Eleven Charged in $50 Million Charter School Fraud Scheme

SAN DIEGO (CN) – Authorities indicted an Australian man and his Southern California business partner Wednesday in a $50 million scheme to open 19 charter schools across the Golden State and using the public-school funding they received to invest in start-up companies and real estate.

Sean McManus, 46, who remains at large in Australia and Jason Schrock, 44, and nine others face charges of defrauding California out of $50 million in education funds through their company A3 Charter Schools, according to 235-page indictment filed in San Diego County Superior Court.

Another $200 million in public funds had been allocated to the charter schools for the future, San Diego District Attorney Summer Stephan said Wednesday, but prosecutors are working with the court to freeze the assets.

The scheme enrolled about 40,000 California kids in the charter schools, according to Stephan.

McManus and Schrock and the others face charges of conspiracy, misappropriation of public funds, paying for student information and conflict of interest.

Judge Michael Smyth issued a $5 million bench warrant Wednesday afternoon against McManus, who owns a home in California purchased from funds from the scheme according to Deputy District Attorney Leon Schorr.

Schrock, of Long Beach, pleaded not guilty to all 62 charges he faces. Schorr asked for his bail to be set at $5 million, but Smyth settled on $1.5 million after finding the charges don’t warrant such a high amount.

“The losses are extraordinary,” Smyth said, noting not all of the money had been accounted for and Schrock may have unknown resources. Schrock was also ordered to submit to GPS monitoring and surrender his passport.

Prosecutors say they operated the statewide scheme by seeking out small public school districts with limited experience in charter school oversight and convincing them to authorize the online charter schools in order to earn additional public funds through oversight fees paid by the state.

The schools include Valiant Academy, CA STEAM, Uplift California, California Academy of Sports Science, California Vanguard Fresno, University Prep and California Prep.

The co-defendants did not disclose their relationship with the men when starting the charter schools and falsely claimed to be the leaders of the schools, according to the indictment.

To obtain additional public funds, McManus and Schrock also allegedly ran another scam paying athletic organizations, like Little League chapters, for student information used to “enroll” students in a charter school for summer school, collecting about $2,000 per student from the state. Some of the students and parents were unaware they had been enrolled in a charter school for the summer, according to the indictment.

Prosecutors say charter school employees were also directed by McManus and Schrock to backdate student enrollment information in order to receive additional funding based on California’s “average daily attendance” funding.

Some students were dual-enrolled from private schools into the A3 Charter Schools, with McManus and Schrock paying the private schools a fraction of what the state pays in “average daily attendance” funds and pocketing the rest – from $2,000 to $5,000 per child, according to prosecutors.

Students were also transferred from one school to another without parental consent or knowledge so the defendants could collect more than one “average daily attendance” funding per student, according to the indictment.

Stephan did not say Wednesday whether any private schools or athletic organizations who sold student information to A3 Charter Schools would face charges.

The funds were then transferred to multiple companies owned by McManus and Schrock, including A3 Education, A3 Consulting, Global Consulting Services and Mad Dog Marketing. The money was spent on start-up investments and real estate and some funds were wired directly to themselves or family members, according to the indictment.

Dehesa Elementary School District Superintendent Nancy Hauer, 57, was also charged with misappropriating public funds as part of the indictment. Prosecutors say she billed charter schools for oversight fees far greater than the cost incurred by the district and more than the district’s entire budget for payroll. Hauer billed the charter schools over $2 million in oversight fees during the 2017-2018 school year, according to the indictment.

Another co-defendant, Steve Van Zant, 56, created the company EdCBO to provide back office services for A3 Charter Schools. He hid his involvement with EdCBO and McManus by filing all corporate paperwork under another person’s name, prosecutors say.

Other named defendants include Justin Schmitt, Robert Williams, Robert Nguyen, Eli Johnson, Nyla Crider, Kalehua Kukahiko and Troy Kukahiko.

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