A St. Paul charter school that lost $4.3 million in a hedge fund investment has been directed by its authorizer to enact several finance and governance changes, including steps approved by the school board this week.

The investment loss leaves Christianna Hang, superintendent and founder of Hmong College Prep Academy (HCPA), with big challenges on two fronts.

After Bethel University, the school's authorizer, recommended that the board fire Hang, members agreed Wednesday to hire an outside attorney to investigate the $5 million investment. The board said in a statement Thursday that it is committed to creating a "strong foundation for our community right now and for years to come."

The school also has sued the hedge fund, Woodstock Capital LLC, in an attempt to recover its losses. In a lawsuit filed in U.S. District Court, the school alleges fraud and negligence and says the hedge fund has yet to fully explain "what has happened to its funds."

Woodstock Capital has countered by portraying Hang as so determined to invest the school's money in a hedge fund that she dismissed the objections of HCPA's attorney. The school was a victim of bad timing, the hedge fund claims.

"COVID-19 hit and, as they say, the rest is history: Global economic shutdown, loss of businesses on a massive scale and disappearing investment portfolios," the fund said in its response to the school's suit.

The hedge fund's depiction of Hang as "the aggressor" in the investment is key to its efforts to have the case dismissed or transferred to a Delaware court, where the fund says its agreement with the school requires disputes to be settled. A hearing on the matter is scheduled for Wednesday.

Hang has declined interviews. But she did have a sworn statement refuting Woodstock Capital's claims filed on her behalf Sept. 8 in U.S. District Court.

Hmong College Prep Academy is a K-12 school situated on a sprawling campus in the Como neighborhood. A 2017 Star Tribune story about the flight of school-age children from their cities' school districts to charter schools and neighboring school systems found HCPA then in the midst of an elementary school and sports facilities expansion.

The school followed up the expansion in 2019 with plans to build a middle school and with Hang, who also serves as the school's chief financial officer, setting out to find financing through a variety of sources.

An e-mail from Hang to a friend, Kay Yang, seeking names of potential donors and investors led to calls and correspondence with Clark Reiner, a manager of Woodstock Capital, court documents state.

In her statement filed in U.S. District Court, Hang said she received repeated assurances from the hedge fund that its investments would be consistent with the school's investment policy and with state law — both of which guard against high-risk maneuvers.

Reiner replied in a sworn statement that neither he nor his partner made any such assurances, that he had no knowledge of Minnesota law and that HCPA's attorney told Hang he had concerns about the agreement.

James Martin, the school's attorney, noted in a letter to Hang dated Sept. 5, 2019, that a Woodstock Capital memorandum stated its "investment practices, by their nature, involve a substantial degree of risk" and there were no guarantees that the partnership would achieve its investment objectives or avoid a "substantial loss."

Hang then asked the hedge fund for a letter documenting what she and Reiner had discussed regarding investment parameters via e-mail. Reiner replied in a Sept. 6 letter that the "primary investment strategy is to profit from acquiring discounted debt and short-term interest rate bearing instruments," with a targeted gross return of 10% or more per year — a high bar to reach.

Four days later, Hang wired the $5 million to Woodstock Capital, according to Bethel's timeline of events, which the university said "illustrates areas of great concern related to managing finances, governance and legal compliance."

Bethel has directed the school to create a separate chief financial officer position, hire a financial consultant to report directly to the university and implement a two-person authorization system for electronic transfers of funds.

Besides recommending Hang's dismissal, Bethel urged the school board to name as its chair someone not employed by the school and to hire a consultant to carry out the corrective action plan.

On Wednesday, Christy Yong Vang, a parent, was chosen to replace Crystal Robideau, a teacher at the school, as chair, and Charter Source was put in charge of the corrective action plan.

As for Hang, the board has said employees are entitled to due process in personnel matters. Attorney Jeanette Bazis was hired Wednesday to investigate the $5 million investment.

Anthony Lonetree • 612-673-4109