How does a $50 million charter scam work? Here’s what happened in California (before 11 people were indicted).

By Valerie Strauss
June 17 at 11:41 AM

Late last month, San Diego officials indicted 11 people in what they described as a charter scam that defrauded the state of California of more than $50 million in education funds.

The indictment details a scheme in which an Australian man and his business partner in Southern California opened 19 charter schools throughout the state and then took the public funding the schools received to operate and used it instead for real estate and other ventures.

This post explains the scam that the 235-page indictment spells out in detail. This is long but worth the time to read to get an understanding of how easy it is, because of lax charter sector laws in some states, to defraud the public.

California, which has more charter schools and more charter school students than any other state, now has one of the most lax charter laws in the country, allowing these schools to operate with little if any accountability or transparency to the public.

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Inside the Charter School Empire Prosecutors Say Scammed California for $80M

The indictment against the leaders of A3 Education lays out a complex organizational structure with two top leaders and several lieutenants who led the charge to enroll thousands of summer school students, who did not actually take classes. Several superintendents, knowingly or not, helped fuel the network’s growth. And untold coaches, students and parents were roped in to help boost enrollment.

Will Huntsberry
June 12, 2019

Sean McManus and Jason Schrock created an online charter school empire that covered more than half the state of California, according to prosecutors and investigators for an outside charter school organization.

From the port of entry at San Ysidro up to Los Angeles, past the cliffs of Big Sur all the way to Santa Cruz; east through Raisin City, past the giant sequoias of Sierra National Forest, and down into the flat and quiet of Death Valley; south again to the Mexican border; and back to the coast – a person could travel unbroken through 20 counties that made up the lower half of their empire. An outpost of 14 counties encompassing Sonoma and Sacramento sits further north.

From this vast swath of territory, McManus and Schrock absorbed mind-blowing profits. Take just some of their 2016 tax returns: Their nonprofit charter management company A3 brought in $14.2 million in revenue. It spent only $3.6 million. Of the money it spent, $855,796 went to McManus and Schrock’s salaries. They appeared to be the only two employees, according to the tax return.

The profits climbed even higher in the months that followed, according to an indictment filed by prosecutors. A3 Education and other companies controlled by McManus and Schrock ultimately brought in more than $80 million, prosecutors say.

Nothing in the law stops a nonprofit charter management company from operating on wide profit margins or paying its officers hundreds of thousands of dollars a year. But the company’s “profits” aren’t ever supposed to make it into personal bank accounts. To get them there requires shady accounting. Prosecutors say McManus and Schrock extracted roughly $8 million into bank accounts and personal charities and bought a $1.6 million house for joint use in San Juan Capistrano.

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