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San Diego County District Attorney

Statewide Charter School Scheme Stole More Than $50 Million in Public Funds

Wednesday, May 29, 2019
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Statewide Charter School Scheme Stole More Than $50 Million in Public Funds

An Australian national, who is a charter school operator in the U.S., and his Long Beach business partner, conspired to siphon more than $50 million from the State of California for years according to a grand jury indictment. As part of a wide-ranging scheme, the defendants sought out small school districts with limited experience in oversight and proposed they authorize online charter schools to earn additional public funds in the form of oversight fees. Sean McManus, 46, and Jason Schrock, 44, the CEO and president of A3 Education, along with nine other defendants have been indicted in San Diego County on a several criminal counts including conspiracy, misappropriation of public funds, paying for student information and conflict of interest. [TWEET THIS]

[WATCH: News conference announcing charges]

The 235-page indictment, which was handed down by a grand jury on May 17, is the result of a year-long investigation by the San Diego County District Attorney’s Office into allegations of fraud in public schools. The grand jury spent six weeks hearing testimony from more than 70 witnesses including employees of the charter school, various school districts, and county and state-level employees. The investigation uncovered a massive scheme in which McManus and Schrock directed subordinates and co-defendants to open 19 charter schools in San Diego County and across California. These are collectively called “A3 Charter Schools” and include:

  • Valiant Academy San Diego
  • Valiant Academy Los Angeles
  • Valiant Academy Santa Barbara
  • CA STEAM San Bernardino
  • CA STEAM Sonoma
  • CA STEAM Sonoma II
  • CA STEAM Santa Barbara
  • Uplift California Monterey
  • Uplift California North
  • Uplift California South
  • Uplift California Santa Barbara
  • California Academy of Sports Science
  • California Academy of Sports Science Fresno
  • California Vanguard Fresno
  • University Prep
  • University Prep Fresno
  • University Prep San Bernardino
  • California Prep Sutter K-7
  • California Prep Sutter 8-12

“These defendants engaged in a devious, systematic public corruption scheme on the backs of students, their parents and the public that over time diverted millions of taxpayer dollars into their own pockets,” District Attorney Summer Stephan said. “Our team of investigators and prosecutors uncovered widespread misappropriation of public funds that extends across the state.”

Co-defendants, who worked under McManus and Schrock at various charter schools, purposely did not disclose their relationship with the men when starting charter schools and falsely claimed to be the leaders of the schools. McManus is charged with 64 counts and is facing more than 40 years in state prison if convicted. Schrock is charged with 62 counts and is also facing more than 40 years in custody.

The co-defendants are:

 

Defendant

Number of Charges

Maximum

Sentence

Role

Justin  Schmitt, 37, Colorado

17 Counts

11 years

Charter school employee

 

Robert Williams, 65 Laguna Beach

14 counts

Six years, eight months

Accountant

Richard Nguyen, 33 Foothill Ranch

14 counts

Six years

Charter school employee

Eli Johnson,57, Cameron Park

13 counts

Five years

Charter school employee

Nyla Crider, 45, Laguna Niguel

Seven counts

11 years

Charter school employee

Kalehua Kukahiko, 37, Hawaii

Five counts

Four years, eight months

Charter school registrar

Steve Van Zant, 56, San Diego

Five counts

Six years

Consultant contractor 

Troy Kukahiko, 46, Hawaii

Three counts

Four years

Head of Prodigy Athletes

Nancy Hauer, 57, Dehesa

One count

Four years

Dehesa Schools Superintendent

 


In addition to creating charter schools, McManus and Schrock ran another scam that paid athletic organizations for student information. A3 Charter Schools paid pre-existing youth programs as little as $25 per student for enrollment documentation and would then ‘enroll’ the students into a charter school in the summer time as regular students, collecting about $2,000 per student from the State of California. Some students and parents were unaware of enrollment in a charter school.

In other instances, McManus would direct co-defendants or their employees to backdate student enrollment information in order to receive additional funding. The state pays school districts based on ‘average daily attendance’ (ADA) and the defendants used their knowledge of how the state doles out funding to collect as much money as possible. For example, McManus and Schrock dual enrolled students from private schools into their charter schools. In exchange for enrollment documentation, McManus and Schrock would pay private schools a fraction of the state pays in ADA and pocket the rest – anywhere from $2,000 to $5,000 per child.

Additionally, the organization would collect more than one ADA in state funding per student by transferring students from one school to another without parental consent or knowledge – a scheme that allowed McManus and Schrock to collect more than funding than they were entitled.

McManus and Schrock transferred more than $50 million in public charter school funds to A3 Education, A3 Consulting, Global Consulting Services, and Mad Dog Marketing, which are companies McManus and Schrock own and/or control.

Once McManus and Schrock obtained the public funds in private company bank accounts, they did not use the money to educate students, but instead spent the funds on themselves and their families.  McManus and Schrock invested in startup companies, real estate, and wired funds directly to themselves or family members. The majority of funds paid to A3 Education, A3 Consulting, Global Consulting Services, and Mad Dog Marketing ended up in the pockets of McManus and Schrock.

Co-defendant, Steve Van Zant, 56, created EdCBO to exclusively provide back office services for A3 Charter Schools. Van Zant intentionally hid his involvement with EdCBO and McManus by filing all corporate paperwork under the name of a subordinate.

Nancy Hauer, 57, the Superintendent of Dehesa Elementary School District, the district responsible for oversight of three A3 Charter schools and six other charter schools, was charged with misappropriating public funds by overbilling charter schools for oversight fees, with the charter school’s consent. Hauer billed the charter schools over $2 million in oversight fees during the 2017-2018 school year; far more than the actual costs incurred by the district and more than the district’s entire budget for payroll. Dehesa’s fees increased as the enrollment in A3 Charter schools increased. This symbiotic relationship discouraged Dehesa from performing oversight that may have uncovered McManus and Schrock’s criminal enterprise.

Defendant Nyla Crider was arraigned on May 21 in San Diego Superior Court. Other arraignments are scheduled for today at 1:30 p.m. in Department 102 of the San Diego Superior Court downtown location. McManus, who is Australia, remains at large. [TWEET THIS]

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