Federal prosecutor’s investigation failed Ed Tech Co. AllHere, reference to criminal charges – The 74

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Federal prosecutors have subpoenaed documents from the bankruptcy of failed education technology company AllHere, a once-lauded startup that had $12 million in venture capital and a $6 million contract with Los Angeles schools to develop a buzzy AI chatbot .

The U.S. Attorney’s Office for the Southern District of New York served the grand jury subpoena in early September on the court-appointed trustee managing the liquidation of AllHere’s assets to pay its creditors, according to documents filed in federal court in Delaware emerges. A federal grand jury subpoena indicates that AllHere or someone associated with the company is the target of a federal criminal investigation by the Justice Department.

Attorney Stephanie Wickouski, a partner at New York-based law firm Locke Lord, told The 74 that the subpoena means federal prosecutors “have grounds to initiate a criminal investigation, and that is certainly an exceptional circumstance.”

“There are a number of investigations involving bankruptcy cases, and many of them involve conduct that occurred before bankruptcy,” said Wickouski, the author of a textbook on bankruptcy fraud and white-collar crime.

In an order approved Monday, the bankruptcy trustee agreed to provide documents to federal prosecutors on the condition that certain sensitive information remain confidential “in the best interest” of the company’s value. Federal prosecutors may use the records “as necessary or as required by law in connection with their investigation and/or any resulting criminal proceeding,” the order says.

A spokesman for the U.S. Attorney’s Office did not respond to requests for comment, and the purpose of the federal investigation remains unclear — as do any allegations of criminal misconduct. However, Wickouski said the court-appointed trustee would be best placed to provide information about AllHere’s assets, business relationships and financial transactions. The “most likely scenario,” she said, is that “the company and its clients” are the targets of the investigation.

On the same day as the Sept. 11 bankruptcy hearing, trustee George Miller said he had “discovered assets” at AllHere and changed the Chapter 7 bankruptcy case from one with no monetary value to one in which creditors could recover some of their money owed. The court gave AllHere’s creditors 90 days to provide evidence of claims to “assets from which a dividend could potentially be paid.”

The “discovered assets” appear to contradict statements made by Toby Jackson, the company’s former chief technology officer and one of its few remaining executives, at the hearing that the company was effectively bankrupt, citing one of its only assets as a used 500 dollar company laptop from ousted CEO Joanna Smith-Griffin. Jackson determined that the company could not access the contents of the laptop because Smith-Griffin had refused to share the password.

Neither Jackson nor AllHere’s Delaware bankruptcy attorney, Joseph Mulvihill; Trustee Miller and his attorney Ricardo Palacio responded to requests for comment. Smith-Griffin, a former Boston educator and family engagement consultant who later developed digital tools to combat chronic absenteeism, has not spoken publicly or responded to requests for comment since her company’s sudden financial collapse this spring.

At last month’s hearing, Jackson struggled to answer Miller’s questions about why AllHere had paid Smith-Griffin $243,000 in expenses from last year and owed $630,000 to its largest creditor – an education technology salesman with long-standing ties to the school’s principal Los Angeles, Alberto Carvalho. Florida-based saleswoman Debra Kerr said during the meeting that she never received a commission for her work closing the lucrative AllHere deal in LA.

The school district has “not yet received any inquiries” from federal prosecutors, a district spokesperson told The 74 in a statement on Monday. The Los Angeles Unified School District’s independent inspector general opened an investigation in July into allegations first reported by The 74. The much-lauded and now-defunct AI chatbot named “Ed” exposed students’ personal information in violation of school district policy and violate industry standard security practices.

Carvalho later announced that he would form his own task force to figure out what went wrong in the district’s relationship with AllHere and how to advance the integration of AI into the country’s second-largest school system. Carvalho and Smith-Griffin appeared together at ed-tech conferences throughout the spring, touting the capabilities of “Ed,” an animated sun with which they could individually interact and accelerate learning for about 540,000 students and their families.

Several other creditors listed in AllHere’s bankruptcy case have ties to Carvalho, including the communications company run by his former spokesman when he was superintendent in Miami and the Foundation for New Education Initiatives, a Florida-based nonprofit that Carvalho founded in 2008. The foundation came under scrutiny in 2020 after for-profit company K12, Inc., now known as Stride, Inc., made a $1.57 million donation to the district-run facility just a day before the school board decided to stop using its online learning platform. An investigation by Miami-Dade’s inspector general found the donation created the appearance of impropriety, but there were “no actual violations.”

In AllHere’s case, the subpoena to the bankruptcy trustee suggests that federal prosecutors are likely “at a relatively early stage” in their investigation, attorney Wickouski said. Possible charges likely won’t be announced for months, she said.

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