Charter School’s Former Board President Admits to Fraud Scheme

PHILADELPHIA—Hugh C. Clark, 65, of Philadelphia, pleaded guilty today to conspiracy, wire fraud, bank fraud, and theft from a federally funded program stemming from a scheme to defraud the Philadelphia-based New Media Technology Charter School (New Media). Clark was the president of the board at the time of the fraud. The 28-count superseding indictment charged Clark and Ina Walker, who was the CEO at the time, with improperly using approximately $522,000 in New Media funds to enrich themselves and advance their personal interests. A sentencing hearing is expected for July 2012. Walker pleaded guilty to the charges on January 20, 2012. New Media was a charter school funded with federal tax dollars. Clark and Walker stole school funds to pay expenses at a small private school they controlled, Lotus Academy; to advance their personal business ventures, including the Black Olive health food store and the Black Olive restaurant; and to pay their own personal expenses. Clark also diverted substantial funds from New Media and Lotus Academy to benefit Tekhen, a web design and Internet access company he owned and controlled.

As a result of the defendants’ improper and fraudulent use of funds, New Media failed to meet its expenses, such as employee payroll checks, monthly employee withholdings, and quarterly employer contributions to the Pennsylvania School Employees Retirement System; payments to the school’s athletic coaches; and payments to a textbook vendor.

Clark and Walker diverted at least $309,000 in fraudulent payments directly to Lotus Academy, which were often disguised as prepaid rent or bogus security deposits. Once the funds were deposited into Lotus Academy bank accounts, the defendants spent the money on the expenses of their private school and on their personal and business ventures.

Clark and Walker also used approximately $213,000 of New Media funds to pay third parties for expenses associated with Lotus Academy, the Black Olive business ventures, Tekhen, and personal expenses. They often disguised these payments by adding additional expenses to existing New Media expenses. For example, Clark and Walker used New Media funds to hire and pay a contractor for the purpose of creating and preparing the Black Olive health food store for opening.

The contractor had an office at the New Media middle school but did not teach students or have any legitimate function in the school. Clark also paid a marketing contractor with New Media funds to provide marketing services to New Media, Lotus Academy, the Black Olive business ventures, and another restaurant in which Clark and Walker had an ownership interest.

Clark, without notice to or approval from the New Media Board of Directors, entered New Media into a written contact to purchase a school property for the sole purpose of benefitting Lotus Academy. Clark and Walker used $15,000 of New Media’s funds as part of the $45,000 deposit for purchase of the school property. When the sale did not close and the $45,000 deposit was returned to Lotus Academy, Clark and Walker did not return the $15,000 to New Media. Rather, Clark and Walker allegedly caused the entire $45,000 to be spent in various ways, including for Lotus Academy expenses (rent and payroll), payments to the Black Olive business ventures, and a cash deposit into defendant Walker’s personal bank account to pay Walker’s personal bills. Clark and Walker also defrauded Wilmington Savings Fund Society (WSFS) by providing false documents to obtain a $357,500 loan from the bank in 2006. The loan, obtained in Walker’s name, was used to buy a commercial property at 22-24 E. Mount Airy Avenue, which housed the Black Olive restaurant, and Walker ultimately defaulted on $339,000 of the debt.

The case was investigated by the United States Department of Education Office of Inspector General and the Federal Bureau of Investigation. The School District of Philadelphia’s Office of Inspector General provided assistance in the investigation. It is being prosecuted by Assistant United States Attorney Joan E. Burnes.