Charter Scandal a Product of Shabby Law and Ignored Oversight by Thomas Ultican

Originally posted at: https://tultican.com/2019/07/07/charter-scandal-a-product-of-shabby-law-and-ignored-oversight/?fbclid=IwAR23CqY7_uOiqKG_6WiJ0zsck4iY_kUeX2ZzSrZEkBqeFn-TyKa2Uws8v6k

Notoriously clever operators of an online charter empire were indicted for allegedly stealing $50 million dollars. The Grand Jury of San Diego County heard the testimony of 72 witnesses and voted out a 67-count indictment against Sean McManus, Jason Schrock, Justin Schmitt, Eli Johnson, Steven Zant and six others. The charges were centered on the byzantine operations of the A3 Education organization which took full advantage of weak charter school laws in California.

From the indictment,

“Conspirators knowingly obtained state funding for children who were not assigned certificated teachers as required by law, were not in contact with the charter school, and who were not provided any educational services during the dates claimed.”

“Conspirators themselves, and through subordinates courted small school districts across California who were suffering budget woes and suggested they authorize charter schools as a means to generate additional state funding for the district in the form of oversight fees.”

The Small District Authorizer Model

Carol Burris was one of the first people to identify McManus as a predator. In her 2017 investigative report “Charters and Consequences”, she wrote about the Wise school which calls itself a Waldorf inspired charter school. She noted,

“No one really seems to be wise to Wise—except perhaps California STEAM Sonoma, which claims Wise Academy as its project.”

“The former Academy of Arts and Sciences CEO, Sean McManus, described Wise as “a boutique program that people usually have to pay for, so to be part of a free charter school appeals to a lot of people in the area.” Wise and the state funding it brings left the Academy of Arts and Sciences, and so did Sean McManus, who is now listed as the CEO of a new corporation–California STEAM Sonoma.”

“Despite its classroom schedule, Wise refers to itself as a ‘learning based resource center.’ This classification allows California STEAM Sonoma to sponsor the program, and the Liberty School District to acquire the cash cow.”

Wise is still in operation under the name Heartwood Education Collaborative. McManus exited the Academy of Arts and Science (AAS) in 2016. AAS renamed itself Compass Charter Schools. Shortly after leaving AAS, McManus cofounded A3 Education with Jason Schrock.

Heartwood (AKA Wise) Education Collaborative Independent Journal Photo

Carol Burris recently posted,

“From 2009-2015, McManus was the CEO of the Academy of Arts and Science Charter Schools for which he served as CEO from 2009-2016, developing his model of using cash-strapped, small districts as authorizers of online charter schools that draw students from all over adjoining counties in exchange for fees.”

“And who gave the seed money to start this adventure?”

“The U.S. Department of Education’s Charter Schools Program (CSP) did.”

“Eleven Academy of Arts and Sciences charter schools that used the for-profit K-12 curriculum received a total of $2,825,000 from the CSP state grant to California. Today, all 11 schools are closed.”

McManus and his associates at A3 implemented the small district authorizer model with a vengeance.

Previously, one of McManus’s first forays into using small district authorizers was with New Jerusalem Elementary School District which authorized the Academy of Arts and Sciences – San Joaquin and CalSTEM – San Joaquin. For unknown reasons, AAS closed both those schools and its renamed successor Compass Charter Schools has departed San Joaquin County. New Jerusalem only had 22 Public School Students this year but it had 4,809 Charter School Students, few of whom lived in their Tracy, California area. New Jerusalem appears more sinister than just a cash strapped small district.

Apparently, part of the problem McManus had at AAS was that some of their schools were blended learning academies which meant they had physical addresses. This led to a law suit by Los Angeles Unified School District for opening schools in their district without notification and the closure of some schools. A3 Education has been careful to only implement Independent study; AKA 100% cyber schools with no physical addresses for students.

Based on California Department of Education Enrollment 2018-2019

All of the schools listed above with the various districts have the same business address, 3300 Irvine Ave. #330 Newport Beach, Ca 92660 which is A3 Education’s business address. The non-profit tax filings available for theses schools all show this address and have some combination of Rob Sikma, Kevin Tu, Eric Johnson and Klarc Kover on their boards. As an example see these legal documents for California Steam San Bernardino, California Steam Sonoma, University Prep and Uplift California.

Board member Eric Johnson is probably the person indicted in San Diego under the name Eli Johnson. Board members Sikma, Tu and Kover all testified before the grand jury investigating A3.

Various California news sources reported details about the alleged scheme to steal $50 million. San Diego’s Courthouse News wrote about the funding of the charter schools,

“The funds were then transferred to multiple companies owned by McManus and Schrock, including A3 Education, A3 Consulting, Global Consulting Services and Mad Dog Marketing. The money was spent on start-up investments and real estate and some funds were wired directly to themselves or family members, according to the indictment.”

“Another co-defendant, Steve Van Zant, 56, created the company EdCBO to provide back office services for A3 Charter Schools. He hid his involvement with EdCBO and McManus by filing all corporate paperwork under another person’s name, prosecutors say.”

The Los Angeles Times stated,

“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.”

“The alleged violations included Valiant Academy paying A3 about $3.6 million during the 2017-18 fiscal year. The invoices were approved for payment by McManus at A3 and another man, neither of whom were employees of the charter school, according to the district’s report.”

“The school also paid Mad Dog Marketing — a company that has common ownership with A3 — $288,000 during the 2017-18 fiscal year, according to the report.”

The Voice of San Diego added,

“An early step in establishing the A3 empire came when Steve Van Zant, a former superintendent of Dehesa Elementary School District, “brokered” the sale of an online nonprofit charter school to A3 for $1.5 million, prosecutors say.”

“In winter 2017, Chris Thibodeau was performing an annual audit of Cal Prep Sutter in Sutter County …. He noticed that McManus was listed as the CEO of Cal Prep Sutter, but that the school was also doing business with McManus’s company A3 Education.

The Voice of San Diego explained that prosecutors allege McManus and Schrock fabricated a set of minutes dated July 6, 2016 that said McManus was replaced as CEO by codefendant Eli Johnson. They purportedly used these false documents to allay Thibodeau’s concern about “related transactions.”

Sean McManus appears to have fled the country and is thought to be in his native Australia. The other 10-defendents have entered not guilty pleas.

State Charter Law was Designed to be Weak

Cyber Charters in California can serve all of the students in the home county of the authorizing district plus all of the students from bordering counties. That means these eight small school districts gave A3 access to millions of students.

Voice of San Diego Map of Counties Served by A3

In the school year 2018-2019, Dehesa Elementary had 5010 students in online only schools. Of those 2267 were in kindergarten to third grade or 45.2% of the total. There were similar numbers in the other districts. Why would people put babies in front of computer screens? It must be that the main attraction for these cyber schools is home-schooling.

Since home-schooling does nothing to build community and is driven mostly by religious convictions, why should taxpayers fund it? All Americans should have freedom of choice, but taxpayers should not be expected to pay for private choices. The public already provides the world’s best public education system for free; taking funds from those public schools for the benefit of a small minority is inequitable.

The state of California puts more than $80 billion annually into k12 education. Because that money is a natural target for profiteers and scammers, extra vigilance is needed. However, California’s charter school law was developed to provide minimum vigilance.

During its early stages, several billionaires like Carry Walton Penner, Reed Hastings and Arthur Rock made sure the California charter school law was designed to limit governmental rules and oversight. For example, charter schools are not required to meet the earthquake standards prescribed in the 1933 Field Act, which holds public schools to higher building code requirements. Since that laws enactment no public schools have collapsed in an earthquake. The picture of the Education Collaborative School above is evidence that students in a known earthquake zone are now at increased risk of injury and death.

A few weeks ago Louis Freedberg observed that a key weakness in California’s chartering law is that there are no standards for authorizers and a lack of expertise. He also wrote about the number of charter authorizers saying, “unlike many states, California has hundreds of them: 294 local school districts, 41 county offices of education, along with the State Board of Education.” Among these 336 authorizers, several are school districts of less than 1,000 students which have neither the capacity nor training to supervise charter schools. Some of these small districts look more like charter school grafters than public school districts.

A state audit dated October 17, 2017 reported,

“Acton‑Agua Dulce Unified’s and New Jerusalem’s decisions to authorize the out‑of‑district charter schools we reviewed may have resulted partly from weaknesses in the districts’ authorization processes. Specifically, neither of the two districts has an adequate process for ensuring that petitions comply with state law.”

This state audit which was promptly ignored by Governor Brown and the legislature was pointing directly at the weaknesses in California’s chartering law that A3 Education is accused of exploiting. A3 is not the only organization that is using these weaknesses. K-12 Inc. is selling products into both A3 and California Virtual Academy. Furthermore, K-12’s relationship with California Virtual is legally questionable. Pearson Corporation is using Connections Academy to market their online products and Epic is also looking to expand their own dubious online schools.

Not only are state officials not reacting to warnings from auditors, they are providing the offenders loans through the Charter School Revolving Loanprogram. The A3 schools have received over $2,000,000 in loans through this program.

A majority of Governor Gavin Newsom’s Charter School Policy Task Force supported banning authorizing charter schools outside of district boundaries. Secretary of Public Instruction, Tony Thurmond explained,

“Prohibiting districts from authorizing charter schools located outside of district boundaries would allow for greater local control and oversight of charter schools. In addition, such a prohibition would limit the potential for the detrimental practice of using oversight fees as a revenue stream, while incurring only limited expenses associated with authorizing the charter school.”

In addition, the task force unanimously backed a call to “create a statewide entity to provide training for authorizers.” A majority also proposed enacting “a one-year moratorium on the establishment of new virtual charter schools.”Concerning this last point Thurmond’s report said, “There  has  been  growing  concern  that  virtual  charter  schools  are  operated  without  appropriate academic rigor and oversight, providing a sub-par education for their students …”

A Few Points and Observations

A3 Education was looking to expand across the country. In 2016, Johnson, Schrock and McManus put together a proposal for Ohio Steam Columbus. The Colorado group Thompson School District Reform Watch reports that Justin Schmitt is still involved with Foundations Learning and Colorado’s Online Charter’s. They also note that Schmitt has virtual charter school interests in Arizona. Schmitt brought Mosaica virtual schools to California which A3 purchased and evidently Schmitt was part of the purchase. It is also interesting that A3’s Marketing Director, Mary Clare Coyle, lives in Jacksonville, Florida.

In an April EdWeek article, Arianna Prothero and Alex Harwin reported,

“Nationally, half of all virtual charter high schools had graduation rates below 50 percent in the 2016-17 school year. … The most high-profile study, done by economists at Stanford University in 2015, found that students attending an online charter school made so little progress in mathover the course of a year that it was as if they hadn’t attended school at all.”

The charter school experiment is a national disaster. It has clearly failed and virtual charter schools have a lengthy history of corruption and poor performance. Shut them down and only allow elected school boards to provide online education. It is time for an extended moratorium on new charter schools while existing charter schools are carefully transitioned to management by elected school boards.

Maybe Alice Walton and Charles Koch think property rights are the only freedom to be valued. Maybe they want to end public education. Maybe they think markets are a magic elixir that never fails. I don’t! I agree with the statement in Nancy MacLean’s Democracy in Chains, “Market fundamentalism – the irrational belief that markets solve all problems ….” I believe in democracy, human rights and public education.