JEFFREYF. ROSEN, DISTRICT ATTORNEY
1 Bar No. 163589
JOHN CHASE, DEPUTY DISTRICT ATTORNEY
2 Bar No. 152199
COUNTY GOVERNMENT CENTER, WEST WING
3 70 West Hedding Street
San Jose, California 95110
4 Telephone: (408) 299-7400
5 Attorneys for the People
SUPERIOR COURT OF CALIFORNIA
9 COUNTY OF SANTA CLARA
10 PEOPLE OF THE STATE OF ) NO.
11 ) STATEMENT OF PROBABLE CAUSE
Plaintiff, ) IN SUPPORT OF ARREST WARRANT
12 ) AND COMPLAINT
OLIVIA SOZA-MENDIOLA and )
14 BENJAMIN TAN, )
15 Defendants. )
17 I, Michael Sterner, a Lieutenant in the Bureau of Investigation of the Santa Clara County
18 District Attorney's Office, believe that the facts described herein establish probable cause for the
19 arrest and pretrial detention of Defendants OLIVIA SOZA-MENDIOLA and BENJAMIN TAN for
20 the crimes charged in the attached complaint. Therefore, I request that the Court issue arrest
21 warrants for OLIVIA SOZA-MENDIOLA and BENJAMIN TAN that they might be dealt with
22 according to law.
23 I have been employed by the Bureau of Investigation since July 2008. Before that I was a
24 police officer in the San Jose Police Department until I retired at the rank of Captain after thirty-one
25 years of service.
26 For two and a half years, I have been investigating the Mexican American Community
27 Services Agency, a community-based social services organization with offices in San Jose and
28 Gilroy, commonly known as MACSA. Specifically, I have been investigating MACSA's failure to
Statement of Probable Cause in Support of Arrest Warrant Page 1 079467
1 make required payments to employee pension plans, including PERS and STRS for its teachers and
2 school workers and 403(b) retirement plans for its other employees. I determined that the use of
3 these unremitted retirement funds to pay other financial obligations of MACSA constituted theft by
4 embezzlement of those funds and that the individuals responsible for this crime were MACSA's
5 CEO OLIVIA SOZA-MENDIOLA and CFO BENJAMIN TAN. This statement is a recitation of
6 the facts that establish probable cause for the arrest and pretrial detention of these two individuals
7 for the crime of grand theft. These facts are based on the statements of witnesses that I interviewed
8 as well as the documents that I obtained from MACSA, its pension plan providers, its outside
9 auditor, its banks, its employees, and others. More details may be found in the attachments to this
10 statement, which include my reports of witness interviews, the report of an investigator from the
11 U.S. Department of Labor, and the report of a forensic accountant.
13 The Mexican American Community Services Agency, Inc. ("MACSA") is a non-profit
14 corporation that has been providing social services to the Latino community in Santa Clara County
15 since the mid-1960's. Over the years, MACSA's services expanded from simple outreach programs
16 for children, teens, adults, and seniors offered at local schools, libraries, and community centers to
17 the operation of charter schools and the construction of senior and low-income housing. As these
18 program offerings expanded, the number of MACSA employees increased as well, from less than a
19 dozen in the early years to well over fifty during most of the last decade. MACSA's operations
20 have been funded primarily with public money, including state school funding based on average
21 daily attendance ("ADA") and other state and local grants, but also with private donations and
22 generated income.
23 In 1988, MACSA began offering a pension plan to its employees. This plan was a profit-
24 sharing type of pension plan funded entirely by employer contributions. This plan was restated in
25 1997, when MACSA selected the Variable Annuity Life Insurance Company ("VALIC") to be the
26 pension plan provider. According to the documents and amendments establishing and describing
27 this profit sharing plan, "[t]he amount of contribution made by MACSA each plan year is totally
28 within its discretion and may be zero in some years." An employee had to have worked at least
Statement of Probable Cause in Support of Arrest Warrant Page 2 079468
1 1,000 hours during a single year of service before contributions would be made for the employee.
2 Also, an employee had to have worked at least five years before his ownership of those employer
3 contributions vested.
4 In 1997, MACSA established a second pension plan, also held at VALIC, this one an
5 employee-savings type of pension plan. According to those plan documents, each MACSA
6 employee could elect to invest a portion of his or her salary in this retirement account consisting of
7 variable annuities. As an incentive to participate, the plan also provided that MACSA would
8 contribute an amount equal to 1% of the employee's salary as long as the employee contributed at
9 least 1% of salary. In addition to this matching amount, the plan provided that MACSA could make
10 additional discretionary contributions. However, the plan documents also clearly provided that
11 none of these employer contributions, matching or otherwise, were mandatory. An employee's
12 ownership of the amounts deducted from his or her own salary vested immediately, but ownership
13 of any employer contributions did not vest until the employee completed five years of employment
15 Over the years, MACSA made additional promises to its employees concerning their pension
16 benefits, which were never memorialized in the plan documents on file at VALIC. Because most
17 MACSA employees were represented by the Service Employees International Union ("SEIU"),
18 MACSA entered into a collective bargaining agreement ("CBA") that covered most of its employees.
19 The CBAs for the period from July 1, 2003 to June 30, 2009 described the VALIC pension benefits
20 as follows: "The Employer will contribute four per cent (4%) of salary of all eligible employees and
21 match employee contributions of up to an additional two per cent (2%)." Nothing in these CBAs
22 permitted MACSA to reduce, defer, or skip these employer contributions.
23 MACSA also offered a third type of retirement plan, which was available to teachers and
24 other charter school workers. In 2002, one year after opening its two charter schools, the MACSA
25 Board of Trustees voted to allow the teachers and other charter school employees to participate in
26 the Public Employees' Retirement System ("PERS") and the State Teachers' Retirement System
27 ("STRS"). PERS and STRS required regular contributions both from the employee participants and
28 from MACSA. In exchange, PERS and STRS promised to make regular payments to the employee
Statement of Probable Cause in Support of Arrest Warrant Page 3 079469
1 after retirement in an amount based on the employee's salary and years of service. Although
2 teachers and school workers were not precluded from also making contributions to the VALIC
3 pension plan, only a few employees participated in both plans.
4 To participate in the VALIC pension plan, MACSA employees completed a form entitled
5 "Section 403(b) Salary Reduction Agreement." This was essentially a contract between MACSA as
6 the "Employer" and the individual "Employee." There were blank spaces for the employee to
7 specify the amount of money to be withheld from the employee's pay and contributed to the VALIC
8 retirement plan. The form stated: "The Employer shall pay the amount of the salary reduction to
9 [VALIC] in the manner specified above for the purchase of a non-transferable annuity contract to
10 provide retirement benefits for Employee." There were also provisions about the timing of
11 contributions, the termination of the agreement, and the distributions of any excess contributions. At
12 the end of the form, there were blank spaces for the signatures of the employee and the employer.
13 The Salary Reduction Agreements were completed and signed in MACSA's human
14 resources office. Generally someone in that office signed those contracts on behalf of MACSA as
15 the employer. The same forms were also used to change an employee's contribution amount or to
16 stop contributions altogether. To change the contribution amount, the employee filled out a new
17 form with the new contribution amount and signed it. To stop contributions altogether, the
18 employee simply specified a contribution amount of zero and signed it. The executed Salary
19 Reduction Agreements were stored in the individual employee's file in the human resources office.
20 The Salary Reduction Agreements and the collective bargaining agreements refer to the
21 VALIC retirement plans as "Section 403(b)" plans, which is a type of tax-deferred retirement plan
22 that certain schools and nonprofits are able to offer their employees pursuant to Internal Revenue
23 Code section 403(b). These plans provide the same benefits and operate under roughly the same
24 rules as the 401(k) plans offered in the private sector and the 457(b) plans offered to government
25 employees. As with those other plans, there is a limit on the annual dollar amount of contributions
26 to a 403(b) account, depending upon such factors as the employee's age and length of service. The
27 primary benefit offered by all of these types of plans is that the contributions to the plan and any
28 earnings or capital gains are not taxed until the money is withdrawn, usually after retirement.
Statement of Probable Cause in Support of Arrest Warrant Page 4 079470
1 There is a large body of federal law known as ERISA (acronym for the Employee Retirement
2 Income Security Act of 1974) that regulates most employee pension plans. An employer who wants
3 to offer an employee pension plan that avoids ERISA's ambit must design the plan to conform to a
4 federal regulation that requires very limited employer involvement. (29 C.F.R. § 251O.3-2(f).)
5 When the plan includes employer contributions, however, the U.S. Department of Labor has opined
6 that the plan cannot meet the safe harbor criteria set forth in that regulation, and would therefore be
7 governed by ERISA. (See U.S. Dept. Labor, Advisory Opn. No. 97-05A (Feb. 12,1997) [1997 WL
8 75230 at p. *2].) Because both of MACSA's VALIC pension plans included employer
9 contributions, they were governed by ERISA. MACSA apparently recognized this because it often
10 filed the Annual Report Forms 5500 with the U.S. Department of Labor, as required by ERISA.
11 Under ERISA, certain pension administration and asset management duties arise, which may
12 or may not be spelled out in such documents as the CBA, the employee handbook, or other
13 documents that describe or evidence the plan. For example, numerous courts have held that when
14 employee pay is withheld for contribution to an ERISA plan, those funds are plan assets even if
15 they have not left the employer's general account, meaning that the employer holds those funds in
16 trust for the sole purpose of remitting them to the plan accounts. (See, e.g., United States v. Whiting
17 (7th Cir. 2007) 471 F.3d 792, 799; United States v. Eriksen (9th Cir. 2011) 639 F.3d 1138, 1150;
18 United States v. Grizzle (lith Cir. 1991) 933 F.2d 943,947; In re College Bound, Inc. (Bankr. S.D.
19 Fla 1994) 172 B.R. 399,403.) Moreover, under ERISA, anyone who "exercises any discretionary
20 authority or discretionary control respecting management of [an ERISA] plan or exercises any
21 authority or control respecting management or disposition of its assets" is a fiduciary with respect to
22 the plan. (29 U.S.C. § 1002(21)(A)(i).) Therefore, combining these ERISA legal principles with
23 California's law of theft by embezzlement, any person who controls funds withheld from an
24 employee's pay for contribution to an ERISA plan who fraudulently uses those funds for something
25 other than deposit into the plan account is guilty of embezzlement. (See Penal Code §§ 503, 506.)
26 MACSA employees were paid twice a month: on the 5th for the second half of the previous
27 month, and on the 20th for the first half of the month. Hourly employees were required to complete
28 timesheets and submit them to their supervisors, who approved them and turned them over to
Statement of Probable Cause in Support of Arrest Warrant Page 5 07947l
1 accounting. Salaried employees, such as teachers and managers, were required to turn in forms
2 showing any sick leave or vacation leave used during the pay period.
3 The MACSA accounting analyst in charge of payroll from 2004 until mid-2009 was Alberto
4 Hernandez. When the timesheets were received, Mr. Hernandez, or a clerk under his supervision,
5 entered each employee's hours into the computer. The computer then generated a payroll register
6 based on previously entered information about the employee's pay rate, accrued leave, elective
7 deductions, and tax withholdings. Mr. Hernandez printed out the paychecks (or direct deposit
8 receipts) and entered the net pay in MACSA's general ledger. He then delivered the paychecks
9 (with the paystubs attached) to be signed by MACSA's CEO OLIVIA SOZA-MENDIOLA.
10 Attached to every paycheck and direct deposit receipt was a paystub that summarized the
11 employee's payroll information both for the current pay period and for the year, showing gross pay,
12 net pay, sick pay, vacation pay, health and dental insurance deductions, retirement deductions,
13 employer paid benefits, payroll tax withholdings, and charitable contributions. An employee's
14 elective contribution to the VALIC pension plan was labeled "Tax Def' on the paystub under the
15 "Deductions" column. This amount was then subtracted from the employee's gross pay on the
16 paystub, reducing the net pay (and the taxable income) on the employee's paycheck. The MACSA
17 contributions to the VALIC pension plans were labeled "TaxDef 1-0" and "TaxDef 1-1" on the
18 paystub under the "Benefits" column, representing MACSA's 4% contribution and 2% matching
19 contribution respectively. These amounts were not subtracted from the employee's gross pay and
20 thus did not reduce the net pay on the employee's paycheck. Overall, the paystubs were uncluttered
21 and well-organized, so that anyone simply glancing at a paystub could see whether MACSA's
22 VALIC pension contributions were noted there and whether some of the employee's pay had been
23 withheld to make VALIC pension contributions.
24 Although Alberto Hernandez calculated payroll and printed the employee paychecks, he did
25 not make the payments to VALIC that were listed as deductions and benefits on the paystubs. That
26 job fell to Arasselli Vassallo, MACSA's accounts payable clerk. She was responsible for making
27 the payments to VALIC, as well as making all of the other payroll-related payments to government
28 agencies, financial institutions, and insurance companies.
Statement of Probable Cause in Support of Arrest Warrant Page 6 079472
1 As the accounts payable clerk, Ms. Vassallo kept track of MACSA' s financial obligations by
2 entering into MACSA's computer system all invoices from vendors and any internal payment
3 request forms. The payment request forms for VALIC were prepared by Alcides Martinez, an
4 employee in the human resources office. Each pay period, Mr. Martinez prepared a spreadsheet
5 listing all of the VALIC deductions and benefit payments shown on every employee's paystub.
6 Mr. Martinez obtained this information from the payroll register, which was provided to him by
7 Alberto Hernandez. The spreadsheet's purpose was to instruct VALIC how to allocate MACSA's
8 payment among the various employees' retirement accounts. Once the spreadsheet was completed,
9 Mr. Martinez filled out a payment request form for the total at the bottom of the spreadsheet and
10 forwarded both the form and the spreadsheet to Ms. Vassallo.
11 The payment request forms for the PERS and STRS payments were prepared by Alberto
12 Hernandez and forwarded to Ms. Vassallo. Mr. Hernandez also prepared the accompanying
13 paperwork that listed the MACSA employees who were to be credited for these payments.
14 MACSA's payments for the school workers' PERS and STRS pension plans were actually made to
15 the two school districts that sponsored the charter schools, the East Side Unified High School
16 District ("ESUHSD") and the Gilroy Unified School District ("GUSD"). These school districts, in
17 tum, forwarded MACSA' s payments and paperwork to the County Office of Education, which then
18 made the payments to CalSTRS and CaIPERS.
19 When bills and internal requests for payments were due, Ms. Vassallo did not make the
20 decision to pay them on her own. Rather, it was her regular practice to prepare an aged payables list
21 and present it to MACSA's CFO BENJAMIN TAN for review. At the same time, another MACSA
22 accountant, Reynaldo Foronda, kept BENJAMIN TAN apprised of MACSA's "actual cash
23 position," meaning the actual money available to make payments, accounting for checks shown on
24 MACSA's books but withheld for various reasons. With full knowledge of the cash available,
25 BENJAMIN TAN regularly reviewed the aged payable list and instructed Ms. Vassallo to make
26 certain payments and not to make others.
27 Acting on these instructions, Ms. Vassallo printed the approved payment checks and
28 presented them to CEO OLIVIA SOZA-MENDIOLA for signature. Sometimes BENJAMIN TAN
Statement of Probable Cause in Support of Arrest Warrant Page 7
1 instructed Ms. Vassallo to withhold certain checks even after they were printed and signed.
2 Otherwise, the signed checks were mailed to the payees. Once the checks were mailed, Ms.
3 Vassallo attached a remittance advice slip with the check information to its corresponding invoice
4 or request for payment and filed this documentation in a folder labeled with the name of the vendor.
5 When she mailed a check to VALIC, for example, she stapled the remittance advice to the
6 spreadsheet and payment request prepared by Alcides Martinez and then filed all of these
7 documents in a folder labeled VALIC.
8 In light of the process as it was described to me, the only MACSA employees in a position
9 to know whether MACSA was making the required payments to VALIC and PERS and STRS were
10 Arasselli Vassallo, BENJAMIN TAN, and OLIVIA SOZA-MENDIOLA, as well as anyone else in
11 the accounting office who happened to review financial records or overhear one of these other three
12 talking about it. No one at VALIC or CalPERS or CalSTRS knew whether the required payments
13 were being made because the plans were set up so that it was MACSA's burden to calculate, report,
14 and pay what was owed for their employees' pensions. Accordingly, no one at VALIC or CalPERS
15 or CalSTRS kept track of missed payments, sent demands, or notified employees if payments were
16 missed. Most MACSA employees had no way of knowing whether the contributions and
17 withholdings listed on their paystubs were actually remitted unless they carefully compared the
18 paystubs with the quarterly statements received from the pension plan providers. Because most
19 MACSA employees hardly glanced at their quarterly statements (as many admitted to me in
20 interviews), nearly all of them believed that MACSA was making the required retirement payments
21 as reported on their pay stubs.
23 On February 26,2009, the Gilroy Dispatch newspaper published an article entitled "Charter
24 school skims retirement money," which stated that MACSA "used $400,000 of retirement funds
25 taken out of teachers' paychecks without telling them to pay operating costs." According to this
26 article, MACSA's CEO OLIVIA SOZA-MENDIOLA admitted that "MACSA took the money
27 teachers paid toward their retirement accounts and the money that the organization would have
28 contributed and instead used it to pay operating costs." Shortly afterward, she gave similar excuses
Statement of Probable Cause in Support of Arrest Warrant Page 8 079474
1 to the employees at agency and union meetings. The newspaper article quoted MACSA's CFO
2 BENJAMIN TAN as admitting: "Technically, it's not legal."
3 On March 3,2009, the District Attorney wrote a letter requesting that the Santa Clara
4 County Office of Education ("SCCOE") undertake an audit of the charter school's finances. Six
5 weeks later the SCCOE engaged the state's Fiscal Crisis and Management Assistance Team
6 ("FCMAT") to conduct an AB 139 Extraordinary Audit of MACSA' s two charter schools in part
7 "to determine if there is evidence of illegal fiscal practices or misappropriation of employee CalPers
8 and CalSTRS payroll deductions." Ultimately, FCMAT's final report dated August 27,2009 did
9 not divulge any significant new information and did not determine who was responsible for the
10 failure to make the required retirement payments. The FCMAT report did, however, provide the
11 total amounts owed to PERS and STRS as of April 2009 according to MACSA's books: $41,400
12 for the Gilroy charter school employees and $267,909 for the San Jose charter school employees.
13 On April 20, 2009, shortly after FCMAT began its audit, the Gilroy Dispatch published a
14 new article announcing that "MACSA could have skimmed up to an additional $400,000 from its
15 non-school employees." The article attributed this information to a source at VALlC and noted that
16 MACSA did not mention this nonpayment earlier when it came clean about the failure to make
17 required PERS and STRS contributions. FCMAT did not investigate these missing VALlC
18 contributions because they were outside the scope of its audit.
19 I began my interviews in this case a few weeks after the release of the FCMAT audit report.
20 Over the next year, I interviewed representatives from FCMAT, SCCOE, ESUHSD, GUSD, and
21 SEIU. I also interviewed MACSA teachers, employees, accountants, union stewards and board
22 members. By October 2010, I had developed probable cause to believe that evidence of
23 embezzlement of retirement funds would be found in MACSA's files and on MACSA's computers.
24 On October 14,2010, I led a team of investigators on a search of MACSA's premises pursuant to a
25 search warrant. We seized 143 boxes and 110 manila envelopes containing more than 400,000
26 pages of documents, as well as hard drives from 13 computers containing more than 5,000,000 files.
27 The organization, scanning, Bates-numbering, and review of the seized documents, and the
28 forensic examination of the 13 computer hard drives took approximately one year to complete.
Statement of Probable Cause in Support of Arrest Warrant Page 9079475
1 During this time, I also obtained another computer and tens of thousands of additional pages of
2 documentation by serving search warrants on the pension plan providers, MACSA's bank, and
3 MACSA's independent auditor. Valerie Reyes, an investigator with the U.S. Department of Labor,
4 and Ed Fischer and Joseph Gavalis, forensic accountants with CTG & Associates, LLC, assisted me
5 in reviewing this evidence and conducting some of the interviews. Investigator Reyes used this
6 evidence to prepare a detailed report calculating the total amount that MACSA failed to remit to the
7 403(b) pension plans during the period from January 2003 through January 2010. Mr. Fischer used
8 this evidence to prepare a detailed forensic report of MACSA's finances during the calendar year
9 2008 to determine whether MACSA in fact had the money available to make the 403(b) pension
10 plan payments as required. I used the seized evidence to conduct a final round of witness
11 interviews beginning in November 2011, refreshing their memories with the MACSA documents to
12 add dates and other details to the events they described.
14 Analyzing the data from MACSA's computers, bank statements, and records obtained from
15 the pension plan providers, Investigator Reyes determined that during the period from January 2003
16 through January 2010, MACSA failed to remit $689,526 in employer contributions and $119,296 in
17 employee contributions to MACSA's 403(b) pension accounts. According to the spreadsheets
18 prepared by Investigator Reyes, MACSA stopped making nearly all payments to VALIC for
19 employer pension contributions in early 2004, began skipping payments to VALIC for employee
20 pension contributions in 2007, and stopped all payments to VALIC in January 2008. After January
21 2008, MACSA never made another payment to its 403(b) pension accounts until a new account was
22 established at Nationwide in March 2009. At all times, even when MACSA was not making the
23 required pension payments, the employees' pension contributions were still being deducted from the
24 employees' pay, and their paystubs still showed that both the employee and employer pension
25 contributions were being made.
26 The totals calculated by Investigator Reyes are consistent with (although not identical to) the
27 totals on a spreadsheet located among the documents seized from MACSA, which was apparently
28 created and maintained by accounts payable clerk Arasselli Vassallo as a summary of MACSA' s
Statement of Probable Cause in Support of Arrest Warrant Page 10
1 outstanding debt to VALle. According to Ms. Vassallo's spreadsheet, the amount owed by
2 MACSA as of February 15, 2009 for employer contributions was $623,753.68, and the amount
3 owed for employee contributions was $117,185.71.
4 Although Arasselli Vassallo kept track of outstanding debt, recorded vendor bills and
5 payment requests, and printed most checks, she was not responsible for deciding which bills to pay.
6 The accounting clerks Alberto Hernandez and Reynaldo Foronda both told me that MACSA's CFO
7 BENJAMIN TAN regularly instructed Ms. Vassallo to pay some bills and not pay others.
8 Elaborating on this, Mr. Hernandez said that he knew by overhearing these conversations that the
9 PERS, STRS, and VALIC payments were not being made. Ms. Vassallo herself also told me that
10 BENJAMIN TAN was usually the one who told her which bills to pay and which ones not to pay.
11 All three of these witnesses mentioned that BENJAMIN TAN sometimes instructed Ms. Vassallo to
12 hold back checks even after they had already been authorized, printed and signed. Corroborating
13 this, I've seen stubs of checks to VALIC dated as far back as 2002 and 2003 with handwritten notes
14 on them to hold the checks for months on BENJAMIN TAN's instruction. I have also seen emails
15 from BENJAMIN TAN instructing Ms. Vassallo to pay certain bills and not pay others.
16 Sometime in 2004, according to Ms. Vassallo, BENJAMIN TAN told her to start paying
17 only the employee contributions to VALle. BENJAMIN TAN told Ms. Vassallo that MACSA was
18 not obligated to pay the employer contribution. In order to pay only the employee contributions to
19 VALIC, Ms. Vassallo photocopied the paperwork provided to her by Alcides Martinez. One copy
20 of the paperwork was used to reflect the payment to VALIC for the employee contributions and was
21 ultimately filed in the VALIC "paid" folder. The other copy of the paperwork was used to record
22 the amount of the employer contribution that was left unpaid. This copy was filed in the
23 outstanding debt folder. The partial payments to VALIC were also noted in the computer, so that
24 the amount still owed to VALIC for the employer contribution was preserved in the system as
25 outstanding debt.
26 Ms. Vassallo, Mr. Foronda, and Mr. Hernandez all told me that they believed that the
27 retirement payments were not being made because MACSA did not have the money to make those
28 payments. According to several accounts, this was also the excuse that CEO OLIVIA SOZA-
Statement of Probable Cause in Support of Arrest Warrant Page 11
1 MENDIOLA gave at agency and union meetings when the problem came to light in early 2009. To
2 further investigate this issue, Ed Fischer conducted a forensic analysis of MACSA's finances to
3 determine whether MACSA truly did not have the money to make the required pension payments.
4 Because of the large volume of transactions, Mr. Fischer limited his analysis to the calendar year
5 2008, a year when MACSA made only two payments to VALIC. Those two payments were made
6 in January 2008 for employee contributions withheld a year earlier in January 2007.
7 After the first quarter of 2008, according to Mr. Fischer's forensic report, MACSA had more
8 than enough money in its bank account at the end of each month to have made the required
9 payments to VALIC for current employer and employee contributions. There were even months in
10 2008 when MACSA had the money to pay the current amount plus all of the past due employee
11 contributions to VALIC. Even during the first three months of 2008, when cash was tighter,
12 MACSA had the money to make the required VALIC payments, but instead paid less important
13 obligations, such as $1,000 for a YMCA membership, $7,000 for computers from Fry's Electronics,
14 $1,200 for FUTSAL tournament fees, more than $7,000 for food from local supermarkets, and more
15 than $13,000 for office supplies from Office Depot. During the year 2008, the total payments owed
16 to VALIC each month averaged no more than $15,000, only about $5,000 of which represented the
17 money withheld from the employees' paychecks. Thus, in 2008 at least, it was not true that
18 MACSA did not have the money to make the required VALIC payments. Rather, BENJAMIN
19 TAN elected to use this money, including money withheld from employees' paychecks, to pay for
20 other things, such as sports, food, computers, and office supplies.
21 The following table shows the money thatMACSA had available in the bank at the end of
22 each month in 2008:
24 2008 MONTH MACSABOOKS WITHHELD AND
JANUARY -$ 52,924.78 $ 12,202.40
FEBRUARY -$135,313.34 -$ 44,097.49
MARCH -$159,961.01 -$ 94,833.83
Statement of Probable Cause in Support of Arrest Warrant Page 12
APRIL $ 3,711.40 $ 91,642.72
MAY $ 3,738.08 $ 14,405.93
JUNE $ 41,308.25 $ 52,907.14
JULY $ 47,993.91 $ 59,952.80
AUGUST $270,286.44 $285,337.83
SEPTEMBER $ 33,745.60 $ 45,487.06
OCTOBER $ 75,936.52 $ 87,768.98
8 NOVEMBER $136,492.36 $148,393.00
9 DECEMBER $359,052.07 $371,184.53
11 The center column of this table shows what MACSA' s own books listed as the cash available at the
12 end of each month. MACSA's books, however, did not reflect all the cash available, because many
13 checks listed as outstanding in MACSA's books were never actually mailed out. In fact, among the
14 seized MACSA records, Mr. Fischer found more than $50,000 worth of original checks printed and
15 signed in 2007 that were never actually detached from their stubs and sent out. These checks were
16 carried on MACSA's books in the first four months of 2008, making it appear that there was less
17 cash available than there really was. These withheld checks were not reversed out of the books
18 until May 2008. Additionally, there were other checks recorded in MACSA's books as outstanding
19 that were no longer negotiable because they were more than 180 days old. Mr. Fischer adjusted the
20 MACSA book balances to reflect these realities and reported MACSA's true end-of-month cash
21 positions in the column on the right. It should be noted that accounting clerk Reynaldo Foronda,
22 when interviewed, stated that he was aware of this very issue, and that he kept BENJAMIN TAN
23 regularly informed of MACSA' s true cash position, adjusting the book balances to reflect checks
24 that were issued but not mailed.
25 As CFO, BENJAMIN TAN had full control over the money in MACSA's bank accounts,
26 including that portion of the money withheld from the employees' paychecks each month to pay for
27 taxes, health benefits, union dues, and pension benefits. The employees agreed to reduce their
28 paychecks by these amounts because they trusted that those persons in control of MACSA' s money
Statement of Probable Cause in Support of Arrest Warrant Page 13
1 would make those payments timely and in full. BENJAMIN TAN was the one who decided which
2 bills to pay and which not to pay, and it was he who instructed Arasselli Vassallo to not make the
3 required payments to CaIPERS, CaISTRS, and VALIC. Although several witnesses suggested that
4 BENJAMIN TAN may have stopped making these retirement payments because there was not
5 enough money, the forensic examination of MACSA's finances shows that the payments were not
6 made even when MACSA had plenty of available cash in the bank. Instead of making retirement
7 payments, BENJAMIN TAN used this money, including money deducted from employees' pay, to
8 pay other debts and buy other things for MACSA. Although BENJAMIN TAN declined to be
9 interviewed for this investigation, when he was asked by the Gilroy Dispatch about the failure to
10 make required pension payments, he admitted, "Technically, it's not legal."
11 As CEO and the sole signer on the vast majority of MACSA checks, OLIVIA SOZA-
12 MENDIOLA had full control over the money in MACSA's bank accounts as well as supervisory
13 authority over CFO BENJAMIN TAN. The MACSA board meeting minutes disclose that OLIVIA
14 SOZA-MENDIOLA was present for almost all of MACSA's monthly board meetings from January
15 2004 until June 2009, when she resigned. Because she was the CEO, she received copies of the
16 board meeting packets whether she attended the meetings or not. The monthly board meeting
17 packets often included the monthly financial reports prepared by BENJAMIN TAN. Corroborating
18 this, I have seen an email dated as early as February 20,2004 from OLIVIA SOZA-MENDIOLA
19 asking BENJAMIN TAN to provide her with a hard copy of the January 2004 monthly financial
20 report that he had forwarded to her electronically. That particular financial report contained the
21 following note: "The agency's portion of the retirement funds is not being paid as well." This
22 exact note also appeared in the February, March, and April monthly financial reports, which I
23 believe were included in the board meeting packets for the March, April, and May 2004 board
24 meetings, respectively. Similar notes also appeared in other board meeting packets, such as the
25 February and April 2007 monthly financial reports. These notes about MACSA's failure to make
26 pension payments very likely appeared in many other monthly financial reports, but I could not
27 verify this because most board meeting packets were missing from the materials seized from
28 MACSA pursuant to the search warrant.
Statement of Probable Cause in Support of Arrest Warrant Page 14 079480
1 Although the notes in the financial statements mention only the employer portion of the
2 pension payments, there is also evidence that OLIVIA SOZA-MENDIOLA knew that MACSA had
3 stopped paying the employee portion as well. In fact, the evidence suggests that OLIVIA SOZA
4 MENDIOLA knew this in advance because she suddenly stopped her own personal retirement plan
5 contributions only months before MACSA completely stopped making payments to VALIC for
6 employee pension contributions. Although OLIVIA SOZA-MENDIOLA did lose some of her own
7 contributions to VALIC, due to a large lag time between the payments to VALIC and the related
8 pay dates, she still managed to avoid tens of thousands of dollars in losses by getting out as early as
9 she did. As CEO, her foreknowledge and failure to intervene, not to mention her self-protective
10 measures, clearly imply that she consented to the decision to stop remitting employee contributions
11 to VALIC.
12 MACSA's payroll records show that OLIVIA SOZA-MENDIOLA made payroll
13 contributions to the VALIC pension plan every pay period from 2003 until mid-2007, when she
14 suddenly stopped contributing anything. From April 2004 to December 2006, she contributed $566
15 per pay period, which is $1,132 per month. Starting in January 2007, she increased her contribution
16 to $833 per pay period, or $1,666 per month, which works out to $20,000 per year. In the year
17 2007, MACSA had long since stopped making employer pension payments to VALIC, but it
18 continued to make payments for employee pension contributions through August 2007, although
19 most were late payments for 2006 employee contributions. On June 28, 2007, OLIVIA SOZA-
20 MENDIOLA filled out the forms to reduce her personal VALIC pension contribution to $0. After
21 OLIVIA SOZA-MENDIOLA stopped her personal pension contributions, MACSA made only
22 sporadic payments to VALIC until January 2008 when MACSA stopped paying VALIC altogether.
23 After January 2008, MACSA never made another payment to VALIC despite the fact that VALIC
24 continued to be MACSA'~ pension plan provider until at least February 2009, when MACSA set up
25 a new plan at Nationwide. In fact, MACSA did not make payments to Nationwide either, until
26 August 2009, almost two months after OLIVIA SOZA-MENDIOLA resigned from MACSA.
27 Consistent with this circumstantial evidence, a number of witnesses told me that OLIVIA
28 SOZA-MENDIOLA confessed her involvement in the decision to stop remitting retirement
Statement of Probable Cause in Support of Arrest Warrant Page 15 07948l
1 contributions. Two SEIU representatives who represented MACSA employees told me that, in
2 meetings in March and April 2009, OLIVIA SOZA-MENDIOLA admitted to those present that she
3 and BENJAMIN TAN together had made this difficult decision. Aurora Cepeda told me that when
4 she questioned this decision after the fact, OLIVIA SOZA-MENDIOLA told her, "Well I did not
5 want to lay people off." Ms. Cepeda recalled the March meeting mentioned by the SEIU employees
6 and said that OLIVIA SOZA-MENDIOLA told those present that she made the decision in order to
7 keep people employed. Another MACSA employee told me about a February 2009 meeting of
8 charter school workers at which questions were posed about the missing PERS and STRS
9 contributions and OLIVIA SOZA-MENDIOLA responded that BENJAMIN TAN was not the only
10 one to blame-that it had been a uniform decision to keep the organization alive.
11 More troubling than the fact that OLIVIA SOZA-MENDIOLA knew and approved of the
12 decision to stop retirement payments is the fact that she personally benefited financially by stopping
13 her own withholdings without notifying the other MACSA employees so that they could do the
14 same. Although she declined to be interviewed for this investigation, OLIVIA SOZA-MENDIOLA
15 proclaimed to the newspaper and MACSA's employees that the employees' retirement money was
16 used to save programs. On the contrary, it appears that the employees' retirement contributions
17 were used in part to pay for raises that she received and the increase in her own net salary that
18 resulted when she stopped her contributions to VALle. By stopping her pension contributions,
19 OLIVIA SOZA-MENDIOLA caused her net pay to increase by $522 per pay period. She also
20 received two 3% pay raises during the time that MACSA was not remitting employee pension
21 contributions to VALIC: one effective July 1, 2007 and one effective July 1,2008. Because net
22 payroll was given the highest priority at MACSA, these increases to OLIVIA SOZA-MENDIOLA's
23 net pay were at least some of what was paid with the employee pension contributions that were
24 withheld but not remitted to VALle. It was not until November 1,2008, when the union and a few
25 individuals were beginning to grasp the extent of the pension problems, that OLIVIA SOZA-
26 MENDIOLA and other upper managers at MACSA finally took a 25% pay cut. By that time,
27 OLIVIA SOZA-MENDIOLA had already received at least $20,000 in extra take-home pay since
28 June 28, 2007 when she stopped her own pension contributions. During this time OLIVIA SOZA-
Statement of Probable Cause in Support of Arrest Warrant Page 16
1 MENDIOLA was aware, because she signed the paychecks with the paystubs still attached, that
2 VALIC pension contributions were still being deducted from the pay of her fellow employees and
3 that these unremitted employee pension contributions were helping to fund her extra take-home pay.
4 It should be noted that MACSA's CFO BENJAMIN TAN suffered no personal financial
5 loss due to the decision to stop making payments to VALle. Because BENJAMIN TAN was paid
6 as an independent contractor, not an employee, he did not participate in the employee pension plans.
7 In fact, BENJAMIN TAN negotiated a higher rate of pay for himself by pointing out that MACSA
8 did not incur the cost of paying such benefits for him. BENJAMIN TAN ensured that MACSA
9 paid his own invoices at this higher rate of pay even as he was instructing Arasselli Vassallo not to
10 make payments for benefits or for employee pension contributions. As a result, BENJAMIN TAN
11 was one person at MACSA who never lost any of his own pay even when money was tight.
12 Once I recognized the significance of OLIVIA SOZA-MENDIOLA's stopping her personal
13 pension contributions, I examined the records of some other MACSA employees to see whether any
14 others had terminated their personal pension contributions with suspiciously convenient timing. I
15 discovered that MACSA's human resources director Aurora Cepeda stopped her personal pension
16 contributions of $150 per pay period on November 30,2007. Ms. Cepeda regularly represented
17 MACSA management at labor-management meetings where problems with retirement payments
18 were often discussed. When interviewed, however, Ms. Cepeda denied that her decision to stop
19 contributing to the pension plan had anything to do with these retirement payment problems.
20 Although her denial is difficult to believe, there is no evidence that Ms. Cepeda controlled the
21 money in MACSA's bank accounts or that she participated in the decision to stop making
22 retirement payments.
23 The other MACSA management representative who attended most labor-management
24 meetings was COO Xavier Campos. According to several witnesses and MACSA records, Mr.
25 Campos also regularly attended meetings of the board of trustees and the executive team. The
26 board meeting minutes indicate that Mr. Campos took a lead role in the effort to sell real property
27 owned by MACSA in part to satisfy past due pension obligations. Thus, Mr. Campos was almost
28 certainly aware that MACSA had failed to make at least some pension payments.
Statement of Probable Cause in Support of Arrest Warrant Page 17
1 Two witnesses that I interviewed speculated that Mr. Campos must have participated in the
2 decision not to pay VALIC because he was a member of MACSA's executive team and attended
3 the executive team meetings. Apart from this speculation, however, I did not find any evidence that
4 Mr. Campos actually participated in the decision to not make required pension payments. It also
5 does not appear to have been his job at MACSA to make decisions about which bills to pay.
6 Moreover, I noticed that Mr. Campos continued to have his personal pension contributions deducted
7 from his pay for more than a year after OLIVIA SOZA-MENDIOLA stopped her deductions.
8 Mr. Campos did not stop his own retirement contributions of $100 per pay period until
9 August 2008, meaning that he personally lost $2,500 in unremitted pension contributions for pay
10 periods after June 28, 2007 when OLIVIA SOZA-MENDIOLA stopped her own contributions. At
11 around the same time that Mr. Campos stopped his contributions, several MACSA administrative
12 employees, including Arasselli Vassallo, Alberto Hernandez, Reynaldo Foronda, and Alcides
13 Martinez, also stopped their pension contributions. Moreover, it was only a month later that SEnJ
14 lodged a formal complaint about MACSA's failure to make payments to VALIC, which it did by
15 amending a June 2008 grievance about MACSA's failure to make PERS and STRS payments.
16 Thus, the timing of Mr. Campos' termination of his pension contributions suggests that he became
17 aware of the seriousness of the problem at about the same time as the union and these other
18 MACSA employees, which in turn suggests that Mr. Campos did not participate in the initial
19 decision, made a year earlier, to stop the required pension payments.
20 Lastly, I looked into whether any member of MACSA' s board of trustees is criminally liable
21 for the failure to make required pension payments. I interviewed several trustees and reviewed the
22 board meeting minutes looking for board action, or even discussion, concerning this issue.
23 Although one trustee admitted knowing as early as 2007 that MACSA was behind in making
24 pension payments, and I found financial reports in board meeting packets dated as early as 2004
25 mentioning this issue, I did not find evidence of any action taken by the board authorizing or
26 condoning MACSA's failure to make required pension payments. I did see board meeting minutes
27 indicating that as early as 2007 the board of trustees took action to explore the possible sale of
28 MACSA's buildings to payoff millions of dollars of debt, including missed payments to VALIC,
Statement of Probable Cause in Support of Arrest Warrant Page 18
1 STRS and PERS. However, these discussions and votes appear to have been the board's effort to
2 correct past actions by MACSA's executive team, not an endorsement or approval of those prior
3 actions. Because the board did not have direct control over MACSA's money and there is no
4 evidence of any action taken to endorse or approve the decision to stop making retirement
5 payments, it does not appear that the board members are criminally responsible for the actions taken
7 Based on all ofthe above evidence, there is probable cause to believe that BENJAMIN TAN
8 and OLIVIA SOZA-MENDIOLA embezzled hundreds of thousands of dollars from the employees
9 of MACSA and their pension plans between January 1, 2004 and June 30, 2009, in violation of
10 Penal Code section 487, subdivision (a). Accordingly, I request that the Court issue warrants of
12 I declare under penalty of perjury that the foregoing is true and correct.
Statement of Probable Cause in Support of Arrest Warrant Page 19 079485