Founder of company that created LAUSD chatbot charted with fraud

The head of an education technology startup that created a highly touted chatbot for the Los Angeles school system has been arrested and charged with fraud.

Federal prosecutors, in an indictment unsealed Tuesday, accused Joanna Smith-Griffin of defrauding investors and charged her with securities fraud, wire fraud and aggravated identity theft.

Smith-Griffin, 33, is the founder and former chief executive of AllHere, the Boston-based company that created “Ed,” an artificial-intelligence tool billed as revolutionary for students’ education and the interaction between the L.A. Unified School District and the families it serves.

After unveiling the chatbot with great fanfare in March, L.A. school officials, months later, quietly disconnected the tool — which was supposed to respond to any question from students or parents in an accurate, helpful and private manner.

Although the episode was embarrassing for L.A. Unified — schools Supt. Alberto Carvalho had stood alongside Smith-Griffin in promotional appearances — the financial damage to the nation’s second-largest school system, which this year has an $18.4-billion budget, appears to be limited.

School district officials say they’ve spent about $3 million of what had been a $6-million commitment to the firm — and received services and technology for that investment. Carvalho recently told The Times that he was optimistic about salvaging the technology for later use.

On Tuesday, Carvalho provided a brief comment on the developing criminal case.

“The indictment and the allegations represent, if true, a disturbing and disappointing house of cards that deceived and victimized many across the country,” Carvalho said. “We will continue to assert and protect our rights.”

According to prosecutors, Smith-Griffin orchestrated “a deliberate and calculated scheme to deceive investors in AllHere Education, Inc., inflating the company’s financials to secure millions of dollars under false pretenses.”

She could not be reached Tuesday for comment.

In July, Carvalho said he would appoint a task force to examine what went wrong with the L.A. Unified project and to chart a path forward. At the time, he anticipated that the task force, once assembled, would complete its work over about three months. No information on a task force or its progress has been provided since then.

AllHere’s website was active as of Tuesday night, but the contact page notes that “due to our current financial position, the Board furloughed the majority of the company’s employees on June 14, 2024.” The most recent update on the company blog is from mid-April.

AllHere is now in Chapter 7 bankruptcy, its employees have been laid off, and the company is under the control of a court-appointed bankruptcy trustee, according to the U.S. attorney’s office.

Authorities said Smith-Griffin was arrested Tuesday in North Carolina and was set to appear before a magistrate judge.

According to the indictment, from about November 2020 to around June 2024, Smith-Griffin misrepresented AllHere’s revenue, customer base and cash to investors.

For example, in the spring of 2021, she allegedly told potential investors that AllHere had generated about $3.7 million in revenue in 2020, had around $2.5 million in cash on hand and had major school district customers such as the New York City Department of Education and Atlanta Public Schools.

In reality, AllHere had generated about $11,000 in revenue in 2020, had about $494,000 in cash and did not have contracts with many of the customers it claimed, including the New York City Department of Education and Atlanta Public Schools, the indictment stated.

These misrepresentations allegedly continued through AllHere’s collapse; as the company was sinking, she was able to obtain nearly $10 million from investors and sought an additional $35 million from a private equity investor — who ultimately decided to not invest.

Smith-Griffin used some of the fraudulently obtained funds to put a down payment on a house in North Carolina and pay for her wedding, prosecutors said.

When AllHere’s investors and outside accountant discovered the discrepancy between the company’s actual financials and what Smith-Griffin was telling investors, she allegedly tried to cover up her actions, going so far as to create a fake email account for AllHere’s outside financial consultant, which she used to send additional fraudulent financial documents to her largest investor.

“Joanna Smith-Griffin allegedly misrepresented the composition of her startup company to defraud investors of millions and masqueraded as a financial consultant to perpetuate the scheme once discrepancies were discovered,” said FBI Assistant Director in Charge James E. Dennehy. “Her alleged actions impacted the potential for improved learning environments across major school districts by selfishly prioritizing personal expenses.”

Carvalho had touted Ed as an AI-enhanced student advisor that was to be a component of a unique Individual Acceleration Plan, or IAP, for every student.

The full rollout of the IAP is on hold. And it’s hard to find students, teachers or other staff who have used any part of the system since its official launch. It’s not available at most schools.

All the same, LAUSD officials said, parents and students have current online access to a wide array of information related to grades, test scores, assignments and general school-district information about programs, courses and schools.