A state auditor's investigation has determined that Hmong College Prep Academy (HCPA) in St. Paul failed to comply with Minnesota law in a hedge fund investment that cost the school $4.3 million, and the findings have been forwarded to the Ramsey County Attorney's Office for possible action.

"Not only did the charter school fail to follow Minnesota law, it did not follow its own investment policies," State Auditor Julie Blaha said in a statement accompanying release of the investigative report Monday. "This situation demonstrates why the law does not allow risky investments by public schools."

The auditor's report also described as "reasonable and appropriate" a corrective action plan set out by Bethel University, the school's authorizer, which recommends the firing of Christianna Hang, the school's superintendent and founder.

The school board, saying employees are entitled to due process, hired an outside attorney last month to investigate the $5 million investment — made in 2019 when HCPA was planning to build a middle school.

The auditor's office said it launched the probe after receiving concerns about the investment. Many of the details in the 10-page report also have appeared in federal court documents filed by the school and the hedge fund, Woodstock Capital LLC. HCPA has sued Woodstock Capital alleging fraud and negligence, while the hedge fund has blamed losses on the pandemic.

According to the investigative report, state law permits investments "only in securities that are generally considered to be among the safest available." The law does not allow investments in hedge funds, nor in European government bonds, which was among the investment strategies Woodstock Capital outlined in a confidential memorandum cited by the auditor's office.

That memorandum also warned that a limited partner such as HCPA "could incur substantial, or even total, losses" on an investment in the partnership, and that such investments were suitable only for people "willing to accept this high level of risk," the auditor's report said.

The investment had a balance of $722,205 in March and the school since has received $634,762 from Woodstock Capital, according to the report.

The charter school did not respond to a request for comment Monday, but when concerns were raised in late September, the board issued a statement saying "there are aspects of our school that need strengthening."

Bethel's annual review found "our governance and management needs greater focus. The board is taking steps to work with Bethel and the appropriate partners to make improvements."

In an interview, Blaha said her office turned over its findings to the county attorney's office on Monday. State law requires such action when findings point to "malfeasance, misfeasance or nonfeasance in office."

Blaha added: "We have not gone to the level of assigning blame to anyone. … Our ultimate goal is to ensure our kids have the resources they deserve."

The county attorney's office did not respond to requests for comment.