A politically connected charter school chain based in the Chicago area has agreed to pay $4.5 million to end a long-running federal corruption investigation, the U.S. Department of Justice said.
Concept Schools Inc. — which has four publicly-financed campuses in Chicago and dozens of other charter schools in the Midwest — allegedly engaged in a bid-rigging scheme to steer federally funded technology contracts to insiders.
The costly, civil settlement with the government comes more than six years after federal agents raided the charter operator’s northwest suburban offices and other sites connected to Concept in Illinois, Indiana and Ohio.
In a statement this week, the Justice Department alleged Concept officials violated the federal False Claims Act “by engaging in non-competitive bidding practices” when they awarded contracts funded with taxpayer dollars from the government’s E-rate program. Through the program, the government subsidizes internet access at “needy public schools,” officials said.
“Today’s settlement demonstrates our continuing vigilance to ensure that those doing business with the government do not engage in anticompetitive conduct,” said Jeffrey Bossert, the acting assistant attorney general for the Justice Department’s Civil Division. “Government contractors and schools that seek to profit at the expense of taxpayers will face serious consequences.”
Concept has denied wrongdoing. The nonprofit organization is based in Schaumburg and runs 30 taxpayer-financed charter schools in Illinois, Wisconsin, Michigan, Minnesota, Indiana and Ohio.
Documents show all of Concept’s revenues come from managing taxpayer-funded schools.
Chicago Public Schools officials — who approved and oversee two Concept campuses in the city — are set to provide about $17 million for those schools this year. The two other Concept-run schools in Chicago are regulated by the state, which is giving them another $22 million for the current year.
The four schools in Chicago, in turn, pay a total of $3.8 million a year to Concept in management fees, records show.
Concept’s charter network runs four campuses in the city: Chicago Math and Science Academy, Horizon Science Academy Southwest Chicago, Horizon Science Academy Belmont and Horizon Science Academy McKinley Park.
Chicago Public Schools officials said the charter school operator cannot use money it provided for the education of students to pay the settlement. They also said they are asking the school district’s inspector general to look into the situation, even though there was no allegation that district resources were misused.
Tax dollars to insiders — and “away from the charter schools”
The federal corruption probe came into public view in June 2014, when agents raided Concept’s headquarters at the time in Des Plaines and the Chicago Math and Science Academy, in the Rogers Park neighborhood.
Court records show authorities launched the raids because they suspected a long-running “scheme to defraud a federal program.” The feds said at the time that Concept funneled about $5 million in federal grant funds to insiders and “away from the charter schools,” the Chicago Sun-Times reported.
In announcing the settlement, the Justice Department accused Concept of giving its E-rate business to “chosen vendors without a meaningful, fair and open bidding process” and alleged the charter operator paid those vendors “higher prices than those approved by the [federal government] for equipment with the same functionality.”
And some of the equipment the federal government paid Concept for was “discovered missing,” the Justice Department said.
But in a statement last week, Concept officials sought to portray the settlement as an exoneration, because the probe did not result in criminal charges. They pointed out that in its press release on the settlement, the Justice Department said the “claims resolved by the settlement are allegations only and there has been no determination of liability.”
Concept officials also sought to blame their E-rate consultants for what they characterized as being “not compliant with certain aspects of the application process.”
Officials said the charter school operator is in good financial shape and can pay the fine without additional assistance from its schools. A spokesman for Concept said the money to pay the feds would come from the organization’s “savings.”
Allegations from “foreign actors” in Turkey
Concept officials also said they had been the subject of unfair allegations of wrongdoing from “foreign actors.” Although the statement from the charter operator did not specify what foreign critics they were referring to, the charter chain run by Turkish immigrants has faced criticism from the government of their homeland for several years.
In a civil case in federal court in Chicago in August, the Turkish government sought information about Concept and a long list of “relevant individuals and entities.”
Turkey says Concept and other charter school networks across the U.S. “were created to siphon public, taxpayer funds away from the education of children in order to finance the international political activities of Fethullah Gulen, an exiled Turkish cleric residing in the State of Pennsylvania.”
Gulen once was a staunch supporter of Turkish leader Recep Tayyip Erdogan. But the two men have become bitter enemies, with Erdogan pressing the U.S. to extradite Gulen. Erdogan has accused Gulen of orchestrating a failed coup against him in 2016.
According to the court filing here, Turkey “has initiated an investigation within its own borders to determine whether the proceeds derived from these illegal activities in the United States are being unlawfully transported and transmitted to individuals in Turkey in violation of Turkish criminal law, including international money laundering and fraud.”
Christopher Hotaling, a Chicago lawyer representing Turkey in the case, declined to comment Thursday.
Attorneys for Concept and its schools have sought to block the Turkish government’s legal efforts here. They argued they are not affiliated with Gulen and have been the target of an “attempt to engage in further harassment and persecution of perceived political opponents,” court records show.
Concept’s long-time president and chief executive, Sedat Duman, filed a statement in the case earlier this week, informing the court that a settlement with the Justice Department was reached on Friday. But in that statement, Duman did not mention the $4.5 million fine.
Madigan connection
Concept also has connections to one of the most powerful politicians in Illinois — state House Speaker and Democratic Party Chairman Michael Madigan of Chicago.
In videos posted to social media, Madigan and his adult children Andrew and Nicole are seen visiting a Concept school in Chicago and praising the charter network in 2012.
Michael Madigan urged the Chicago Math and Science Academy to “just stay on course,” while Andrew Madigan — whose employer has provided insurance for Concept schools in Chicago — said he was “very impressed” by the students and teachers there.
The speaker, his wife Shirley and other Madigan allies repeatedly travelled in Turkey as guests of a Gulen-led foundation and other Turkish groups in Chicago.
According to economic-interest statements he filed with the state, Michael Madigan made four trips to Turkey from 2009 through 2012 — before Gulen fell out with Erdogan.
Dan Mihalopoulos is an investigative reporter on WBEZ’s Government & Politics Team. Follow him on Twitter @dmihalopoulos. Sarah Karp covers education for WBEZ. Follow her on Twitter @WBEZeducation and @sskedreporter.