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If money-sucking scams are like vampire squids, then the A3 charter scandal had its tentacles all over California. Nineteen online charter schools pulled in thousands of students (some real, some not) from counties up and down the state. With each student came dollars — roughly $400 million of them.
But new lawsuits reveal the money didn’t stop flowing at California’s border.
Sean McManus and Jason Schrock, who pleaded guilty in February to charges that they led a conspiracy to defraud the public, invested millions of dollars in taxpayer funds into charter school operations in other states.
One deal pushed $1.9 million through a company called Fusion Ed in Utah for the “acquisition of various charter schools located in Arizona, Colorado and Ohio,” according to one lawsuit.
In another, $1.3 million went to a company called Zia Learning in Illinois.
A third investment in Texas poured $5 million into a for-profit venture called eSchool Prep, which was being set up by the superintendent of El Paso schools and a former school board member, the lawsuit alleges.
The civil cases were filed by court-appointed receiver Richard Kipperman, who has controlled all of A3’s assets since prosecutors filed criminal charges against McManus, Schrock and nine other defendants in 2019. Kipperman is, essentially, trying to find whatever A3 money is still circulating in the United States and get it back.
A big portion of the money A3 received went to teacher salaries, so it will be impossible for taxpayers to get a full refund. McManus and Schrock have already agreed to hand over at least $215 million that will eventually make its way back into public coffers. But up to 30 percent of that money is set to be redirected to the San Diego County Board of Supervisors and earmarked for youth services, despite coming out of the state’s education budget.
What Happens in Texas
After news of A3’s Texas investment broke, the superintendent of El Paso schools, Juan Cabrera, was forced to resign.
Back in 2018, Cabrera and Dori Fenenbock, the former school board president in El Paso, were soliciting investments to start a for-profit virtual charter school in Texas, one of the lawsuits alleges.
They told McManus and Schrock they expected big returns.
“We estimate a positive cash flow of $103 per student in the first year and $961 in our fifth year,” they told McManus and Schrock, according to the lawsuit. “In five years we will build a $122 million business in Texas with an operating margin of 15.7 percent ($19.2 million).”
McManus and Schrock decided to invest $5 million in the venture in return for a 30 percent ownership stake. McManus also got a seat on the board. But when indictments came down in May 2019, Fenenbock asked McManus to step down, she wrote in a court filing.
When McManus refused, Cabrera and Fenenbock forced him out. They sent a check for $438,000 to buy McManus and Schrock out of their investment. Kipperman, the receiver, believes the sum was far too little, according to his lawsuit.
Cabrera and Fenenbock “decided to parlay their positions of public trust into a for-profit enterprise, a state-licensed virtual, internet-based school,” Kipperman alleges.
Kipperman and his attorney declined to comment on the lawsuits. Attempts to reach Fenenbock’s and Cabrera’s attorneys were unsuccessful. Cabrera currently works at a Texas law firm, according to the firm’s webpage, but did not respond to an email inquiry.
Cabrera’s contract with El Paso schools — a contract Fenenbock voted to approve — allowed him to do side work for pay, the local news outlet El Paso Matters reported. Nonetheless, he was forced to resign soon after the lawsuit was filed.
McManus and Schrock said he had agreed to resign from his superintendent job once the virtual school was off the ground.
In court filings, both Fenenbock and Cabrera denied any fraud or wrongdoing.
An Unsuccessful Illinois Venture
Robin Gonzales is a former Chicago public school teacher, who started a company dedicated to professional development and instructing school districts on the best way to blend online learning into their curriculums.
In September 2017, A3 entered into a partnership with Gonzales and her company, Zia Learning. For her part, Gonzalez contributed “certain knowledge” and intellectual property “with an alleged value of $3.25 million,” the lawsuit states. McManus and Schrock contributed $1.3 million.
Kipperman alleges the intellectual property was greatly overvalued and Gonzales directed money that should have gone to the partnership to herself instead.
Gonzales wrote checks from the partnership account to herself and her own company, the lawsuit alleges. Several checks were for more than $25,000.
The lawsuit does not make clear the types of business ventures A3 and Zia planned to pursue together. It alludes to a $735,000 contract Zia signed with the Chicago Department of Aviation for “airport security consulting.”
“Gonzales had previously represented to Sean McManus and Jason Schrock that the Aviation opportunity was part of the pipeline of business for the Partnership,” Kipperman alleges.
“I’m super excited to talk more about it,” said Gonzales, when reached by phone. “There are so many loopholes by which predators can exploit the California system.”
Gonzales said she would send along a statement or make herself available for an interview at a later time, but she did neither.
“Zia Learning continues to operate today still retaining benefits from the partnership,” Kipperman’s lawsuit states.
To Utah and Beyond
In the Utah case, McManus and Schrock invested $1.9 million with James Blair and Bryce Johnson, who owned a company called Fusion Ed.
That money ultimately went toward buying multiple charter schools in Ohio, the lawsuit alleges.
But even before the indictments were issued against McManus and Schrock, the relationship “became contentious,” according to Kipperman’s court filings. McManus and Schrock were blocked from participating on the Fusion board.
Blair and Johnson did not respond to a request for comment sent by email to Fusion Ed.
“To date Fusion Ed has made no payments to A3 as partner draws, member distributions or otherwise and has provided no financial reports or information about Fusion Ed to A3 or the receiver,” Kipperman’s lawsuit states.
California Laws Unchanged
As a result of the A3 charter scandal — one of the largest public corruption cases related to education in the state’s history — California put a moratorium on new virtual charters, as well as others that don’t operate out of traditional brick-and-mortar classrooms.
But most of the loopholes that allowed vast sums of money to easily flow into personal bank accounts and out-of-state investments remain in place. Auditors caught whiffs of McManus and Schrock’s scheme early on, but McManus and Schrock dismissed those auditors. They were allowed to do so, because charter schools and school districts can hire and fire their own auditors in the state of California.
The audits are also not designed to look very closely at a school’s books.
“If management decides not to provide some information, and that information results in misappropriation of assets, stealing, basically, then we, as auditors, [have] no procedures to uncover that,” A3’s former auditor testified before a grand jury.
McManus and Schrock also exploited a lack of student tracking in the state’s enrollment system. They would enroll students — oftentimes athletes who participated in no schoolwork — during winter or summer break. Those students would be un-enrolled and then re-enrolled into their normal school.
Back in 2019, the state did a feasibility study to consider changing the way it tracks students, to close the loophole McManus and Schrock exploited. To date, no changes have been made.