers out of work.

On Wednesday, he admitted in Maricopa County Superior Court to defrauding the state and federal governments of at least $2.5 million by inflating the charter school’s enrollment by hundreds of students.

Hughes, 35, admitted committing conspiracy and theft, both class 2 felonies. He faces a presumptive prison sentence of five years for conspiracy and probation for theft, under a plea bargain with the Arizona Attorney

General’s Office, which began investigating the case in March.

He declined to comment after a brief hearing before Judge Warren Granville.

The guilty plea is a victory for Attorney General Mark Brnovich, who in September called on lawmakers to give his office more power to go after bad charter school operators.

It also highlights the lack of oversight by the Arizona State Board for Charter Schools, the governing body of the states’ 500-plus charter schools.

A few months before Discovery Creemos Academy closed, Hughes had assured the Charter Board that he would turn around the financially and academically failing Goodyear charter school.

The board — despite concerns about the school’s academic and financial performance — agreed unanimously last year to allow the school to continue to operate for at least 20 more years.

The board, largely filled with appointees of Gov. Doug Ducey, revoked the charter in February after it already had closed.

Hughes was released on his own recognizance, and his next hearing is Jan. 15.

Hughes in court agreed with the Attorney General’s Office that, during the 2017-18 school year, Discovery Creemos Academy reported an enrollment of 528 students, but 453 were fraudulent. In 2016-17, the school reported it had 652 students, but 191 were fraudulent.

The massive enrollment drop came after the school garnered statewide attention in 2016, when student Jesse Wilson, a 10-year-old student, was reported missing.

The school community was involved in searches for Jesse, and a desk was placed in the office with his school photo on it at the start of the school year. Jesse’s skeletal remains were found March 8 in a Buckeye field, and a death investigation continues.

By fraudulently spiking enrollment for two years to stay in business, the charter school received about $2.2 million in overfunding from the state, $91,000 in overfunding from the U.S. Department of Education and $230,000 in overfunding from the U.S. Department of Agriculture for meals, court records show.

Hughes agreed to pay $2.5 million in restitution as part of the plea.

Kurt Altman, an attorney for Hughes, said his client agreed to plead guilty because “he realized what was going on and wanted to do the right thing.”

Prosecutors in court indicated that there may be co-conspirators involved in the scheme but did not elaborate whether others would face prosecution.

Discovery Creemos Academy shut its doors after its 100th day, essentially assuring it would get as much state money as possible before it closed.

Public schools in Arizona are paid on a per pupil basis from the state and federal government. Therefore, more students equal additional government funding. The Arizona Republic found that tax records for Discovery Creemos in 2015 indicated questionable spending, showing the school paid Hughes, former administrators and Hughes’ family members hundreds of thousands of dollars.

Those tax documents show the school paid Hughes and the Creemos Association, a company Hughes owns, a total of about $843,000.

Reviews by the Charter Board for the 2013-14, 2014-15 and 2015-16 school years found the school did not meet its financial performance recommendations.

Yet the board allowed the school to keep operating.

The Legislature this year passed a law that would allow the Charter Board to intervene and shut down a school for poor financial performance.

The Charter Board has acknowledged in a budget request to Ducey that the 11-person agency doesn’t have the resources to properly respond to complaints and monitor charter schools. It is asking lawmakers in 2019 to add to the agency’s eight regulators, whose workload is mounting. The Arizona Republic this year also found several other charter operators have legally become millionaires through no-bid construction and management contracts and related-party transactions, also known as self-dealing.