Virtual school fraud scheme could lead to lengthy federal prison terms for defendants

Two central Indiana men face years in federal prison for several counts of wire fraud for their roles in a fraud scheme involving online charter schools, according to prosecutors.

A federal jury found Phillip Holden, 65, of Middletown guilty earlier this month of 17 counts of wire fraud and one count of conspiracy to commit wire fraud for a scheme that took more than $60 million in state education funding through two schools, according to the U.S. Attorney’s Office for the Southern District of Indiana.

Prosecutors say Thomas Stoughton, 77, of Carmel pleaded guilty to 58 counts of money laundering, 17 counts of wire fraud and the one conspiracy count the day before his trial was supposed to start.

Both men are scheduled to be sentenced early next year. Holden faces up to 20 years in prison for each of his counts. Stoughton faces the same amount of time for his fraud counts and 10 years in prison for each money laundering count.

Holden’s attorney Jon Little said Thursday that his client was just doing his job and did not know he was involved in a broader fraudulent scheme.

“I’m sad about the jury’s verdict,” he said. “We’re exploring our options.”

Stoughton’s attorney, Mark Inman, called his client’s plea the right thing to do because the government’s case was “overwhelming.”

“He’s 77 years old, he’s had a couple health issues,” Inman said. “Hopefully his acceptance of responsibility will result in a sentence where he won’t die in prison.”

Federal prosecutors say Stoughton founded the Indiana Virtual School and Indiana Virtual Pathways Academy, and Holden served as director of operations for both schools.

The U.S. attorney’s office said in a statement that the Holden and Houghton participated in a scheme to fraudulently inflate student enrollment totals reported to the state Department of Education. State funding for schools is based on enrollment.

The defendants submitted false enrollment numbers claiming more than 6,000 students were enrolled between the summers of 2016 and 2018, according to the statement.

Prosecutors said school employees were told to use incomplete applications to enroll students ahead of enrollment count days. Employees also were instructed to stop verifying student interest before enrollment or reenrollment. That allowed inactive and ineligible individuals to be counted.

The defendants “treated taxpayer-funded education dollars as a personal revenue stream, siphoning millions of dollars away from their intended purpose,” said Tom Wheeler, United States Attorney for the Southern District of Indiana, in the statement from his office.

Others involved in the scheme include former school Superintendent Percy Clark, 84, of Carmel and school operations manager Christopher King, 64, of Greens Fork, according to the statement.

Clark and King previously pleaded guilty to one count each of conspiracy to commit wire fraud.

Clark, a longtime educator, was the superintendent of Lawrence Township Schools from 1982 to 1996 before resigning when the school board accused him of lying about an extramarital relationship with an elementary school principal.

An attorney representing Clark declined to comment when contacted Thursday by The Indiana Lawyer. King’s attorney declined comment.