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The $26,000 question: How did LAUSD board member Ref Rodriguez fund an alleged money laundering scheme?

LAUSD School Board Member Dr. Ref Rodriguez visits Luther Burbank Middle School on Tuesday, Aug. 16, 2016 during the first day of instruction. Rodriguez now faces three felony charges for allegedly laundering funds from a $26,000 business investment into his campaign coffers. Maya Sugarman/KPCC

On November 6, 2014 – about a month before prosecutors said then-Los Angeles Unified School Board candidate Refugio “Ref” Rodriguez allegedly cashed out a $26,000 investment he laundered into his campaign fund – he filed a financial disclosure that listed two economic interests: income from a rental property in Las Vegas, and a partnership in a merchandise sales and fundraising company called Better 4 You Fundraising.

What Rodriguez didn’t list was his income from the network of L.A. charter schools he founded, Partnership to Uplift Communities (PUC). The charter network’s tax filings from that year listed Rodriguez as the company’s treasurer, earning a salary of $172,430.

In the following year’s disclosure of economic interest, Rodriguez didn’t list his role as president in the non-profit Partners for Developing Futures, which — along with PUC — was awarded a $30,000 consulting contract by L.A. Unified in December 2014. It’s not clear whether Partners for Developing Futures paid Rodriguez during this time because the organization failed to file required IRS tax returns for years — a failure that eventually cost the company its tax-exempt status.

These discrepancies mean it’s impossible to know from public records reviewed by KPCC whether the money at the center of the three felony charges Rodriguez now faces came from private investments, from income related to his charter school operations or from public school district contracts.

Rodriguez was charged by the district attorney’s office earlier this month with three felony and 25 misdemeanor counts related to the alleged money laundering scheme. According to prosecutors, Rodriguez gave the $26,000 to his cousin, Elizabeth Melendrez, with instructions to direct it into his campaign accounts. Melendrez – who also faces multiple felony and misdemeanor charges – allegedly recruited a variety of friends, family members, and employees of the charter network Rodriguez co-founded to “donate” money to his campaign and reimbursed those donations, which is illegal.

Rodriguez and Melendrez will be arraigned on October 24.

Neither the L.A. County District Attorney’s office nor the L.A. City Ethics Commission  – which originally investigated complaints against Rodriguez’s campaign – would identify the business investment Rodriguez got the money from for the alleged crimes. Rodriguez, his lawyer Daniel Nixon and his former campaign manager Michael Soneff did not respond to repeated requests for comment.

On his 2014 financial interest disclosure form, while still a candidate for office, Rodriguez claimed that the value of the Better 4 You Fundraising company was less than $10,000 and that his income from the company was less than $500.

When he filed his disclosure form the following year, a month after he took office as a school board member, he no longer listed his stake in Better 4 You Fundraising. His apparent divestment of that company during the campaign seems to suggest that it could be the source of at least some of the $26,000 that Rodriguez stands accused of laundering into his campaign coffers.

“The real question is: did the $26,000 come from his investment, or was it just taken out of the general funds of the company, or was it from somebody else – we just have no idea,” said Bob Stern, the former president of the Center for Governmental Studies and an expert in campaign finance. “I don’t see – at this point – any disposition of that investment or selling of that investment, so it’s just raising some questions.”

Last week, Rodriguez resigned his position as president of the L.A. Unified board but has retained his seat. He faces more than four years of jail time if convicted.

News of the charges have rattled L.A.’s charter school movement, which just weeks ago had been savoring a string of political victories. Charter-backed candidates swept last spring’s L.A. Unified board elections, creating a loose-knit majority coalition on the board.

Energetic and well-liked, Rodriguez seemed the natural choice to lead that coalition.

Before his election, Rodriguez received national awards for his leadership of the charter network, which runs 17 schools around Los Angeles with a collective budget of over $61 million. Three of PUC’s high schools made the U.S. News & World Report national rankings of best high schools in 2016.

In his two months as school board president, Rodriguez had already reorganized the board’s meeting schedule and convened a politically-sensitive discussion of the district’s employee benefits offerings.

Now, the allegations have become easy ammunition for the charter lobby’s main political rival: the teachers union. United Teachers Los Angeles has called for Rodriguez to resign not just as board president, but to relinquish his seat altogether.

Complicating the public money trail is the fact that Better 4 You Fundraising was run by two former PUC employees who also ran a company called Better 4 You Breakfast, according to California Secretary of State records: Jacqueline Duvivier Castillo and Jason Roberts.

By the time Rodriguez started his school board campaign in 2014, an audit by the California Department of Education found a number of problems, including allegations that Duvivier Castillo used her position at PUC, the charter network, to award her side company Better 4 You Breakfast millions of dollars in no-bid food service contracts.

At the time, the charter network’s officials sent a statement to the Los Angeles Times saying that Duvivier Castillo’s interest in Better 4 You Breakfast did not influence the network’s decision to award the company the contracts, but also said that Duvivier Castillo would leave her position at the charter network.

In an email to KPCC, Duvivier Castillo declined to comment on Better 4 You Fundraising and her business relationship with Rodriguez. Repeated attempts to contact Roberts were unsuccessful.

Another of the companies Rodriguez was involved with during the time of his campaign, Partners for Developing Futures, identifies itself as a “social venture investment fund” that gives educators of color the money needed to open charter schools.

Between 2010 and 2012, that organization received more than $3.6 million in grants from the Walton Family Foundation – which has spent more than a billion dollars funding charter schools – and another $1.9 million from the Bill and Melinda Gates Foundation, according to the organization’s required tax filings. During that same period, Partners for Developing Futures paid out more than $1.4 million in grants to 18 charter schools, according to the non-profit’s required tax disclosures.

In 2012, those tax filings show Rodriguez received more than $140,000 in compensation from Partners for Developing Futures.

Additionally, Partners for Developing Futures and PUC received a $30,000 consulting contract with L.A. Unified in December 2014. Two months later, during Rodriguez’s campaign for office, the company filed corporate statements with the Secretary of State, listing Rodriguez as the organization’s president.

The gaps in Rodriguez’s financial disclosures make it difficult to trace the source of the business investment he used in the alleged money laundering scheme.

California law requires candidates - through the Form 700 - to report rental property, and gifts valued over roughly $500 and investments worth more than $2,000 in a business operating within the candidate’s political jurisdiction – in this case the sprawling geographic boundaries of L.A. Unified.

“The public has a right to know who’s behind campaigns,” said Jay Wierenga, spokesman for the California Fair Political Practices Commission, the agency created to enforce the state’s campaign finance laws. “Who’s paying for things, how campaign money is being spent, who’s behind political advertising and also what are the financial interests of a candidate.”