Pearson Agrees to Pay $7.7 Million for Using Foundation to Advance Corporate Profits

This past week the Pearson Foundation agreed to pay $7.7 million to settle a charge that the Foundation had used charitable and tax-exempt assets to further Pearson profits.  The amount of the settlement represents .0077% of Pearson profits for 2012.

Following the widespread adoption of Common Core corporate standards that resulted from race to the top incentives, Pearson saw its profits soar in 2011 by an amazing 72%.

Here is a link to an earlier post on Pearson-Gate, which provides the seedy details of Pearson's influence peddling.

And below are details of the settlement:

NEW YORK – Attorney General Eric T. Schneiderman today announced a $7.7 million settlement with Pearson Charitable Foundation, a not-for-profit that is affiliated with the for-profit education company Pearson, Inc. Under the terms of the settlement, $7.5 million will be directed to recruiting and retaining high-quality kindergarten through 12th grade teachers. 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. The settlement resolves an investigation by Attorney General Schneiderman’s Charities Bureau that revealed misuse of charitable assets by Pearson Charitable Foundation in a manner that benefited Pearson, Inc. in violation of the Not-for-Profit Corporation Law and the Estates, Powers and Trusts Law of New York.

“The law on this is clear: Non-profit foundations cannot misuse charitable assets to benefit their affiliated for-profit corporations,” Attorney General Schneiderman said. “Moving forward,  funds for Pearson Charitable Foundation will be used exclusively for legitimate charitable purposes, beginning with millions of dollars to help ensure that every public school student has a great teacher in the classroom.”

An investigation by Attorney General Schneiderman’s 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. 

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. 

Pearson, Inc. decided to develop its Common Core aligned course offerings within the Foundation, with substantial funding by Pearson, Inc., in order to attract foundation support and credibility for its commercial products. 

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. 

After the start of Attorney General Schneiderman’s investigation, Pearson Charitable Foundation sold the partially developed courses to Pearson, Inc. at a price of $15.1 million.

Attorney General Schneiderman’s 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. 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. 

Pearson, Inc. sales personnel attended these International Summits, while no employee of any other for-profit education company ever attended. 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.

Pearson Charitable Foundation agreed to pay a total of $7.7 million to resolve Attorney General Schneiderman’s investigation into these matters. The Office of 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 his 2011 State of the Union address, President Barack Obama set a goal for the nation of training 100,000 new science, technology, engineering and math teachers in the next decade. 100Kin10 is a network of more than 150 organizations that came together in 2011 to help meet that national goal.

In addition, the Foundation agreed to several important 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.

This investigation was handled by James Katz, Senior Adviser & Special Counsel to the Attorney General, with the assistance of Charities Bureau Researcher Liam Arbetman, under the supervision of Charities Bureau Enforcement Section Chief David Nachman and First Deputy for Affirmative Litigation Janet Sabel. 

A copy of today's agreement can be viewed here.