School Corporations to Share $14 Million Settlement

Nearly 30 school corporations throughout the state will receive a piece of a $14 million settlement with the Indiana State Teachers Association and the National Education Association. Indiana Secretary of State Connie Lawson has finalized the deal stemming from the sale of health plans, which were unregistered securities. You can view a list of the school corporations involved by clicking here.

December 3, 2013

News Release

INDIANAPOLIS (December 3, 2013) — Secretary of State Connie Lawson announced today that her office has finalized a settlement of a federal securities fraud lawsuit for $14 million with the Indiana State Teachers Association (ISTA) and the National Education Association (NEA). The litigation accused ISTA and NEA of defrauding Hoosier schools out of over $27 million. ISTA and the NEA sold health plans with benefits, which were unregistered securities, to 27 school corporations. ISTA and the NEA then used the money from the health plans for their own benefit to cover funding shortfalls and for risky investments, instead of investing on the schools’ behalf as promised. The $14 million settlement will go to the school corporations to compensate for their lost investments.

“In the next ten days, school corporations will see a recovery four years in the making. Teachers and administrators alike can finally put this lawsuit behind them,” said Secretary Lawson. “They will receive 50 cents on the dollar for the money ISTA and NEA misappropriated. We strongly believe our case supported full repayment by ISTA and NEA, but we knew they were willing to spare no expense on endless litigation. This settlement gets these school corporations a much needed, immediate financial boost.”

ISTA offered teachers and other school employees a medical plan that allowed school corporations to invest their excess claim balances to offset future health care costs. The Secretary of State’s complaint alleges that ISTA did not invest the money as promised, but instead used the money to cover significant shortfalls in their long-term disability plan and to invest for ISTA’s own benefit. ISTA continuously issued phony financial statements to schools misrepresenting investment fund balances.

“ISTA took money from one fund to pay claims and cover deficiencies of another, then issued falsified statements to clients to create the illusion of funds,” alleged Secretary Lawson. “This is a classic example of a Ponzi scheme.

“ISTA and the NEA have repeatedly tried to play the victim and have made multiple attempts to dismiss the case. The truth is they intentionally misled those they claim to support and protect to cover their own shortfalls and to invest in risky securities for their own benefit. They have a moral obligation to repay the full amount.”

This litigation was not fought at the taxpayers’ expense. All legal fees were paid with fines collected from violators of Indiana’s securities laws. To maximize the recovery to schools, Secretary Lawson waived the right to levy fines against ISTA and the NEA and to seek repayment of attorneys fees.

*Attached is a list of school corporations, timeline of the ISTA/NEA securities fraud litigation and a diagram of the money trail. Source: Office of Indiana Secretary of State