Former senior officials concocted an elaborate contracting scam that allegedly led to improper payments of more than $3 million since 2012 at the Options Public Charter School for at-risk youths. (Marlon Correa/The Washington Post)

Former managers of the District’s Options Public Charter School on Thursday denied accusations that they diverted millions of dollars from at-risk students to enrich themselves and their for-profit companies, but they agreed to sever their financial relationship with the Northeast Washington school.

The companies run by former Options chief executive Donna Montgomery and two other ex-managers had lucrative contracts to provide bus transportation, bookkeeping and other management services to Options, which enrolls about 400 students, many of whom have disabilities. Those contracts will now be voided.

During a hearing Thursday, D.C. Superior Court Judge Craig Iscoe appointed a receiver to oversee the operation of the school, choosing Josh Kern, a former charter school leader who now runs a for-profit consulting firm.

Iscoe said there appear to have been “flagrant abuses” at the school, pointing to large bonuses that were paid to the three managers shortly before they left Options this summer to run their businesses full time.

“My goal is to keep the school running to provide educational services to the at-risk students, many of whom have disabilities,” Iscoe said. “Someone needs to be able to run that school to protect the students directly” and District taxpayers indirectly, he said.

The court’s appointment of a receiver comes days after D.C. Attorney General Irvin B. Nathan filed a civil complaint alleging a “pattern of self-dealing” at Options that led to exorbitant bonuses and the diversion of more than $3 million from the school since 2012.

The three ex-managers and their lawyer said Thursday they did nothing illegal and that no taxpayer money was misused.

“All of the supposed ‘improper’ transactions were disclosed, supported, and approved,” lawyer Pamela Marple wrote in a response to the complaint, arguing that the contracts in question went through the D.C. Public Charter School Board, which has oversight of the city’s 60 charters.

City officials have accused one of the board’s former top officials — Jeremy Williams, who was in charge of financial oversight — of aiding the alleged scheme. Troy W. Poole, Williams’s attorney, said his client did nothing wrong.

Marple accused the District’s lawyers of publicizing “hastily compiled and heated allegations” to build support for closing Options. She alleged that the charter board is seeking to take over the school’s valuable Capitol Hill building to draw in a national charter operator.

The school is “financially and programmatically sound” and has a $4 million surplus, Marple said in court. “The buses are running on time and the children are getting their services.”

The ex-managers agreed to void their contracts with Options because they felt it was in the best interest of the school’s students, said Paul Dalton, one of the ex-managers named in the legal complaint. Dalton has roles at both of the for-profit companies allegedly involved in the diversion of taxpayer dollars: Exceptional Education Management Corp. and Exceptional Education Services.

“We’ve spent our entire adult lives serving special education kids, and we felt we could best serve them by agreeing to the terms that we agreed to today,” Dalton said.

In February, Montgomery — who was then chief executive of Options — signed a $500,000 check from the school to EEMC, a company she founded. That transaction and others detailed in the complaint were “absolutely” legal, Dalton said, and the school reported the financial relationship to the charter board.

“All of the procedures were followed,” Dalton said, explaining that the money was meant to help the fledgling company get off the ground. “Every business has to have start-up expenses.”

The charter school board maintains that the former Options leaders did not report transactions through proper channels. The charter board, which can close schools for financial mismanagement, has said it plans to vote on initiating a process to close Options at its Oct. 16 meeting. Scott Pearson, the board’s executive director, said the board will consider postponing that vote.

Under the agreement reached Thursday, Options will pay Kern $300 per hour for up to 80 hours as he determines what needs to be done at Options.

Kern will then present a budget to the court for approval. Iscoe made it clear that he wants to ensure as many dollars as possible go to Options students instead of to for-profit firms.

Anthony Herman, a lawyer representing Options, said he understands that concern but that the task facing Kern is “monumental.” The cost of the receivership is likely to reach “well into six figures,” but that is a price that must be paid if the school is to have a chance of staying open, Herman said.

A second receiver, yet to be named, also will be appointed as early as next week to oversee the two for-profit companies that the ex-Options leaders founded. Company assets will be frozen in the meantime.

EEMC officials said they welcomed the outside oversight as a chance to clear their names and restore their reputations. “We look forward to an honest and transparent assessment, instead of unfounded allegations so often repeated this week,” the officials said in a statement.

Lawyers for the District initially sought to freeze the companies’ assets indefinitely as the case continues, but Marple argued that would cripple the companies’ ability to provide services to 20 other charter school clients.

A lawyer representing J.C. Hayward, who allegedly signed the lucrative contracts and approved the bonuses for former Options leaders in her role as chairwoman of the school’s board of trustees, said that she has done nothing wrong. Hayward has since stepped down from the board and was suspended from her role as a news anchor at WUSA (Channel 9) while the investigation continues.

“The bottom line is my client didn’t benefit one penny,” said Jeffrey Jacobovitz, who represents Hayward, adding that Hayward was not paid for her work as board chairwoman. She has “had a stellar reputation in the community for 41 years” and “was acting in good faith,” Jacobovitz said.

The District was not seeking any action Thursday against Hayward or Williams, the former chief financial officer of the charter school board.