Sign up for Chalkbeat Indiana’s free daily newsletter to keep up with Indianapolis Public Schools, Marion County’s township districts, and statewide education news.
The founder of two shuttered virtual charter schools used state funds meant for “underprivileged and at-risk” students to make over $40,000 in campaign contributions in 2018 to support Republican candidates, prosecutors allege in an ongoing federal criminal case.
The federal case against operators of Indiana Virtual School and Indiana Virtual Pathways Academy is one of two that allege that Thomas Stoughton, the schools’ founder, and other defendants defrauded millions from the state by inflating student enrollment. Stoughton and other defendants also face a civil action from the state attorney general’s office over alleged fraud.
Federal prosecutors allege that Stoughton created a number of educational service providers to contract with the schools’ organizer, the Indiana Virtual Education Foundation, to conceal substantial amounts of money that Stoughton paid himself, the schools’ superintendent Percy Clark, and others affiliated with the schools.
One of those providers, Educational Innovation Research, LLC, allegedly paid $40,100 to political campaigns for 43 Republican candidates for the Indiana General Assembly, the Senate Majority Campaign Committee, and the House Republican Campaign Committee in the three months leading up to the 2018 election, according to prosecutors.
“The purpose of the political contributions was, of course, to curry favor with state lawmakers who were responsible for school funding legislation,” prosecutors said in a Nov. 18 court filing to introduce the contributions as evidence in the trial. “Legislation that the Defendants hoped to have amended in ways that would be favorable to them.”
Stoughton did not respond to a request for comment left at a number listed for him, and his court-appointed attorney for the federal prosecution — which the office of the U.S. Attorney for the Southern District of Indiana originally filed about a year ago — declined to comment. Clark’s attorney did not respond to a request for comment, and a person who answered a number listed for Clark said he was not present and repeatedly told Chalkbeat to call back.
Clark has pleaded not guilty in the federal case. Stoughton is contesting the charges against him, according to federal prosecutors.
The legal actions follow a 2017 Chalkbeat investigation into the virtual schools that found ballooning enrollment figures, and also found that state funding went to a for-profit company founded by Stoughton. The political donations came roughly a year after that investigation, prosecutors say.
The two schools closed in 2019, and in 2020 the Indiana State Board of Accounts released a special investigation report that called on the schools to repay over $85 million in state funds.
In the civil case brought by Indiana Attorney General Todd Rokita in 2021, a judge recently ordered the assets of Thomas Stoughton and his wife Rhonda to be placed in receivership, after finding that they violated a 2022 order not to transfer or sell personal property worth over $5,000. That lawsuit seeks over $154 million from the defendants.
Clark, Thomas Stoughton, and Rhonda Stoughton — who are named as defendants in the state’s civil action — have also denied the allegations against them. (Rhonda Stoughton is not a defendant in the federal criminal case.)
The alleged campaign contributions are part of a lengthy legal battle that could leave the state struggling to recoup millions of dollars meant for students. Prosecutors in the federal case allege that the schools accepted over $44 million from the state using inflated student counts.
The House Republican Campaign Committee said in a statement to Chalkbeat that House Republicans who received the contributions donated those dollars to local education foundations or other charities.
The committee also reiterated its support for school choice.
“For over two decades, the House Republican caucus has led the charge to give all Hoosier families the ability to choose the education opportunity that best fits their kids’ needs, whether that be traditional K-12 schools, charter schools, or school choice vouchers,” the statement said.
The Senate Majority Campaign Committee also said in a statement to Chalkbeat that it suggested that members who received the donations contribute it to an education-related cause in their district — although it’s unclear whether every caucus member did so.
Chalkbeat attempted to reach all 41 Republican candidates still living whom prosecutors listed as receiving donations in 2018. Of those, 11 whom Chalkbeat was able to reach said they did not know either Thomas Stoughton, Clark, or Education Innovation Research; did not recall the donation; or recalled returning the donation to local education-related charities or nonprofits. And one senator referred a reporter to the Senate campaign committee’s statement.
Some were unaware of Education Innovation Research’s ties to the virtual charter schools. Others who did recall returning the donations told Chalkbeat that such donations would not have garnered them favor.
“Nobody’s ever came to me and said, ‘Here’s money, this is what we want to do,’” said former Rep. Jeff Ellington, who said he doubled the $300 donation he received and gave it to a local educational nonprofit in Greene County.
The trial date in the federal criminal case, which includes charges of wire fraud and money laundering, is set for April 1.
School leaders lobbied to change funding, prosecutors say
Federal prosecutors allege that Education Innovation Research’s 2018 campaign donations were part of broader money laundering efforts that ultimately enriched Stoughton and Clark.
Under state law, charter school operators are required to be tax-exempt, nonprofit entities and therefore are prohibited from contributing to political campaigns.
But Education Innovation Research’s campaign donations, prosecutors argue, came from the Indiana Virtual Education Foundation after passing through at least one shell company controlled by Stoughton.
The company was one of several that Stoughton created to move money out of the foundation “and conceal where (and to whom) the money was going,” according to the Nov. 18 court filing.
“If the Defendants did not conceal their actions, then IVEF would lose its exempt status, which would result in the loss of its charter and end to the influx of state funds,” federal prosecutors said in the November filing. “Simply put, if the Defendants did not hide their actions, then they would kill the cash cow.”
Donations ranged from $300 for various lawmakers across the state to $5,000 for Brian Bosma, then the speaker of the house, and $5,000 each for the Senate and House Republican campaign committees. Bosma did not respond to a voicemail or email seeking comment.
Chalkbeat checked the donations in the court document against campaign finance records, and found matching amounts from Education Innovation Research except in four cases — although three of those exceptions did list a donation from Alpha Consolidated Services, LLC, a company listed as a defendant in the state’s civil case.
Federal prosecutors plan to call multiple witnesses to testify that Stoughton and other defendants “were lobbying to change the enrollment and attendance requirements in Indiana’s school funding law to make the law more favorable to them,” they said in the filing.
Six current and former lawmakers — former Reps. Sharon Negele, Woody Burton, and Tim Brown, former Sen. Jon Ford, Sen. Jean Leising, and Rep. Christopher Judy — told Chalkbeat they did not recall the donation or whether they returned it to local causes. Rep. Heath VanNatter said he recalled talking about the donation when it happened, but did not recall whether he returned the donation.
These lawmakers also said they were unaware of the donation’s ties to the virtual schools.
“I just know if I was instructed to do that, I would’ve done it,” Negele said of the directive from the Republican campaign committee to return the donation to charity.
Four former lawmakers — Ellington, former Rep. Tony Cook, and former Sens. John Ruckelshaus and Philip Boots — told Chalkbeat they recalled giving the money back to local educational causes.
After Chalkbeat’s investigation into the two virtual schools generated increased scrutiny, lawmakers changed state law in 2019 to increase oversight.
Indiana law now forbids school districts from authorizing virtual charters, and requires students who are habitually truant to be withdrawn from virtual schools. The legislature also approved a funding cut for virtual schools, which now receive 85% of the state funding that students at brick-and-mortar public schools receive.
Some Democrats said the changes did not go far enough.
Indiana may not recoup funding meant for students
It’s unclear whether Indiana will ever recoup the money the Stoughtons, Clark, and others allegedly squandered.
After failing to pay the attorney he initially hired in the federal criminal case, Stoughton has received a court-appointed attorney instead, court documents show.
In the state civil action, the court placed the Stoughtons’ assets into receivership last month after it determined they violated a 2022 order restricting them from transferring or selling property.
The court found that the Stoughtons violated the order due to their transactions related to a luxury beachside Florida condominium they initially bought for roughly $1.5 million in 2016.
The state alleged that a Florida court ordered a foreclosure on the condo in 2024, after the couple failed to make payments on a $1.8 million mortgage issued the year prior.
The Stoughtons’ assets include a Cadillac, a Corvette, a boat, seven pieces of Tiffany jewelry, and a lakeside home in Syracuse, according to a Feb. 5 court filing in the state case.
Hamilton County property tax records also show the couple owes over $19,000 in unpaid taxes on their Carmel home.
Amelia Pak-Harvey covers Indianapolis and Lawrence Township schools for Chalkbeat Indiana. Contact Amelia at apak-harvey@chalkbeat.org.