OKLAHOMA CITY (KFOR) – This past week saw one of the biggest developments yet in the ongoing legal saga of Epic Charter Schools.
The Oklahoma State Bureau of Investigation arrested Epic founders Ben Harris and David Chaney, and Josh Brock, its former Chief Financial Officer (CFO), on multiple charges stemming from investigations dating back to 2013.
Harris, Chaney and Brock face charges of:
- Embezzlement of State Funds
- Obtaining Money by False Pretense
- Conspiracy to Commit a Felony
- Violation of the Oklahoma Computer Crimes Act
- Submitting False Documents to the State
- Unlawful Proceeds.
OSBI launched an investigation in 2013 at the request of then-Governor Mary Fallin based on a complaint from the Oklahoma State Department of Education (OSDE) of dual enrollment.
Officials broke down Epic’s pay scale in a probable cause affidavit, saying it was similar to a pyramid scheme.
“Epic recruited teachers based on a pay scale where they were paid $1,000 per student per year. Epic teachers and families of students were encouraged to recruit more students for Epic. Teachers were given pay bonuses for each student they recruited, and families were given a bonus credited to their Student Learning Fund account for each student they recruited. The bonuses were paid with state funds and created a situation similar to a pyramid scheme. The more students that were recruited the more money Chaney and Harris made.
In a pyramid scheme low level investors recruit additional investors (students) and are paid a bonus dependent on the number of investors recruited. The bonus is a small portion of the money the management/owners at the top of the pyramid receive from the addition of each investor. Even though the low-level recruiters make money through their bonus payments, the owners/managers make more money. The difference with Epic is that low level investors (teachers/students) don’t lose money because the money is provided by the State of Oklahoma for each student enrolled.”Probable cause affidavit
Epic administrators boasted some of the highest paid school administrative salaries in Oklahoma, according to an Oklahoma.
“Most of the upper-level administration consisted of either family or personal friends of Chaney, Harris, or Brock,” the report states, adding that Chaney and Harris often gave expensive gifts worth thousands of dollars.
The report says that Epic’s recruitment led to teachers at private schools becoming teachers for Epic, and simultaneously enrolling their private school students as public-school students at Epic. The teachers were then paid by both entities.
Investigators found that students from St. John’s Christian Heritage Academy, St. Peter and Paul Catholic School, Bridge of Hope and Rising High Christian Academy were dual enrolled with Epic.
“Some parents whose children were enrolled in these schools had no knowledge their children were fraudulently enrolled in Epic. A parent confirmed her child was enrolled in RHCA, but never enrolled the child in Epic. An administrator of RHCA reported she had an ‘arrangement’ with Epic that provided RHCA with supplies and services in exchange for the enrollment of RHCA students,” the report claimed.
One Epic teacher told investigators many of her students were homeschooled by their parents, and the parents would provide their children’s identities to Epic in exchange for products and services. The teacher reported the situation to her supervisors, but they told her to “conceal the fact that the homeschooled students were not participating in Epic.”
The report claims that the students were given credit for ‘doing yard work,’ or ‘just talking with them on the phone.’
KFOR obtained a lengthy affidavit filed by Oklahoma County District Attorney David Prater, detailing over more than a decade of Epic-related activities that led to the recent arrests of Chaney, Harris and Brock.
July of 2010
Authorities interviewed Robert Stem, who was a former board member for Community Strategies. Stem said he became the board chairman because he was the only one who lived in Oklahoma City and could sign required documents.
“Stem admitted that he did not always know what he was signing,” the affidavit stated.
Stem signed a contract agreement between Epic and Epic Youth Services, giving EYS the power to manage Epic.
“The Board did not take requests for proposals from other management companies and the Board may have made a mistake by not doing so,” the affidavit stated.
Officials say Epic Youth Services was a for-profit Education Management Organization that was owned equally by Chaney and Harris.
Under the contract, EYS would receive a fee equal to 10% of all revenue received by Epic. Officials learned that the fee has generated more than $69 million for the owners of EYS since 2013.
Chaney, who was acting as superintendent for Epic, was able to negotiate contracts without board approval at the same time that he was co-owner of EYS.
Fall of 2010
Investigators interviewed Dusty Chancey, the superintendent of the Graham-Dustin Public School District in Okfuskee County. Officials learned that Harris had approached Chancey in the fall of 2010 and asked if the school district would be willing to sponsor Epic as a charter school.
After the proposal was approved by the school board, Graham entered into a sponsorship contract in December of 2010, which entitled Community Strategies to receive state appropriated funds for Epic from the Oklahoma State Department of Education.
Chancey said he was concerned about the sponsorship because neither Harris nor Chaney had a background in education administration. Chaney reportedly presented himself as Epic’s superintendent but didn’t have a superintendent certification.
August of 2011
Epic opened, and Dusty Chancey said he immediately had problems with the school. The Oklahoma State Department of Education complained that Epic was operating sites from churches in Oklahoma City, which was outside of their authorized area.
“Epic did not perform required background checks on their instructors. Epic paid for extracurricular activities for Epic students in organizations whose coaches were not certified by the Oklahoma Secondary School Athletic Association,” the affidavit states.
Chancey said he tried to correct problems at Epic, but Chaney and Harris would appeal to the education department. If the agency didn’t support Epic, Chancey claimed that Harris and Chaney would have their attorney threaten to sue the Graham Public School District.
One problem centered around the Student Learning Fund, which was a program marketed by Epic that allowed parents to have a choice in how some of the state appropriated funds for their student was spent. Payments were sent directly to parents and other individuals.
“There was no oversight to ensure the money was spent on items or services that provided for the student’s educational needs,” the report stated.
Eventually, Brock and Chaney opened a separate bank account where they would deposit state appropriated funds. They would then allegedly maintain those funds “outside the purview of public oversight.”
“Chaney and Harris continuously made public comment that the money in the Student Learning Fund was their money to spend as they chose,” the affidavit read.
Between December of 2014 and June of 2021, officials say public funds were transferred from the Student Learning Fund bank account directly to the EYS bank account, which resulted in $3,279,785 in embezzlement.
November of 2015
In November of 2015, Chaney and Harris proposed the creation of the non-profit Community Strategies -CA. Epic was also authorized to open an online charter school for the 2016-2017 school year in California.
Chaney and Harris reportedly said that the Oklahoma and California schools would share the same administrative structure, and expanding to California would help Oklahoma.
“Harris directed and controlled the establishment and relationship between Community Strategies and CS-CA in a manner that would ultimately profit the expansion of their brand ‘Epic’ to California at the expense of Oklahoma tax dollars,” the report stated.
Even before a California charter school was created, funds from Oklahoma taxpayers were being pledged to create a public charter school in California.
July of 2016
The Community Strategies Board authorized Brock to serve as the school’s encumbrance clerk and Chief Financial Officer. Brock also served as the encumbrance clerk since the school’s inception.
Authorities say Brock was not a school employee but was a contractor of EYS, where he was also CFO.
“Brock also effectively controlled both sides of the financial transactions of Epic,” the report states.
The report says EYS had zero employees prior to October of 2018.
“Chaney, Harris, and Brock managed all aspects of the school including the bank accounts,” the report stated.
May of 2017
In May of 2017, Community Strategies entered into a charter contract with Rose State College to sponsor Epic Blended Charter Schools. Epic Blended also hired EYS to manage the company.
Although Epic Blended and Epic One-on-One were separate public schools, investigators found that they commonly shared teachers, administrative staff, and costs. They were supported predominately by state appropriated public funding and federal funds, which were also comingled. However, the report states that comingling is prohibited.
“[Special agents] reviewed the bank account records for the Student Learning Fund payments and confirmed that payments for One-on-One and Epic Blended were combined into one account. Funds were commonly moved back and forth from the operating accounts of One-on-One and Epic Blended,” it states.
June of 2017
Records show $100,000 was taken from the Student Learning Fund and sent to CS-CA’s bank account, which was then wired to Panola Public Schools. Two years later, Panola Public Schools made a $100,000 payment to CS-CA.
“A review of Panola Public Schools bank accounts by the SA&I revealed that Brock and Chaney were both signers on the Panola bank account,” the report states.
November of 2018
Authorities say an American Express credit card that was issued jointly in Chaney’s name and another company was used to make Student Learning Fund purchases.
Officials say Chaney used his card to make personal purchases, including political contributions and vacations. However, they say he used the Student Learning Fund as a line-of-credit to cover his personal expenses.
“On the AMEX card, Chaney’s personal purchases exceeded his personal payments and applied credits resulting in personal expenses illegally being paid with public funds totaling $377,835,” the report states.
Also, many of the purchases benefited Epic California, but were paid for with Oklahoma tax dollars.
April to July of 2019
Investigators learned that Epic spent over $2.6 million on advertising, media, and promotional mall playgrounds between April and July of 2019.
After SA&I requested Student Learning Fund documentation and began challenging the authenticity of management invoices, EYS created EDTECH, “a ‘shell company’ to conceal their profits,'” the report stated.
Officials say Chaney and Harris created EDTECH.
January of 2020
On Jan. 23, 2020, EYS paid EDTECH $800,000 in ‘contract’ pay. The same day, Chaney, Harris, and Brock received checks.
Chaney and Harris were paid $350,000 each and Brock was paid $100,000.
Between January and September of 2020, EYS paid EDTECH $11,210,000, of which 80% consisted of management fees that EYS had received from Epic. The funds were then primarily converted into payments to Chaney, Harris, and Brock.
March of 2021
During interviews with the OSBI, two Epic employees said they saw Harris admit to loaning money from the Student Learning Fund to both Epic California and EYS.
On March 22, 2021, Epic’s legal counsel sent a letter to the Oklahoma State Department of Education, admitting that EYS ‘loaned’ money to Epic California. However, he claimed the money had been repaid.
“Per unredacted Student Learning Fund bank statements subsequently obtained by the OSBI, it was evident that the information presented by Hickman to SDE was false and that EYS transferred more money out of the Student Learning Fund to EYS than allegedly repaid. The evidence provided SDE was redacted to conceal the truth,” the affidavit states.
As part of the investigation, OSBI contracted a company to provide forensic accounting services. According to records dating back to September of 2013, EYS received over $69.3 million in management fees.
“Out of the $69.3 million, Harris individually received more than $24.8 million, Chaney received more than $23.2 million, and Brock received more than $7.1 million, resulting in a combined total of $55.1 million being paid directly to Chaney, Harris, and Brock. This left $14.2 million for the management of the school between 2013 and 2021,” the report claimed.
Epic obtained annual independent financial audits for FY 2021 for Epic One-on-One and Epic Blended, following the release of SA&I’s investigative audit. Arledge & Associates, P.C. performed the independent audits, which covered the final year Chaney and Harris managed Epic.
“The audit report of Arledge & Associates, P.C. included several findings of substantial wrongdoing and reinforced the reported concerns of SA&I and the OSBI,” the affidavit states.
Arledge & Associates’ FY 2021 audit included the following findings:
Previous management did not set an appropriate “tone at the top” to ensure ethical behavior and ensure that the designed structures aligned with Epic’s objective.
EYS charged management fees to Epic, but did not outline specific services provided.
“The management of EYS also served in management roles for Epic and approved payments to EYS. Additionally, management of Epic, and consequently, EYS, were allowed to appoint board members for Epic. This circular relationship created a conflict of interest between EYS and Epic where approvals were made without appropriate security for payments to EYS,” the audit states.
Epic sent money it received from the Student Learning Fund to EYS. Those funds were not monitored by Epic management.
“As the funds were transferred to EYS, it is unknown whether or not funds were used according to specified purposes by the student and it is also unknown how much of the funds were utilized. As a result, there could be unused funds that should be returned to Epic or student activities that were approved that were not allowed under school policy and/or state statute,” the audit states.
EYS charged Epic a standard 10% rate for administrative services.
“These expenses were not itemized on invoices submitted and the costs were estimated by each line item on the invoice,” the audit states.
Payments totaling $52,478,358 were made to EYS during the fiscal year ending on June 30, 2021, but the submitted invoices complied with neither Title 70 requirements under Oklahoma State Statutes, nor with Uniform Guidance requirements.
“As a result, expenditures under these invoices may not have been allowable as administrative services,” the audit states.
Arledge & Associates recommended the following:
- Epic have a management and board completely independent of any vendors, and related parties be disclosed to the board before approval of any payment or contract.
- The board enforce any conflict of interest policy for themselves as well as Epic management.
- Epic’s relationship with EYS be terminated.
- Student Learning Funds be retained and monitored by Epic to ensure they are used for valid purposes in accordance with state appropriations.
- Management use their control processes to deny approval to any invoices that do not meet the criteria established in Title 70 and within Uniform Guidance.
CBEW Professional Group, LLP, Chuck Crooks, CPA, conducted 12 audits of Epic One-on-One and Epic Blended prior to FY 2021, but those audits did not include any audit findings.
Community Strategies hired Linda Ladd as their internal auditor in reaction to the SA&I audit. Ladd performed a limited review on the Student Learning Fund. She told the board there were no reportable issues. She made a presentation to the OSDE, saying SA&I’s audit findings had no merit.
The OSBI interviewed Ladd. She said her only audit of the Student Learning Fund was a contract audit for Epic.
“Ladd never audited the financial aspect of the Student Learning Fund herself and never had access to the records of EYS,” the affidavit states.
Ladd also revealed she is Brock’s relative.
The Eighteenth Multicounty Grand Jury of Oklahoma issued Interim Report Number 13 on May 6, addressing “several overriding concerns” of Epic and related entities. Those concerns are as follows:
a. the intentional diversion of public funds;
b. the obfuscation of public employees; and
c. a lack of cooperation with oversight entities.
Obtaining Political Influence
March of 2014 to May of 2021
Chaney and Harris and/or EYS gave regular monthly payments ranging from $5,000 to $9,000, totaling over $520,000, to Capitol Gains between March 2014 and May 2021. Capitol Gains is owned by Stem, a registered lobbyist and former Community Strategies board member.
Mathew Hamrick, Chaney’s personal friend, ran for the District 45 State Senate seat during a special election on Aug. 8, 2017. Hamrick served on the Statewide Virtual Charter School Board (SVCSB), the sponsor of Epic One-on-One. Chaney and other Epic-related individuals made political donations to Hamrick, providing 55% of his campaign funding.
Hamrick filed an affidavit as part of a “Friend of the Court” amicus brief on EYS’ behalf in opposition to SVCSB’s and SA&I’s position in a lawsuit SA&I filed against EYS. SA&I filed the lawsuit to access Student Learning Fund records.
December of 2019 to April of 2020
Chaney’s American Express credit card was used to pay $100,000 to the Oklahoma Council on Public Affairs between Dec. 8, 2019, and April 30, 2020.
“This organization became a vocal opponent of SA&I after the investigative audit was released,” the affidavit states.
Chaney’s AmEX was partially paid from the Student Learning Fund.
The affidavit noted that Chaney, Harris, Brock and other EYS/Epic-related parties made numerous political donations, some of which were paid with Chaney’s AmEx, which, as previously noted, was partially paid by the Student Learning Fund.
The below list of political donations between 2014 and 2020 was provided in the affidavit. It includes donations from Chaney’s AmEx, as well as other donations from Chaney, Harris and Brock listed on the Oklahoma Ethics Commission website. But the list does not include all donations from Chaney, Harris and Brock’s personal bank accounts.
Former CS-CA board member Preston Stinson ran for the Oklahoma House of Representatives in 2020. Chaney, Harris and other EYS-related parties gave at least $28,000 to his campaign.
May of 2020
A $22,000 payment was made from the EYS General Fund to the State Chamber of Oklahoma on May 26, 2020. The State Chamber filed an Amicus Curiae Brief six days earlier as part of the SA&I court case. The brief opposed SA&I’s subpoena to obtain Student Learning Fund records. Chaney served on the State Chamber’s Board of Directors.
Another EYS check for $33,252.55 was written to the State Chamber of Oklahoma three months later.
October of 2020
A maximum $5,600 donation was made to State Sen. Paul Rosino’s campaign on Oct. 3, 2020, two days after SA&I released its report on Epic.
Rosino then wrote Senate Bill 895, which sought to limit the State Auditor’s authority, control how they reported investigative audit findings and significantly cut their funding.
Attacking Ron Sharp
Chaney and Harris used financial and political resources to influence the re-election of then-State Sen. Ron Sharp, who frequently spoke against Epic using state-appropriated funds for the Student Learning Fund and other aspects of Epic’s operation. Sharp also wrote several bills to limit how charter schools use state funds, seeking to bring them in line with traditional brick and mortar schools.
Harris made payments from his personal bank account to Cannon Research Group, an opposition research company. Cannon produced negative campaign mailers about Sharp during the 2020 election period.
Harris made large donations to Political Action Committees formed to spread negative information about Sharp.
EDTECH paid a combined $20,000 to Campaign Advocacy Management Professionals to produce campaign ads attacking Sharp.
The affidavit included a further breakdown of Chaney and Harris’ financial contributions to political action committees, lobbying firms and public relations organizations:
Chaney and Harris used their finances to fund multiple lawsuits to protect their business model and funding sources, according to the affidavit.
- Harris and Chaney, through an attorney, convinced the Community Strategies board to use state-appropriated funds to file a libel lawsuit against Sharp in 2019. The lawsuit was later dismissed. Sharp was awarded compensation through a countersuit.
- Community Strategies and EYS’ relationship ended through a mutual termination agreement on June 30, 2021. EYS filed a lawsuit against Community Strategies in Oklahoma County District Court in December 2021. EYS had agreed to provide reasonable assistance with data migration for 90 days. EYS claimed the agreement extended the contract, therefore the schools should give them 10% of Epic One-on-One and Epic Blended’s collected revenues. EYS sought additional payments totaling $6,840,275.78.
- CS-CA and Community Strategies’ relationship ended on June 30, 2021. CS-CA reorganized into a separate entity. Harris and Chaney remained involved with CS-CA and Epic California. CS-CA sent Community Strategies a $430,573.11 invoice in August 2021 for work four Epic California employees allegedly performed for Epic. Community Strategies did not pay the invoice. CS-CA filed a civil lawsuit against Community Strategies in District Court on March 11, 2022.
- Four families whose children were allowed to be dual-enrolled in a private school and Epic sued Community Strategies. Epic unenrolled the students in accordance with a revised position in Epic’s contract with SVCSB. The families sued because of a loss of amenities provided by Epic. The suit was dismissed.
- SA&I subpoenaed EYS’ Student Learning Fund records after EYS denied access. EYS did not comply with the subpoena, prompting SA&I to file a motion for an order compelling compliance with an administrative subpoena in District Court on March 5, 2020.
Lack of Cooperation
The affidavit states that the OSBI and SA&I experienced unprecedented lack of cooperation and roadblocks from Community Strategies, CS-CA, their subsidiary, their charter management organization and their legal counsels.
“The legal counsel of Community Strategies, EYS, and CS-CA erected barriers around personnel and records limiting access to both. Most interviews had to be conducted in the presence of legal counsel and many individuals refused to be interviewed at all,” the affidavit states.