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A3 charter school
District Attorney Summer Stephan discusses the indictment of several people tied to an alleged scam involving the charter school management company A3. / Image courtesy of NBC San Diego

An online charter school empire whose leaders have been charged with enrolling fake students and misappropriating $80 million in public funds will be forced to close all of its schools across California.

In May, the San Diego district attorney’s office charged 11 people in a corruption scandal of historic proportions. Prosecutors say Sean McManus and Jason Schrock, who operated A3 Education, were the ringleaders of the operation. Several who worked with McManus and Schrock have also been charged with crimes, including the superintendent of the Dehesa School District in San Diego County.

At its peak, A3 operated 19 online schools across the state, including three in San Diego, according to investigators. One closed before the charges were filed. And two more – one in San Diego and another in Los Angeles – were slated to close. But now a court-appointed receiver has decided to shutter all of the remaining schools.

Students’ records at each of the closing schools will be transferred to their school district of residence by Sept. 30, according to a letter obtained by the Marin Independent Journal, which was sent out to districts associated with the A3 schools. Richard Kipperman, the court-appointed receiver, confirmed to Voice of San Diego that all the schools will close.

How the Scam Worked

Prosecutors painted an intricate picture of a complex organization that managed to turn student records into giant sums of cash. A3 Education enrolled many students who took actual classes, but it also enrolled many students who never did any schoolwork, prosecutors say.

Most of the fake students were participants in summer athletic programs, according to the indictment. Enrollment workers would approach a football program, for instance, and offer as little as $25 a head for each player’s records. The enrollment worker would also get a commission on however many students he or she enrolled. The rest of the money – which totaled in the thousands of dollars for each student – went to companies controlled by McManus and Schrock.

In one instance, Luiz Rigney, an enrollment worker, carried several suitcases of student paperwork, worth roughly $5 million, to one of A3’s offices. Rigney had been asked to backdate that paperwork so A3 could get maximum profit, prosecutors say.

In another instance, two workers texted each other back and forth about the large sums of cash flowing through the company: “I had the weirdest dream last night! One was about us growing all Sean’s schools. I was running all the Facebook campaigns and you were running around my office drinking champagne throwing money everywhere yelling I love bonuses,” the texts read, according to court documents.

Loopholes Still Open

The alleged scam also exposed three loopholes in how the state funds schools.

  • Schools like A3 are non-classroom based, in education jargon. Despite far fewer overhead costs, online schools can still qualify for 100 percent funding, just like a brick and mortar school. To do this, a school must pass two tests: 40 percent of its funding must go to teacher salaries, and 80 percent must go to general educational services. A3 did not pass either test, prosecutors say, but submitted paperwork suggesting that it did. This paperwork had been reviewed by a state-approved auditor, but was never flagged as suspicious. As of now, the state has no plans to update its auditing process.
  • Any one student is supposed to represent one unit of funding for an entire school year. But A3 managed to get one unit of funding, plus an extra 20 percent for some of its students, prosecutors say. A3 did this by unenrolling students from traditional public schools for the summer, enrolling them into A3 schools, and then re-enrolling them into their traditional public school once the summer was over. The state currently does not track student movements in a way that would expose such scams.
  • Since A3 operated many schools, prosecutors also say they were able to move students between the various schools. By enrolling a student at one school for 10 months, then switching the student into a different A3 school, they could juice the funding by as much as 20 percent.

Will Huntsberry

Will Huntsberry is a senior investigative reporter at Voice of San Diego.

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