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Karl A. Racine
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Judge Allows District to Proceed With Charges against Defendants in Options Public Charter School Case

Thursday, January 16, 2014

Ted Gest
Public Information Officer
[email protected]

WASHINGTON, D.C. – A Superior Court  judge has ruled that the District can proceed with civil charges against five people accused of taking part in a plan to divert funds from the Options Public Charter School, D.C. Attorney General Irvin B. Nathan said today.

In a lengthy and detailed legal opinion, D.C. Superior Court Judge Craig Iscoe yesterday denied motions to dismiss filed by Donna Montgomery, David Cranford, Paul Dalton, J. C. Hayward, and Jeremy Williams.

In a complaint filed last October, the District alleged that, while employed by Options as its management team, Montgomery, Cranford, and Dalton engaged in a “pattern of self-dealing,” including a series of transactions with two for-profit corporations they controlled: Exceptional Education Management Corporation (EEMC) and Exceptional Education Service, Inc. at Options Public Charter School (EES).  These transactions, all made with government funds, accounted for more than $3 million in improper payments, the complaint charged. The District’s complaint also names as defendants Hayward, the former chair of Options’ board of trustees, and Williams, former chief financial officer of the District of Columbia Public Charter School Board (PCSB), who served on the Options Board of Trustees Finance Committee and acted as a business advisor to EEMC while still employed by the PCSB. Within days of the filing of the complaint, the judge, at the District’s request, appointed a receiver for the school.

In yesterday’s opinion, Judge Iscoe found that, “the District has sufficiently pleaded that Defendants may have participated in a plan to run Options contrary to its nonprofit purposes.” He added that the District “established that the Court continues to have jurisdiction and that that the District properly brought the action under the Nonprofit Corporation Act.”

The judge also concluded that the District that sufficiently pleaded factual allegations against  Montgomery, Cranford, Dalton, Hayward, and Williams, and corporate defendants EEMC and EES, and thus denied their motions to dismiss the charges against them.

The District has asked Judge Iscoe to permit the filing of an amended complaint charging that in 2012-2013, Montgomery, Cranford, and Dalton received a total of nearly $1.3 million in additional compensation from Options on top of their salaries from the school. It also charges that the then-CFO of PCSB received about $150,000 from the managers’ for-profit corporations, much of it while he was helping the managers to evade oversight and divert school dollars to themselves. According to the amended complaint, one of the for-profit corporations originally belonged to the school, but its shares were subsequently divided among the school’s managers, with the CEO receiving an 80% share.

Attorney General Nathan said, "We are pleased that the Court recognized that the District has presented sufficient allegations to sustain its claim that the defendants participated in a plan to run Options in violation of its non-profit charter. We are prepared to prove significant misconduct beyond that set forth in our original complaint."