Federal prosecutors opened an investigation into a Southern California school district’s unusual ties to a boarding school in China after a Business Insider report on the arrangement, records show.
The status of the probe that began in late 2023 is unclear. A highly critical audit, also prompted by Business Insider’s reporting and released last week by state education authorities, has been referred to the local district attorney.
Business Insider’s 2021 investigation brought attention to the cozy relationship between the Val Verde Unified School District, top current and former state education officials, and Pegasus California School, a private school in Qingdao, China, that charges students thousands of dollars a year in tuition.
Less than a week after the story was published, the Riverside County Office of Education contacted the Fiscal Crisis and Management Assistant Team, a state agency, to conduct an audit of the issues.
County education officials later said in court papers that they were concerned that diplomas issued by Val Verde to Pegasus students violated state code, “and that there may have been fraud, misappropriation of funds, or other illegal fiscal practices” associated with the partnership.
Verde Unified School District via records request; Samantha Lee/Business Insider
The Riverside office sued FCMAT in May 2024, alleging its investigation was shoddy. Court papers reveal that it also referred the matter to the US Attorney’s Office for the Central District of California “so that it, and other federal agencies, would investigate the Pegasus Diploma Program for potential criminal prosecution.”
As of May 2024, the investigation was active, with a county education official interviewed a month earlier, the suit says. Ciaran McEvoy, a spokesperson for the federal prosecutors’ office, declined to comment on whether it’s still open.
Alex Sponheim, a spokesperson for Val Verde, said that the district was never contacted by the Justice Department.
In February 2025, a judge ordered that FCMAT’s reports into Pegasus stay under wraps after the Riverside County Office of Education argued the “surface-level investigation” could “negatively impact” further investigations into potential misconduct.
A month later, the office retained the Los Angeles-based law firm Larson LLP to examine the ties between Val Verde and Pegasus. That scathing audit found “sufficient evidence” of “fraud, misappropriation of funds, or other illegal fiscal practices.”
Stephen Larson, a partner at Larson LLP and the author of the report, told Business Insider in a statement that the audit “raises serious concerns about academic integrity, taxpayer fraud, and may even implicate national security.”
“We found that a California public school district improperly issued diplomas to students in China,” Larson said, adding that “the broader record shows those California credentials may have been used to create false legitimacy for students seeking entry into American universities.”
Yan Cong for Business Insider
The diploma program was halted, but Pegasus remains open and, according to its website, is accredited by the nonprofit organization Cognia.
The audit said the Western Association of Schools and Colleges wouldn’t accredit Pegasus because it didn’t meet its standards. Pegasus states on its site that it was founded “with the blessing and support of the California Department of Education.”
Cognia did not immediately respond to a request for comment. The California Department of Education previously told Business Insider that it “will not stand for any misuse of public funds and supports any investigation into this matter. California diplomas are for California students.”
A spokesperson for the Riverside County District Attorney’s Office told Business Insider that it couldn’t comment on possible investigative matters. A spokesperson for the State Controller’s office, which oversees fiscal matters for the state, confirmed that their office had received a copy of the audit report and is reviewing it to determine appropriate actions.
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