Charter schools official, Hesperia councilman indicted

Of course...this couldn't happen outside California, could it? John [Curry]

Charles Steven Cox and Tad Honeycutt are arrested, charged with misappropriation of funds at California Charter Academy.

By Maeve Reston and Mitchell Landsberg, Los Angeles Times Staff Writers

Los Angeles Times, September 5, 2007

A San Bernardino County Grand Jury on Tuesday indicted the founder of a charter school network that once was the largest in California, charging him with grand theft and misappropriation of public school funds. A Hesperia city councilman also was indicted.

Charles Steven Cox, 59, who built California Charter Academy into a statewide string of 60 campuses serving more than 10,000 students from Yuba City to Chula Vista, was taken into custody Tuesday and charged with more than 100 counts of misappropriation of charter school funds and theft of nearly $5.5 million.

A 2005 state audit alleged that Cox, as head of the charter academy and also owner of a for-profit company that provided management services to the schools, misused millions of dollars in charter school funds to lavishly pay himself, friends and family and to buy luxuries such as spa services and concert tickets.

Dist. Atty. Michael A. Ramos said he launched the investigation after reading the state audit, which he said "turned my stomach a little bit." He said the "true victims" were the 4,500 students who scrambled to find new schools when the charter schools abruptly closed their doors in August 2004.

Hesperia Councilman Tad Honeycutt, the city's former mayor, was charged with more than 30 counts of misconduct, including grand theft of more than $300,000, stemming from his work at Cox's for-profit management company.

Cox set up the management company in 2000, and money flowed freely from the schools' accounts to the corporation.

Concerns about the academy, in part, led to changes in the law that ended the practice of small districts, with little oversight capacity, chartering schools sometimes hundreds of miles away. Now charter schools must be chartered by the district in which they are located, or by county or state government.

Cox and Honeycutt entered not guilty pleas during their arraignment Tuesday. If convicted, Cox could face up to 64 years in prison; Honeycutt, 20 years.

Both men were being held at the West Valley Detention Center in Rancho Cucamonga on Tuesday afternoon. Honeycutt's bail was set at $500,000, Cox's at $1 million. Honeycutt's son, Joe, said his family had no comment. Cox's family could not be reached.

When state officials announced they were investigating the California Charter Academy in 2004, it was the largest charter school operator in California. It was founded by Cox in 1999 and he won charters for four schools -- two in the Snowline Joint Unified School District in San Bernardino County, one in Orange Unified in Orange County and a fourth in the Oro Grande Elementary School District in San Bernardino County.

The academy's campuses mushroomed to more than 50 under the auspices of those three districts. Many of the satellite campuses served adult students.

The indictments were greeted as good news by state and local education officials. "In this particular case, this charter school. . . has focused more on revenue and less on children, and when that happens that's a disservice to all of us," said Herbert Fischer, the San Bernardino County schools superintendent.

State schools chief Jack O'Connell said in a statement that the arrests were "a welcome chapter in a very sad story in California's public education system." He said state officials were still pursuing recovery of $23 million misspent by the California Charter Academy.

Caprice Young, president and CEO of the California Charter Schools Assn., said Cox's organization was "abusing the system" and the families who enrolled students in their schools.

She said those arrested "were abusing the right to create charter schools, and the changes in the law were not going to stop this."

Since the collapse of the California Charter Academy, state education officials said they have worked on conflict-of-interest rules for charter schools and implemented annual auditing requirements, as well as regulations to make sure students' records are maintained in the event of a school closure.

State officials began their inquiry into Victorville-based California Charter Academy in 2004 after a state advisory panel expressed concern about the amount the charter school operator was spending on administrative costs, while paying teachers less than the average in California schools.

The state audit cited concerns about potential legal and ethical conflicts of interest of a number of public officials who served on oversight boards of the California Charter Academy.

One of the officials named in the audit was San Bernardino County Assessor Bill Postmus, a former San Bernardino County supervisor, who accepted $25,450 in contributions for his supervisoral campaign from Cox and his for-profit company while serving on two of the charter academy's boards, the audit said. Postmus was not named in the indictment.

After being docked $6 million for violations and struggling to meet new state restrictions, the charter operator closed its campuses just before the start of 2004 school year. The following year, state auditors reported that Cox had opened at least 15 schools outside the boundaries of the districts granting the charters, and converted eight private schools to charter schools after the rule changes that made it illegal.

That meant California Charter was ineligible for $23 million in government funding it received, according to the state audit. A number of the out-of-boundary schools were not eligible for funding. Auditors also found there was "no functional separation" between the finances of the publicly funded charter school organization and Cox's for-profit management company, Educational Administrative Services Corp.

Because of excessive spending, the for-profit company was often in the red, leading Cox to transfer money from funds intended for school operations into the private company's accounts, the audit found.

Many of the criminal charges announced Tuesday relate to approximately 37 transfers not approved by the company's board, totaling $3.5 million, from the charter school company to the private corporation.

Cox, of Phelan, paid himself $1.1 million over a four-year period and used $1.2 million to employ family members, giving them retroactive salary increases, according to state auditors.

Cox and Honeycutt, who was the for-profit company's vice president for corporate development, also spent lavishly on their corporate cards.

According to the state audit, Cox used the card to pay $42,600 in personal income taxes, $9,000 at the Disney Health Spa, $11,000 for Disney merchandise and $3,155 for concert tickets.

Auditors alleged that Honeycutt, who is 44 and lives in Hesperia, used his card for two jet skis totaling $18,000, spent nearly $6,000 at a sporting goods store and nearly $2,000 at a guitar center, among other charges.

The for-profit company also provided cars to Cox, members of his staff and the family members employed by the company. The vehicles included Cox's 2002 Cadillac Escalade and a 2002 Audi roadster.

In addition to the misappropriation of funds and grand theft charges, Honeycutt also faces charges of failure to file state taxes and one count of filing a false tax return.

Cox is charged with failing to file a tax return for one year.

maeve.reston@latimes.com

mitchell.landsberg@latimes.com