A litigation battle between Stride Learning
LRN
“They gave me a baby and told me to raise it. I did it. Then they threw it out the window,” says Future of School CEO Amy Valentine.
K12/Stride
Stride Inc started out life as K12, a for-profit company aimed at providing on-line and blended learning. It was founded in 2000 by Ron Packard, former banker and Mckinsey consultant, and quickly became the leading national company for cyber schooling.
One of its first big investors was Michal Milken. That investment came a decade after he pled guilty to six felonies in the “biggest fraud case in the securities industry” ending his reign as the “junk bond king.” Milken was sentenced to ten years, served two, and was barred from ever securities investment. In 1996, he had established Knowledge Universe, an organization he created with his brother Lowell and Larry Elison (Oracle
ORCL
K12 is no stranger to controversy or the courtroom.
In 2011, the New York Times
NYT
In 2013 K12 settled a class action lawsuit in Virginia for $6.75 million after stockholders accused the company of misleading them about “the company’s business practices and academic performance.” In 2014, Middlebury College faculty voted to end a partnership with K12 saying the company’s business practices “are at odds with the integrity, reputation and educational mission of the college.”
Packard was himself sued for misleading investors with overly positive public statements, and then selling 43% of his own K12 stock ahead of a bad news-fueled stock dip. Shortly thereafter, in 2014, he stepped down from leading K12 to start a new enterprise.
In 2016 K12 got in yet another round of trouble in California for lying about student enrollment, resulting in a $165 million settlement with then Attorney General Kamala Harris. K12 was repeatedly dropped in some states and cities for poor performance.
In 2020, they landed a big contract in Miami-Dade county (after a big lucrative contribution to an organization run by the superintendent); subsequently Wired magazine wrote a story about their “epic series of tech errors.” K12 successfully defended itself from a lawsuit in Virginia based on charges they had greatly overstated their technological capabilities by arguing that such claims were simply advertising “puffery.”
In November of 2021, K12 announced that it would rebrand itself as Stride.
The New York Times had quoted Packard as calling lobbying a “core competency” of the company, and the company has spread plenty of money around doing just that. And despite all its troubles, Stride is still beloved on Wall Street for its ability to make money.
K12 Starts a Foundation
In 2015, K12 created the Foundation for Blended and Online Learning (FBOL). It was an attempt to create some support for the ideas that were the entire basis of K12’s business. It had a single employee—its CEO.
Amy Valentine had been with K12 for several years already, working an Executive Director for K12’s operations in Colorado. The Foundation’s work was providing scholarships and grants for teachers, students and organizations as a way to “advance the industry.” They also created some studies about the effectiveness of blended and online schools. Valentine says that they found brick and mortar schools with integrated tech to be most effective.
Valentine was still on the K12 payroll, and the Foundation depended entirely on funding from K12 for its existence. But Valentine and K12 CEO Nate Davis agreed that it should transition to an independent entity and began work on a long-term plan to accomplish that. With that in mind, she says, the Foundation changed its name to Future of School.
FBOL/FoS has an independent board, though that quickly developed direct ties to K12. Tony Bennett was brought on to the Foundation board and was installed as its chair. Soon after Bennett was hired as part of K12’s leadership team. Bennett had been Florida’s education commissioner, but resigned in 2013 amid allegations that while in the top spot for Indiana schools, he had cooked the books and changed the state grade given to a charter school founded by a leading Republican donor.
Troubles begin
For this next section of the story, we lean on two depositions publicly available on line—one from Valentine, and another from current Stride CEO James Rhyu.
At the beginning of 2021, Davis stepped down as Stride CEO, to be replaced by CFO
CFO
In April of 2021, Stride committed to $2.5 million in support. On June 30, 2021 (the last day of the fiscal year), Rhyu sent Valentine an email that said in part
I’m comfortable making a multiyear commitment to the Future of School program. That commitment would be for $3.5 million over a period of up to five years and would not have any conditions attached to it.
Stride called themselves a “proud sponsor” of FoS in various promotional materials. Stride also used the support of FoS to boost its ESG standing; ESG (environmental, social and governmental) rating is used by companies to indicate that they are operating in a socially responsible manner, and has been widely adopted in the corporate world. Stride released its “first comprehensive ESG report” to “help provide a foundation for 15 disclosing our corporate environmental and social 16 responsibility efforts in the years to come.” The report includes a full page about Stride’s support for Future of School.
It seemed like a win-win.
The first $1.2 million was given to FoS. But as the year progressed, Valentine learned that the expected funding would not be coming.
The reason why not is not very clear. In his deposition, Rhyu can come across as evasive, and his explanations circular. Here’s just a taste:
Q: What is ESG?
Rhyu: Letters of the alphabet. I don’t know.
Q: You don’t know what ESG is in the context of a corporation?
Rhyu: Well, there’s a — I think I suspect a lot of the different ESGs out there. I’m not sure which one you are referring to.
Q: Can you name one?
Rhyu: Well, there’s a corporate governance principle called ESG.
Q: Right. Can you think of others?
Rhyu: Not off the top of my head.
The transcript runs 312 pages, and the FoS attorney makes numerous attempts to pin Rhyu down about the reason the funding was not forthcoming, getting a variety of responses: There were no conditions on the funding, but they withheld the funding because certain conditions hadn’t been met. Rhyu returns to the idea that FoS was not self-sufficient enough, and to the idea that Stride had not made a legally binding contract with FoS for the funding.
Valentine is clear; without the funding from Stride, Future of School is unable to finish transitioning to a public charity. They will be out of business entirely.
But Stride is not going to budge. The lawsuit that kicked off this litigation tangle came from Stride, which asks the court to issue a declarative judgement that they have no requirement to give FoS the funding. FoS then countersued.
Valentine claims that the Stride members of the FoS attempted to dissolve the organization (the board is now down to three members). She also claims that one settlement offer was to fire her, dissolve the organization, and absorb its operations into Stride. The remaining FoS representatives are hoping for a jury trial.
Any Valentine agreed to speak with me for this story. Stride indicated through a spokesperson that they would not comment on ongoing litigation.
Other surprises in the depositions
When the attorney pursues the question if ESG, other details about Stride emerge.
The attorney asks about where the impetus for highlighting ESG might have come from, he directs Rhyu to Stride’s auditing committee. Rhyu remembers two individuals on that committee who “were part of that discussion”— Steve Fink and Rob Cohen. In addition to serving on the auditing committee, Steve Fink is a member of the Board of Directors for Stride.
Then the FoS attorney asks if BlackRock is an investor in Stride. Rhyu hedges for a bit, then says “BlackRock is an investor in the company. They are a long-time investor. I think they’ve been an investor in the stock for, I’m guessing, somewhere around ten-plus years.”
BlackRock is the largest money management company in the world, founded and led by Larry Fink. Fink is sometimes called “the face of ESG,” which is decried by some on the right for being too “woke.”
After establishing that BlackRock is a long time investor, the attorney proceeds.
Q: Is Steve Fink any relation of Larry Fink of Black Rock?
Rhyu: They are brothers.
Q: They’re brothers. Okay.
If it seems surprising that a member of the board is the brother of a major investor, that may be by design. Larry Fink is noted for his privacy about family, and a search for the two brothers’ names turns up only one article— a Forbes piece from 2000.
Larry is tangential to that article, which profiles how Steve Fink, in 1984, moved next door to Micheal Milken and went on to become “one of Milken’s most trusted confidants,” a “guy he’s relied on to fix business trouble.” It was 1988 when Larry Fink started BlackRock under the umbrella of Steve Schwarzman’s Blackstone Group
BX
Why did Amy Valentine put herself in the middle of this?
There is one other puzzle piece here; why did Valentine agree to take on the Foundation in the first place.
The answer, as explained by Valentine both in interview and deposition, was an issue of sexual harassment. In 2014, while Valentine s still overseeing some K12 operations in Colorado, a K12 legal counsel told her that if she “didn’t do X or Y or Z with him then he wasn’t going to include [Valentine] in conversations and the contracts.” He had been physically inappropriate as well. After this was reported to her bosses, he was terminated.
Then K12 contracted with a third party firm who in 2015 was preparing to bring that same attorney back into Valentine’s work area. Valentine was terminated without cause. She hired a lawyer of her own, who contacted the company, and the chosen resolution was to offer her a job equal to or better than the one from which she had been terminated.
And that’s how she ended up raising this baby for Stride. “Now,” she says, “they are trying to paint me as a lying me-too-er.”
What kind of company?
Stride bills itself as “a learning company.” But the further one crawls into this tangle, the less concern about learning and education and students one encounters.
It is also a company that reported record profitability with revenue of over $400 million in 2022. This wrangle with Future of School is over what amounts to pocket change for Stride. And this money stream comes from taxpayer dollars collected for the purpose of educating students.
Regardless of the outcome, these dueling lawsuits may raise more questions about the leading online learning company than they answer. Resolution does not appear to be coming soon.
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