State sues cyber charter, alleging misuse of funds

The Pennsylvania Department of Education has sued Agora Cyber Charter School in Devon, alleging its board misused millions of taxpayer dollars to benefit a company owned by the school's founder.

The civil complaint maintains that the cyber charter's board of trustees entered into unlawful contracts with Cynwyd Group L.L.C., a management company that the state says Agora founder Dorothy June Brown cocreated "for the purpose of making money from managing and operating the school." Cynwyd was slated to collect $2.8 million from Agora to manage the school, though most of the work was done by another company.

Brown declined to comment.

Cynwyd Group not only has a management contract with Agora but also owns the school's administrative offices on Chestnut Street in Devon and collects $300,000 in annual rent, which the state maintains is above market value.

Opened in 2005, Agora enrolls 4,400 students from districts across the state. The students receive online instruction in their homes using computers paid for by taxpayers.

Based on current enrollment, Agora officials projected the charter's revenue would total about $41 million in taxpayer money this school year. Cynwyd's management contract calls for it to be paid 7 percent of gross revenue, which comes to about $2.8 million.

According to documents filed in Commonwealth Court, the Department of Education has concluded that Agora "is operating in such a grossly unlawful and improper manner" that if the department continued making payments of taxpayer money, it would be "facilitating and enabling Agora in the perpetration of ongoing and pervasive unlawful and improper conduct."

Howard Lebofsky, board chairman, declined to comment, saying he had not fully reviewed the complaint. "You can be assured that the board will do whatever is necessary to proceed responsibly and do whatever is in the best interest of our students," Lebofsky wrote in an e-mail.

He said the Cynwyd contracts had been signed before he joined the board last summer.

The lawsuit is the Education Department's first against any cyber school in the state, said Michael Race, a department spokesman.

Agora's finances are also being investigated by the Philadelphia School District's inspector general and by federal investigators as part of a widening probe of charter schools.

The school remains open. The state payment Agora was due to receive yesterday has been placed in an escrow account.

The state also has directed all 500 school districts in the state to send tuition payments for Agora students to the escrow fund instead of to the school, the suit said.

"Agora's students will not be impacted by our decision in any detrimental way," Education Secretary Gerald D. Zahorchak said yesterday. "Moving forward, these students will continue to have the same curriculum and day-to-day education experience to which they have become accustomed."

The lawsuit does not criticize the school's academic program, which is administered under contract by K-12 Pennsylvania L.L.C., a for-profit education company.

In its petition to the court, the Education Department asks for an independent trustee or receiver to oversee the school in place of the trustees.

The department contends Agora's board has been dominated by Brown's associates, is "incapable of independently carrying out their fiduciary duties to Agora," and has abdicated its responsibility for the school's operation to Cynwyd, a for-profit company.

The suit asks the court to rule that the board violated its operating charter and state law by contracting with Brown's company.

The department gave Agora its operating charter in June 2005 under the condition the school would not contract with a management company. The department had turned down Agora's original application a few months earlier partly because of questions about Brown's plans to use a management company.

Brown and Brien N. Gardiner, the founder of Philadelphia Academy Charter School, created Cynwyd Group L.L.C. in November 2005. Two years later, the company paid $1.9 million for the Devon property.

Under a nine-year lease, Agora has paid $300,000 a year to rent 12,000 square feet, which was "substantially in excess of what was required or used for Agora's operations," the suit says.

Gardiner severed his ties with Cynwyd Group last May, after he was fired from his consultant's position at Philadelphia Academy when that charter was rocked by allegations of financial wrongdoing, nepotism, and conflicts of interest.

In the suit, the Department of Education alleges that Agora's board "participated in a scheme to defraud" the department and had "defrauded Agora students by entering into a lease that was far above fair market value" and paying Cynwyd Group a management fee when "little was done by Cynwyd."

The state contends that the work was performed by K-12 Pennsylvania.

As a result of the high fees paid to Cynwyd Group, Agora never maintained a reserve fund, as it had described in its revised charter application, the suit says.

Under state law, the Education Department has oversight responsibility for the 11 cyber charters.

The lawsuit is an outgrowth of an investigation the department launched in December after several parents complained they were denied information from the school on its finances and the role that Brown and Cynwyd Group played.

Brown, who initially was Agora's chief executive officer, is Cynwyd Group's senior consultant to the cyber school and an ex-officio member of the charter board.

In January, Brown and Cynwyd Group took the unusual step of suing six Agora parents, including those who complained to the state, alleging slander, libel, and civil conspiracy. The Agora Parent Association was also named in that suit, which is pending in Montgomery County.

Brown founded three traditional charter schools in Philadelphia and was the chief executive officer of two of them until last summer, following a change in state law: Laboratory Charter School in Northern Liberties and Overbrook, Ad Prima in Overbrook, and Planet Abacus in Tacony.