A Los Angeles school district manager and a major outside vendor conspired illegally to deliver $22 million in contracts to the company in exchange for $3 million in kickbacks to the employee, Los Angeles County prosecutors allege.
The case involves a former school district employee who had direct influence over the awarding of technology contracts and allegedly lied about her ties to Innive, the Texas-based tech company that benefited from the district work, the criminal complaint said.
To funnel the kickbacks, the conspirators allegedly set up shell companies to make the money transfers less obvious, said L.A. County Dist. Atty. Nathan Hochman, who announced the prosecution Thursday.
Hochman called it the largest kickback scheme ever in the nation’s second-largest school system.
“This case involves a blatant abuse of public trust — funneling taxpayer dollars intended for students into personal coffers,” Hochman said. This “multi-year, multi-contract pay-to-play arrangement … siphoned millions of dollars from our schools.”
Hong “Grace” Peng, 56, of Pasadena, the former school district employee, faces one felony count of money laundering and having a financial interest in a contract or purchase made in an official capacity.
Gautham Sampath of Flower Mound, Texas, a senior executive at Innive, the company that received the contracts, is charged with one felony count of money laundering, having a financial interest in a contract or purchase made in an official capacity and aiding and abetting a government official to have a financial interest in a contract or purchase made in an official capacity.
The arrangement unraveled in 2022, after one of the involved parties bragged about it at a professional conference and was overheard by an LAUSD employee who reported the comments to district officials, the complaint said.
The alleged scheme took place from 2018 to 2022 and has no connection to FBI raids last month at the San Pedro home and downtown office of L.A. schools Supt. Alberto Carvalho, who joined L.A. Unified in February of 2022.
Pending further developments, the Board of Education last month, put Carvalho on paid leave. That probe is connected to an investigation of a district contractor hired to create an artificial intelligence chatbot. Carvalho has denied any wrongdoing and asked to be returned to his position.
The contracts primarily related to the district’s My Integrated Student Information System, which manages student records, enrollment, attendance, grades and schedules. This system was a catastrophe when it debuted in 2014 — contributing to the resignation of then-Supt. John Deasy.
By 2018, however, the crisis had been stabilized and the system remains in use, needing regular maintenance and updates.
An attorney for Sampath, Michael Kraut, of Kraut Law Group, insisted, “There’s nothing inappropriate having a good working relationship with somebody from LAUSD.”
He added: “If the LAUSD person, that person, did something untoward, that’s not about my client. That was unrelated to this contract.”
Kraut also said any payments to Peng were unrelated to the contracts.
“They had a prior business relationship,” he said.
Kraut claimed his client did nothing wrong and that Innive “did the work that they were contracted to do.”
This assertion has some support from L.A. Unified, which audited the company’s work before the investigation began. This 2022 audit does not appear so far to have been related to the investigation. The audit questioned about $20,000 in billing, a relatively small amount related to the size of the contract. The company did work for L.A. Unified in excess of the $22 million in contracts targeted by prosecutors.
Innive contested the finding. It’s not clear how the dispute was resolved.
The alleged fraud, however, relates to the awarding of the contract.
To maintain integrity in the awarding of lucrative contracts, a strict process is followed.
For example, one bidder is not supposed to have an unfair advantage over another. Nor are bidders supposed to have connections to those evaluating the bids. Even verbal or written contact is strictly limited and documented once the crucial part of the bidding evaluation begins.
That period is called the “cone of silence” and it exists to prevent the sort of improper dealing that is alleged in the complaint.
According to the complaint Sampath and Peng appear to be aware they are violating the bidding rules and want to conceal discovery.
“Delete all the watsup chats,” Sampath allegedly texted Peng on Feb. 15, 2018. “If anyone sees the text about those internal things it will be a prb.”
On Feb. 23, Peng indicated she was in control of the bidding process.
“So I kicked out Procurement personnel before we gave the scores,” she allegedly texted Sampath. “Because they will follow how I score.”
Peng allegedly texted about how she deflected questions about why Innive was getting so much work compared to other companies.
In the texts included in the complaint, there also are discussions about how to get money to Peng and how to conceal it.
Sampath texted: “Didn’t want to have a direct link.”
Peng texted that a district employee has “apprehensions” with so much money being contracted to Sampath’s company, noting, “We need to come up with lot of companies… at least 3-4 to take out the money… Easy to track unless we are very careful in how we do it,” prosecutors allege.
At one point, Peng allegedly texted: “You’re so lucky…I am on the selection committee.” She added: “It’s ‘cone of silence’ …I broke all law for you already lol.”
In one communication, Peng allegedly suggested that Sampath could increase the profits by billing for more hours, which was an issue raised by L.A. Unified in its audit prior to the investigation.
“I have a way to get those money,” Peng allegedly texted. “We can load them up more work, then charge more hours.”
On Oct. 9, 2018, Peng allegedly texted Sampath: “I spent a lot of time and effort to make sure the contracts/WO goes to Innive.” (WO likely refers to a work order.)
There were concerns within L.A. Unified about the quality of the work. On March 19, 2019, Peng allegedly texted Sampath about an L.A. Unified senior staffer who “keeps telling everyone how bad the quality is … how low quality resources Innive provides.”
Peng lost her district job months after the investigation began in 2022. According to the database Transparent California, Peng’s district pay in 2021 totaled $166,196.
The district attorney is seeking Sampath’s extradition from Texas and has issued an arrest warrant for Peng.
In a statement, L.A. Unified said that it is aware of the charges, is committed to full compliance with all laws, and expects employees and business partners to “comply with the highest standards of ethics and integrity.”
The district employee who reported the overheard conversation at a convention reported it to Soheil Katal, who, until recently, headed the district’s technology division. Katal confirmed Friday that he immediately contacted the district’s inspector general. That office then alerted law enforcement.