Who knows what else is inside the box?
getty
The lawsuit between Stride LearningLRN Inc. and one of its subsidiaries shows how cutthroat the for-profit education business can be. Future of School and the for-profit education giant are embroiled in a legal battle. The released depositions from the two major political parties raise a cloud, both obscuring and revealing a difficult struggle.
“They gave me a baby and told me to raise it. I did it. Then they threw it out the window,” says Future of School CEO Amy Valentine.
K12/Stride
Stride Inc started as a for-profit K12 company dedicated to providing online and blended learning. The company was founded in 2000 by former banker and McKinsey consultant Ron Packard and quickly became a leading national company in cyber schools.
One of the first large investors was Michal Milken. The investment comes 10 years after he ended his reign as the “junk bond king” by pleading guilty to six felonies in “the securities industry’s biggest fraud case.” Milken was sentenced to 10 years in prison, with two years to serve, and was prohibited from making any securities investments. In 1996, he founded Knowledge Universe, an organization he founded with his brother Lowell and Larry Ellison (OracleORCL). The two funded K-12 education.
K12 is not immune to controversy and courtrooms.
In 2011, The New York Times detailed how K-12 schools were failing miserably and still generating huge profits for investors and executives. Former teachers openly wrote about their experiences. In 2012, the state of Florida busted them for using false teachers. The NCAA has added the K-12 school to the list of cyber schools that have been stripped of sports eligibility. In 2014, Packard was one of the highest-paid public servants in the country “despite only 28% of K-12 schools meeting state standards in 2011-2012.” There was found.
In 2013, K12 filed a class action lawsuit in Virginia that was settled for $6.75 million after shareholders accused the company of misleading them about “the company’s business practices and academic performance.” In 2014, Middlebury College faculty and staff voted to end its partnership with K12, stating that K12’s business practices were “contrary to the integrity, reputation, and educational mission of the college.”
Mr. Packard himself was accused of misleading investors with overly positive public statements and then selling 43% of his company’s K12 stock before the stock price fell on bad news. Shortly thereafter in his 2014, he stepped down from his K12 leadership to start a new business.
In 2016, K12 found itself in trouble again in California for lying about student admissions, resulting in a $165 million settlement with then-Attorney General Kamala Harris. K12 was repeatedly removed in some states and cities due to its poor performance.
In 2020, they won a major contract in Miami-Dade County (after donating significant profits to an organization run by the superintendent). Wired magazine then wrote an article about their “spectacular series of technical errors.” K12 was sued in Virginia for grossly exaggerating its technological capabilities, and successfully defended itself by arguing that such claims were merely promoting “exaggerations.”
In November 2021, K12 announced that it would be rebranding itself to Stride.
The New York Times reported that Mr. Packard has called lobbying the company’s “core competency,” and that the company has spent millions of dollars on that very activity. And despite his problems, Stride is still beloved on Wall Street for his money-making abilities.
K12 establishes foundation
In 2015, K12 established the Foundation for Blended Online Learning (FBOL). It was an attempt to generate some support for the ideas that underpin K12’s entire business. He was the CEO and the only employee of the company.
Amy Valentine has already been with K12 for several years, serving as the executive director of K12 operations in Colorado. The Foundation’s activities were to provide scholarships and grants to teachers, students, and organizations as a way to “advance the industry.” They also produced several studies on the effectiveness of blended and online schools. Valentine said brick-and-mortar schools with integrated technology have been found to be most effective.
Valentine was still on the K-12 payroll, and the foundation was completely dependent on K-12 funding for its survival. But Valentine and K12 CEO Nate Davis agreed that K12 should become an independent organization and began working on a long-term plan to accomplish that. With that in mind, she says the foundation changed its name to Future of School.
Although FBOL/FoS has an independent board, a direct relationship with K12 soon developed. Tony Bennett was invited to serve on the Foundation Board of Directors and became its Chairman. Shortly thereafter, Bennett was hired as part of K12’s leadership team. Bennett, a former Florida education commissioner, is accused of fabricating and altering the state’s grades given to charter schools founded by major Republican donors while in the top position in Indiana’s schools. As a result, he resigned in 2013.
trouble begins
The next section of this article draws on two depositions that are available online. One is Mr. Valentine and the other is James Rhyu, the current CEO of Stride.
In early 2021, Davis stepped down as Stride CEO and was replaced by CFOCFO James Liu. Valentine said Davis warned her that Lew would be more strict about funding Future of Schools.
In April 2021, Stride pledged $2.5 million. On June 30, 2021 (end of the financial year), Mr. Rhyu sent Mr. Valentine the following email:
I am comfortable working with the Future of School program for many years. The deal is for up to five years and worth $3.5 million, with no strings attached.
Stride referred to itself as a “proud sponsor” of FoS in various promotional materials. Stride also leveraged his FoS support to enhance its ESG standing. ESG (Environmental, Social, and Government) ratings are used to demonstrate that companies operate in a socially responsible manner and are widely adopted in the corporate world. Stride has released “the first comprehensive his ESG report,” which aims to “provide a basis for disclosing companies’ environmental and social responsibility efforts in the coming years.” This report includes a full page on Stride’s support for Future of School.
It seemed like a win-win.
The first $1.2 million was donated to FoS. But as the year progressed, Valentine realized he wasn’t getting the funding he had hoped for.
It is less clear why this is not the case. In his testimony, Mr. Liu was evasive and his explanations sometimes gave the impression of being roundabout. Let’s have a little taste here.
Q: What is ESG?
Rhyu: A letter of the alphabet. I don’t know.
Q: Don’t know what ESG in a company is?
Rhyu: Well, I think there’s a lot of different ESG things out there. I don’t know which one you’re talking about.
Q: Can you name one?
Ryu: Well, there is a principle of corporate governance called ESG.
Q: Yes. Can you also think about other people?
Rhyu: I can’t get it out of my head.
In the 312-page dossier, FoS lawyers repeatedly tried to press Mr. Liu on why the funding was not provided, receiving a variety of responses: There were no conditions on the funding, but there were certain conditions. Funding was withheld because it was not met. I haven’t met you. Mr Liu returned to the idea that FoS was not sufficiently self-sufficient, and Stride returned to the idea that he did not have a legally binding contract with FoS for funding.
Valentine’s day is obvious. Without funding from Stride, Future of School would not be able to complete its transition to public charity. They will go out of business completely.
But his stride doesn’t give up an inch. The lawsuit that started this tangle of litigation was filed by Stride, which is asking the court to issue a declaratory judgment that it does not need to fund FoS. FoS subsequently filed a counterclaim.
Valentine claims that Stride members of the FoS tried to dissolve the organization (the board is now down to three members). She also alleges that one of her settlement offers was to fire her, dissolve the organization and absorb its operations into Stride. The remaining FoS representatives want a jury trial.
Any Valentine who agreed to speak with me for this story. Stride said through a spokesperson that it does not comment on ongoing litigation.
Other surprises in the deposition
Other details about Stride emerged as lawyers pursued ESG issues.
The lawyer asks Ryu where the impetus for emphasizing ESG came from, and directs Ryu to Stride’s audit committee. Lew remembers two people on that committee who were “part of the discussion”: Steve Fink and Rob Cohen. In addition to serving on the Audit Committee, Steve Fink is a member of Stride’s Board of Directors.
The FoS lawyer then asks if BlackRock is an investor in Stride. Rhyu hedged a little, then said, “BlackRock is an investor in that company. They’re long-time investors. I think they’ve probably been investing in the stock for over 10 years.”
BlackRock is the world’s largest asset management company, founded and led by Larry Fink. Mr. Fink is sometimes called the “face of ESG” but has been criticized by some on the right as “woke.”
After confirming that BlackRock was a long-time investor, the lawyer moved forward.
Q: Is Steve Fink related to Larry Fink of Black Rock?
Ryu: We’re brothers.
Q: They are brothers. Understood.
If it seems surprising that a board member is the brother of a major investor, that may be by design. Larry Fink is notoriously private about his family, but if you search for his two brothers’ names, all you’ll find is a 2000 Forbes article.
Lally said Steve Fink moved next door to Michael Milken in 1984 and has since become “one of Mr. Milken’s most trusted confidants” and “the person he relies on to solve business problems.” This is completely unrelated to the article that describes how he became a person. Larry Fink founded BlackRock under Steve Schwartzman’s Blackstone Group BX in 1988. At the time the Forbes article was published, Steve Fink was leading his Nextera, part of Milken’s Knowledge Universe Web. Additionally, Milken graduated from the same public high school as Larry Fink, according to a 2011 Seattle Times article.
Why did Amy Valentine put herself in the middle of this problem?
There’s another piece of the puzzle here. Why did Valentine agree to fight the Foundation in the first place?
The answer, as Valentine explained in both an interview and a deposition, was a question of sexual harassment. In 2014, when Valentine was still overseeing some of K12’s activities in Colorado, K12’s general counsel told her, “If you don’t do X or Y or Z with him, he’s not going to include it.” No,” he said. [Valentine] in conversations and contracts. ” He was also physically inappropriate. After this was reported to her supervisor, he was fired.
K12 then contracted with a third-party firm that was preparing to bring the same attorney back to Valentine’s work area in 2015. Valentine was fired without cause. She hired her own lawyer, her lawyer contacted the company, and her solution, which she chose, was to offer her a job equal to or better than the one she was fired from.
So she ended up raising this baby for Stride. “Now they’re trying to paint me as a liar,” she says.
What kind of company is it?
Stride calls itself a “learning company.” However, the more we sink into this tangle, the less we care about learning, teaching, and the students we meet.
The company is also the company that reported record revenue in 2022 with sales exceeding $400 million. This fight with Future of School is over the equivalent of Stride’s change. And this funding stream comes from taxpayer dollars collected for the purpose of educating students.
Regardless of the outcome, these dueling lawsuits could raise more questions than answers for major online learning companies. A solution doesn’t seem to be coming soon.
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