St. Paul charter school's illegal investment spurs call for moratorium

A St. Paul charter school made an illegal investment reportedly costing it more than $4 million, prompting renewed calls Thursday for a moratorium on new and expanded charter schools.

Hmong College Prep Academy invested $5 million in a New Jersey hedge fund, Woodstock Capital Partners, despite a state law prohibiting hedge fund investments.

"The school was unaware it had entered into an unallowable investment, partly due to misrepresentations made from the hedge fund," according to a 2019-20 audit by the firm CliftonLarsonAllen LLP. It advised the school to withdraw from the fund and to recover as much as possible.

Outside the State Capitol on Thursday, a group of elected officials and union and community leaders pointed to the potential $4.3 million loss — first reported by the St. Paul Pioneer Press — as the latest example of lax oversight of charter schools.

Rep. John Thompson, DFL-St. Paul, said his 12-year-old son attended a St. Paul charter school with "culturally intelligent teachers" and his son did well. But the following year, he said, "when we show up for the first day of school, the doors are locked, we can't find the owner of the school, and teachers are outside wondering about their job."

In 2019, the group Parents for St. Paul Schools formed with the goal of reining in charter school growth. Then, 22% of the city's school-age children were attending charter schools, according to a Star Tribune analysis.

Clayton Howatt, a group co-founder now running for the St. Paul school board, attended Thursday's news conference and cited the way charter schools bill local school districts for the cost of educating special-education students — now $10 million a year in St. Paul, he said — as a reason to back a moratorium until a study of charter school practices and impacts is done.

But state approval is needed and no legislation has been proposed to date, he said.

On Thursday, Rep. Athena Hollins, DFL-St. Paul, said the moratorium will be pursued in 2022.

Hmong College Prep Academy has nearly 2,400 students and has been expanded several times.

Issues arose over a delay in its 2019-20 audit, and the school's authorizer, Bethel University, wrote to the state Department of Education in March stating the auditor was waiting on information from the hedge fund. It seemed the $5 million investment had dropped in value to about $1 million.

"As a financial professional, I am greatly concerned by this information," wrote Amy Blaz, a university vice president. She wondered if the investment violated state law and the school's own investment policy.

The audit presented May 27 confirmed both violations.

Hmong College Prep Academy ended 2019-20 with $13.7 million in cash and a $15.2 million fund balance, the auditor said. General fund expenditures totaled $26.6 million.

School Superintendent Christianna Hang now has until June 30 to devise a corrective action plan. She did not respond to a request for comment Thursday.

Anthony Lonetree • 612-673-4109