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The state has reached a tentative $14 million dollar settlement with Indiana‘s largest teachers union over a securities complaint in which 27 school districts were defrauded out of money.

Secretary of State Connie Lawson announced the settlement with the Indiana State Teachers Association, which was agreed upon after a settlement conference with a federal magistrate last month.  The settlement amount is almost half the 27 (m) million dollars Lawson says was lost by school districts in what she and State Securities Commissioner Chris Naylor called a “Ponzi scheme” involving health plans sold by the ISTA.

Naylor sued the ISTA and it‘s parent, the National Education Association, in December 2009 over the health trusts.  The program, which Naylor says was heavily marketed by the union to teachers and schools, allowed school districts to build surpluses which would be held in reserves and invested by ISTA.  Instead, the state‘s lawsuit says the union mixed the money in with it‘s long-term disability fund and perhaps other money.  The disability fund subsequently lost money, and Naylor says the union tried to recoup the funds by making “risky investments” with much of the remaining money.

Naylor says ISTA representatives also gave false assurances to school districts, in some cases providing bogus financial statements, saying the money invested in the health trust was safe.

The NEA was also sued because, prior to the lawsuit‘s filing, the national union bailed out the ISTA due to the state union‘s financial problems.  Naylor says it also became clear that the NEA had some oversight over the labor representatives that promoted the health plans.  The NEA asked to be absolved from the suit, but a federal judge repeatedly refused.

While Lawson says the state was, and is, prepared to go to trial in October, settling now for half the amount the schools lost will get them money more quickly than they would have seen during a long court fight.  She says it is also better than an offer made  prior to the state‘s lawsuit by the health trustee appointed by the NEA – he offered school districts as little as 20-cents on the dollar to quell possible claims against the ISTA.

The 27 school corporations affected were not named – Lawson said their names could not be made public until after the settlement is final.  That will happen once all of them agree to the terms hammered out by the state and the union.