Attorney General Eric Schneiderman announced this morning that his office has reached a $7.7 million settlement with Pearson Charitable Foundation, a not-for-profit affiliated with the for-profit education company Pearson Inc. after an investigation found the foundation misused charitable assets in a manner that benefited its for-profit arm. Pearson Inc., the largest for-profit education company in the world, developed course materials through its foundation that Pearson Inc. intended to sell commercially, he said.
Under the terms of the settlement, $7.5 million will go toward recruiting and retaining high-quality teachers for kindergarten through grade 12. The money will go to programs and projects in New York and other states that are affiliated with the 100Kin10 initiative to recruit and retain teachers who provide high-quality education alighted with the Common Core state standards. The foundation will adopt program changes and governance reforms to ensure that the foundation’s charitable assets are not improperly used for Pearson Inc.’s benefit, according to Schneiderman. The remaining $200,000 is for the cost of the attorney general’s probe.
“The law on this is clear: Non-profit foundations cannot misuse charitable assets to benefit their affiliated for-profit corporations,” he said in a statement. “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.”
Pearson Inc. developed a series of courses, instructional materials and software offerings aligned with the Common Core, a set of standards in math and language arts for students in kindergarten through grade 12. The company developed its course offerings within the foundation and with substantial funding by Pearson Inc. in order to attract foundation support and credibility for its commercial products, Schneiderman said.
Pearson Inc. and the foundation planned to sell the courses commercially and projected potential profits in the tens of millions of dollars, the attorney general said. After Schneiderman’s investigation began, the foundation sold the partially developed courses to Pearson Inc. for $15.1 million.
The investigation also found that the foundation gave grants to an independent organization of school officials in the United States for a jointly sponsored International Summit program. The foundation and Pearson Inc. worked with the school group to plan the summits. They invited officials from areas where Pearson did business or sought to do business. The foundation paid for travel and lodging expenses of state school officials.
Pearson Inc. sales personnel attended the summits, but no employees of any other for-profit education company did. Pearson attendees were able to share commercially valuable information with their colleagues in Pearson’s international business about the interests and potential needs of some of the non-U.S. delegates to the summit.
The foundation agreed not to feature Pearson Inc. products and services at events funded directly or indirectly by the foundation unless they are donated, and the only Pearson employees who will attend the events are those assigned to spend substantial time on foundation matters. The foundation agreed to include at least three independent directors on its board to review any foundation transaction that could reasonably be expected to benefit Pearson Inc.