No criminal charges in Alum Rock School District construction scandal

The investigation by the Santa Clara County District Attorney's Office uncovered hundreds of thousands of dollars paid to contractor Del Terra for school facilities that were never built.

SAN JOSE — A corruption scandal over construction contracts that widely embarrassed the Alum Rock Union School District after two scathing state audits will not result in criminal charges, following a three-year probe by county prosecutors.

While the Santa Clara County District Attorney’s Office confirmed many of the criticisms previously leveled against the district, including meager oversight over millions of dollars spent on school construction projects, it found that most of the malfeasance did not rise to criminality. Instead, prosecutors concluded the actions were a product of poor institutional controls as well as favoritism toward the Del Terra real-estate firm by district leaders and board members that ran counter to their duties as custodians of public funds.

Current board member Andres Quintero, who has long opposed the Del Terra arrangements and contracts, voiced dismay about the lack of criminal charges.

“I’m disappointed that taxpayers of Alum Rock aren’t going to get the justice that they deserve,” Quintero said.

The investigation by the D.A.’s public integrity unit did find that there was a conflict-of-interest crime committed in 2014 when Del Terra, while serving as a financial consultant for bond-funded construction projects, secured $2 million in construction work with the district. About three years ago, district counsel Rogelio Ruiz warned district board members that the arrangement violated state prohibitions against self-dealing.

But that conflict-of-interest charge couldn’t be filed because the four-year statute of limitations had passed, and Del Terra, by virtue of being a consultant and not holding a government title, would have been subject to civil but not criminal penalties according to case law at the time, prosecutors said.

“Although no charges were filed, this office’s deep diligence in investigating this case speaks to its great import,” District Attorney Jeff Rosen said in a statement accompanying the announcement of his office’s decision Tuesday. “Our school districts deserve rigorous, competent, and ethical oversight over their finances.”

The fallout from the controversy led to voters in 2018 ousting board members Esau Herrera and Khanh Tran, who a county civil grand jury recommended step down for failing “to meet its governance standards and fiduciary responsibility.”

Quintero says he is now part of a three-member majority on the district school board with more critical eye on the district’s dealings, and hopes an ongoing lawsuit the district filed against Del Terra will bring some relief to families in the district.

“As long as we don’t go back, we’ll be okay,” he said.

Still, the D.A. probe did unveil new information that until had not been public. Through warrant powers that could not be exercised in audits by the California State Auditor and the state’s Fiscal Crisis and Management Assistance Team, prosecutors also discovered that the district paid Del Terra more than $200,000 in pre-construction management fees for multi-purpose rooms at Fischer Middle School and George Middle School that never went up.

“We can go back to the same spot where we did the groundbreaking and nothing ever got built,” Quintero said.

The dealings between the district and Del Terra have been plagued with scandal and alleged secret side deals, including one that was quashed in 2017.

Prosecutors used the FCMAT audit as a springboard for its investigation, and affirmed the agency’s assessment that Del Terra CEO Luis Rojas “took advantage of inexperienced board members and overworked or incompetent district staff to cause these problems.”

On one of the investigation targets, an alleged defrauding of the district by Del Terra to secure an additional $600,000 over an previously agreed-upon contract fee, prosecutors “determined that DelTerra’s questionable justifications when seeking that amendment were really matters of opinion that could not be proved false or that they were made with fraudulent intent.”

In an interview with this news organization, Deputy District Attorney Daniel Kassabian said while no one faces criminal penalties, other public boards with similar responsibilities should pay heed to what came out of the Alum Rock case. The state auditor report recommended the district have staff training for monitoring contracts identifying and addressing conflicts of interest.

“While we use consultants a lot in government these days, you don’t just hand the keys to the car, you need to follow up, and do due diligence,” he said. “Here there was a trusted program manager, responsible for a lot of money and oversight of construction, and school officials not well versed, and should have asked more questions along the way.”

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