Sequoia’s Parent Firm Edkey Faces Lawsuit Over Defaulted Loans

Edkey Charter School Group continues to face mounting financial challenges, culminating in a recent request for an emergency cash injection from bondholders. The parent company of Sequoia Pathway Academy disclosed the urgent need for funds in SEC filings submitted on Friday.

The pressure to pay is significant. Ocean Funding has given Edkey until the end of the business day to settle a payment of $350,000 related to a factoring loan. Failure to comply could lead to a judgment exceeding $1 million against the charter school operator.

Edkey’s financial woes are compounded by several lenders pursuing claims for nonpayment. In a public SEC filing, it was revealed that Velocity Capital Group has filed a complaint for an unpaid loan of $2.4 million, while Unique Funding Solutions seeks arbitration over $770,742. Other lenders, such as Ocean and Swift Funding, are currently in settlement negotiations.

Since August 2024, Edkey has faced a total of $4 million in loans. These debts have arisen from a series of high-interest “factoring” loans, which in essence function like payday loans. According to the current Edkey leadership, these agreements were made without the necessary board approval by former President and CEO Mark Plitzuweit and CFO Juan Beltran.

Despite these financial difficulties, Edkey has relied on such loans to expand its operations across Arizona, garnering criticism along the way. In 2019, Plitzuweit expressed intentions to transition away from factoring loans, aiming for a more fiscally responsible approach.

In a recent investor call, one of Edkey’s critics, Jim Hall, emphasized the extent of mismanagement within the organization, citing the board’s role in financial missteps. Hall highlighted a controversial partnership with Prenda, a for-profit ESA program, which allowed Edkey to enroll numerous homeschool students during the pandemic while reportedly providing inadequate educational services.

This partnership reportedly led to significant profits that Edkey invested into expanding its real estate holdings. All of this occurred amid rising discontent about the arrangement among both parents and critics, which has intensified as families seek alternative options through Empowerment Scholarship Account vouchers.

Despite these unfolding issues, Edkey’s leadership approved a 2025 budget projecting a substantial number of new student enrollments, indicating potential awareness of the financial strains stemming from the partnership with Prenda. However, board approval was notably absent for the four factoring loans arranged independently by the CEO.

Hall has accused Edkey of failing to provide transparent disclosures regarding its dealings with Prenda, especially concerning the instability of this partnership. As Edkey’s troubles deepen, S&P Global Ratings downgraded its bond rating from ‘B+’ to ‘D’ due to missed interest payments.

Edkey operates 31 schools across Arizona, serving a total of 5,000 students. Of this number, 687 attend three Edkey Schools located in Maricopa: Sequoia Pathway, Sequoia Pathway Secondary, and Pathway Academy. Dr. Yovahne Metcalfe, associated with the charter, revealed there are currently no plans for a buyout but that they are exploring various advisory services to formulate a recovery strategy.

InMaricopa reached out to Metcalfe for insights on the ongoing negotiations with lenders, seeking clarity on the future of Edkey amidst its financial crisis.