Feds Zero in on Maker of LAUSD’s Failed AI Chatbot, Hint at Criminal Charges

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Federal prosecutors have subpoenaed documents from the bankruptcy of failed education technology company AllHere, a once-lauded startup that boasted $12 million in venture capital and a $6 million contract with Los Angeles schools to build a buzzy AI chatbot. 

The U.S. attorney’s office for the Southern District of New York served the grand jury subpoena in early September to the court-appointed trustee managing the liquidation of AllHere’s assets to pay off its creditors, according to records filed with a federal court in Delaware. A federal grand jury subpoena indicates that AllHere or someone associated with the company is the target of a federal criminal investigation by the Department of Justice.  

Attorney Stephanie Wickouski, a partner at the New York-based firm Locke Lord, told The 74 the subpoena means that federal prosecutors “have a reason to commence a criminal investigation and that’s certainly an exceptional circumstance.” 

“There are a fair amount of investigations that involve bankruptcy cases and a lot of them are for conduct that occurred prior to the bankruptcy,” said Wickouski, the author of a textbook on bankruptcy fraud and white-collar crime. 

In an order approved on Monday, the bankruptcy trustee agreed to provide documents to federal prosecutors on the condition that certain sensitive information remain confidential “in the best interests of” the company’s value. Federal prosecutors can use the records “as needed or as required by law in connection with its investigation and/or any resulting criminal proceeding,” the order notes.

A spokesperson for the U.S. attorney’s office didn’t respond to requests for comment and the target of the federal inquiry remains unclear — as do any allegations of criminal wrongdoing. But Wickouski said the court-appointed trustee is in the best position to provide information about AllHere’s assets, business dealings and financial transactions. The “most likely scenario,” she said, is that “the company and its principals” are the target of the investigation.

On the same day as a Sept. 11 bankruptcy hearing, trustee George Miller said he had “discovered assets” at AllHere and changed its Chapter 7 bankruptcy case from one without any monetary value to one where creditors could recoup some of the money they’re owed. The court gave AllHere creditors 90 days to submit proof of claims to “assets from which a dividend might possibly be paid.” 

The “discovered assets” would appear to contradict statements by Toby Jackson, the company’s former chief technology officer and one of its only remaining executives, at the hearing that the company was effectively broke, citing one of its only assets as a $500 company laptop used by ousted CEO Joanna Smith-Griffin. Jackson noted that the company couldn’t access the laptop’s contents because Smith-Griffin had refused to share the password. AllHere listed more than $1.75 million in itemized liabilities, bankruptcy records show.

Neither Jackson, AllHere’s Delaware bankruptcy attorney, Joseph Mulvihill; trustee Miller nor his lawyer, Ricardo Palacio, responded to requests for comments. Smith-Griffin, a former Boston educator and family engagement counselor who went on to create digital tools to combat chronic absenteeism, has not spoken publicly or responded to requests for comments since her company’s sudden financial collapse this spring.

At the hearing last month, Jackson struggled to answer Miller’s questions about why AllHere paid Smith-Griffin $243,000 in expenses between September 2023 and June 2024 and owed $630,000 to its largest creditor — an education technology salesperson with longstanding ties to Los Angeles schools Superintendent Alberto Carvalho. The Florida-based salesperson, Debra Kerr, said during the meeting she was never paid commission for her work closing the lucrative AllHere deal in L.A. Kerr’s son, Richard, is a former AllHere account executive who told The 74 he pitched the company to Los Angeles school leaders.

The school district “has not received any requests to date” from federal prosecutors, a district spokesperson said in a statement Monday to The 74. Los Angeles Unified School District’s independent inspector general in July launched an investigation into allegations first reported by The 74 that its much-celebrated and now-unplugged AI chatbot named “Ed” exposed students’ personal data in violation of school district policy and standard industry security practices.

Carvalho later announced that he would form his own task force to determine what went wrong with the district’s relationship with AllHere and how it could move forward incorporating AI into the nation’s second-largest school system. Carvalho and Smith-Griffin made joint appearances at ed tech conferences throughout the spring touting the capabilities of “Ed,” an animated sun they said could interact individually with and accelerate the learning for some 540,000 students and their families.

Several other creditors listed in AllHere’s bankruptcy case have ties to Carvalho, including the communications firm of his former spokesperson when he was superintendent in Miami and the Foundation for New Education Initiatives, a Florida-based nonprofit that Carvalho created in 2008. The foundation came under scrutiny in 2020 after the for-profit company K12, Inc., now known as Stride, Inc., gave the district-run entity a $1.57 million donation just a day before the school board voted to stop using its online learning platform. The donation gave an appearance of impropriety, an investigation by the Miami-Dade inspector general found, but there were “no actual violations.”

In the case of AllHere, the subpoena to the bankruptcy trustee suggests that federal prosecutors are likely “in a fairly early stage” of their investigation, attorney Wickouski said. Any indictments that could follow, she said, won’t likely be announced for months. 

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