New York City investigators recommended legal action against Plano, Texas-based Socratic Learning Inc, a company that provides online tuition, for failing to conduct proper background checks of its tutors.

The investigators said the company tried to hide the fact that its tutors were located in India, giving the impression that they were in the US. The company was also accused of offering laptops to students, thus violating state rules.

Rajan Sobhani, Socratic Learning's chief financial officer and chief operating officer, denied the charges.

The city department of education paid the company $2.4 million to provide tutoring to New York City schoolchildren under the federal No Child Left Behind legislation.

Socratic taught 2,172 children in 44 schools during the 2005-2006 year.

The contract with Socratic was canceled after an investigation by Richard Condon, special commissioner of investigation for the New York City School District.

Half the company's shares are owned together by Mythili Sridhar, president of the company, and her husband Sridhar Iyer, one of the founders, according to the investigation report. The company, through its subsidiary, Tutors Worldwide, employs about 250 people in Chennai to teach children online.

Federal guidelines permit online tutoring, but the state and city require tutors to undergo background checks. 'Socratic ignored this and permitted its employees located in India to directly communicate with schoolchildren through the Internet,' the report said.

The investigation began in June and the investigators interviewed present and past employees of Socratic. It recorded the testimony of several teachers and principals to whom Sussman Sales, a company that worked as a representative for Socratic, offered laptops. It also said that Socratic officials directly offered students laptops to join up for tutoring. As per its terms and conditions Socratic is not allowed to give gifts or incentives to students or parents to attract them to the program.

The report quoted Sridhar Iyer as saying that the company has about 10 employees in the US and 150 tutors in India. But the company did not hand over the roster of tutors to the officials, the report said.

The investigator recommended that the company, Mythili Sridhar, Sridhar Iyer and former COO Suzanne McElye be barred from doing business with the department for another five years. It also recommended that Socratic return money for any services provided to the children by non-authorised tutor personnel and pay the expenses for the investigation.

But Shobhani doubts the rationale for background checks, claiming the tutors never met the children.

"Unfortunately the report fails to even reference several significant facts, which were brought to their attention in the course of its investigation,' he said.

"All the representatives of Socratic who had any physical contact with students or went into the schools were fingerprinted and had background checks performed by the DoE. In fact, all of them were employed as teachers by the DoE at the same time that they were working in the after school program operated by Socratic," he said.

The tutors in India were fingerprinted by the Federal Bureau of Investigation, which reviews fingerprints for arrest records in all 50 states and five territories, he noted. "If these individuals would have been fingerprinted by the DoE, the search of any criminal history would have been limited to New York State," he said.

Socratic was willing to have the tutors submit their fingerprints to the DoE. But the DoE would not process fingerprints without a social security number. New York City, New York State, and the federal government, all demand a social security number to process fingerprints.

He also noted that the tutors did not know the identity of the students, nor did the students know who their tutors were. All their communications are monitored and are preserved, he said.

He said Socratic never authorised its agent, Sussman Sales Company, to promise laptops. When Socratic learned that some Sussman representatives offered students laptops, the company immediately notified the officials.

If computers were offered to students the cost would equal or exceed the money the company received from the DoE. This makes no business sense, he said.