Gallup-McKinley County Schools File Fraud Complaint Against Stride, Inc. Alleging Profit-Driven Abuse of Minority-Majority Public School District

Rhea-AI Summary

Gallup-McKinley County Schools (GMCS) has filed a lawsuit against Stride, Inc. (NYSE: LRN) alleging serious fraud and misconduct in their virtual education services. The complaint, filed in New Mexico's 11th Judicial District Court, accuses Stride of inflating enrollment numbers, exceeding teacher caseload limits, and ignoring compliance requirements to maximize profits.

The lawsuit highlights a dramatic decline in performance metrics, including a drop in graduation rates from 54% in 2023 to 27.67% in 2024. GMCS, which serves a majority Native American student population, seeks compensatory and punitive damages, triple damages under New Mexico's Unfair Trade Practices Act, and restitution of taxpayer funds.

Positive

• None.

Negative

• Accused of fraudulent enrollment inflation through ghost students to secure state funding
• Alleged violation of teacher caseload limits, with some exceeding 200 students
• Graduation rate dropped significantly from 54% to 27.67% in one year
• Alleged suppression of whistleblowers and denial of special education services
• Facing potential compensatory, punitive, and triple damages under legal action

Insights

Legal Analyst

Serious fraud allegations against Stride pose significant legal, financial and reputational risks that could materially impact the company's operations.

This lawsuit presents substantial legal exposure for Stride, Inc. The complaint filed by Gallup-McKinley County Schools (GMCS) contains allegations that go beyond ordinary contractual disputes to potentially criminal misconduct. The verified complaint alleges systematic fraud including inflating enrollment with "ghost students" to secure per-pupil funding, violating statutory teacher-student ratio requirements, ignoring background check and licensure laws, and failing to provide federally mandated special education services.

The case invokes the New Mexico Unfair Trade Practices Act, which allows for triple damages. This multiplier effect significantly increases Stride's financial liability beyond mere compensatory damages. The complaint also seeks punitive damages, which are designed to punish particularly egregious conduct and can substantially exceed compensatory amounts in cases involving intentional misconduct.

What makes this case particularly concerning from a legal perspective is the reference to whistleblower testimony from inside the company. Such insider evidence typically strengthens fraud claims substantially. The complaint specifically alleges that company executives made deliberate financial decisions to violate statutory requirements despite explicit warnings, suggesting potential evidence of knowing misconduct rather than mere negligence or misunderstanding.

The allegations involving underserving Native American students could potentially trigger additional federal scrutiny under civil rights statutes, expanding the company's legal exposure beyond this single lawsuit. If proven, these practices could lead to intervention by federal education authorities and impact Stride's ability to secure future contracts with public school systems nationwide.

Education Policy Expert

The allegations against Stride represent a critical test case for the for-profit education model in public education. The complaint reveals the fundamental tension between shareholder obligations and educational responsibilities when publicly-traded companies operate in essential public services. The alleged misconduct—including ghost student enrollment inflation, excessive teacher caseloads, and denial of special education services—directly connects profit-seeking behaviors to educational harm.

The reported decline in graduation rates from 54% to 27.67% represents a catastrophic educational outcome. Such a precipitous drop suggests systematic educational neglect that extends beyond isolated incidents. For context, this graduation rate falls significantly below both state and national averages and would place the affected schools among the lowest-performing in the country.

Particularly troubling is the complaint's focus on impacts to Native American students, who represent the majority of the district's population. This demographic has historically faced educational inequities, and the alleged exploitation raises serious equity concerns. Public education contracts with minority-majority districts require heightened sensitivity to historical contexts of educational discrimination.

From a policy perspective, this case will likely influence how districts across the country structure, monitor, and enforce contracts with for-profit education providers. Should the allegations be proven, we could see increased regulatory scrutiny of the entire virtual education sector, with particular focus on profit margins, staffing levels, and educational outcomes in these programs. Districts may implement more rigorous oversight mechanisms and performance requirements in future contracts with such providers.

GALLUP, N.M., Sept. 10, 2025 /PRNewswire/ -- The Gallup-McKinley County Schools (GMCS) Board of Education has filed a verified complaint against Stride, Inc. (NYSE: LRN), charging the publicly traded for-profit virtual education provider with fraud, deceptive trade practices, systemic violations of law, and intentional and tortious misconduct designed to maximize profit margins at the expense of students and their education, in which a vast majority of students are Native American.

Allegations of Profit Before Students

The complaint, filed in New Mexico's 11th Judicial District Court, asserts that Stride executives knowingly:

• Inflated enrollment numbers by retaining "ghost students" on rolls to secure state funding per student.
  
  
• Cut staffing costs by assigning teachers' caseloads far beyond the required statutory limits, some exceeding 200 students each.
  
  
• Ignored compliance requirements, including background checks and licensure laws for its employees, and ignored federally mandated special education services to students.
  
  
• Suppressed whistleblowers who documented financial directives from Stride's leadership to delay hiring and deny services to preserve profit margins.

According to whistleblower testimony cited in the complaint, senior Stride finance executives explicitly rejected requests to hire additional teachers, even when warned that the company violated a New Mexico statute. Instead, executives ordered additional staff cuts to ensure profit targets were met. Stride continues to assert legal claims against the School District despite admissions from its corporate leadership to the misconduct and has relied on a disinformation strategy to distract from its misdeeds.

Financial and Reputational Risk

"This case is about a publicly traded corporation deliberately choosing Wall Street margins over the futures of our children," said GMCS Board President Chris Mortensen. "Stride's financial model came at the direct expense of Native American and rural students in our district. That is unconscionable, and it is fraudulent."

GMCS's lawsuit contends that Stride's practices, while boosting short-term profitability, came at enormous long-term cost: a 27.67% graduation rate in 2024 (down from 54% in 2023), substandard test scores in every subject, and widespread loss of public trust.

"Our district is majority Native American, and these students were treated as profit centers rather than children with a right to an education," said Board Member Kevin Mitchell, who is also a member of the Navajo Nation. "Stride diverted taxpayer dollars to inflate its stock value while systematically denying our kids the qualified teachers and special education support they were legally entitled to receive."

A Case with Broader Implications

The complaint calls for compensatory and punitive damages, triple damages under New Mexico's Unfair Trade Practices Act, and restitution of taxpayer funds. More broadly, the case highlights the inherent risks in publicly traded education models that tie shareholder value to cost-cutting in already under-resourced schools and school districts.

GMCS Lawsuit and other materials can be viewed at https://www.gmcs.org/page/stride-inc

View original content:https://www.prnewswire.com/news-releases/gallup-mckinley-county-schools-file-fraud-complaint-against-stride-inc-alleging-profit-driven-abuse-of-minority-majority-public-school-district-302552665.html

SOURCE Gallup-McKinley County Schools

FAQ

What are the main allegations against Stride (NYSE: LRN) in the GMCS lawsuit?

GMCS alleges that Stride committed fraud by inflating enrollment numbers, exceeding teacher caseload limits, ignoring compliance requirements, and suppressing whistleblowers who reported misconduct.

How did Stride's (LRN) practices affect graduation rates at Gallup-McKinley County Schools?

The graduation rate dropped dramatically from 54% in 2023 to 27.67% in 2024 under Stride's management.

What damages is GMCS seeking from Stride (LRN) in their lawsuit?

GMCS is seeking compensatory and punitive damages, triple damages under New Mexico's Unfair Trade Practices Act, and restitution of taxpayer funds.

How did Stride (LRN) allegedly violate education standards in GMCS?

Stride allegedly assigned excessive student loads to teachers (over 200 per teacher), maintained ghost students for funding, ignored background check requirements, and failed to provide mandated special education services.

What is the demographic impact of Stride's (LRN) alleged misconduct at GMCS?

The misconduct primarily affected a majority Native American student population, with GMCS board members stating these students were treated as profit centers rather than children deserving quality education.