LA school district AI chatbot scandal: FBI probe, superintendent resigns, founder charged with fraud

Want proof that policymakers and school staff need help with artificial intelligence? Look no further than the Los Angeles Unified School District.

Superintendent Alberto Carvalho resigned on June 21 as the district’s superintendent amid an FBI probe that media reports have linked to a failed contract for an AI chatbot.

The episode is a case study of the need for greater transparency in public schools and the dangers of pursuing new teaching methods without rigorous research and attention to parental rights.

The Investigation

In February, the FBI searched Mr. Carvalho’s home and office as part of a federal investigation that media reports linked to the district’s relationship with the technology company AllHere.

In 2024, Mr. Carvalho announced that AllHere’s AI chatbot, “Ed,” would be available for students in the nation’s second-largest school district. Just months after the announcement, however, the majority of AllHere’s staff had been furloughed, and the bot was no longer available.

Company Fraud Allegations

AllHere had serious problems. The company’s leadership may have been engaged in fraud. In November 2024, the Justice Department indicted company founder Joanna Smith-Griffin on charges of defrauding investors, “inflating the company’s financials to secure millions of dollars under false pretenses.”

Among the allegations in the case, prosecutors said Ms. Smith-Griffin embezzled corporate funds and used “fraudulently obtained funds” to pay for her wedding.

Superintendent's Downfall

Fast-forward to February 2026, when the FBI conducted its search. The school board placed Carvalho on paid administrative leave, where he remained until his official resignation in June. Days later, media organizations reported that the school board had been preparing to fire Mr. Carvalho.

A confidential board letter reportedly alleged that AllHere had paid for Mr. Carvalho to travel to events in Denver and Washington and had purchased tickets for him to events at Dodger Stadium.

Student Privacy Concerns

To make matters worse, a whistleblower told reporters that AllHere was collecting student data in ways that “violated both industry standards and the district’s own policies.” The bot “put students’ personally identifiable information at risk of getting hacked.”

These allegations raise student privacy concerns under federal and state privacy laws, such as the Children’s Online Privacy Protection Act, a federal law that restricts online collection of personal information from children younger than 13.

Broader Implications

The Los Angeles Unified School District episode is a case study in graft and the need for more transparency in public schools. Examples of fraud of this size (and larger) have occurred in other urban districts such as Chicago and Baltimore, and in Minnesota’s Department of Education, to name just a few.

Better auditing systems will help, but the most effective policy change is to empower students and families to choose new private or public schools when officials uncover fraud in troubled districts. District personnel will have greater incentives to keep their books clean if students are free to leave when fraud is uncovered.

The incident is also a study in the danger of following teaching fads before methods are evaluated. AI holds great promise, and peril, for the business and education sectors. It offers educators efficient ways to organize lesson plans and streamline administrative tasks, but it has also posed problems with data mining (as in the Los Angeles Unified School District) and students cheating on assignments.

Policy Recommendations

State lawmakers should work quickly in the next legislative session to consider measures that strengthen student data privacy protections for AI contractors operating in schools. Policies should also require that school district administrators adopt training programs for teachers and students on appropriate AI use.

Educators should obtain parental consent before deploying AI in schools and offer students alternatives. As reported by CalMatters, at the time AllHere folded, San Diego Unified School District Board of Education members said they were unaware that teachers were using AI to grade student writing assignments.

CalMatters reported that “no one on the board seemed to know about the tool.” School staff adopted AI so quickly that, intentionally or unintentionally, the board did not even know what was happening.

Mr. Carvalho has not been charged, but his resignation is not just a personnel change. It is a signal flare. Policymakers, teachers, and administrators must take heed.