Charleston Day School accused of misusing COVID relief funds, retaliation against family that raised concerns

CHARLESTON (WCIV) — An expensive Charleston private school is accused of COVID-19 relief fraud in a new federal lawsuit.

The suit claims Charleston Day School officials made false and fraudulent statements to get CARES Act payroll and tuition assistance funding in 2021, then misused the money and retaliated against a whistleblower and his family for crying foul.

A spokesperson for Charleston Day School responded to an email inquiry by WCIV late Thursday afternoon saying it would be inappropriate for school officials to comment on the accusations in this pending litigation, adding that the school has not been served with a copy of the lawsuit.

Charleston attorney Matt Austin, a former federal prosecutor, filed the lawsuit Wednesday, June 21. Austin served on Charleston Day School's board of trustees in 2021 and 2022.

Austin says he was kicked off the school board by fellow trustees after questioning how the board was spending CARES Act funds. Austin says his inquiries were prompted by other parents of children at the school who were increasingly frustrated by the board's handling of funds and policy decisions related to the COVID-19 pandemic.

During the 2021 school year, Austin claims Charleston Day School received $650,000 in combined COVID-19 relief funds, but Austin says almost none of that money went toward its intended purposes.

According to Austin, school administrators during the 2020-2021 school term applied for and received a Payroll Protection Program (PPP) loan worth $570,200, and an Emergency Assistance to Non-Public Schools (EANS) loan for $79,777.

The lawsuit says Charleston Day School administration cited a pandemic-related tuition revenue shortfall in its application for the PPP loan, and the entirety of the loan was ultimately forgiven based on the school’s representation that the funding went toward payroll as required by federal law.

Austin says the school never had such a revenue shortfall, and the money did not go toward payroll at all. Instead, Austin says tuition revenue exceeded budget projections while financial aid payments fell under budget in 2021, and payroll wasn’t meaningfully impacted.

By October 2021, Austin says Charleston Day School had a budget surplus from the 2020-2021 school year that was in excess of $727,000. He claims unused CARES Act funds made up almost 90% of that surplus, based on sums provided in the lawsuit.

In addition to the full amount of the PPP loan, Austin says the surplus included $36,555 in unspent EANS funding, a federal grant program meant to help tuition-dependent private schools with a significant number of low-income students supplement their diminished operating budgets.

Austin’s lawsuit claims Charleston Day School principal Judith Arnstein falsely claimed on the EANS loan paperwork that slightly more than half of Charleston day school's students are from "low income" families, which Austin claims is demonstrably untrue.

The vast majority of Charleston Day School students come from upper-middle class families, Austin says in his lawsuit. A review of the school’s website shows base tuition as of June 2023 is $27,350 for elementary and middle school grades, and $24,600 for kindergarten.

At its October 2021 meeting, Austin says the Charleston Day School board of trustees voted to transfer the nearly three-quarter-million-dollar revenue surplus to its endowment, and then to invest the excess funds in three separate installments over the ensuing three months.

Austin says this decision, which he believes expressly violates the spirit and terms of the loans the school received, caused worry among parents at the school who requested he investigate the board’s actions regarding the COVID-19 relief funds.

Austin says when he first began expressing his concerns, he discovered soon afterward that board of trustees’ chairperson Emmie Gaillard Hershey revoked his access to prior board meeting minutes. When he asked her for restored access, Austin says she declined and called his request “unusual.”

According to the lawsuit, Austin in late January consulted with the school’s staff attorney, who Austin says assured him there was no legitimate reason for Hershey to deny him – a fellow board trustee – access to past meeting minutes. Hershey did not restore his access to the minutes, Austin says.

Austin says he and his wife, Francie – a staff attorney for the City of North Charleston – continued communicating their concerns through January into February of 2022, with Austin offering to launch an audit of the board’s COVID-19 funding use to ensure compliance.

Getting nowhere, Austin says he in early February learned the school had recently replaced the staff attorney who previously sided with him on the meeting minutes access issue, and that the board was preparing to act against him.

Alarmed, Austin says in the lawsuit he brought his concerns about the school’s misuse of COVID relief funds to prosecutors at the U.S. Attorney's Office in Charleston, where Austin formerly worked before entering private practice. It’s unclear if the U.S. Attorney’s Office has formally acted on the information.

From there, Austin’s lawsuit alleges the board convened a special called meeting on February 11, 2022, during which the rest of the board of trustees voted to oust him, and further voted not to allow his three children to enroll at Charleston Day School the following year.

A 2022 report by FITSNews says Austin and his wife the day of his ouster from the board also received a letter from Hershey and Arnstein blaming the couple’s “disruptions” for the board’s decision not to allow their three children to renroll in the 2022-2023 school term

Arnstein and Hershey say in the letter the Austins’ children have no responsibility for the board’s action,” but threaten to expel the Austins’ children immediately if the couple’s “disruptive activities continue.”

But Austin claims his family's hostilities Charleston Day School did not end there. Austin claims when he tried to enroll his children in Mason Prep, another Charleston private school, they were denied enrollment.

Austin says in the lawsuit a Mason Prep staff member contacted him and confided the decision not to admit his children was due to pressure from people affiliated with Charleston Day School. The same happened to four other families, Austin says.

Matt Austin did not return phone and email messages asking for additional comments on the lawsuit.