Sajid Hussain Raza, 43, Shabana Hussain, 40, and Daud Khan, 44, are charged with making payments into their own bank accounts from a Department for Education grant given to help set up Kings Science Academy in Bradford in 2011.
Prosecutors said Raza, the founder and principal of the school, used some of the money to make mortgage repayments on rental properties he owned to alleviate his own financial problems.
They said the fraudulent activity continued for three years, between November 2010 and December 2013, despite senior civil servants expressing concern about his leadership and financial management.
Raza told the jury at Leeds Crown Court the suggestion he used public money to cover his debts was “unbelievable’’.
He denies four counts of fraud, three counts of false accounting and two counts of obtaining money transfer by deception.
Hussain, a teacher at the school and Raza’s sister, denies one count of fraud and one count of obtaining property by deception.
Khan, the financial director at the school, denies two counts of fraud and three counts of false accounting.
Kings Science Academy was among the first wave of free schools set up as part of a flagship education policy introduced by the Government following the 2010 general election.