The Pearson Charitable Foundation, a not-for-profit organization that is affiliated with the for-profit education company Pearson, Inc., will pay $7.7 million to settle charges by New York Attorney General Eric Schneiderman that it misused charitable assets in a manner that benefited Pearson, Inc., in violation of New York law. In addition, the Foundation will adopt program changes and governance reforms to ensure that charitable assets of the Foundation are not improperly used for the private benefit of Pearson, Inc., Schneiderman added.
“The law on this is clear: Non-profit foundations cannot misuse charitable assets to benefit their affiliated for-profit corporations,” Schneiderman said. “Moving forward, funds for Pearson Charitable Foundation will be used exclusively for legitimate charitable purposes.”
Schneiderman said that an investigation by his Charities Bureau revealed that Pearson, Inc., the largest for-profit education company in the world, developed course materials through the Pearson Charitable Foundation that Pearson, Inc., intended to sell commercially.
According to prosecutors, beginning no later than 2010, Pearson, Inc., sought to develop a series of courses, associated instructional materials, and software offerings aligned with the Common Core State Standards, a set of standards governing the skills in mathematics and language arts taught to students from kindergarten through the 12th grade. The Common Core State Standards have been adopted by 45 states, the District of Columbia, and four U.S. territories. In these jurisdictions, school districts will be required to use materials “aligned” with the Common Core State Standards.
Prosecutors said that Pearson, Inc., decided to develop its Common Core aligned course offerings within the Foundation, with substantial funding by Pearson, Inc., to attract foundation support and credibility for its commercial products.
The government asserted that Pearson, Inc., and the Pearson Charitable Foundation planned that the courses developed within the Foundation would be sold commercially by Pearson, Inc. Internal business analyses prepared by Pearson, Inc., projected that potential profits from sales of the courses and related offerings could be in the tens of millions of dollars, according to the Attorney General’s office.
Schneiderman said that after the start of the investigation, Pearson Charitable Foundation sold the partially developed courses to Pearson, Inc., at a price of $15.1 million.
Schneiderman said that his investigation also found that the Pearson Charitable Foundation provided grants to an independent organization of school officials in the United States for a jointly sponsored International Summit program, a series of conferences on education that were held in various foreign locales and attended by state school officials. The Foundation and Pearson, Inc., worked with the organization of school officials to plan and organize the International Summits, to identify speakers and presenters and, in some cases, to recommend school officials from participating countries. School officials who were invited were from jurisdictions where Pearson actively did business and sought to do business, according to Schneiderman. The travel and lodging expenses of state school officials from the U.S. were paid for by the organization of school officials, using funds donated by Pearson Charitable Foundation. In addition, the Foundation independently sponsored the travel and lodging of guest speakers, presenters and summit delegates, including school officials, from foreign countries, according to the government.
Pearson, Inc., sales personnel attended these International Summits, while no employee of any other for-profit education company ever attended, prosecutors asserted. Following the International Summits, Pearson attendees were able to share commercially valuable information with their colleagues in Pearson’s international business concerning the interests and potential educational needs of some of the non-U.S. delegates to the summit, according to Schneiderman.
Pearson Charitable Foundation has agreed to pay a total of $7.7 million to resolve Schneiderman’s investigation into these matters. The attorney general will use $7.5 million of these funds to support programs and projects in New York and other states affiliated with the 100Kin10 initiative that recruit and retain excellent K-12 teachers and support teachers in providing high-quality instruction aligned with the Common Core State Standards.
In addition, the Foundation agreed to program and governance reforms. Among these, the Foundation agreed to include at least three independent directors on its board who will review any Foundation transaction that could reasonably be expected to benefit Pearson, Inc. Such transactions will proceed only after a finding by the independent directors that the transaction is fair, reasonable and in the best interests of the Foundation.
The Foundation further agreed that Pearson products and services will not be featured at events that are funded directly or indirectly by the Foundation unless the products and services are donated, and that the only Pearson employees who will attend such events are those who are assigned to spend substantial time on Foundation matters.
The Pearson Charitable Foundation will also pay $200,000 for the costs of the attorney general’s investigation.
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