By Mark Gutglueck
More than seven-and-a-half years after the San Bernardino County District Attorney’s Office filed charges against Charles Steven Cox and former Hesperia Mayor Tad Honeycutt in what is alleged to have been the worst criminal exploitation of the charter school system in California ever, the case has yet to go to trial. Cox and Honeycutt stand accused of having diverted public money intended to carry out the educational mission to enrich themselves, and thereby abusing the trust of the parents of students who last decade opted to make use of the innovative charter school approach in educating their children. In large measure the prosecution of Cox and Honeycutt has been delayed because the anticipated cross examining of a key witness in the matter, former San Bernardino County Supervisor/Assessor Bill Postmus, could prove problematic for the district attorney’s office in its prosecution of an even higher profile criminal matter, the Colonies Lawsuit Settlement Public Corruption Prosecution.
The revelation of political deals, payoffs, graft and corruption that are part and parcel of the California Charter Academy Case involving Cox and Honeycutt, including the degree to which Postmus’ political status at the county level in 2007 insulated him from being charged by prosecutors for his role in compromising the charter school program for profit and benefit, would not only lessen Postmus’ credibility as a witness in the Colonies case, it would raise questions about the degree to which the district attorney’s office has allowed political considerations to influence its prosecutorial function. Defense attorneys handling the Colonies case have already asserted that the prosecution of the defendants in that case is politically motivated.
Meanwhile, the delay in prosecuting Cox and Honeycutt is complicating efforts by charter school reform advocacy groups to have the state legislature enact laws that will prevent the type of abuses that were rampant in the way the now-shuttered California Charter Academy operated and which yet mar other charter school operations.
The California Charter Academy, which was founded in 2000 by Cox, a former insurance executive, in short order grew into the largest charter school operator in California, with multiple campuses located throughout the state.
Cox chartered the first academy under the auspices of the Snowline-Joint Unified School District, which exists in the High Desert communities of Phelan and Pinon Hills. He then utilized the enthusiasm garnered from that formation to get Snowline to charter a second academy. In so doing, Cox made large donations to Bill Postmus, whom he had established as a charter academy board member and who, in 2000, was running for San Bernardino County First District supervisor. Cox also provided Postmus’ father, who was a member of the Snowline School District Board of Trustees that sponsored the two California Charter Academy charter schools and is also named Bill, with a position as a teacher at one of the charter schools, instructing “leadership.” Cox then obtained two more charter sponsorships, one from the Orange School District in Orange County, and one from the Oro Grande School District, located in San Bernardino County’s High Desert.
The California Education Code provides for the formation of charter schools under the aegis of a sponsoring local school district. Charter schools function outside the normal parameters of normal schools and can offer a curriculum and educational smorgasbord unavailable in traditional public schools while meeting the requirements of both special needs students and accelerated scholars.
Simultaneous to his founding of the non-profit California Charter Academy, Cox created Educational Administrative Services Corporation, a for-profit company which was then hired by all four charter schools to manage the day-to-day operations of the charter schools and provide academic supplies such as books, paper, pens, pencils, desks, chairs, projectors, computers, etc. The rates charged by Educational Administrative Services Corporation reflected in the billings were inflated. In some cases, educational materials that were paid for by the charter schools were never delivered.
Cox hired one of Postmus’ political associates, Tad Honeycutt, who later successfully ran for a position on the Hesperia City Council, to work with the California Charter Academy. In turn, Honeycutt created his own set of companies, Maniaque Enterprises and Everything For Schools, which like Educational Administrative Services Corporation delivered educational materials and services to the non-profit charter schools at a profit.
By 2003, teachers at several of the schools were going public with accounts of how students’ educations were being neglected and books and other educational materials were not being provided. In 2004, the superintendent of the California Department of Education, Jack O’Connell, launched an investigative audit into California Charter Academy, alleging financial irregularities. In August 2004, four years after California Charter Academy’s creation, it ceased operations abruptly, throwing teachers out of work and forcing students to hurriedly matriculate back into public schools, which were overburdened by the influx of unexpected numbers of students. The California Charter Academy’s records and books were in utter chaos. Student transcripts requested by the sponsoring districts were found to be incomplete or entirely unavailable. The California Charter Academy’s creditors and landlords in many cases made off with the academy’s assets.
On April 14, 2005, MGT of America, an auditing firm hired by the California Department of Education, and the state’s Fiscal Crisis and Management Team released their joint financial audit of California Charter Academy, showing $23 million in taxpayer money paid to the private management company Educational Administrative Services Corporation was misappropriated. Among the findings were that Cox had hired several of his family members into what were essentially do-nothing clerical and non-productive administrative positions, that Cox, his family members, other Educational Administrative Services Corporation and Charter Academy employees, and Honeycutt were provided with luxury automobiles, and that among the expenses accumulated by the Charter Academy were accommodations in Las Vegas, at Disneyland and the Disneyland Hotel, studio musical recording equipment, spa visits, fishing trips and jet skis.
The audit alleged multiple conflict-of-interest violations, the improper conversion of private schools to public charter schools, and the falsification of documents and claims to receive public funds
“The magnitude of waste of precious education funds outlined in the audit was appalling,” said O’Connell.
In late July 2007, public officials, including Bill Postmus, who had departed as First District supervisor after being elected county assessor in 2006; Postmus’ chief of staff and successor as supervisor, Brad Mitzelfelt; Tad Honeycutt; Victorville councilwoman and charter school advocate JoAnn Almond and Hesperia School District board member Eric Swanson, who was one of Honeycutt and Postmus’ political associates and whose company had billed Educational Administrative Services Corporation/California Charter Academy for over $450,000 in computer equipment that could not be located, were subpoenaed as witnesses to speak on the matter before a special grand jury convened by the San Bernardino County District Attorney’s Office.
On September 4, 2007, Honeycutt and Cox were arrested after being indicted by that special grand jury for their alleged roles in the collapse of the California Charter Academy. Cox and Honeycutt were indicted on a total of 147 counts, including fraud, misappropriation of public funds and grand theft. Cox’s bail was set at $1 million dollars, while Honeycutt’s was logged at $500,000. Both were able to post bail. Law enforcement officials froze their assets, but little of the missing money that officials thought might be recovered was present in their accounts in local banking institutions. It is known that Honeycutt had made multiple trips to Vanuatu, Spain and Argentina in the early and mid-2000s. Some of the taxpayer money provided to the California Charter Academy was used to fund lawsuits brought by Cox and Educational Administrative Services Corporation against public entities. In one case, Cox and EASC filed suit against the California Department of Education, contending the state had illegally withheld funding from the California Charter Academy. Cox and Educational Administrative Services Corporation did not prevail in that suit. Cox brought another unsuccessful lawsuit alleging impropriety and political motivation on the part of public officials whose actions led to the closure of the California Charter Academy.
At the time Cox and Honeycutt were indicted, the expectation of many, including employees at the academy and those associated with Cox, was that Postmus, too, would be indicted. Many said so openly. According to Christopher Casey, who had been hired by Cox to run one of the academy’s vocational schools, it was his understanding that the California Charter Academy had three owners: Cox, Honeycutt and Postmus. Initially, according to Casey, Bill Postmus’ father, a former Los Angeles County Sheriff’s Department lieutenant who taught and ran the academy’s leadership curriculum, was active in setting up the school with Cox, but was eventually aced out of any control of the overall operation.
“Steven Cox started out as if he was interested in improving education,” Casey said. “But he saw those millions of dollars coming in and he changed. There were three owners: Cox, Honeycutt, junior not senior [i.e. Tad Honeycutt], and Postmus, junior not senior. There was later a power struggle between Cox and Postmus, senior. Bill Postmus, junior pulled the political strings. I saw him as dishonest and not interested at all in education but in exploiting the academy for whatever it offered him in the way of status as one of the board of directors’ members or the money that could be taken out of it for political and other purposes.
“Tad talked up the charter school idea to get more students and more schools, telling everyone charter schools were dedicated to better education,” Casey continued. “But when it turned into just a money-making venture, Tad didn’t have the personality or character to handle it and he just went along with everything Cox was doing.”
The California Charter Academy fell crucially short in the provision of key educational materials, Casey said, as Cox, Postmus and Honeycutt plundered it. Instead of being dedicated to education, the schools were used to enrich those running them, Casey said.
“Cox put his family next to the pig trough and fed them as best he could,” Casey said. “People I was forced to hire didn’t have credentials. They were only interested in making money and projecting figures. Cox and Honeycutt and Postmus did some terrible things. They created a mirage so no one could see them. They found a loophole in the state law and got away with a lot of money. A lot of money came in and nothing went into the facilities.”
He directly experienced Postmus’ attempt to use the charter academy to profit his family at the expense of the students, Casey said.
“I was hired as a director of a construction school in San Bernardino,” Casey said. “I was forced to hire Postmus’s brother-in-law. He didn’t even have a two-year associate’s degree. There is a tremendous problem with that. Books were never provided.”
Continuing, Casey said, “With my own money – my credit card – I set up a home builders school in San Bernardino. I had thirty or forty students signed up. We had the class schedule set and I couldn’t get books. I was working with Jim Melton. I asked. We never got one book. I pleaded for the books. I didn’t see any results. I couldn’t get books. They weren’t focused on that. I said to them, ‘These are the texts I need.’ I asked them to provide resources. They never did. They just prolonged it and prolonged it and put it off. I started the school hoping they would be seriously focused on education, but when I found out what they were really doing I lost heart and got out of it.”
It was dishonest and reprehensible, Casey said. “A lot of money went into it,” he said. “They had a tremendous opportunity and instead they just used it to take money out of it. They had some outstanding people who wanted to do the job but their hands were tied.” Part of Cox’s formula, Casey said, was to “get heavy into politics. [Former California Assemblyman]Keith Olberg went to work for the California Charter Academy. Bill Postmus was their major political asset.”
In 2007, Bill Postmus was riding high. In his last two years as First District county supervisor, Postmus had acceded to the board chairman’s position. Almost simultaneously, he had become the chairman of the San Bernardino County Republican Central Committee. In 2005, he had consolidated his power, redrafting the central committee’s charter to give its so-called executive committee, which included himself and was composed almost entirely of his closest associates and office employees, virtual dictatorial power. In this way he had control over Republican Party endorsements and the delivery of GOP money to those candidates for political campaigning purposes. In 2006, with two years left on his second term as supervisor, Postmus ran successfully for county assessor against the incumbent, Donald Williamson. He was sworn into that office the first week of January 2007, and Brad Mitzelfelt, who had been Postmus’ chief of staff during the entire time he had been supervisor, was appointed as his handpicked successor to serve out the last two years on his term as supervisor. As assessor, Postmus was San Bernardino County’s foremost taxing authority. At that point he bestrode the political landscape like a Colossus.
In September 2007, when events overtook Cox, one of Postmus’ major political benefactors, and Honeycutt, one of his closest political associates, Postmus was able to steamroll his way over that bump in the road. The district attorney’s office, which had information churned up by California Department of Education investigators as well as investigators from its own staff to indicate Postmus was heavily involved in looting the California Charter Academy, elected not seek an indictment of Postmus, though he was among those called before the grand jury two months before the indictments were handed down.
Less than three years later, however, Postmus’s fortunes had reversed significantly. In 2008, one of his assistant assessors, Adam Aleman, was arrested and charged with utilizing assessor’s office facilities for partisan political activity and destroying government equipment, namely computers, to prevent investigators from documenting that activity. Postmus then began acting erratically himself, amid recurrent rumors of drug use on his part. This spectacle was exacerbated when Postmus took a long unexplained leave of absence from the assessor’s office that summer, going entirely incommunicado during that period and then refusing to interact with the press or public after he returned in October. In January 2009, his career as an elected official careened into oblivion when investigators looking into the abuse of his office for political purposes serving a search warrant at his Rancho Cucamonga townhome found the drugs methamphetamine and ecstasy and drug paraphernalia in his possession. The following month he resigned as assessor.
In February 2010, Postmus was himself indicted, along with former sheriff’s deputies union president Jim Erwin, who for a time had served as assistant assessor under Postmus. They were charged with involvement in a conspiracy, extortion and bribery scheme stemming from a November 2006 vote of the board of supervisors to confer upon the Colonies Partners, a Rancho Cucamonga-based development company headed by Dan Richards and Jeff Burum, a $102 million settlement to end a lawsuit the Colonies Partners had brought against the county over flood control issues at the Colonies at San Antonio residential subdivision and Colonies Crossroads commercial subdivision in northeast Upland. In that indictment, Richards, Burum, public relations consultant Patrick O’Reilly, San Bernardino County Second District Supervisor Paul Biane and Fourth District Supervisor Gary Ovitt’s chief of staff Mark Kirk were described as unidentified and unindicted coconspirators.
Postmus and Erwin entered not guilty pleas. A year later, however, Postmus was dialoguing with prosecutors and in March 2011, he pleaded guilty to 14 felony counts including conspiracy, bribery, fraud, conflict of interest and perjury. He then appeared as a star witness before a newly impaneled grand jury in April 2011. In May 2011, the charges against Erwin in the February 2010 indictment were vacated and a superseding indictment naming Erwin, Biane, Burum and Kirk was handed down. All four of those defendants pleaded not guilty and the case against them, which has been characterized by former California Attorney General /current California Govrnor Jerry Brown as one of the most serious examples of public corruption in state history, has yet to go to trial. Postmus’ sentencing has been postponed, pursuant to his participation as a witness in the proceedings against Erwin, Biane, Burum and Kirk.
A series of miscues, procedural and judicial, prevented the case from being fast tracked from the start. Cox and Honeycutt came before Judge Margaret Powers for arraignment. The case was then handed over to Judge Eric Nakata. An effort to recuse Nakata ensued, however, and at the intervention of then-Presiding Judge Larry Allen, the case was transferred back to Powers. Subsequently the case was heard by judges Miriam Morton, John Tomberlin, Jules Fleuret and Arthur Harrison. Eventually the case went to Judge Jon Ferguson in Rancho Cucamonga, before whom the case is now scheduled to go to trial, if indeed it makes it to trial.
The trial timetable suffered a setback in November 2010, when Cox’s attorney, Earl Wade Shinder, committed suicide. That was more than four years ago, however. Attorney Grover Porter, who has represented Honeycutt for more than seven years, and Geoff Newman, who now represents Cox, are sufficiently up to speed on the case to proceed to court. The case against Cox and Honeycutt is a strong one, with bank records, receipts, hotel and resort registrations, airline ticket records, vehicle registration and multiple witness statements demonstrating that millions of dollars in funding intended for educational purposes was diverted to pay for vacations, vehicles, recording and video equipment, jet skis, lease or pay for real estate acquisitions or cover political campaign expenses.
The prosecutor on the case is Michael Fermin, who was a deputy district attorney when he was assigned to carry it forward in 2007. After the retirements of former assistant district attorneys Dennis Christy and James Hackleman, Fermin was elevated to the position of assistant district attorney overseeing ,as the office’s second-in-command, a major portion of the office’s administrative duties, including the budget and human resources. Today, Fermin has only one remaining prosecutorial assignment: the California Charter Academy Case against Cox and Honeycutt. Indeed, the the California Charter Academy case, involving allegations of $23 million intended for educational purposes being diverted to unauthorized, improper or illegal use, is one of the most important cases, if not the most important one, in Fermin’s career as a prosecutor. Despite the potential the case has for boosting him into the legal stratosphere, Fermin continues to drag his feet in moving the case to trial.
Postmus’ role as the primary witness in the Colonies Lawsuit Settlement Public Corruption Prosecution has created difficulties for Fermin. While Postmus’ vaunted political status in 2007 may have driven the decision to leave him out of that indictment, Fermin is now faced with having a jury being confronted with indications that political considerations rather than a cold hard analysis of guilt or innocence entered into the prosecutor’s office’s decision about who would be charged in the California Charter Academy matter.
There appears to be sufficient evidence and information upon which to have lodged a criminal case against Bill Postmus, who became embroiled in the scandal on several levels.
Cox emerged as one of Postmus’ major early political supporters, having contributed $25,450 to his political war chest, utilizing California Charter Academy money to make those donations.
Postmus was appointed by Cox to serve as a member of two of the boards of the charter schools functioning under the aegis of the California Charter Academy. Postmus then used his status as a charter school board member as a feature in his resumé when he first ran for supervisor.
Action Postmus took, based upon his actual authority as a board member or carry-over authority as a former board member and close affiliate of Cox, became the focus of the grand jury that was impaneled in 2007 and which indicted Cox and Honeycutt. Irrefutable evidence emerged to show Postmus made efforts to ensure that members of his family as well as his political supporters were rewarded with jobs or contracts at or with the California Charter Academy.
Investigators tracked data to show that Brad Mitzelfelt, who was Postmus’ chief-of-staff while he was supervisor and who succeeded Postmus as supervisor after Postmus became assessor, had knowledge with regard to how and when Postmus pushed to have family members hired, whether they were qualified for the positions they assumed or not, as well as the expenditure of money for purposes other than the charter academy’s educational mission. Mitzelfelt was brought before the grand jury, as was Honeycutt, former Victorville councilwoman Joanne Almond, former California Assemblyman Keith Olberg, Hesperia Unified School District Board Member Eric Swanson and Cox. Evidence was produced to show that Postmus directed Cox or otherwise arranged, both while he was a charter academy board member and afterward, for money to be diverted to Mitzelfelt and Olberg, in the form of questionable or illegal payments. Postmus worked as district director in Assemblyman Keith Olberg’s High Desert office from 1995 until 1999.
In 2002, Postmus was provided with an all-expenses paid trip to Florida by Cox, who used California Charter School funds to pay for the trip, accommodations and spending cash, which totaled more than $17,000. No explanation of what the trip was for was ever provided.
Despite the fact that the California Charter Academy was receiving funding from the state of California, on a few occasions the academy received funds from the county of San Bernardino while Bill Postmus was on the board of supervisors. In creating the California Charter Academy in 1999, Cox operated four schools under two charters provided by the Snowline School District, one charter provided by the Orange County Unified School District and one charter provided by the Oro Grande School District. Those four schools were spread across 61 campuses, including one as far north as Gridley in Butte County and one as far south as Chula Vista in San Diego County, making it the largest charter school organization in the state.
Bill Postmus’ father, William J. Postmus Sr., received a consulting contract with the Orange County Unified-sponsored charter school during the time that William Postmus Jr. served on that charter’s board.
Bill Postmus Sr. was a member of the Snowline School District’s board of trustees when the school board voted to allow the California Charter Academy to charter two schools through the Snowline School District. In 2001, Bill Postmus Sr. went to work for Cox as the director of and instructor in the academy’s criminal justice and leadership program. While Bill Postmus Jr. had assiduously abstained from voting as a member of the board of supervisors on matters impacting the California Charter Academy, he broke from that pattern in June of 2004 as the state was withdrawing funding from the California Charter Academy and his father was in danger of being thrown out of work. At that point, Bill Postmus, Jr. voted to have the county forward a $77,000 Workforce Investment Grant to the California Charter Academy in an effort to keep the school where Bill Postmus Sr. was the principal in session.
At present, Cox and Honeycutt’s attorneys, Geoff Newman and Grover Porter, respectively, have a keen understanding of the degree to which Bill Postmus was entangled in the culture of misappropriation at the California Charter Academy. By bringing him in as a witness and through skillful cross examination, they could raise the specter of selective prosecution by illustrating to the jury hearing that case that Bill Postmus was involved in the events in question but avoided prosecution because of political favoritism.
As Postmus is the central witness in the Colonies prosecution and defense attorneys in that matter have repeatedly suggested political bias on the part of the district attorney’s office in that case, any substantiation of politicized decision-making by the district attorney’s office in the California Charter Academy case would have carryover to the Colonies case. It is for that reason Fermin is now reluctant to bring the case against Cox and Honeycutt to trial.
It has been suggested that Fermin in 2007 was in favor of charging Postmus and others implicated in the matter, including Almond, Swanson and Olberg, but was restricted from doing so because Christy and Hackleman deemed it inadvisable to entangle district attorney Mike Ramos in a prosecution of an individual of Postmus’ then-current political stature. Almond, Swanson and Olberg escaped prosecution because Christy and Hackleman believed doing so without prosecuting Postmus would raise questions.
The Sentinel sought clarification from Fermin, lodging those questions in verbal form in a voice mail and in writing by letter. Fermin declined to discuss how forceful he had been in presenting the case for charging Bill Postmus to Christy, Hackleman and Ramos. Nor was he at liberty to provide an encapsulation of his superiors’ rationale for not charging Postmus. Asked if in the light of subsequent events there has been any regret expressed by any of the parties involved in that decision, or any indication that any of those parties now wishes Bill Postmus had been charged, Fermin remained mute.
Fermin did not dispute the assertion that sufficient evidence to charge Postmus existed, at least prior to the expiration of the statute of limitations.
The state of California forced the closure of the California Charter Academy in 2004 after it was learned that Cox and the academy’s several boards had defied state law pertaining to charter schools by operating charter schools at campuses located beyond the jurisdictions of the school districts that had chartered them.
An audit commissioned by California Superintendent of Public Instruction Jack O’Connell and carried out by the state’s fiscal crisis management assistance team and the auditing firm MGT of America determined that more than $23 million in funding entrusted by the state to Cox and the other administrators at the California Charter Academy had been used for purposes unrelated to educating students.
Charter schools are independently-run schools sponsored by an accredited school district intended to use innovative teaching strategies not commonly available in a public school setting. Charter schools are supposed to be dedicated to improving pupil learning, with special emphasis on those identified as slow learners. The charter schools are required to meet certain standards in carrying out their mission and are monitored by their own boards as well as the districts that charter them. Charter schools are subsidized by state funding at a rate of roughly $6,000 per pupil per academic year.
The auditors established that several months after Cox founded the California Charter Academy as a non-profit entity dedicated to education, he created the Educational Administrative Services Corporation, a for-profit company to provide administrative services to charter schools. All four California Charter Academy charter schools signed operating agreements engaging Educational Administrative Services Corporation to manage their administrative services. Under the terms of the contracts between Educational Administrative Services Corporation (EASC) and the California Charter Academy charter schools, Cox served as chief executive officer of all four charter schools and as the CEO of Educational Administrative Services Corporation. These contracts granted Cox the authority to expend California Charter Academy funds and enter into contracts on behalf of the California Charter Academy charter schools.
Cox used this arrangement, employing little fiscal oversight authority by the California Charter Academy’s governing board members, to exploit it for personal profit and that of his associates, including Postmus and Tad Honeycutt, one of Postmus’ closest political associates who achieved political success of his own by getting elected to the Hesperia city council According to the audit, “Numerous and substantial transfers of funds were made from the California Charter Academy charters to Educational Administrative Services Corporation by Mr. Cox without the approval or knowledge of the California Charter Academy boards.”
Cox also took advantage of that portion of California law which allows two or more government entities to form a joint powers authority. In December 2001 he created a joint powers authority, known as the American Public Agency Authority, appointing himself CEO. He then used it to milk even more money out of California’s taxpayers. The ostensible reason for the American Public Agency Authority was to provide insurance for the charter schools and their employees. Cox not only inflated insurance costs, but transferred $233,000 to the American Public Agency Authority from California Charter Academy charter schools’ accounts without the approval of the charter boards, according to the audit. He entered into a series of questionable contracts that tallied expenditures totaling $435,000. Cox’s failure to pay insurance premiums resulted in the cancellation of the insurance.
Thus, California Charter Academy charter schools paid for insurance they did not receive.
“Mr. Cox’s service as CEO of all four California Charter Academy charter schools and the American Public Agency Authority, while concurrently serving as the CEO of Educational Administrative Services Corporation, created an inherent conflict of interest,” the audit states. “In these multiple positions, he had the opportunity to direct millions of dollars of California Charter Academy funds to benefit himself, his corporation, his family, and his friends and associates. He took advantage of that opportunity.”
The audit further reports that Cox misappropriated $3.5 million transferred from the California Charter Academy accounts to Educational Administrative Services Corporation without approval of the California Charter Academy governing boards. The audit charts how he inappropriately directed more than $920,000 of California Charter Academy funds to one of his subsidiary companies and used $1.2 million of California Charter Academy funds to employ members of his family and grant them generous retroactive pay increases. Cox, the audit report states, charged the California Charter Academy charter schools high administrative service fees, thereby redirecting millions of dollars from the California Charter Academy instructional program to Educational Administrative Services Corporation. This increased the California Charter Academy schools’ administrative costs by charging the California Charter Academy for certain administrative costs that should have been covered under the administrative service fees paid to Educational Administrative Services Corporation. Cox also used $1.2 million in California Charter Academy funds for questionable contracts and expenditures without competitive bids and without sufficient evidence that the goods and services were actually received, including payments to firms owned by former Educational Administrative Services Corporation employees and California Charter Academy board members.
According to the audit “in the case of Educational Administrative Services Corporation and the California Charter Academy, there was no functional separation between the finances of the publicly funded charter schools and the private corporation. Educational Administrative Services Corporation charged the California Charter Academy high fees for management and other services, then billed a second time for some of the same services.”
The audit shows more than $1.1 million was paid directly to Cox from 1999 through 2003. But his salary was only a fraction of the money Cox took out of the California Charter Academy. He accrued expenses totaling in the millions of dollars and utilized for his own purpose goods and services that were ostensibly purchased for the charter schools.
Cox issued himself and certain California Charter Academy and Educational Administrative Services Employees corporate credit cards that were paid for by California taxpayer funds and funded millions of dollars worth of purchases that had no demonstrable relationship to educational purposes. Cox also used his authority as CEO of both the California Charter Academy and Educational Administrative Services Corporation to authorize the purchase of 15 vehicles that were driven by himself, four of his family members and nine others that were employed by the California Charter Academy or Educational Administrative Services Corporation. The vehicles cost taxpayers at least $260,500. Some of the drivers of those vehicles were also given fuel allowances.
The audit also charted how Cox spread money intended for the education of California Charter Academy students to prominent High Desert politicians, including Bill Postmus, former state assemblyman Keith Olberg, Tad Honeycutt and Victorville councilwoman Joanne Almond. A nominal effort was made to make at least some of these payments appear to be related to the California Charter Academy’s legitimate mission of educating students, but an examination of the uses to which the money was actually put shows that these expenditures were actually illegal “gifts of public funds,” in the words of the audit’s authors.
Cox provided Honeycutt with an annual salary of more than $100,000. Cox also allowed Honeycutt to tap into more than half of a million dollars in California Charter Academy money and use it for non-educational related business ventures such as music production and record selling, motocross equipment supply and land development.
In February 2001 Educational Administrative Services Corporation formed a subsidiary company known as Everything For Schools. Tad Honeycutt managed Everything For Schools while also serving as vice president of corporate development for Educational Administrative Services Corporation. The stated purpose of Everything For Schools was to reduce the costs of the California Charter Academy charter schools by maximizing the buying power of all of the California Charter Academy charter schools’ programs. This was to be accomplished through offering the California Charter Academy charter schools the option of purchasing through a single source, namely Everything For Schools, in order to receive discounts on volume purchases.
While Cox offered assurances that “Everything For Schools is an entirely voluntary option for each California Charter Academy program to use” and that all savings realized from the Everything For Schools stratagem “will be passed along to the sites” and at an April 2001 board meeting for the one of the charter schools sponsored by the Snowline School District, Honeycutt stated that Everything For Schools “would not be making a profit, but we will be trying to cover costs,” Honeycutt in 2005 admitted to the state’s auditors that Everything For Schools added ten to 15 percent to the cost of goods Everything For Schools sold to the California Charter Academy charter schools. The audit team discovered that in fact Everything For Schools significantly inflated the cost of basic English textbooks by 57 percent, math textbooks by 54 percent, algebra textbooks by 47 percent, biology textbooks by 32 percent and the cost of United States history textbooks by 28 percent.
Everything For Schools spent more than $176,000 of its proceeds on other non-school related business enterprises such as Honeycutt’s Xtreme Motor Sports, Honeycutt’s Hautlab Music Group, Honeycutt’s Maniaque Management, a $3,906 loan to Honeycutt and political contributions.
Over one three-month time frame Honeycutt used his American Express corporate card to pay $18,000 for two jet skis, $5,726 in purchases at the Point Loma Sport Fish Sporting Goods Store in San Diego; $3,487 in purchases at the Wheels and Tires Outlet, and made $1,942 in credit card purchases at the Guitar Center. “These do not appear to be related to educational purposes.” the audit report states
In December 2002 Tad Honeycutt, who was then the vice president of Educational Administrative Services Corporation in charge of corporate development, formed a company known as Maniaque (pronounced maniac) Management Group, Inc. The officers of Maniaque were all key Educational Administrative Services Corporation employees with Tad Honeycutt as CEO and C. Steven Cox as director. In January 2003, Maniaque assumed control of Everything For Schools and its subsidiaries, which include Hautlab Music Group, Xtreme Motor Sports and Maniaque Marketing. Cox as CEO of Educational Administrative Services Corporation, signed an agreement with Honeycutt whereby Educational Administrative Services Corporation agreed to pay Maniaque’s rent and monthly facility-related expenses for a period of three years. In January 2004, Honeycutt registered Maniaque as a Nevada corporation and Cox and Honeycutt agreed to dissolve the California-based Maniaque company, have Educational Administrative Services Corporation pay all of Maniaque’s outstanding debts, and allow Honeycutt to take all the assets and property to the new Maniaque Corporation. At the same time, Cox and Honeycutt signed a consulting contract for Manique to provide services to each of the four California Charter Academy charter schools to provide grant writing services, with each of the four charter schools paying him $1,000 per month. The audit team found no evidence that any grant consulting services were provided by Maniaque to justify those payments.
Educational Administrative Services Corporation also wrote four checks for $6,750 each from the accounts of the California Charter Academy charter schools to Maniaque on June 30, 2004, just days before the California Charter Academy charter schools closed due to financial problems. No justification for those payments was every provided by Honeycutt or Cox.
Educational Administrative Services Corporation also paid $548,997 toward Maniaque Management’s expenses, including $78,539 for rent, $127,433 in American Express charges, $37,280 for cellular phones; $98,602 to subsidize Hautlab Records; $58,551 for work done by a general contractor, $31,786 for furniture and $43,869 for goods and services that were not specified. Approximately $278,000 of California Charter Academy money was advanced to Maniaque to finance “marketing services.”
Much or all of Honeycutt’s corporate development work was counterproductive; the expansion of the California Charter Academy to sites beyond the boundaries of the Snowline, Oro Grande and Orange County Unified school districts directly led to the failure of the entire California Charter Academy enterprise. It was the drive to increase Educational Administrative Service Corporation’s profits that fueled that expansion. The bulk of Honeycutt’s work thus bore no or bad fruit.
Olberg, who was a member of the state assembly representing the High Desert in the late 1990s and later a candidate for California Secretary of State, like Honeycutt was paid handsomely by Cox from money provided to the California Charter Academy by California’s taxpayers.
In January 2001, Olberg was hired and placed on the payroll of one of the Snowline-sponsored charter schools. Employment records indicated he was hired to develop a charter program for gifted students that was to be called the Honors Program. Olberg received an annual salary of $125,000 for those years from January 2001 through February 2004. In August of 2002, Olberg was transferred from one of the Snowline-sponsored charter school’s payroll to the Educational Administrative Services Corporation payroll. Olberg remained on the Educational Administrative Services Corporation payroll until February 29, 2004. During the course of the audit, numerous California Charter Academy board members and staff raised question about whether Olberg actually performed any meaningful work for the California Charter Academy charter schools.
Eric Swanson resigned from one of the charter school boards just the day before his company, Community Information Services Online, received business from the academy without accepting competitive bids, and Victorville City Councilwoman Joanne Almond and her son, Robert Junior, received money from the California Charter Academy, while she was a charter school board member.
A recent report by the Center for Popular Democracy, the Alliance of Californians for Community Empowerment Institute and Public Advocates Inc., said state and local educational officials have proven too trusting of the self-accounting done by the state’s charter school operators, who received $3 billion in public funding last year. In nearly all cases, according to the report, charter school operators have paid for and thus have unacceptable control over the audits conducted on the state’s more than 1,000 charter schools.
The report, which referenced $81 million in misused funds at charter schools over the last two decades, concluded that California charter schools need more oversight to avoid fraud and that the state legislature should codify this into law. The actual cost of the abuse of the charter school system exceeds the aforementioned $81 million, because inadequate financial controls allow the perpetuation of fraud and mismanagement to occur without detection or quantification, according to the report.
But the California Charter Schools Association disputed the report, saying that it utilized dated examples of fraud and that there was no proof yet offered up in a court of law or any other forum of abuses of the charter system. While the report stated that “Without reform, California stands to lose millions of dollars as a result of charter school fraud, waste and mismanagement,” the California Charter Schools Association said the motives of those behind the report were questionable and the need for reform legislation nonexistent.
By Mark Gutglueck