The founder of a charter school in Devon that is under federal investigation has received $3 million to sever all ties to the institution, according to terms of a settlement that includes the state Department of Education.

The payment to Dorothy June Brown's firm settles four lawsuits involving Agora Cyber Charter, an Internet-based school that has 5,500 students throughout the state. Agora is one of at least six Philadelphia-area charters whose finances and operations are under federal scrutiny.

Under the terms of the settlement, obtained by The Inquirer under Pennsylvania's Right to Know law, the state agreed to pay Brown $1.7 million. The rest came from the for-profit company that ran the school, K12 Pennsylvania L.L.C. In addition, taxpayers will cover more than $700,000 in legal fees.

The settlement severs all ties linking Brown and her company, Cynwyd Group L.L.C., to the charter she founded in 2005. The Education Department also agreed to halt a revocation of Agora's operating charter, and the school itself is now governed by a new board.

Agora remains under federal investigation. The school turned over its financial records to federal authorities in response to a grand-jury subpoena issued in May 2008, according to people familiar with the ongoing inquiry.

Brown, 72, a former principal and administrator in the Philadelphia School District, was a successful pioneer in the city's charter-school movement. She founded three charters, including the high-achieving Laboratory and Ad Prima. In the process, she created a lucrative enterprise that benefited from the state's loosely regulated charter-school law enacted by the legislature in 1997.

The Inquirer reported in May 2008 that Brown collected more than $330,000 a year in 2006-07 as the chief executive of both Laboratory and Ad Prima. At the time, the schools had a combined enrollment of 672 students.

After those revelations, the state legislature in July 2008 passed a law that made it illegal for charter administrators to earn such multiple salaries and also barred them from being paid by entities doing business with charters. Brown later resigned from Laboratory and Ad Prima.

For Brown, the settlement was both a financial win and, in her eyes, a vindication. The state Education Department had withheld $2 million in payments after questions over Agora were raised, and in the end she received all but $300,000. "I have been completely exonerated," Brown said.

A spokesman for the state Education Department, Michael Race, said the agreement fulfilled the agency's goal "to ensure Agora abided by the state's charter-school law." The state got what it had been seeking for more than six months - that Agora sever ties with Brown and her firm and that the school be governed by a new board without links to Brown.

The Education Department oversees the state's 11 cyber schools.

The state's scrutiny of Agora was prompted by parents who approached the Education Department after the charter refused to provide details on Cynwyd, Brown's company, and its role at the school.

Under the arrangement with Brown's company, Agora paid Cynwyd a management fee of 7 percent to help run the school. Last year, that bill would have been $2.8 million. Cynwyd also served as Agora's landlord, charging $300,000 a year for the charter's headquarters in Devon. The state called the terms of the lease "exorbitant."

State officials in April concluded that the contract with Cynwyd was improper because the school's 2005 charter barred it from using a management company.

The state, in court documents, claimed that the Agora board had misused millions in taxpayer money to benefit Cynwyd and that the firm was cocreated by Brown in 2006 "for the purpose of making money from managing and operating the school."

The state's finding on Agora in April effectively barred payment to Cynwyd, Brown's firm. But in court documents in the lawsuits, Agora provided a letter showing the state had known "for years" about the charter's contract with Cynwyd and had done nothing until the parents complained.

The Education Department responded that the letter wasn't enough, and that Agora was supposed to have applied to amend its charter.

Brown's attorney, Clifford E. Haines, said any allegations by the state that Brown's management of the charter was in any way improper were also nullified by the settlement.

"In the final analysis, the Commonwealth of Pennsylvania has abandoned any claim against her and paid the money to her we claimed she was owed," Haines said.

He noted that she was due $2.8 million and in the end walked away with a total of $3 million.

The settlement, which covers four civil suits filed by Agora's board and Cynwyd as they fought to retain control of the school, came after U.S. District Judge Berle M. Schiller ordered the parties in late August to try to settle.

The settlement calls for taxpayers to pay Agora's legal fees, which so far total $432,000. The state's own legal costs totaled $285,000 for outside counsel and a hearing officer.

K12's $1.3 million payment to Cynwyd ended a contract with Brown's firm that barred K12 from managing any other school in Pennsylvania until 2016. "This ends all the numerous lawsuits which created a cloud of instability for students, families, and staff," said Jeff Kwitowski, vice president of K12's parent in Herndon, Va.

However, the settlement does not end a separate defamation suit filed in Montgomery County by Brown and Cynwyd against the six parents at Agora who complained to the state. The parents have characterized the suit as an attempt to stifle critics - a so-called strategic lawsuit against public participation, or SLAPP suit.

Attorney Michael K. Twersky, who represents defendant Gladys Stefany, said the parents were not part of the settlement negotiations.

Haines, the attorney for Brown and Cynwyd, said the suit could have been settled if the parents had agreed to apologize to Brown.

"You cannot randomly accuse people of committing a crime, which is the bottom line of what happened," Haines said. "We have offered a resolution to the parents in terms of some sort of apology, and they are unwilling to do that."

Meanwhile, Agora plans to relocate from Devon, and its new board has applied for renewal of its charter, but it will likely get a new identity. The board recently announced a contest to rename the school.

Education reporters Martha Woodall and Kristen A. Graham will take questions at noon today at philly.com.EndText

Contact staff writer Martha Woodall at 215-854-2789 or martha.woodall@phillynews.com.