A network of charter schools in California stole more than $50 million from the state by creating phantom institutions that enrolled unwitting students it found through other schools and youth programs, prosecutors said.
A3 Education recruited small public school districts to sponsor the charter schools in exchange for oversight fees. Prosecutors say A3 enrolled about 40,000 students throughout the state, none of whom received any services.
In a downtown San Diego courtroom Thursday, husband and wife, Troy and Michelle Kukahiko, made a first appearance. Both traveled from Hawaii and waived their right to an appearance at the next court date in June.
Ten co-defendants have appeared in court so far. One suspect, thought to be one of the leaders of the scheme, remains at large and is believed to be on a different continent.
Charges include conspiracy, misappropriation of public funds, paying for student information and conflict of interest.
The Dehesa Elementary School District, which has only about 150 students east of San Diego, authorized several charter schools with oversight for 20,000 students, Stephan said. The $2 million in oversight fees collected one year was more than the district's annual payroll.
Nancy Hauer, Dehesa's superintendent, was among the 11 people charged in the case. Other defendants were employed by A3 and its charter schools.
Hauer pleaded not guilty to the charges in a San Diego courtroom in May.
The Dehesa school board said it couldn't comment on the charges and vowed to fully cooperate with investigators. Hauer was not available to comment.
"The Board of Education was stunned to learn about the charges, and we have engaged legal counsel to review this matter and any possible implications for district operations," the Dehesa district said.
Prosecutors identified Sean McManus, 46, and Jason Schrock, 44, as the ringleaders. They didn't immediately return phone messages seeking comment. McManus is believed to be in Australia.
McManus and Schrock, of Long Beach, could each face more than 40 years in prison if convicted, the district attorney's office said. The ill-gotten proceeds were used for a $1.6 million house and private accounts, authorities say.
McManus and Schrock are accused of receiving the state money and diverting millions of it into their own pockets.
The company that operated a network of 19 online-only schools is accused of paying sports leagues as little as $25 a student for information used for enrollment. School districts are funded by the state based on the number of students.
The students didn't know how their names were being used, said San Diego County District Attorney Summer Stephan, calling them victims.
"These kids are being used for just a name and the ability to pull money using their name, and then the paperwork, a lot of is just manufactured," Stephan said at a news conference.
The 235-page indictment is another black eye for charters, at a perilous time for what was once a thriving sector, especially in California.
"This would have been a continuing fraud that would have emptied the pocket books of our state education system that is struggling to meet the needs of our kids," added Stephan.
The California Charter Schools Association said it raised concerns about A3 more than a year ago with the state education department and urged an investigation.
"To be clear, there is no room for bad actors and irresponsible authorizers in California's charter public school movement," said Myrna Castrejón, the group's president.
The grand jury returned its indictment May 17 after hearing six weeks of testimony from more than 70 witnesses.