Audit sparked by Business Insider story slams California ties to Chinese boarding school

• The Val Verde school district issued diplomas to students at the Pegasus boarding school in China.
• An audit was conducted in response to Business Insider's 2021 investigation of the relationship.
• The findings in a blistering report have been turned over to prosecutors and other authorities.

California education officials have released a blistering audit in response to a Business Insider investigation into a local school district and its ties to a private boarding school in China — finding "sufficient evidence" of "fraud, misappropriation of funds, or other illegal fiscal practices."

Riverside County Superintendent of Schools Edwin Gomez said the 1,000-plus-page report "identified serious concerns that merit further review by the appropriate authorities" and that the district attorney, among other authorities, had been notified.

The audit, carried out by a law firm and authorized by the Riverside County Superintendent of Schools, looked at the relationship between the Val Verde Unified School District and Pegasus California School, more than 6,000 miles away in Qingdao, China, and the involvement of former government officials.

Pegasus was seen as a way for Chinese students to access California's public education system; the report noted that it guaranteed students acceptance to a top 100 American university or their money back.

Val Verde adopted Pegasus as a "sister school" in 2016, and formally approved a pilot program a year later in which the district issued diplomas to Pegasus graduates. Pegasus was also added to the district's list of schools on its website.

The audit found that Val Verde improperly issued those diplomas and concluded there was no evidence that Pegasus students had satisfied course requirements and proficiency standards.

Val Verde teachers were encouraged to teach at the Chinese school, living in furnished apartments with benefits and the promise they could return to their US jobs, the report said. It also cited evidence of Val Verde teachers' salaries being "improperly increased upon their return from the unpaid leaves of absence."

Auditors also focused attention on former education officials who established the district's relationship with Pegasus and promoted it with leading California universities. They included Tom Torlakson, who at the time was the state superintendent of public instruction; David Long, the former California secretary of education and a former Riverside County superintendent of schools, who was also a paid consultant to Val Verde; and Michael McCormick, Val Verde's then-superintendent.

Over the course of their investigation, the auditors said, they found, among other claims, possible evidence of fraud, bribery, conflicts of interest, breaches of fiduciary duty, or violations of the Political Reform Act by various officials.

"There appears to be a pattern of favors, official acts, promises, and payments leading to the [state's] endorsement of Pegasus and VVUSD's approval of the diploma pilot program," the report said.

Gomez said that in addition to notifying prosecutors, he flagged the report for Val Verde's governing board, the state controller, and the state superintendent of public instruction. The California Department of Education said it's reviewing the report. "The CDE will not stand for any misuse of public funds and supports any investigation into this matter. California diplomas are for California students," the agency told Business Insider.

In a statement, a Val Verde spokesperson said that the district "fully complied" with the audit process and is "focused on providing transparency and continuing to serve our students, families, and community."

Torlakson and McCormick did not immediately respond to Business Insider's requests for comment. Long referred Business Insider to an interview he gave to the Riverside Press-Enterprise. He told the publication that the audit "contains a multiplicity of complete false accusations."

The auditors said they also requested interviews with the trio, who they said either failed to respond or were unavailable.

Business Insider probe prompts scrutiny

The relationship between the school district, officials, and Pegasus was the focus of a June 2021 investigation by Business Insider, which revealed that the officials worked closely with businessman Steven Ma, the CEO of a college consulting company called ThinkTank Learning, to establish the Chinese school.

In an email, Ma told Business insider, "I strongly disagree with any suggestion that I engaged in wrongdoing" and said Pegasus was "a legitimate educational program aimed at expanding cross-cultural learning."

Pegasus students paid thousands of dollars to attend the school, enjoying perks including access to Val Verde diplomas and resources, and a leg up in the cutthroat University of California admission process. McCormick said that all Pegasus graduates had guaranteed admittance to the University of California, Riverside.

In response to BI's investigation, a California Department of Education spokesperson said in 2021 that the department had referred the matter to the state attorney general, describing the allegations as "serious."

According to the audit, following BI's investigation, the school district and other agencies began investigating and "many deficiencies were discovered" — among them that school district board members did not initially disclose that they received complimentary travel to China, and that Val Verde teachers who taught at Pegasus improperly received school district benefits.

Val Verde took corrective action — but not until "they discovered the error as a result of the audit spurred by the Business Insider article," the report said.

The California Department of Justice and Riverside County District Attorney's office did not immediately respond to requests for comment.

Political contributions and conflicts of interest?

The audit isn't the first probe into Val Verde and Pegasus. Following Business Insider's 2021 investigation, for instance, the California Department of Education referred potential conflicts of interest to the state's Fair Political Practices Commission, which enforces the Political Reform Act, to investigate, according to records.

Those records show that an attorney for Torlakson wrote to the commission that "many of the alleged facts in the media inquiry are categorically and provably false." Soon after, the commission notified Torlakson's attorney that they would not be pursuing the matter further. The Fair Political Practices Commission did not immediately respond to a request for comment.

The auditors also said that Ma, through ThinkTank, made $13,600 in political contributions to Torlakson's 2014 campaign to be elected as superintendent, citing it as "evidence of potential bribes and/ or kickbacks."

Ma told Business Insider that "any political contributions referenced were lawful, publicly disclosed, and not connected to any official actions. I have never participated in or been aware of any bribery, kickbacks, or improper arrangements."

In the report released Wednesday, auditors said they found evidence that Long's actions may have violated the Political Reform Act, concluding he "intertwined his relationships with Pegasus and VVUSD instead of keeping them separate and apart as required, and failed to fully inform the VVUSD Board of the scope of his relationship with Pegasus."

Auditors also wrote that Long, the former state education secretary, failed in his duty to keep his interest in Pegasus apart from his role as a consultant to Val Verde. "Long directly influenced the establishment of Pegasus, orchestrated travel and promotional efforts, and advised VVUSD on Pegasus-related policy decisions," they wrote. "While Long used his VVUSD connections and influence to promote Pegasus, Long was benefiting from his relationship with Pegasus."