UPDATE: This story has been updated to correct an error that Edkey was 43 days from bankruptcy. The charter school had 43 days of operating cash, below the required cash on hand.

Last September, Sequoia Pathway Academy and its parent organization, Edkey, just 43 days of operating cash, “which fell below the days of cash on hand requirement,”. They were dangerously close to not being able to keep the lights on above their 3,600 Arizona charter school students, 687 of them in Maricopa. 

Then, on Friday, Edkey begged its bondholders for an emergency cash injection to stave off a $1 million lawsuit from one of its neglected creditors, Ocean Funding.  

This was just one of five creditors coming after Edkey for nonpayment. Velocity Capital Group filed a complaint against Edkey in Nassau County, N.Y., where Edkey has an outstanding $2.4 million loan. Unique Funding Solutions is demanding arbitration with Edkey. Swift Funding is negotiating a settlement. 

Few feel the impact of these troubles more intensely than Lianna Nott, a senior at the school who lives in Smith Farms. She is set to graduate in May with both a high school diploma and a cosmetology license, thanks to a dual-enrollment program with the Central Arizona Valley Institute of Technology, better known as CAVIT. 

Nott is one of several students from Sequoia Pathway who took advantage of the hourlong bus ride from Maricopa to CAVIT’s Coolidge campus, a program designed to give high school seniors a jumpstart in the licensed trades. 

But Nott’s path to graduation was disrupted when the Sequoia Pathway-provided bus service abruptly stopped in January, at the start of her final semester. No explanation was offered, only that it was outside Sequoia Pathway’s control.  

“I didn’t get any warning,” Nott said in an interview at the CAVIT parking lot. “No one knew what to do.” 

The sudden transportation halt forced some students to drop out or transfer. Nott’s parents stepped in to drive her daily, despite the strain on their schedules and wallets. 

“It’s hard for my mom and dad,” she said. “My dad works overnight shifts, and my mom works until 11 p.m., then has to wake up at 5 a.m. to take me to school.” 

Nott’s class started with about 25 students. Some transferred. Others dropped out. Today, Nott said, only she and three of her classmates are scheduled to graduate. And as she watched her peers vaporize, so did top EdKey officials, who were fired over the holidays. 

“Everyone is pretty frustrated,” said Nott.  

The parent Edkey is a nonprofit charter school system operating 17 schools across Arizona. The corporation cited the national bus driver shortage as the primary reason for discontinuing service. 

“Like schools across the country, Edkey is experiencing this challenge,” said Dr. Yovhane Metcalfe, Edkey’s chief academic officer. 

Robert Stahmer, a former Sequoia bus dispatcher, told InMaricopa that there were times buses broke down with students on board.  

“These old buses were left on the side of the road until someone from Mesa could come down and fix them,” he remembered. “The financial issues were well known. They promised new buses, but they never came.” 

The busing issue may only scratch the surface of broader financial troubles that have plagued the once-cash-rich charter operator in recent years. Now, it has reached a fever point, said several current and former employees, parents and students. 

Symptom of a bigger issue 

Edkey is a Mesa-based 501(c)(3) that operates 26 public charter schools across Arizona. Edkey started in 1996 and was an early player in Arizona’s burgeoning charter school system.  

In the last decade, as more and more charter schools have come online, Edkey’s competition grew. Since 2019, this charter school system’s financial struggles have been well documented. Most recently, the organization implemented a hiring freeze, laid off or terminated employees and failed to meet key financial obligations, including payroll. 

In a Nov. 20 email, Edkey’s executive director of human resources, Laurie Ainge, told more than 900 employees “Edkey was unable to upload payroll in sufficient time,” according to an employee who spoke on the condition of anonymity. InMaricopa has reviewed an original copy of the email. 

“There was intentional misrepresentation to staff regarding the ‘disruption’ in payroll when, in fact, the organization was facing significant financial challenges,” the employee claimed. 

Edkey implemented the hiring freeze as it fired and laid off several employees, according to two people with knowledge of the Edkey financials who allowed InMaricopa to review documentation of their claims. 

Edkey administration had also failed to pay into the Arizona State Retirement System since September. The leadership admitted this issue and said it had resumed payments in January. 

Edkey in September reported a $2.7 million deficit and just 43 days of operating cash, “which fell below the days of cash on hand requirement,” according to a U.S. Securities and Exchange Commission filing. Median cash on hand among charter schools then was 128 days. 

Edkey did not inform bondholders of the issue, as required under Arizona state law. They admitted the violation in a December filing. That budget shortfall was an improvement from the $7.7 million deficit reported in 2021 but still placed Edkey on shaky ground. 

The organization also missed bond interest payments, placing them in forbearance. Metcalfe said bondholders were involved in the decision and that payments have since resumed.  

Heads will roll  

Former Edkey CEO Mark Plitzuweit and CFO Juan Beltran were fired in November for financial mismanagement, the corporation said. 

Public records revealed the officers had entered into high-interest “factoring” loans—agreements likened to payday loans — without board approval. These deals sold state funding receivables at approximately 68 cents on the dollar, saddling Edkey with $234,000 in weekly repayments. 

These arrangements, however, have been around for several years, with Plitzuweit discussing them publicly six years ago.  

“My whole goal is to get away from [factoring loans] and get to a fiscally sound place,” Plitzuweit told The Arizona Republic in 2019. Evidently, he did not. 

Reasons for Beltran’s firing were more nebulous, but still financial in nature, according to the corporate board in filings and interviews. 

“There were discoveries made about payables, generally, upon termination of the CFO,” Edkey’s Corporate Board President Mary Gifford told InMaricopa in December. 

Becki Krueger, an independent consultant, “has endeavored to put all the pieces together and work diligently to make sure the payables are addressed timely.” Krueger is completing an audit for the fiscal year ending in mid-2024. 

Gifford said the state retirement system was “one of those payables that we did address very timely after the termination of the CFO.” 

Edkey’s financial strain has been exacerbated by a significant decline in enrollment. According to InMaricopa’s analysis of Arizona Department of Education data, Sequoia Pathway is the only charter school in Maricopa to lose students over the past four years, shedding half its population since 2020. In that same time period, Maricopa Unified School District has seen a 33% increase in its student population. 

Charter school advocates say “the money follows the students.” Each student who attends a charter school, like Sequoia Pathway, brings with them $8,000 of Arizona taxpayer money. As that student population drops, it strains Edkey’s already stretched budget, making recovery more difficult. 

The beginning of the end? 

Outside of the financial issues, Edkey’s education model courts controversy. 

In April 2021, the Arizona Attorney General’s Office launched an investigation into Edkey and its relationship to the Mesa-based “microschool” company Prenda. Under the agreement, Prenda and Edkey would split that $8,000-per-student taxpayer fee and filter students to a less-regulated microschool curriculum with “guides” instead of teachers. 

Edkey was cleared in the investigation. 

“Our partnership with regulated, licensed education institutions was recently reviewed by the Arizona Charter Board and the Arizona Attorney General’s office,” Prenda said in a statement to InMaricopa. “We were happy to cooperate with these inquiries, as they represented an opportunity for Prenda to demonstrate how seriously we take our responsibilities to the communities in which we live, learn and work. We are likewise happy to report that both the Charter Board and the Attorney General gave us a clean bill of health and we look forward to continuing our working relationships with both.” 

The following year, however, Arizona passed the Universal Empowerment Scholarship Account, allowing microschool parents to collect $7,000 from the state directly. In September 2023, Edkey’s enrollment had dropped 42% compared to that month in 2022, losing 3,200 online students who had been enrolled at Prenda. 

On Aug. 14, 2023, Edkey reported enrollment was 4,057, but only 1,084 students actually showed up. 

“Edkey isn’t needed as a middleman anymore,” said Jim Hall, the researcher for Arizonans for Charter School Accountability. “Edkey … operated one of the most lucrative educational scams in the nation by laundering millions in state education funds to benefit themselves.” 

The AZCSA alleges Edkey earned $12 million from the Prenda partnership “while Edkey provided no curriculum or instruction to the students.” Then, the corporation “went on a $136 million shopping spree,” anticipating the Prenda money would keep flowing as it built a new school in Buckeye and bought Caurus Academy in Anthem. 

It did not. 

“Edkey’s ability to make its bond payments and even to stay in business is in serious question after relying on fraudulence practices that put millions into their pockets while providing no educational services to thousands of homeschooled students,” Hall said. 

Hall attended an earnings call on Thursday, when the recent lawsuits and complaints lodged against Edkey were discussed.  

“After sitting in on [Thursday’s] investors conference call, I think it is important for bondholders to know the scale of mismanagement at Edkey,” Hall reacted. “We have followed EdKey’s mismanagement for years and the entire corporate board, not just the CEO and CFO, are responsible for their financial disaster.”  

Transition services agreement 

To get a handle on its current financial instability, Edkey is considering several outside consultants to help manage the struggling budget. 

InMaricopa has reviewed a Transition Services Agreement between Edkey and Accel Schools, a charter school management organization. This agreement would provide advisory services, although Metcalfe said the document was a draft.  

Critics have raised concerns about potential conflicts of interest, as Edkey’s corporate board president, Mary Gifford, is an executive vice president for Accel. “This situation raises serious questions about conflicts of interest,” an Edkey employee said of the woman who heads Edkey’s corporate board and its would-be management company. The employee spoke to InMaricopa on the condition of anonymity, citing a fear of losing his job. 

Gifford is involved in these discussions, according to a person with firsthand knowledge of the conversations. 

“The board has discussed this agreement since Mr. Plitzuweit’s dismissal, and both Mary Gifford and Dr. Yovhane Metcalfe were aware of these developments,” the person said.  

Metclalfe denied this claim.  

Gifford “has not participated in board meetings, conversations or written communication regarding efforts to seek and consider proposals from multiple service providers,” said Metcalfe in a statement. 

The EdKey board is being responsive to a report by an outside financial consultant from September 2024 and is considering proposals from “multiple companies to provide a variety of services to EdKey,” all with the goal of righting the struggling charter school system with 6,300 students across the state. 

Alumni society, don’t bother 

Despite the hurdles she has faced this semester, Nott said she remains determined to graduate. 

Her parents’ sacrifices have allowed her to continue the program at CAVIT, where she has already logged 700 of the 1,000 hours needed for her cosmetology license. Some of her Sequoia Pathway classmates were not lucky enough to have such parental resources. 

“I would honestly encourage [future students] to do it. It’s a really good program for high school students,” Nott said of CAVIT. But when asked about Sequoia Pathway specifically, her advice was starkly different. 

“If it was at Pathway, I probably would tell them not to do it.”