"There were literally hundreds of thousands of dollars going out the door to [schools] not only with no walls and no buildings, but no teachers, no textbooks," O'Connell said.
Operators are now required to spend at least 40% of their state revenues on teachers and at least 80% overall on instructional expenses. They must prove they are meeting those levels in periodic, detailed reports to the new Advisory Commission on Charter Schools. If not convinced, commissioners, who are appointed by the state Board of Education, can drastically cut funding.
The Halls say they have complied with the new rules, but the state has challenged the way they calculate such things as student-teacher ratios and spending on teachers.
Since the 2002-03 school year, the commission has cut disbursements to the Halls' schools by 30% to 40% each year, withholding tens of millions of dollars the Halls say they were owed.
In response, the operators of Options and Opportunities filed a 2003 lawsuit against the state seeking restoration of some funding. Although the court ruled that the state had improperly reduced its disbursement before rules for doing so were formally adopted, no additional funds were granted.
The family's network of private businesses and the charity have also drawn state scrutiny.
The largest of the Halls' three outside companies, Educational Management Systems, provides administrative services to the Opportunities charters, including bookkeeping, teacher hiring and curriculum development.
Another, Education Dynamics, tracks student work and calculates claims for funding using a software program developed by the Halls. Options and Opportunities charters pay the company $8 a month per student. It sells the same service at a 50% higher rate to three other independent study programs in California, all run by public school districts, according to documents on file with the state.
The third company, Partners in Special Education, provided services for learning-disabled students, but it has been dissolved.
Pathways, the charity run by the Halls' daughter and funded by more than $10 million in reserves built from state funds given to Options, has earned nearly $1 million in interest and dividends through 2004, according to federal tax documents.
But to date, its only charitable venture has been a program in 2004 for about 35 low-performing students at Pasadena's Blair High School. Pathways spent about $200,000 on the program, tax records show.
The students at Blair split their days between attending classes and volunteering at social service groups, according to Rich Boccia, the school's principal, who praised the program. But after a year, he said, Pathways announced it was pulling out for lack of funds.
Jamie Hall, the group's executive director, did not respond to requests for interviews. In an interview and in testimony before the state commission, her father has said that he and Jamie's mother are not involved with Pathways and have no control over the money.
John Hall acknowledged that Jamie Hall is director of human resources at Opportunities. And four members of the Halls' advisory board served on the Pathways board in 2004, the most recent year for which records are available.
As they do each year, the Halls held graduation ceremonies last summer for their students.
At one, a few hundred students in black gowns and caps posed for a picture outside the Pasadena Civic Auditorium. Inside, parents and siblings waited with bouquets of flowers.