Eleven people have been indicted on criminal charges of conspiracy, personal use of public money without legal authority, grand theft and financial conflict of interest in connection with a network of California charter schools.
At the center of the allegations are leaders of the charter school management corporation A3 Education, a Newport Beach firm whose leaders control 13 charter schools across the state, according to an indictment filed May 17.
A3’s chairman, Sean McManus, and president, Jason Schrock, essentially owned and operated the charter schools at the same time that A3 contracted with those schools, according to the indictment.
McManus and Schrock operated multiple businesses that charged their own charter schools millions of dollars for services. Then they channeled money from those businesses into their own charitable trust and personal bank accounts, according to the indictment.
A3 Education and the businesses affiliated with McManus and Schrock together have invoiced at least $83.3 million from the 13 charter schools, according to the indictment.
From the affiliated businesses, at least $8.18 million went into personal bank accounts, some in Australia, and into charitable trust accounts for McManus, Schrock and their wives, and $500,000 went to a family member of McManus, according to the indictment.
McManus and Schrock also used $1.6 million of A3 Education’s funds to buy a private residence for McManus in San Juan Capistrano, the indictment states.
Also, according to the indictment, six people, including McManus and Schrock, conspired to collect state money for students who were listed as being enrolled in Valiant charter schools but were not receiving services.
The Valiant schools — Valiant Academy of Southern California, authorized by the Dehesa School District in El Cajon, and Valiant Academy of Los Angeles, located in Acton and authorized by the Acton-Agua Dulce Unified School District — were also run by McManus and Schrock.
The indictment said the arrangement, from Jan. 1, 2016 through April 20, 2018, involved paying athletic organizations for student report cards and falsified charter school enrollment documents, then using that information to get state money. School officials worked with a vendor, Prodigy Athletes, to recruit the students, the indictment said.
The children were not assigned to teachers who have state-required professional certificates, the indictment said. And the students also were not in contact with the schools, nor were they provided with educational services during the summer months, as some of the co-conspirators claimed, according to the indictment.
In light of the indictments, the two Valiant schools are now set to permanently close on June 30.
Charter schools are independently run schools that are funded with public money and often are authorized by school districts. With virtual charter schools, students mostly or completely take classes online.
In addition to McManus and Schrock, the list of indicted defendants includes Valiant’s Head of School Justin Schmitt. Prodigy’s founder and two former Valiant employees that worked with Prodigy also were indicted, according to a statement from the Valiant Board of Directors Chairman Robert Sikma.
“Valiant takes these charges very seriously and is committed to reviewing and revising its policies and procedures as needed to address the types of concerns raised … to ensure that it continues to operate within the confines of the law,” Sikma said in a post on Facebook.
Also among the indicted is Steven Van Zant, a former Mountain Empire Unified superintendent who three years ago pleaded guilty to violating conflict-of-interest laws, after he brokered deals with charter schools to operate in other school districts.
Also indicted is Nancy Hauer, the superintendent of Dehesa School District, which authorized several charter schools, including Valiant Academy of Southern California.
In an email statement, Dehesa Board President Cynthia White said: “The Dehesa School District is not in a position to comment on the substance of this matter, as the nature of the criminal charges against Superintendent Hauer have not been made public. The Board of Education was stunned to learn about the charges, and we have engaged legal counsel to review this matter and any possible implications for district operations.”
No information was immediately available about the attorneys of the accused. Most of their arraignments are set for Wednesday.
Nyla June Crider, a Valiant official who was arraigned May 21, pleaded not guilty to the allegations, according to court documents.
At its school board’s May meeting, Dehesa School District staff recommended that its board deny Valiant Academy of Southern California’s petition to renew its charter.
In a 21-page report, the district outlined issues at the school, including abysmal scores on state standardized tests and questionable financial practices.
Valiant Academy of Southern California’s performance schoolwide in both English and math was the lowest in comparison with testing scores in nearby counties.
The district employed an outside auditor to review Valiant Academy’s management practices and discovered the school “engaged in several non-arms-length, related-party transactions,” which weren’t included in the school’s independent financial audit report. Those actions violated the charter school’s corporate bylaws and “creates significant financial conflicts of interest,” according to the district’s report.
The alleged violations included Valiant Academy paying A3 about $3.6 million during the 2017-18 fiscal year. The invoices were approved for payment by McManus at A3 and another man, neither of whom were employees of the charter school, according to the district’s report.
The school also paid Mad Dog Marketing — a company that has common ownership with A3 — $288,000 during the 2017-18 fiscal year, according to the report.
“These payments, again, appear to be related-party transactions that were not disclosed in the charter school’s independent financial audit report,” according to the district’s report.
The “affected” A3 employees have agreed to step down from their positions, A3 said in a statement, “to ensure that A3 Education can continue to support the charter schools that it serves without further distraction.”
The San Diego district attorney’s office has been investigating A3 Education since at least last year, when A3 Education learned of the investigation, according to the statement.
“There are no words to express the shock and dismay that we are all feeling from the recently released report of the Dehesa Unified School District and the related indictment,” A3 leaders wrote in the statement. “However, we must keep in mind that the alleged wrong doings are attributed to a few, internally and externally, not the organizations themselves or as a whole.”
Valiant Academy of Southern California reported to the California Department of Education that it enrolled 2,550 students this school year. The school said it enrolled 43 students two years ago and 726 students last school year.
About 22% of its students last year were socioeconomically disadvantaged.
The school has performed worse, on average, than other public schools statewide. About 17% of the school’s students met or exceeded standards on the state math test last year, while 34% did so in English.
The school’s performance was so poor that the California Charter Schools Assn., which advocates for charter schools, recommended last year that the school close.
The Valiant Academy of Los Angeles reported it enrolled 1,299 students this school year.
A3 said it will roll out changes in the next 60 days to improve its internal controls.
It has hired an interim CEO, James Konantz, and it said it will rewrite school service agreements, distribute an organization chart of A3 employees, publicize ways to report concerns, hire to fill all positions and provide accounting training.
A3’s chief financial officer also will meet with each school leader to plan school budgets, according to the statement.
Taketa and Cook write for the San Diego Union-Tribune and reported from San Diego. Cosgrove reported from Los Angeles.