The Pennsylvania Department of Education has given the board of the Agora Cyber Charter School in Devon an ultimatum:

Cancel a contract with the founder's management company and resign or the department will move to revoke the school's operating charter, the state said in a letter today.

The board has 10 days to act. Copies of the letter were faxed to the board, Agora's acting CEO and the school's attorney.

The school will continue to operate through the end of this school year. State officials said it was too early to say whether the department might restrict enrollment of new students in the fall.

The state's move is the latest development in a dispute between the state and Agora over the school's financial management.

Agora's finances also are being investigated by the Philadelphia School District's inspector general and by federal investigators as part of a widening probe of charters.

Agora's attorney, Joel L. Frank, said board members will decide how to respond.

"We will address their conditions," Frank said.

Interim board president Juaria Jenkins-Shelton could not be reached for comment. She was elected recently to replace former board president Harold Lebofsky, who resigned two or three weeks ago, Frank said.

The attorney said he expected some action from the department after the sudden withdrawal of a lawsuit against Agora two weeks ago.

At that time, state officials said they planned to take administrative action against the school over its contract with Cynwyd Group L.L.C., a management company, run by Dorothy June Brown, Agora's founder.

State law gives the education department oversight responsibility for the 11 cyber charters operating in the Commonwealth. Revocation is rare, although two other cyber schools have closed.

Agora enrolls 4,400 students from kindergarten through twelfth grade who receive online instruction at home.

Michael Race, an education department spokesman, said the school is still operating.

"We made a commitment that this year the day-to-day operations at the charter would not be disrupted," Race said.

He said the department stood by allegations contained in the lawsuit documents it had filed in Commonwealth Court earlier this spring that the Agora board had misused millions of taxpayer dollars to benefit Cynwyd Group, which is owned by Brown, the school's founder.

The suit said that the cyber charter's board had entered into unlawful contracts with Cynwyd Group which the state said Brown had co-created "for the purpose of making money from managing and operating the school."

Brown has declined comment and could not be reached today.

Agora's charter says the school agreed not to use a management firm. But Frank, Agora's attorney, said the school informed the department in 2006 of its contract with Cynwyd Group.

Cynwyd was slated to collect $2.8 million from Agora's $41 million budget to manage the school this academic year, although the state said most of the work was done by another company.

Since last month, all taxpayer funds received by Agora have been placed in an escrow account to prevent money from going to Cynwyd. Teachers and other employees are being paid from the escrow account, school officials have said.

The letter from Judy Shopp, the department's chief counsel, said that an investigation of Agora's operations launched in March, had found that the cyber school had violated state charter law and its own bylaws and operating charter by hiring Cynwyd Group. The school also failed to meet generally accepted financial and auditing standards, the state alleges.

The "myriad" violations, Shopp said, were grounds for charter revocation under state law.

She also wrote that all the members of the Agora board must be replaced by new members who have no personal, familial or financial ties with Brown. The new members must be approved by the department, Shopp said.

The state investigation found that since Agora's founding in 2005, its board has been dominated by Brown's relatives and people who either worked at the three traditional charter schools she founded or served on boards of those schools.

Daniel Hughes, the president of what is called the "Agora Official Parents Organization," said he was dismayed to learn about department's letter when he was contacted by the Inquirer.

The Pittsburgh father of an Agora kindergartner said he remains supportive of Brown and Agora's current board. He questioned the department's actions.

"I think they are making a mountain out of molehill," Hughes said. "There's two sides to every story."

Brown and Cynwyd Group have sued another parents' group, the Agora Parent Association, and six parents who complained to the state that Agora was not answering their questions about the charter's operations and its relationship with Cynwyd Group.

Those complaints led to the department's investigation.

The suit which accuses the parents of slander, libel and civil conspiracy is pending in Montgomery County.

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