Must read eschools expose

When the big money hedge fund managers start to bail on corporate education reform and the profiteers, you realize the worm might be turning.

In 123 page powerpoint presentation, titled "An Analysis of K12 and why it is my largest short position," Whitney Tilson of Kase Capital, Chairman Emeritus, Value Investing Congress, lays out the problems with eschool operator K12 Inc.

  • its targeting of at-risk students (ones that it knows are going to fail): “They will sign up anyone – as long as that warm body signs in periodically, K12 can draw enrollment money from the district. It isn’t for some noble reason – it’s because these kids demand the least amount of education.”
  • its low spending on teachers ($1054 per pupil for educator salaries at K12 versus $2219 per pupil, the average for US public schools)
  • its manipulation of enrollment counts, truancy numbers, and withdrawals and refusal to allow external auditors to examine the data
  • its refusal to allow external auditors to examine its student achievement data
  • the failure of the majority of K12-run schools to make adequate yearly progress (Only 27.7% of K12 schools reported meeting Adequate Yearly Progress in 2010–2011; 52% of public schools met AYP)
  • low on-time graduation rates (just 49.1% graduate on time
  • poor academic achievement by enrolled students, whose reading levels and math scores are lower than state averages at every grade level
  • high student turnover rates
  • high dropout rates (roughly 50% in Pennsylvania and Colorado)
  • possible IRS violations in its relationship with non-profit charter schools
  • a failure to save states money, as promised
  • and its lobbying efforts and contributions to political candidates – some $500,000 to state political candidates from 2004 to 2010

The following are quotes from the presentation

A friend of mine told me after reading this presentation:
"I met with Ron Packard years ago and could tell his motivations had little to do with kids, everything to do with manipulating state regulation to protect his interests. I started digging into the results, the business model, the organization, and discovered much of what you lay out in detail in your presentation. As I said, they are terrible and epitomize everything that we should be working against in the ed reform movement."

Another told me:
"You're totally right about K12 and, on top of it, they lie all the time. It's naïve to trust anything they say. So I'm not sure if their schools can be fixed, at least under the company's current leadership. There's no such thing as a successful online school in the entire country. To be sure, it works well for some students, but I'd guess only 15% of the ones cyber charters are currently serving."

Another emailed me:
"I know the company very well and your presentation rings true. They have a well-deserved terrible reputation."

Yet another emailed me:
"I think you are correct about K12 Whitney. I had an inside view of this company early on. They appeared giddy with the fact that they could receive almost the same per-pupil funding levels as brick and mortar schools and use the difference for big salaries and profit (on the public dime). If they are not providing a truly great education it means that, once again, students lose to adult interests."

A former employee of K12 inc. in Ohio, was scathing

Towards the end of my employment with K12 , corporate assumed control of the initial steps in the enrollment process, both at our school and nationally, via call centers that were encouraging enrollment of students who were obviously ill-suited for learning in a virtual environment. It was apparent to those of us operating schools that parents weren't being given the whole story. K12 oversold students' potential to be successful and obligated teachers to do things they wouldn't likely to be able to do. Eventually, it seemed as though K12's enrollment strategy was to cast a wide net into the sea of school choice and keep whatever they caught regardless if the catch was appropriate for virtual learning or not.

During weekly enrollment calls we were constantly pressured to overlook enrollment paperwork that was critical, consistent with best practice, or even compliant with state guidelines. For example, in order to speed up enrollment conversions, we were pressured by enrollment management to enroll students without a birth certificate or proof of custody. In my opinion, the company was totally crossing the line.

I am shocked that the stock continues to rise. I think it's a house of cards that is going to collapse. It boggles my mind when I read about and hear stories about what's going on in schools managed by K12.

The Presentation goes on to detail deceptive "sales" practices, as retold by former employees

Former sales employees at K12's call centers described high pressure to make huge enrollment quotas in order to get a commission. Sales employees were provided with a "script" of what to say to prospective students and parents, including purported "statistics" showing that K12 students were years more advanced than brick-and-mortar school students. Sample quotes:

1. CW2 described a toxic work environment where sales staff were pressured to meet unrealistic quotas, frequently being forced to make as many as 200 outgoing calls daily to keep up. CW2 confirmed that sales staff were never given any actual data of student performance, but were instead fed statistics from K12's website, and were told to tell parents that students who did the K12 program for 1-2 years performed better than their peers at brick and mortar schools.

2. CW4 stated that there was constant pressure to generate sales, describing the Company's sales philosophy as "enroll, enroll, enroll." CW4 stated that enrollment consultants were instructed to refer to the performance of K12 students as "comparable [to] or even better" than the performance of students at traditional schools, and to state that students at K12 schools were "on a better tier" than those at traditional schools.

"Sales staff", "Quotas", "Commission" - language that should be unheard of in public education is driving a $220 million dollar business in Ohio - a business that is generating F's across the board. It's a scandal.

An Analysis of K12 and why it is my largest short position," Whitney Tilson of Kase Capital, Chairman...