The Utah attorney general’s office weighed earlier this year whether to prosecute the founder of a mismanaged charter school for possible financial misconduct. But, in the end, investigators determined there was not enough evidence to secure a conviction.
“The attorneys weren’t confident they were going to get anything,” said Richard Piatt, spokesman for the attorney general’s office, on Tuesday.
The decision to not charge Michael Farley, who created the American International School of Utah (AISU), was made in February. A law firm hired by the charter had reviewed Farley’s work after his controversial departure and sent its allegations to the attorney general’s office. In a letter released this week, the director of the A.G.'s white collar and commercial enforcement division said it was “unlikely that a criminal conviction could be secured.”
Instead, the A.G.'s office filed a lawsuit on Friday against the school and the for-profit company that owns it — and it’s still related to the school’s financial troubles. The suit asserts that AISU improperly agreed to sell all its assets to the company rather than surrendering them to investors or to taxpayers, who are on the hook for the school’s debts.
The suit seeks the termination of the sales contract with the company and a temporary restraining orde that would prevent the company from benefitting financially as the school shuts down over poor performance.
Tasi Young, who succeeded Farley as director and has since left the post himself, now heads the company. Young said the school never owned the property and that the furniture was paid for by investors.
“This latest thing with the lawsuit, it borders on ridiculousness and utter waste of resources," said Young. “I just don’t know if this is incompetence at the state level or if they have some larger strategy. I don’t think this is legal rocket science.”
Young said the agreement to sells assets was actually meant to release any claims that the company had on the property, and he doesn’t intend to fight the lawsuit. But Young said he’s frustrated that the state is stepping in now — instead of helping when the charter could have used advice and support.
“[The state] denied us resources," he added. "They denied us help.”
Farley, though, was at the center of discussions involving the charter’s poor financial standing after the school’s board of directors voted to shutter the school last spring under pressure to repay debts. AISU will officially be out of business on Aug. 15.
The institution was first placed on “warning status” late last year for the money it owed — which several administrators at the school blame on mistakes made by Farley, who left after three years of running the charter and the company that owns it.
After years of concern in Utah about the oversight of charter schools, the legal actions involving AISU are a rarity. The potential criminal charge against Farley, for instance, is one of the first times such a case has been considered.
Piatt, the A.G.'s spokesman, said he didn’t know specifics about why there wasn’t enough evidence to file charges. But AISU has had issues since its founding five years ago. And Farley was the only person investigated in connection to the school, Piatt added.
“I never had any concern on legal issues,” Farley responded Tuesday. “But there’s nothing I can say that’s going to tilt the balance.”
He said he’s become the scapegoat for the school’s ongoing problems. And he contemplated filing a wrongful termination suit.
“I don’t accept at all the characterization they’ve made of me,” Farley said. “They, for the last two years, have been repeating this narrative that I think is self-serving and not accurate, and it’s damaged my reputation.”
The school owes the state and federal government $415,689 that was earmarked for special education. AISU, according to a scathing audit published by the Utah Board of Education, spent that money instead on salaries and health benefits or otherwise didn’t properly document it. The debt, due on June 26, has not been paid.
The school also faces potentially millions of dollars in other unspecified debt, according to Jordan King a school spokesman.
Closing of the charter school has been messy. Earlier this month, the Utah Charter School Board voted to remove Young, replacing him with state Auditor John Dougall.
At the same time, members of AISU’s board of directors — who had already signed the July 11 sales agreement with the company — resigned.
After less than a week, Dougall stepped down from the school position. Then Royce Van Tassell, executive director of the Utah Association of Public Charter Schools, was charged with overseeing the closure and trying to recoup some of the money owed. He picked three board members to join him.
But they all resigned, too, because the school ran out of liability insurance.
So now the lawsuit filed by the attorney general’s office will be among the last efforts to recover the money owed by school. The lawyers worry that desks, chairs, computers and other property there will be handed over to AIS LLC instead of to the state or other debtors who are owed.
“They didn’t have the authority to do that [agreement] under statute,” said Assistant Attorney General Alain Balmanno. “We feel fairly strongly that we’re right.”
He suggested the board may have signed it to help the LLC benefit financially from the closure. Balmanno filed the request to terminate that contract last week and for a temporary restraining order Monday.
As the process of closing the school continues, the Utah Board of Education will have a chance to weigh in Thursday and the state auditor intends to release the results of an investigation into the finances at the charter in December.
