iProbe: Feds Investigate LAUSD iPad Contract

The Los Angeles U.S. Attorney’s Office on Monday obtained 20 boxes of records related to the Los Angeles Unified School District’s failed plan to provide an iPad to each of its 600,000 students.  According to press reports, a federal grand jury subpoena served on the LAUSD indicates that the feds are probing the events leading up to the District’s decision in June 2013 to approve a $1.3 billion contract for the purchase of iPads and related software.

The grand jury subpoena was reportedly issued on November 21, 2014 by Assistant United States Attorney Patricia Donahue of the Public Corruption and Civil Rights Section. AUSA Donahue is one of the most experienced prosecutors in the Los Angeles office, and a heavy hitter.  It is virtually certain that similar subpoenas were served on Apple and Pearson, the British company that developed the curriculum software.

Grand jury subpoenas typically require the recipient to produce the requested documents by a particular date.  Here, FBI agents went straight to LAUSD headquarters and carted the documents away – an unusual tactic more akin to the execution of a search warrant.  Even more unusual was the fact that FBI apparently did not wait until the stated deadline for document production, Friday, December 5.  There is no indication that the FBI took a similarly aggressive tack with Apple and Pearson, both of which declined to comment on the investigation.  We shall see what their next SEC 10-Qs filings reveal on this subject!

According to press reports, the subpoena called for “score sheets; complete notepads; notebooks and binders; reports; contracts; agreements; consent forms; files; notices; agenda; meetings notes and minutes; instructions; accounting records,” among other items.

How Did We Get Here?

Starting in 2012, then-superintendent John Deasy launched an initiative to replace traditional textbooks with digital devices. LAUSD ultimately signed a $1.3 billion contract with Apple and Pearson.  It was later revealed that, prior to the contract being awarded, Deasy had met with top executives at these firms, prompting critics to accuse Deasy of not negotiating the contract at arm’s length.  Critics have suggested that the specifications set forth in the bidding process were tailored to Apple and Pearson, so that the ultimate award of the contract to these firms was a foregone conclusion.  The Board of Education was ultimately presented with three finalist teams, and picked Apple-Pearson after senior LAUSD staff endorsed them as the best in price and quality.

It also turned out that former Deputy Superintendent Jaime Aquino, intimately involved in the initiative, was a former executive at a Pearson affiliate.  In an email exchange with Pearson, Aquino told the company that “I believe we would have to make sure that your bid is the lowest one.”  Aquino left LAUSD under pressure at the end of 2013. Deasy and Aquino have previously denied acting improperly, and Aquino stated that he had received approval from LAUSD legal counsel before engaging in discussions with his former employer.

The new LAUSD Superintendent, Ramon Cortines, has waffled on whether to scuttle the contract.  When he replaced Deasy, Cortines first said he would cancel it.  He reversed himself last month and said that the contract would proceed.  But after the FBI’s house call this week Cortines again changed course and said he would abandon the contract and start the process anew.

What Possible Crimes Are the Feds Investigating? 

The most obvious candidate would be 18 U.S.C. § 666, which outlaws bribery in connection with programs receiving federal funds.  The feds are presumably looking at whether any LAUSD employee involved in the bidding process received anything of value from Apple or Pearson.  Another likely statute would be honest services mail fraud or wire fraud, under 18 U.S.C. §§ 1341, 1343 and 1346.  These are highly malleable statutes, and the question would be whether a scheme existed to deprive the public of the “intangible right to honest services.”

At the end of the day, it would be difficult to indict any individual unless that person personally benefitted in some way.   A flawed bidding process, standing alone, cannot support federal criminal charges – even if the criteria favored Apple and Pearson.  However, even the smallest quid pro quo to someone involved in the contracting process (a meal, a round of golf, Clippers tickets) could provide a big enough peg on which the U.S. Attorney’s Office could hang an indictment.

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