California Department of Education Agrees to Pay the United States up to $3.3 Million to Settle Whistle Blower Fraud Allegations

SACRAMENTO -- United States Attorney John K. Vincent announced today that the California Department of Education (CDE) has agreed to pay up to $3.3 million to the United States to settle allegations of fraud set forth in a whistle-blower complaint. The complaint, against Delaine Eastin and CDE, which was filed by Robert Cervantes, 61, an Assistant Superintendent of Public Instruction at CDE at the time of the alleged fraud, contended that CDE obtained grant funds from the United States Department of Education (DOE) and dispersed the funds to community-based organizations (CBOs) knowing that the CBOs were misusing the funds. The complaint, originally filed under seal, was unsealed after the settlement was reached.

Under the terms of the settlement, CDE will pay $2.5 million to the United States and guarantee another $800,000 in payment. The $800,000 may come from a case filed by the United States against funds held by Citizens in Action Development Corporation ("Citizens in Action"). Citizens in Action allegedly profited from the diversion of funds by Herniandad Mexicana Nacional Legal Center ("Hermandad"), a CBO that received federal grant money from CDE. The United States seized funds from Citizens in Action and filed a complaint to civilly forfeit those funds. Should the United States obtain less than $800,000 in that case, CDE will pay the difference.

According to Assistant U.S. Attorney Michael A. Hirst, who handled the case, the DOE provided grant funds to CDE for use in English as a Second Language and Citizenship (ESL/Citizenship) training. CDE then distributed the grant funds to various community based organizations (CBOs) , which offered ESL/Citizenship classes. CDE, which decided how much, if any, each CBO would receive, was required to administer the grant funds pursuant to federal regulations to ensure that the funds were appropriately expended.

In his complaint, Cervantes alleged that he informed upper management at CDE that some CBOs did not have the required not-for-profit status, had inadequate documentation to support their claims for funds, and had falsified student attendance records. He alleged that, even after he submitted written reports to CDE management on abuses of the grant funds, CDE failed to take corrective action against the CBOs. Instead, Cervantes alleges, he was pressured by his supervisor to drop his investigation of the CBOs and release additional funds to them.

The United States has obtained criminal indictments. against CBO Hermandad, which received several million dollars in federal funds from CDE; and Robert and Michael Guzman, directors of Templo Calvario Legalization and Education Center ("Templo"), another CBO that received substantial grant funds. Those criminal cases are still pending

Also still pending are Cervantes' employment discrimination and civil rights claims against CDE and Delaine Eastin, whom Cervantes alleged demoted him when he refused to drop his investigation into the alleged grant fraud

CDE has also filed suit against CBOs Hermandad, Templo, Hermandad Mexicana Nacional of Santa Ana, and TODEC Legal Center Perris in an effort to recover allegedly misspent funds. As part of the settlement, CDE has agreed to pay to the United States whatever funds are recovered beyond the amount CDE will pay in this settlement.

The case was investigated by the Federal Bureau of Investigation and the Office of Inspector General of the United States Department of Education