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Teacher retirement fund fraud case settled

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The state has reached a settlement with the state's largest teachers' unions in a case that alleges they defrauded Hoosier districts out of more than $27 million in retirement funds for teachers.

Secretary of State Connie Lawson announced Tuesday that the Indiana State Teachers Association and National Education Association would pay $14 million - money that will go to school districts to compensate them for lost investments.

The secretary of state's office accuses the unions of selling schools health plans - which were actually unregistered securities - to 27 school corporations. ISTA and the NEA then made misrepresentations regarding these securities and improperly commingled funds, Lawson's office said.

"This is the right result for teachers and schools," Lawson said in a statement. "The tentative amount puts roughly 50 cents for every dollar lost from this mismanagement back to the school corporations.

"While $14 million is a significant amount, it does not cover ISTA's nor the NEA's full financial obligation to the school corporations," she said. "We remain confident in our case, but took the leadership step to get this money in hand for schools as soon as possible."

ISTA offered teachers and other school employees a medical plan that allowed school corporations to invest their excess balances to offset future health-care costs. In the secretary of state's complaint, the office alleges that ISTA didn't invest the money, but instead used the money to cover significant shortfalls in its long-term disability plan. ISTA continuously issued quarterly and annual statements to schools misrepresenting fund balances.

The unions made several attempts to have the case dismissed and "skirt their financial responsibilities to the schools," the secretary of state's office said on Tuesday.

"ISTA was blatantly covering up their Ponzi-like scheme through falsified account statements," Lawson said. "Repeatedly doctoring account statements to create the illusion that investment funds exist after they've been misappropriated is shameful. I hope this case will serve as a warning to others who think they can take advantage of their investors and as a reminder to investors to keep a vigilant eye on their investments. I further believe that ISTA and the NEA have the moral obligation to repay the full amount of losses suffered by these schools."

The settlement will only take effect if it is approved by each school district. Otherwise, the case could still go to trial, which is scheduled for October in federal court.

Lawson said she waived the right to levy fines against ISTA and the NEA and to seek repayment of attorney fees so as not to diminish the total amount the school corporations will receive if the settlement is finalized.

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