Former Indiana Online Charter Schools Director Convicted of Wire Fraud and Conspiracy in Largest Theft of Public Funds Ever Prosecuted in the Southern District of Indiana

INDIANAPOLIS- Following an eight-day trial, a federal jury has found Phillip Holden, 65, of Middletown, Indiana, guilty of 17 counts of Wire Fraud and one count of Conspiracy to Commit Wire Fraud for his role in a scheme that fraudulently obtained more than $60 million in state education funding through two Indiana online charter schools.

Holden faces up to 20 years in federal prison per count and is scheduled to be sentenced on February 25, 2027.

Thomas Stoughton, 77, of Carmel, Indiana, founder of Indiana Virtual School and Indiana Virtual Pathways Academy, was also scheduled to stand trial but pleaded guilty the day before trial began to 58 counts of Money Laundering, 17 counts of Wire Fraud, and one count of Conspiracy to Commit Wire Fraud. Stoughton faces up to 20 years in federal prison per fraud count, and 10 years in prison per money laundering count. He is scheduled to be sentenced on March 11, 2027.

The trial included testimony from 40 witnesses and more than 350 exhibits.

According to court documents and evidence presented at trial, Holden served as Director of Operations for Indiana Virtual School (IVS) and Indiana Virtual Pathways Academy (IVPA). From at least 2016 to 2018, Holden participated in a scheme with Stoughton, former Superintendent Percy Clark, former Manager of School Operations Christopher King, and former Manager of Student Service Representatives, Kyle Schroeder, to fraudulently inflate student enrollment figures reported to the Indiana Department of Education (IDOE).

Like other public and charter schools in Indiana, IVS and IVPA received state funding based on student enrollment. The more students reported as enrolled and attending, the more funding the schools received. To increase funding, the defendants knowingly submitted false enrollment numbers claiming more than 6,000 students were enrolled between the summers of 2016 and 2018.

As a result of these fraudulent submissions, the Indiana Department of Education overpaid an excess of $60 million to IVS and IVPA.

Evidence at trial showed that the defendants directed employees to stop verifying student interest before enrollment or reenrollment, allowing inactive and ineligible individuals to be counted as students. Employees were instructed to use incomplete applications to enroll students in advance of the 2017 and September 2018 Count Days. Many of these individuals never attended classes at either school. Some had already graduated, joined the military, transferred to other schools, or were deceased.

Shortly before the September 2018 Count Day, the defendants directed an information technology contractor to identify former students who had been unenrolled due to inactivity but were not listed in the Indiana Department of Education's database as attending another school. After receiving a list of approximately 600 such individuals, the defendants instructed employees to reenroll many of them so they could be included in official enrollment counts.

After IVPA was established in 2017, the defendants also transferred hundreds of chronically inactive students from IVS to IVPA. This allowed them to continue claiming funding for those students while shielding IVS from accountability measures tied to student participation and performance.

The evidence further showed that Holden, at the direction of Stoughton, retaliated against an employee who attempted to report the fraudulent conduct to the Indiana Department of Education in 2017. Holden threatened and ultimately terminated the employee after learning of the disclosure.

The investigation also revealed that IVS and IVPA paid substantial amounts of state funding to for-profit companies controlled or operated by Stoughton. After being funneled through those entities, millions of dollars were distributed to Stoughton, members of his family, and the other defendants involved in the scheme.

Clark, 84, of Carmel, Indiana, previously pleaded guilty to one count of Conspiracy to Commit Wire Fraud. King, 64, of Greens Fork, Indiana, pleaded guilty to Conspiracy to Commit Wire Fraud in 2023 and is scheduled to be sentenced on February 10, 2027. Schroeder, 52, of Fishers, pleaded guilty to Misprision of a Felony and is scheduled to be sentenced on February 11, 2027.

"For years, the defendants treated taxpayer-funded education dollars as a personal revenue stream, siphoning millions of dollars away from their intended purpose. Every dollar obtained through this fraud scheme was money meant to educate and support Indiana students," said Tom Wheeler, United States Attorney for the Southern District of Indiana. "This conviction demonstrates our commitment to protecting public resources and aggressively pursuing those who abuse positions of trust to enrich themselves with taxpayer dollars."

"This trial exposed a profound betrayal of students and taxpayers-a fraud scheme that took more than $60 million meant to educate Indiana's children," said Assistant Attorney General Colin M. McDonald of the Justice Department's National Fraud Enforcement Division. "U.S. Attorney Wheeler, his team in the Southern District of Indiana, and their law enforcement partners deserve tremendous credit for exposing this scheme and securing guilty verdicts on all 18 counts. These results reflect the Department's resolve to root out fraud and hold accountable those who treat public funds as their own."

"These defendants treated Indiana's public education funds like their own personal piggy bank, stealing more than $44 million in taxpayer dollars through a scheme built on lies and inflated enrollment numbers. That was Hoosiers' hard-earned money - entrusted to educate Indiana children - being diverted for personal use. The FBI will continue to pursue those who steal from taxpayers and hold them accountable," said FBI Indianapolis Special Agent in Charge Timothy J. O'Malley.

"In February 2020, after a lengthy and thorough investigation, the State Board of Accounts issued its Special Investigative Report of the Indiana Virtual School and Indiana Virtual Pathways Academy. That Report detailed the staggering extent to which individuals used their positions of authority to misappropriate tens of millions of public dollars that were strictly meant for educating students. With these guilty pleas and convictions, I commend and congratulate U.S. Attorney Tom Wheeler, along with the entire prosecution and investigative team, for their unrelenting dedication to public accountability and the pursuit of justice," said Paul Joyce, Indiana State Examiner

"Indiana state agencies identified the irregularities in funding and worked together to investigate this blatant and devious scheme - bringing the collective evidence forward to partner with federal authorities," said Jared Prentice, Indiana Inspector General. "The verdict in this case delivers a result and a message: the State of Indiana will seek the highest level of accountability for those who break the law."

The Federal Bureau of Investigation, Indianapolis Division, Indiana State Board of Accounts, Indiana Office of Inspector General and the Indiana State Police investigated this case. U.S. District Judge Richard L. Young presided over the trial.

U.S. Attorney Wheeler thanked Assistant U.S. Attorneys Bradley P. Shepard, Kate Olivier, Samantha Spiro, Sarah Plew, and Kelly Rota, as well as the trial team of paralegals, a victim-witness coordinator, and IT specialists, for their outstanding work on this case.

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