A St. Paul charter school that lost $ 4.3 million in a hedge fund investment has been asked by its authorizer to pass several financial and governance changes, a few of which have been approved by the school board this week.
The risky business has left Christianna Hang, superintendent and founder of the Hmong College Prep Academy (HCPA), facing great challenges on two fronts.
Bethel University, the school’s authorizer, recommended that the school board fire Hang, prompting members to agree on Wednesday to hire an outside lawyer to investigate the $ 5 million investment. The board is committed to creating “a solid foundation for our community now and for years to come,” the board said in a statement Thursday.
HCPA also sued the hedge fund, Woodstock Capital LLC, in an attempt to recoup its losses. The lawsuit filed in the United States District Court alleges fraud and negligence, and says the company has yet to fully explain “what happened to its funds.”
The hedge fund responded by describing Hang as so determined to invest the school’s money in a hedge fund that she did so over objections from the HCPA attorney. The school was the victim of bad timing, says the hedge fund.
“Covid-19 has struck and, as they say, the rest is history: global economic shutdown, loss of large-scale businesses and disappearance of investment portfolios,” says response to school complaint .
The hedge fund’s description of Hang as “the aggressor” in the deal is key to its efforts to have the case dismissed or transferred to a Delaware court. A hearing on the subject is scheduled for Wednesday.
Hang declined the interviews. But she had an affidavit refuting Woodstock Capital’s claims filed on her behalf on September 8 in U.S. District Court.
Hmong College Prep Academy is a Kindergarten to Grade 12 school located on a sprawling campus in the Como neighborhood. A 2017 Star Tribune story about the flight of school-aged children from school districts in their cities to charter schools and neighboring school systems found HCPA then amid an expansion of elementary schools and facilities sports.
The school followed him in 2019 with plans to build a new college and with Hang, who is also the school’s financial director, seeking funding from various sources.
An email from Hang to a friend, Kay Yang, researching the names of potential donors and investors ultimately led to calls and correspondence with Clark Reiner of Woodstock Capital, court documents show.
In his statement filed in the United States District Court, Hang said he received repeated assurances from the hedge fund that his investments would comply with the school’s investment policy and state law – which both protect against high risk maneuvers.
Reiner responded in an affidavit that neither he nor his partner made such assurances, that he had no knowledge of Minnesota law, and that the HCPA attorney told Hang he had concerns about the deal.
James Martin, the school’s attorney, noted in a letter to Hang dated September 5, 2019, that a memorandum from Woodstock Capital stated that its “investment practices, by their nature, involve a degree of risk. substantial ”and that there was no guarantee that the partnership would achieve its investment objectives or avoid a“ substantial loss ”.
Hang then asked the hedge fund for a letter documenting what she and Reiner had discussed via email regarding the investment parameters. Reiner responded on September 6 with a letter saying that “the main investment strategy is to profit from the acquisition of short-term debt instruments and short-term interest rates“, with a target gross return by 10% or more per year – a high bar to reach.
Four days later, Hang wired the $ 5 million to Woodstock Capital, according to the Bethel Timeline of Events, which the university said “illustrates areas of great concern relating to financial management, governance and of legal compliance “.
Bethel asked the school to create a separate CFO position, hire a financial consultant who would report directly to the university, and implement a two-person authorization system for any electronic funds transfer.
In addition to recommending that Hang be fired, Bethel urged the school board to appoint someone not employed by the school as president and to hire a consultant to implement the corrective action plan.
On Wednesday, Christy Yong Vang, a relative, was chosen to replace the school’s teacher, Crystal Robideau, as president, and Charter Source was tasked with the corrective action plan.
As for Hang, the board said that employees have the right to due process in personnel matters. Lawyer Jeanette Bazis was hired Wednesday to investigate the $ 5 million investment at a rate of $ 350 per hour.
Anthony Lonetree • 612-673-4109