SAN DIEGO (AP) — An Australian man and his Southern California business partner who ran a network of online charter schools pleaded guilty on Friday to felony charges tied to a massive fraud scheme that siphoned USD50 million in education funds from the state to invest in start-up companies and real estate.
Prosecutors called it one of the nation’s biggest fraud cases involving education dollars. The scheme involved buying the information of unwitting students it found through other schools and youth programmes to falsely beef up its enrolment numbers and collect public funds.
Sean McManus, 46, entered his plea from Australia via a video call to San Diego Superior Court.
He agreed to voluntarily return to the United States (US) as part of his plea agreement.
He and his business partner, Jason Schrock, 44, pleaded guilty to conspiracy to misappropriate public funds and to stealing more than USD500,000.
Schrock also pleaded guilty to one count of conflict of interest.
Both face up to 10 years in prison.
The defendants nor their attorneys could be immediately reached for comment.
Their company, A3 Charter Schools, operated 19 online-only charter schools across California, according to a 235-page indictment filed in San Diego County Superior Court.
As part of their plea agreements, the two men agreed to assist in the return of more than USD210 million in assets, which included 13 houses and various shares in third-party companies. “With these guilty pleas, the defendants now admit they engaged in a devious, systematic public corruption scheme on the backs of students, their parents and the public that diverted millions of taxpayer dollars into their own pockets,” District Attorney Summer Stephan said. “This is one of the largest fraud schemes targetting education dollars for K-12 students in the nation.”
The company paid sports leagues, camps and others as little as USD25 per student for information it then used to inflate enrolment, unbeknownst to the students.
McManus and Schrock then claimed these students were being served by the A3 Charter Schools and being taught public education from licensed teachers, when the students had no relationship with the charter school, according to prosecutors.
School districts are funded by the state based on the number of students.
The company also manipulated school calendars to falsely demonstrate that children were engaged in educational activities for the entire summer, according to the San Diego district attorney’s office.
The A3 Charter Schools earned as much as USD4,000 for each summer school student.
McManus and Schrock transferred millions of dollars in public school funds to private companies they owned and controlled under the guise of providing educational services, according to prosecutors.
The case has led to a review by the state of the way it funds schools and the lack of oversight. Lawmakers put a two-year pause on new online charters as a result of the case.
The California Charter Schools Association (CCSA) said it raised concerns about A3 with the state education department and urged an investigation.
Three co-defendants, who worked under McManus and Schrock at various charter schools, already pleaded guilty to criminal conspiracy and have been cooperating with prosecutors.