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ISTA, Indiana settle lawsuit for $14 million

A four-year legal and financial struggle that has saddled Indiana’s largest teachers union may be coming to an end, but not without a heavy cost.

Secretary of State Connie Lawson announced today a $14 million settlement has been finalized between the state and the Indiana State Teachers Association. The deal settles the state’s lawsuit charging ISTA defrauded its members by mishandling funds in an insurance fund. The union admitted no guilt as part of the deal.

The state originally sued for $27 million, but settled for roughly 50 cents on the dollar. Lawson said the suit cost the state $1.5 million in public dollars and the settlement came because: “We knew they were willing to spare no expense on endless litigation.”

In a statement ISTA said all of the settlement money comes from its own lawsuits in the case, and that no member dues will be used to pay the state. ISTA officials blasted Lawson, saying she played politics for criticizing ISTA during the press conference.

“It is important to note that, contrary to what the secretary of state’s press release might suggest, there never was any allegation in the lawsuit that any funds received from school districts had been used by ISTA or NEA for their own benefit,” said Teresa Meredith, ISTA president, said in the statement.

The state sued ISTA, which is affiliated with the National Education Association, after an insurance trust it managed went bust in 2009.

The fund’s failure left ISTA with $57 million in liabilities ballooned by a combination of poor investments and underfunding of a disability plan offered to its educator members across Indiana.

That debt is still being paid off and will be for another 14 years.

ISTA’s annual revenue is about equal to $27 million and it reported a deficit of more than $4 million in its most recent annual financial report.

Lawson, calling the trust a “Ponzi scheme,” said savings that was supposed to be set aside each year in investments to fund future health care costs was instead co-mingled with other ISTA funds and school districts were sent statements that misled them about their account balances.

“ISTA took money from one fund to pay claims and cover deficiencies of another, then issued falsified statements to clients to create the illusion of funds,” Lawson said.

The trust’s failure had other huge consequences for ISTA and how it is managed. It sued its former executive director, charging mismanagement, and NEA stepped in to run the state affiliate, transferring ownership of its office building across form the Indiana Statehouse to the national union.

Indiana sued ISTA and NEA in federal court on behalf of those who bought insurance through the trust in 27 school districts, charging ISTA was guilty of fraud, and breach of contract. Today’s settlement resolves that case. ISTA has 10 days to deliver the money to Lawson.

Lawson said the districts have wide latitude for how to use the money, including for defraying health care costs for employees or even pay raises.

Two Indianapolis-area districts will receive a portion of the settlement: Washington Township ($978,000) and Center Grove ($597,000).