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CBS News 8 - San Diego, CA News Station - KFMB Channel 8 | cbs8.com

Masterminds behind massive charter school fraud scheme plead guilty

$210 million has already been recovered in "the most egregious fraud case" District Attorney Summer Stephan says she has ever seen in her career.

SAN DIEGO — Two men pleaded guilty Friday to orchestrating a scheme involving the misappropriation of more than $50 million in public funds intended for 19 charter schools they opened in San Diego and elsewhere.

Sean McManus, 48, and Jason Schrock, 45, could each face up to a decade in prison following their pleas Friday afternoon to conspiracy charges. McManus admitted two counts of conspiracy to misappropriate public funds, while Schrock pleaded guilty to charges of conspiracy and conflict of interest.

During the defendants' change of plea hearing, San Diego Superior Court Judge Frederic Link said the parties have agreed to a maximum sentence of four years in prison, though they would face more time if they violate terms of the plea agreement, which includes assisting in the return of more than $210 million in assets, 13 houses and various shares in third-party companies.

Both men entered their pleas virtually due to the COVID-19 pandemic, with McManus, an Australian national, doing so from a lawyer's office in his home country. Link said McManus could face a sentence exceeding the four-year agreement if he fails to return to San Diego for sentencing, currently slated for June 18.

McManus and Schrock would have faced more than 40 years in prison if convicted as charged in a 2019 indictment returned by a grand jury.

"This is the most egregious fraud case I've seen in my career," San Diego County District Attorney Summer Stephan said.

"They moved students on paper like they were a product in order to maximize their profits, and much of it went into their own separate foundation that milked the system out of so much money."

Three other co-defendants who worked under McManus and Schrock at charter schools have pleaded guilty so far, and the District Attorney's Office says they have been cooperating with prosecutors.

"With these guilty pleas, the defendants now admit they engaged in a devious, systematic public corruption scheme on the backs of students, their parents and the public that diverted millions of taxpayer dollars into their own pockets," Stephan said.

"This is one of the largest fraud schemes targeting education dollars for K-12 students in the nation," she said. "Unraveling this complex scheme came as a result of over a year of persistent and dedicated work by our team of prosecutors and investigators, who specialized in public corruption. This expert DA team will continue their work on this pending case to seek justice and make victims whole through restitution."

Prosecutors say McManus and Schrock directed subordinates to open up 19 "A3 charter schools" across the state and collected state funds by alleging students were enrolled in programs run by the schools.

The DA's office said the men paid for student information and used the info to falsely claim those students were enrolled in summer school programs at their online campuses. They then took measures to inflate the amount of money the state paid the charter schools by falsifying documentation, which included backdating documents to indicate that students were enrolled in the charter schools for longer than they were or switching students between different A3 schools to increase funding per student or per school beyond legal limits, prosecutors said.

The schools earned as much as $4,000 per student despite not providing full educational services, with the defendants transferring millions of those funds to private companies they owned, according to the DA's office.

"This plea allows for a speedy end to what otherwise could have tied up money belonging to the school system for years," Stephan said. "A critical part of obtaining justice in this case is the ability to recover restitution, which can support students whose needs were exacerbated by the COVID-19 pandemic. Recovering over $200 million in restitution is one of the largest amounts related to education-targeted fraud in the nation."

"We are very hopeful that these monies will be used now in the correct way for the most benefit of our students," Stephan said.

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