Remember the biggest charter heist in history? It wasn’t just in California.
Bill Phillis writes:
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Archives for category: Virtual Charter Schools
Valerie Strauss posted a fascinating column about the biggest charter scam in history.
She writes:
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.
The story was written by Will Huntsberry, a reporter for the Voice of San Diego. She received permission from the Voice of San Diego to repost it in full. It is an important story.
It begins like this:
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 (1): 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 (2) filed by prosecutors. A3 Education and other companies controlled by McManus and Schrock ultimately brought in more than $80 million, prosecutors say.
With the encouragement of the super lobbyists of the California CharterSchoolAssociation, the California Legislature continues to block any meaningful reform of its lax charter law, even as the news breaks that online charter operators were charged with scamming more than $50 million from taxpayers.
Peter Greene calls this one “a spectacular charter scam.” He is right. We have seen plenty of garden-variety scams and multi-Million dollar charter frauds, but this one is the biggest yet!
Morgan Cook and Kristin Taketa report in the San Diego Union-Tribune (a newspaper that supports charters):
Using in-depth knowledge of California education funding, charter school regulations and deceptive business disclosures, an Australian citizen and his partner in Long Beach orchestrated a multi-year conspiracy to fleece taxpayers out of more than $50 million, prosecutors say.
Sean McManus, 46, an Australian who operated charter schools in California, and another charter school operator, Jason Schrock, 44, and nine others were named as defendants in a 67-count indictment announced this past week by the San Diego County District Attorney’s Office.
Prosecutors say McManus, Schrock and others enrolled thousands of students into online charter schools, often without their knowledge, and collected millions in state funds using student information obtained from private schools and youth athletic groups.
This criminal enterprise funneled millions of taxpayer dollars into private bank accounts of the defendants,” said District Attorney Summer Stephan.
Eight of the 11 co-defendants have pleaded not guilty and denied the allegations. Two more are expected to be arraigned June 6….McManus is at large, possibly in Australia, prosecutors said. A San Diego Superior Court judge issued a $5-million bench warrant for his arrest and froze the accounts of charter schools, related companies and individuals related to the alleged conspiracy.
A reader who calls himself “Francisco” has commented recently that there are just as many frauds in public schools as in charter schools. Hey, Francisco, can you top this?
Peter Greene responds:
The twitterverse rebuttal has been, “Oh, yeah. You’re just focusing on charters. I’ll bet we could public school scams just as bad.” Maybe. But the oversight provided by a locally-elected board and mandated transparency of financial dealings would make it pretty damn hard. To pull off a scam of this magnitude, you need to wide-open barely-regulated low-oversight world of charters.
As Greene points out, in what world is it possible to buy and sell schools like franchises other than Charter World?
The California Legislature is considering four bills to reform the state’s massive charter school industry (1,300 schools, mostly unregulated and unsupervised). One of the bills would prohibit school districts from authorizing charters in other districts. The following story is a classic example of rural school districts authorizing online charters in San Diego and Los Angeles, solely to get the commission attached to each student. In this case, the online charters were cash cows for their owners. [A personal aside: Last February, I was in Newport Beach, California, having breakfast at a hotel. The man at the next table was loudly discussing his schools with someone who was selling athletic services, $5 a student. When he got up to leave, I asked him if he was “in the charter school business.” He said, “Yes,” and said he owned 40 schools under six different corporate names. I asked him his name. He said, “Sean McManus.” I should have asked him to join us. He is one of the key figures in the following article.]
The San Diego Union-Tribune reports that eleven people connected to online charter schools have been indicted for “criminal charges of conspiracy, personal use of public money without legal authority, grand theft and financial conflict of interest.“
The online charters operate in San Diego and Los Angeles, but were authorized by other districts that get a slice of the revenues. This is one of the corrupt practices that have been rampant in California, where lax state law allows sharp operators to get public money and cheat students with no consequences. The Legislature is currently debating a proposal to stop allowing District A to authorize a charter in District B, a practice that is mercenary and predatory. Until now, the powerful California Charter Schools Association—enriched by billionaires like Reed Hastings and Eli Broad—has fought all accountability for charter schools.
At the center of the allegations are leaders of the charter school management corporation A3 Education, a Newport Beach corporation whose leaders control 13 charter schools across California, according to an indictment filed May 17.
A3’s chairman, Sean McManus, and president, Jason Schrock, essentially owned and operated the charter schools throughout California at the same time that A3 contracted with those schools, according to the indictment.
McManus and Schrock operated multiple businesses that charged their own charter schools millions of dollars for services. Then they channeled money from those businesses into their own charitable trust and personal bank accounts, according to the indictment.
A3 Education and the businesses affiliated with McManus and Schrock together have invoiced at least $83.3 million from the 13 charter schools, according to the indictment.
From the affiliated businesses, at least $8.18 million went into personal bank accounts, some in Australia, and into charitable trust accounts for McManus, Schrock and their wives, and $500,000 went to a family member of McManus, according to the indictment.
McManus and Schrock also used $1.6 million of A3 Education’s funds to buy a private residence for McManus in San Juan Capistrano, the indictment states.
Also according to the indictment, six people, including McManus and Schrock, conspired to collect state money for students who were listed as being enrolled in Valiant Charter Schools but were not receiving services.
The two Valiant schools will close permanently on June 30. Several thousand students will need to find new schools. The San Diego online charter was authorized by the Dehesa School District, and the one in Los Angeles was authorized by the Acton-Agua Dulce Unified School District.
The children were not assigned to teachers who have state-required professional certificates, the indictment said. The students were not in contact with the schools or provided with educational services during the summer months, as some of the co-conspirators claimed, according to the indictment…
Also indicted is Nancy Hauer, who is superintendent of Dehesa School District, which authorized several charter schools, including Valiant Academy of Southern California. The Dehesa district office did not immediately provide a comment Tuesday.
Also among the indicted is Steve Van Zant, a former Mountain Empire Unified superintendent who three years ago pleaded guilty to violating conflict-of-interest laws, after he brokered deals with charter schools to operate in other school districts, prosecutors said at the time.
Valiant Academy had 43 students two years ago, 726 last year, and 2,250 this year. It’s academic performance was so poor that even the California Charter School Association recommended that it be closed.
Betsy DeVos says that parents always know what’s best. Why were they enrolling their children in these failing “schools.”?
Today the National Education Policy Center released its annual review of research on virtual charter schools. The bottom line was not good.
The title of the report is “Virtual Schools in the U.S. 2019.” It was double blind peer-reviewed.
The authors write:
The number of virtual schools in the
U.S. continues to grow.
In 2017-18, 501 full-time virtual schools enrolled 297,712 students, and 300 blended schools
enrolled 132,960. Enrollments in virtual schools increased by more than 2,000 students between
2016-17 and 2017-18, and enrollments in blended learning schools increased by over
16,000 during this same time period. Virtual schools enrolled substantially fewer minority
students and fewer low-income students compared to national public school enrollment.
Virtual schools operated by for-profit EMOs were more than four times as large as other virtual
schools, enrolling an average of 1,345 students. In contrast, those operated by nonprofit
EMOs enrolled an average of 344 students, and independent virtual schools (not affiliated
with an EMO) enrolled an average of 320 students.
Among virtual schools, far more district-operated schools achieved acceptable state school
performance ratings (56.7% acceptable) than charter-operated schools (40.8%). More
schools without EMO involvement (i.e., independent) performed well (59.3% acceptable ratings),
compared with 50% acceptable ratings for schools operated by nonprofit EMOs, and
only 29.8% acceptable ratings for schools operated by for-profit EMOs. The pattern among
blended learning schools was similar with highest performance by district schools and lowest
performance by the subgroup of schools operated by for-profit EMOs.
Given the overwhelming evidence of poor performance by full-time virtual and blended
learning schools it is recommended that policymakers:
• Slow or stop the growth in the number of virtual and blended schools and the size of
their enrollments until the reasons for their relatively poor performance have been
identified and addressed.
• Implement measures that require virtual and blended schools to reduce their student-
to-teacher ratios.
• Enforce sanctions for virtual and blended schools that perform inadequately.
• Sponsor research on virtual and blended learning “programs” and classroom innovations
within traditional public schools and districts.
There is much more in the report that deserves your attention, especially regarding the current infatuation with blended learning.
I suggest you read it for yourself.
Here is the citation:
Molnar, A. (Ed.), Miron, G., Elgeberi, N., Barbour, M.K., Huerta, L., Shafer,
S.R., Rice, J.K. (2019). Virtual Schools in the U.S. 2019. Boulder, CO: National Education Policy
Center. Retrieved [date] from http://nepc.colorado.edu/publication/virtual-schools-annual-2019 .
I recommend that you get on the email list of the Keystone State Education Coalition if you want to know what is happening in Pennsylvania. Lawrence Feinberg posts informative articles about the schools of that state. You can contact him at lawrenceafeinberg@gmail.com.
One ongoing scandal in Pennsylvania is the story of cyber charters. Pennsylvania has 14 cyber charter schools, and 13 of them are on the state’s list of the lowest performing schools in the state. Cyber charters have low graduation rates, high attrition, and low scores. While Pennsylvania has many underfunded districts, the state is very generous with its failing cyber charters. From the years 2013-2016–four years–the state paid $1.6 Billion to these “schools.” In 2016 alone, the state handed out $454.7 million to cyber charters. All of that money is extracted from the budgets of public schools because the money follows the student, from good public schools to low-performing cyber charters. Most cyber charters are operated for profit. And they are very profitable! But not for their students.
Understand that the cyber charters receive full tuition for every student they enroll, even though they have none of the expenses of brick-and-mortar schools. No maintenance of grounds, no heating or cooling, no nurses, no library, no gym, no lunch room, no meals, etc. Yet they collect the same tuition as real schools. Their owners are rolling in dough. The creator of the first cyber charter, The Pennsylvania Cyber Charter School, is now in prison, after having been convicted of tax evasion on $8 million that he diverted from the school. Think of it. Ten thousand students were enrolled, bringing in tuition of $10,000-11,000 (more if they were special education) each. That is a minimum of $100 million to run a online program that offers nothing but computers, textbooks, and online lessons. What a profitable business! Trombetta was not convicted of theft or embezzlement, but of tax evasion. Curious.
There is one hopeful piece of legislation under consideration. Senate Bill 34 and House Bill 526 would end public school district payments to cyber charters if the school district offered online schooling for free. The State College District supports these bills because it is currently paying $14,000 for each student in its district who enrolls in a cyber charter and $29,000 per year for each student with special needs. The irony is that the cyber charter does nothing additional for students with special needs and is not required to spend the additional money it receives on them.
School districts across the state are facing higher taxes and underfunded schools, while the failing cyber charters are flooded with cash. Will the Republican-dominated legislature take action to save public schools or will they devote their time to adding new money to the state’s charters and its voucher program?
Cybercharters, aka virtual charters, are the big moneymakers with the worst results, yet states are slow to regulate them or prohibit them from opening. They collect full tuition but don’t provide the services that brick-and-mortar schools do. In state after state, they are low-performing yet never held accountable. The only online charter that collapsed was ECOT in Ohio because the owner decided to pull the plug rather than pay the state for inflated enrollments and ghost students.
Tom Ultican writes here about a relatively new virtual charter chain that is raking in big bucks. It is called EPIC. It started in Oklahoma, branched out into California, and hopes to open in Arkansas.
He writes:
Ben Harris and David Chaney, two long time friends from Oklahoma City, founded Epic.
In 1999, One year after Harris was awarded a Master of Public Administration from Syracuse University, he and Chaney founded Advanced Academics Inc.Today Pearson Corporation the large British testing and publishing company owns Advanced Academics which sells credit recovery courses and software for virtual classes.
Both Harris and Chaney went to work for Jeb Bush in 2003 at the Florida Department of Children and Families. Harris was soon made the Deputy Secretary in charge of technology. He worked under Secretary Jerry Regier who had previously run health and human services in Oklahoma. It was here that Harris made a name for himself by privatizing the child welfare system…
In 2009 – just prior to founding Epic – Harris was Chief Financial Officer of Velocity Sports Performance in Irvine, California. The CEO of Velocity Sports Performance when Harris arrived there was Troy Medley, who is now Chairman of the Board for Epic in California.
Epic Found a Way into Orange County, California
Epic is an acronym for excellence, performance, innovation and citizenship. In California the non-profit business name is Next Generation Education. In Oklahoma the non-profit business name is Community Strategies Inc. Neither Epic founder, David Chaney nor Ben Harris, sits on the board of either Next Generation Education in California or Community Strategies Inc. in Oklahoma.
Rather, David Chaney serves as both superintendent of the nonprofit Epic Charter Schools and CEO of Epic Youth Services, a for-profit company that manages the school for a fee. Chaney owns the for-profit corporation, which originally had Harris’s home address listed on the incorporating papers.
Follow this sad story and you will soon realize that EPIC is a business. It sells schooling.
This Byzantine structure hides the fact that Epic is a for profit business cloaked in non-profit suit, thus skirting California’s prohibition against for profit charters. It also means that in their tax forms, the non-profit only reports costs and no salaries. For example, in the fiscal year ending June 30, 2017 Community Strategies Inc. the Oklahoma non-profit reported revenues of $41,487,230 and expenditures of $40,105,203. However, the non-profit reported no salaries because the for-profit does payroll. There is no way for taxpayers to see how many public dollars are going into private hands.
Ultican describes how EPIC won a charter in Orange County, California, despite the strong staff recommendation against doing so. The board in Orange County was funded by Billionaire privatizers.
All but one board member who voted to give Epic a charter received large campaign support from billionaires through three independent expenditure committees; California Charter Schools Association Advocates, Orange County Charter Advocates for Great Schools (which is sponsored by CCSAA) and the Lincoln Club of Orange County. David Boyd, Chancellor of The Taft University System, did not receive documented largess from the billionaires but his campaign did have odd financial support. He loaned his own campaign $72,000, got a $50,000 loan from Taft University and a $25,000 loan from Elizabeth Dorn’s campaign. More than $30,000 in loan debt was later forgiven.
In 2016, the Beverly Hills Billionaire, Howard Ahmanson Jr. (state major donor ID 479163) gave the OC Charter PAC $10,000 and the Local Liberty PAC (State ID 1291528) that Ahmanson finances provided them another $18,171.83.
Howard Ahmanson’s name sake father established the Ahmanson Family Foundation in 1952. Today, that foundation has slightly more than a billion dollars in assets. They give extensively to the arts and LA basin charter schools. In 2016, they gave $500,000 to the billionaire funded pro-school privatization youth group Teach For America. Howard runs the Fieldstad and Company arm of the Ahmanson foundation.
Roberta Ahmanson, Howard’s wife, is a serious Christian thinker and writer. She gave a speech titled “What Fundamentalism Gave Me” at the 2018 commencement for Cornerstone University in Grand Rapids, Michigan. Like Betsy DeVos, she is part of The Gathering. Roberta and her husband see Epic as a tool that benefits the Christian home schooling movement.
Is this what education is about? Money. Profits. Connections.
Oklahoma has underfunded its public schools over the past decade. Many districts have switched to a four-day week to save money.
Some rural districts, facing insolvency, are turning their schools over to Epic, a for-profit online charter chain, which can balance the books by putting kids online and cutting teachers’ jobs.
Like all online charter schools, EPIC overstates its “gains” while its actual results are less than mediocre.
“To save his financially imperiled school district, Panola Superintendent Brad Corcoran in 2017 pitched a plan to convert the traditional public district into a charter school.
“In becoming a charter, Panola Public Schools would turn over its management to a company affiliated with Epic Charter Schools, the largest online school in the state. The school board agreed.
“The Epic-related firm contributed $100,000 toward Panola’s debt as part of the agreement. That company manages the small district for a more than 10 percent cut of its funding. Panola’s high school students now have the option to attend most classes online from home.
“The deal was unprecedented. Not only was it one of the first conversions-to-charter in the state, it allowed Epic’s company to operate a school and gain many benefits denied other charter schools: It could tap into and spend local property tax revenue to cover costs of student transportation, school buildings and sports facilities, like traditional school districts.
“And Epic didn’t stop at Panola….”
Epic has 23,000 in Oklahoma and it is growing in California as well.
”Trice Butler, superintendent of Wilburton Public Schools, which neighbors Panola, said she is concerned that Epic is looking to replicate what it’s done in Panola in other districts.
“Butler said her primary concern is her belief that students at Epic are receiving a subpar education. She cited Epic’s low high school graduation rates and high numbers of students leaving Epic and returning to traditional schools with academic credit insufficient for the time they were enrolled. (Epic maintains that some students come to them behind in credits and the school helps them catch up.)
“Epic’s presence in Panola has also raised concerns about aggressive attempts to attract students and teachers from surrounding school districts even in the middle of the academic year.
”Panola spent $650 for postcards, and at least some were sent to addresses in nearby Wilburton school district, promising a customized education for students and touting the school’s “double-digit academic growth.”
“Butler called this “predatory marketing” and said the statements made on the postcard are misleading.
“Panola elementary students did post positive academic growth on the latest school report cards, with 80 percent of students improving between 2016-17 and 2017-18. But only 27 percent of those students scored on grade level, compared with 57 percent in Wilburton and 51 percent statewide.”
Oklahoma has followed a policy of large tax cuts for corporations, especially those in the oil, gas, and fracking industry, and budget cuts for education and other public services. The state is abandoning its future.
Eight school districts in Ohio are suing Facebook for recruiting students for the failing online charter school ECOT (Electronic Classroom of Tomorrow). Real public schools that enroll and educate real students lost money to the for-profit virtual charter school, whose owner pocketed millions and ultimately went bankrupt rather than pay back any of the millions it collected from the state. Over the nearly 20 years that ECOT operated, it received close to a billion dollars that did not go to public schools where students actually showed up and were counted.
Ohio School Districts Sue Facebook Over Failed Online Charter School
By Doug Livingston, The Akron Beacon Journal Education Week April 14, 2019
Cuyahoga Falls, Woodridge and six other Ohio school districts are suing Facebook for about $250,000 in public education funding lost when the Electronic Classroom of Tomorrow imploded last year.
The districts, which may never be made whole for state funding they lost when ECOT inflated attendance, are alleging that Facebook knew the online charter school was financially failing when it sold ads to help ECOT boost enrollment. That, under Ohio law, would be an illegal and “fraudulent transfer.”
Founded in 2000, ECOT grew to be the largest charter school in Ohio, claiming 15,239 students enrolled in 2016 when the Ohio Department of Education ran an attendance audit.
The virtual headcount found students spending as little as an hour a day on home computers. But the state was funding the charter school, using tax dollars diverted from local school districts, as if kids were attending full time.
Related
The attendance scandal forced ECOT founder Bill Lager, who had donated $2.1 million to school choice supporters, to return $2.5 million monthly until taxpayers got back the $80 million the school overbilled the state in just 2016 and 2017.
ECOT folded in January 2018 before making the first repayment.
Now, every public school district in Ohio that lost students and state funding to ECOT is in line for what’s left. Governor and then-Attorney General Mike DeWine announced in August a lawsuit to hold Lager, his companies and top ECOT executives personally liable for the lost public funds.
From Bill Phillis, unofficial ombudsman for school funding in Ohio:
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Bill Phillis, retired deputy superintendent of the Ohio Department of Education, writes here about a sector with a reputation for providing a lossy Education but high profits, this ripping off taxpayers:
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Diane Ravitch's blog 