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

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

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

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

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

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

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

"We will address their conditions," he said.

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

He 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 owned and run by Dorothy June Brown, Agora's founder.

State law gives the Education Department oversight responsibility for the 11 cyber charters operating in Pennsylvania. Revocation of a charter is rare, although two other cyber schools have closed.

Agora enrolls 4,400 students from kindergarten through 12th grade, who receive online instruction at home.

Michael Race, an Education Department spokesman, said the school was still operating.

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

He said the department stood by allegations in the lawsuit it filed in Commonwealth Court this spring that the Agora board had misused millions in taxpayer money to benefit Cynwyd Group.

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

Brown has declined comment and could not be reached yesterday.

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

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

Since last month, all taxpayer money Agora receives has been deposited in an escrow account to prevent it from going to Cynwyd. Teachers and other employees are paid from that escrow account, school officials have said.

The letter yesterday from Judy Shopp, chief counsel of the Education Department, said an investigation of Agora's operations launched in March found that the school 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 members of the Agora board must be replaced with people who have no personal, familial, or financial ties to 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 who served on the boards of those schools.

Daniel Hughes of Pittsburgh, president of the Agora Official Parents Organization, said he was dismayed to learn about the department's letter when The Inquirer contacted him.

Hughes, father of an Agora kindergartner, said he remained supportive of Brown and Agora's current board. He questioned the department's actions.

"I think they are making a mountain out of molehill," he 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 school's 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 martha.woodall@phillynews.com.