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People v. Selivanov

California Court of Appeals, Second District, Fourth Division

November 17, 2016

THE PEOPLE, Plaintiff and Respondent,
v.
YEVGENY SELIVANOV et al., Defendants and Appellants. THE PEOPLE, Plaintiff and Appellant,
v.
YEVGENY SELIVANOV et al., Defendants and Respondents

         [As modified Dec. 13, 2016.]

          APPEALS from judgments of the Superior Court of Los Angeles County, No. BA372244, Stephen A. Marcus, Judge.

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         COUNSEL

         Jackie Lacey, District Attorney, Roberta Schwartz, Serena R. Murillo and Matthew Brown, Deputy District Attorneys, for Plaintiff and Appellant.

         Kaplan Marino, Nina Marino and Allen G. Weinberg for Defendant, Appellant and Respondent Tatyana Berkovich.

         Crowell & Moring, Jeffrey H. Rutherford and Nimrod Haim Aviad for Defendant, Appellant and Respondent Yevgeny Selivanov.

         Young, Minney & Corr, Paul C. Minney, William J. Trinke, Kevin M. Troy; California Charter Schools Association, Ricardo J. Soto, Julie Ashby Umansky and Phillipa L. Altman for California Charter Schools Association as Amicus Curiae on behalf of Defendants, Appellants and Respondents.

         Kamala D. Harris, Attorney General, Gerald A. Engler, Chief Assistant Attorney General, Lance E. Winters, Assistant Attorney General, Michael C. Keller and Eric J. Kohm, Deputy Attorneys General, for Plaintiff and Respondent.

         Collins, J., with Epstein, P. J., and Manella, J., concurring.

          OPINION

          COLLINS, J.

          [210 Cal.Rptr.3d 126] --Spouses Yevgeny " Eugene" Selivanov and Tatyana Berkovich founded a charter school, Ivy Academia, in 2003. In 2006, the Los Angeles

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Unified School District (LAUSD), which issued Ivy Academia's charter, conducted a random audit of the school's finances. The audit revealed several irregularities, prompting a further investigation that ultimately resulted in the filing of a 33-count information charging Selivanov and Berkovich with numerous financial crimes. After a five-week trial, a jury convicted Selivanov and Berkovich of felony embezzlement (Pen. Code, § 504)[1] and felony misappropriation of public moneys (§ 424, subd. (a)). The jury further convicted Selivanov of felony false accounting of public moneys (§ 424, subd. (a), money laundering (§ 186.10) and filing false tax returns (Rev. & Tax. Code, § 19705, subd. (a)). In addition, as to Selivanov, the jury found true the allegation that the total losses associated with six of the embezzlement counts exceeded $65,000. (§ 12022.6, subd. (a)(1).)

         Selivanov and Berkovich each moved for a new trial. The trial court granted the motions as to all of their convictions for misappropriation and false accounting of public moneys under section 424, subdivision (a), on the ground that it improperly had instructed the jury that the funds involved were public moneys. The court sentenced Selivanov to a total of four years eight months in state prison, and sentenced Berkovich to formal probation on the condition that she serve 45 days in county jail. Both defendants were ordered to pay fines, fees, and restitution.

         Selivanov and Berkovich appeal. They jointly challenge one of their embezzlement convictions on several grounds, including sufficiency of the evidence and the [210 Cal.Rptr.3d 127] trial court's failure to give a unanimity instruction. They also seek reversal based on the court's failure to instruct the jury to determine whether the amount embezzled exceeded $950, and whether the embezzled funds were public funds within the meaning of section 514. Both defendants also contend the court erred by failing to consider proffered juror declarations when setting their restitution. Selivanov separately challenges the sufficiency of the evidence underlying his other convictions. He also challenges the court's failure to instruct the jury on the claim-of-right defense, the admission of certain accounting documents, and several aspects of the restitution order.

         As we explain more fully below, we conclude the trial court erred in making the public funds finding but affirm defendants' convictions because the error was harmless. We do, however, direct the trial court to strike from Selivanov's restitution order the joint and several obligation to pay $22,396.60 in restitution to Ivy Academia in connection with his embezzlement conviction in count 2, and strike from Berkovich's restitution order any language making Selivanov jointly and severally liable for it. As modified, the judgments of the trial court are otherwise affirmed in full.

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         The Los Angeles County District Attorney (the People) filed a cross-appeal challenging the trial court's grant of defendants' motions for new trial of the section 424 counts. In their opening brief, the People contend the trial court relied on outdated case law to conclude that the jury was required to determine whether a charter school is a district; they do not challenge the validity of the actual basis for the court's ruling, its jury instruction on " public moneys." In their reply, however, the People argue that the trial court's actual basis for granting the motion was erroneous. They urge us to excuse their oversight, reverse the trial court's rulings on the motions for new trial, and reinstate the guilty verdicts on all of the section 424, subdivision (a) counts affected by the motions. We decline their invitation to do so and affirm the trial court's order granting defendants' new trial motions.

         PROCEDURAL HISTORY

         On May 4, 2011, the People filed a 33-count information charging defendants with various financial crimes.[2] Counts 1, 3, 5, 7, and 39 charged both defendants with misappropriating public moneys. (§ 424, subd. (a).) Each of those misappropriation counts was paired with a charge of embezzlement in excess of $950. (§ 504; counts 2, 4, 6, 8, and 40, respectively.) The information also charged both defendants with filing false personal income tax returns in violation of Revenue and Taxation Code section 19705, subdivision (a) (counts 27-31).

         Selivanov alone was charged with five additional counts of misappropriating and falsely accounting for public moneys. (§ 424, subd. (a); counts 9, 11, 18, 21, and 24.) Four of those counts (9, 18, 21, and 24) were paired with a count of embezzlement in excess of $950 stemming from the same conduct. (§ 504; counts 10, 19, 22, and 25, respectively.) Three of those misappropriation-embezzlement count pairs--18 to 19, 21 to 22, and 24 to 25--were further supplemented with a related count of money laundering (§ 186.10, subd. (a); counts 20, 23, and 26.) The information also alleged that Selivanov alone filed false business income tax [8');">210 Cal.Rptr.3d 128] returns. (Rev. & Tax. Code, § 19705, subd. (a); counts 32-36.) Berkovich alone was charged with one count of conflict of interest (Gov. Code, § § 87100, 91000; count 38).

         The information further alleged, with respect to the misappropriation, embezzlement, and money laundering charges in counts 1 to 8, 18 to 26, and 39 to 40, that defendants took, damaged, and destroyed property of a value exceeding $65,000 within the meaning of section 12022.6, subdivision (a)(1).

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With respect to most of the embezzlement counts, including all of those sounding against Berkovich, namely counts 2, 4, 6, 8, 10, 19, and 40, the information alleged that the funds embezzled were " public funds" within the meaning of section 514.

         Embezzlement and misappropriation counts 3 to 6 and 9 to 10 were dismissed pursuant to defendants' section 995 motions following the preliminary hearing. The court later dismissed the conflict of interest charge against Berkovich (count 38) pursuant to the People's motion under section 1385. Defendants pleaded not guilty to the remaining charges and denied all of the special allegations.

         Defendants were tried jointly before a jury in February and March 2013. On April 5, 2013, the jury found Selivanov guilty of seven counts of misappropriating or falsely accounting for public moneys (counts 1, 7, 11, 18, 21, 24, and 39), six counts of embezzling in excess of $950 (counts 2, 8, 19, 22, 25, and 40), two counts of money laundering (counts 23 and 26), and 10 counts of filing false tax returns (counts 27-36). The jury acquitted Selivanov of a third money laundering charge (count 20) but found true the special allegation that, as to counts 2, 8, 19, 22, 25, and 40, Selivanov in the aggregate took money exceeding $65,000 within the meaning of section 12022.6, subdivision (a)(1).

         The jury found Berkovich guilty of two counts of misappropriating public moneys (counts 1 and 39), one count of embezzling in excess of $950 (count 2), and five misdemeanor tax counts that were lesser included offenses of the charged felony tax violations (counts 27-31). The jury acquitted Berkovich of one additional count of misappropriation (count 7) and two additional counts of embezzlement in excess of $950 (counts 8 and 40). It also found not true the special allegation that she embezzled in excess of $65,000 within the meaning of section 12022.6, subdivision (a)(1). The court later dismissed Berkovich's misdemeanor tax convictions at the People's request, pursuant to section 1382.

         Selivanov and Berkovich each moved for a new trial. The court granted the motions as to the misappropriation and false accounting counts charged under section 424, subdivision (a) (counts 1, 7, 11, 18, 21, 24, and 39) and denied the motions in all other respects.

         At sentencing, at the People's request and over defendants' objections, the court found that " this case involved public funds" within the meaning of section 514, the statute setting out the punishment scheme for embezzlement offenses. The court later denied defendants' motions to strike the finding.

         The court sentenced Selivanov to a total of four years eight months in state prison, calculated as the high term of three years on one of the embezzlement

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counts (§ 504; count 8); an additional year for the enhancement on that count (§ 12022.6, subd. (a)); and eight months, one-third the midterm, on one of the money laundering counts (§ 186.10, subd. (a); count 26). The court imposed concurrent terms on all other counts of conviction. After a contested restitution hearing, the court ordered Selivanov to pay a total of $271,795.11 in restitution. [210 Cal.Rptr.3d 129] Of that amount, $227,896.11 was payable to Ivy Academia: $126,654.73 was assessed in connection with count 40; $66,795.96 was assessed in connection with counts 8, 19, 22, and 25; and a total of $34,445.42 was assessed in connection with count 2. The remaining $43,899 of Selivanov's restitution was payable to the Franchise Tax Board in connection with the tax convictions in counts 27 to 36. The court also ordered Selivanov to pay a restitution fine of $5,000 and imposed and suspended a $5,000 parole revocation restitution fine.

         The court sentenced Berkovich to five years' formal probation, on the condition that she serve the first 45 days in county jail. The court also ordered her to perform 320 hours of community service. The court found Berkovich jointly and severally liable with Selivanov for $22,396.60 in restitution in connection with her sole conviction for embezzlement (count 2). The court ordered Berkovich to pay a $1,000 restitution fine.

         Both defendants timely appealed. The People also timely appealed the court's grant of defendants' new trial motions. The appeals were consolidated for oral argument and decision.

         FACTUAL BACKGROUND

          This case concerns obfuscatory and complex financial transactions and accounting procedures. In the interest of clarity and brevity, we recite immediately below the facts underlying the charged conduct, organized topically. Additional facts pertinent to the legal issues raised on appeal will be discussed as necessary in connection with those issues.

         I. Ivy Academia

         This case centers on defendants' conduct in their capacities as the founders and operators of a charter school, Ivy Academia. Charter schools are " public schools funded with public money but run by private individuals or entities rather than traditional public school districts." ( Today's Fresh Start, Inc. v. Los Angeles County Office of Education (2013) 57 Cal.4th 197, 205 [159 Cal.Rptr.3d 358, 303 P.3d 1140');">303 P.3d 1140].) Though operated independently, charter schools are subject to public oversight. ( Id. at p. 206.)

         Selivanov was the executive director of Ivy Academia. Berkovich initially served as the school's principal and later became its president. Both defendants continuously served on Ivy Academia's governing board of directors.

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         A. Founding and Corporate Organization

         In October 2003, defendants filed a petition to establish Ivy Academia with the Charter School Division of the Los Angeles Unified School District (LAUSD), which oversees charter schools. LAUSD approved the petition, authorizing Ivy Academia to begin operations the next fiscal year, July 1, 2004, through June 30, 2005. After the charter was approved, Selivanov incorporated Alternative Schools, Inc., a nonprofit public benefit corporation, to operate and do business as Ivy Academia. Selivanov also filed a fictitious business name statement identifying Ivy Academia as a fictitious name of Alternative Schools, Inc.

         Defendants also owned another business entity, Academy Just for Kids, LLC (AJFK). Selivanov changed the name of that business to EGeneration, LLC, in April 2005.

         B. Funding and Finances

         1. Charter School Funding Generally

         According to prosecution witness Aaron Eairleywine, the central business advisor [210 Cal.Rptr.3d 130] for LAUSD's charter school division, Ivy Academia was considered a public school entitled to receive state funds and federal funds that flow through the state. Eairleywine and Patricia Smith, a representative of the Los Angeles County Office of Education's finance department, testified that the allocations from the state are " designed to fund the educational activities," " instructional program," and general operation of charter schools. Funding is based on charter schools' average daily attendance and is distributed primarily in the form of categorical and general purpose block grants. According to Eairleywine and Smith, categorical and general purpose block grants are considered unrestricted funds that may be spent " for the overall operation of the agency and its purpose" --i.e., for school or educational purposes. Eairleywine and Smith further testified that charter schools also receive restricted grants and other funds that must be spent for particular purposes, such as purchasing supplies, reducing class sizes, or paying for standardized testing. They both noted that LAUSD does not train charter school operators on the proper use of categorical or general purpose block grant funds.

         According to Eairleywine, money usually does not begin flowing from the state to a new charter school until after the school begins operating. But new charter schools need funds at their inception to secure facilities, pay staff, and prepare the school for students. For that reason, Eairleywine explained, LAUSD requires charter schools to demonstrate access to funding in their initial petitions. Some charter schools obtain these initial funds through grants or philanthropic gifts. Others, like Ivy Academia, use loans.

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         2. The Start-up Loan

         Ivy Academia obtained a $250,000 loan from the State Department of Education. Ivy Academia also obtained a loan from Selivanov and Berkovich, referred to at trial as the " start-up loan." Ivy Academia's governing board approved the start-up loan in August 2004. It documented receipt of the start-up loan by issuing a three-year, unsecured promissory note payable to Selivanov in the amount of $250,000, plus 9 percent interest.

         Despite the personal nature of the loan and language in the promissory note making it payable to Selivanov personally, the start-up loan was booked in the " Due to Academy" account in Ivy Academia's QuickBooks accounting software. " Academy" referred to defendants' business entity AJFK, Academy Just for Kids. The Due to Academy account was one of three QuickBooks accounts recording amounts owed to Selivanov, Berkovich, and their business entities. The other two, " Due to Management" and " Due to EGeneration," will be addressed below.

         The amount initially entered in the Due to Academy account on September 30, 2004, was approximately $397,000, though both the promissory note approved by the board and the audited financial statements Ivy Academia submitted to LAUSD reflected a loan of only $250,000. A few weeks later, on October 19, 2004, Ivy Academia made a $300,000 payment to AJFK, reducing the amount owed in the Due to Academy account to approximately $97,000. However, this payment appeared on Ivy Academia's audited financial statements as a payment of only approximately $74,000. The only people with access to Ivy Academia's QuickBooks accounting software were Selivanov and the school's bookkeeper, Marina Pilyavskaya. Pilyavskaya, who testified under a grant of immunity, testified that she did not do the books for defendants' other business entities.

          [210 Cal.Rptr.3d 131] The People charged Selivanov with falsifying the accounting of public moneys in connection with the discrepancies in the documentation of the start-up loan and its repayment (§ 424, subd. (a); count 11).

         3. Deferred Salaries

         During the first year of Ivy Academia's operation, the school did not have funds available to pay salaries to Selivanov and Berkovich. Ivy Academia's governing board voted to defer payment of the salaries, plus 9 percent interest, until the school's finances improved. Pilyavskaya entered the deferred salaries owed--$100,000 to Selivanov and $80,000 to Berkovich--into another QuickBooks account, Due to Management. The amount owing in the Due to Management account increased to $230,000 after the board approved

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bonuses for both Selivanov and Berkovich. Ivy Academia regularly made payments to defendants to offset the interest accruing on the Due to Management account, but did not make formal salary payments against this account until April 2008, when it issued Selivanov a check for $18,000. The Due to Management account reflected two additional salary payments to defendants in 2008 (another $18,000 to Selivanov and $10,000 to Berkovich) and two to each defendant in 2009. Each defendant received a check for $11,000 in April 2009, and the Due to Management account reflected that. The other salary payment each defendant received in 2009--a check for $7,000--was documented in the Due to Management account as a payment of only $1,727.80. No further salary payments were documented in the Due to Management account until early 2011, after the board voted to pay down the salary still owed to defendants in regular increments. The balance of the Due to Management account reached zero in July 2011.

         4. Financial Oversight

         Like other charter schools authorized by LAUSD, Ivy Academia was subject to examination and audits by the LAUSD Charter School Division. Eairleywine testified that charter schools are required to submit preliminary budgets, interim reports, and annual audits to the Charter School Division in addition to undergoing on-site reviews. Charter schools also are required to hire independent auditors, selected from a list approved by the state controller's office, to prepare annual audited financial statements. Although it complied with these requirements, Ivy Academia was the subject of a random audit in 2006. That audit led to a lengthy investigation that resulted in the criminal charges at issue here. While the investigation was ongoing, in 2008, LAUSD approved Ivy Academia's petition to renew its charter.

         II. American Express Charges and Expenditure of Public Funds

         Selivanov and Berkovich each had an Ivy Academia American Express credit card. The People alleged that defendants' use of their American Express cards constituted misappropriation of public moneys (§ 424, subd. (a); count 1) and embezzlement of public funds (§ § 504, 514; count 2).

         Pilyavskaya testified that she was responsible for processing the defendants' charges. When she received the monthly American Express bill, she would prepare expense reports and request receipts supporting defendants' purchases. Pilyavskaya attached the receipts to the expense reports and gave

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them to Boardmember Arthur Sarkisian for approval.[3] Sarkisian [210 Cal.Rptr.3d 132] approved the expense reports and then returned the reports and accompanying receipts to Pilyavskaya, who kept them in her office.

         During LAUSD's investigation of Ivy Academia, LAUSD financial analyst and forensic accountant Connie Delos Santos[4] reviewed Pilyavskaya's American Express records. Delos Santos prepared a spreadsheet showing all charges made to the Ivy Academia American Express account from January 2005 through January 2010. She highlighted each charge she deemed " questionable" or " disallowed" based on her online research into public school spending, her general understanding of the types of purchases that have school purposes versus those that are " personal in nature," and an LAUSD meal policy. The charges Delos Santos deemed " questionable" totaled $34,445.42.

         According to Delos Santos, the " questionable" charges made on Selivanov's American Express card totaled $12,048.82. These charges included $48.71 for flowers purchased on Valentine's Day and booked into the " Office Supply" account in Ivy Academia's QuickBooks; $59.94 for a business meeting at Crazy Tokyo on a Friday night at 9:48 p.m., booked as utilities and housekeeping; and $135.89 at Cheesecake Factory on a Saturday afternoon for a business meeting. The " questionable" charges on Berkovich's American Express card totaled $22,396.60. They included $67.38 for two " Welcome Baby" floral arrangements, booked as other office supplies; two $42.45 floral arrangements for Councilman Jack Weiss, booked as teacher appreciation; $631.38 at Things Remembered, booked as maintenance supplies; $100 for a Crate and Barrel gift card, also booked as maintenance supplies; $995 for a " Tax secrets seminar by Patrick James," booked as other professional development; and various items purchased at Costco, including a Speedo bathing suit, shrimp scampi, and Pull-Ups training pants. Both defendants also repeatedly charged hundreds of dollars at bowling alleys and restaurants for " teacher appreciation" events, at least one of which included the purchase of alcohol.

         Defendants did not reimburse Ivy Academia for any of these charges, though Pilyavskaya testified that Berkovich sometimes wrote " no" or " mine" on receipts to indicate items that were not purchased for the school. Defendants did not reduce the amount owed to them in the Due to Management

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account by documenting their " questionable" purchases there, and they did not report the purchases as income on their personal income taxes. According to former Ivy Academia principal Christina Desiderio, however, Berkovich boasted that her Ivy Academia credit card was " unlimited" and stated that she wanted to open more charter schools because " it could make you a millionaire."

         The independent auditors who prepared financial statements for Ivy Academia included a note in their 2006 report that " there was a problem with the credit card use," including inadequate explanations for charges, and expenditures that " appeared to be personal in nature." Prosecution witness Michael Atkinson, a senior investigator with LAUSD's office of the inspector general, testified that the audit paperwork included a notation that " Selivanov had fought with them about having that information removed from the audit report" and another reminding the auditors to " closely review their use of credit cards to [210 Cal.Rptr.3d 133] see if these deficiencies have been corrected."

         Both the prosecution and the defense presented witnesses who testified about the standards governing spending by charter schools. All of the witnesses generally agreed that public moneys or funds received by charter schools must be spent on educational or school purposes. The witnesses differed, however, on whether or under what conditions certain expenditures met that standard. Eairleywine and Smith testified that gifts for teachers and staff, and " activities for the pleasure of faculty and teachers and staff such as bowling," would not be permissible under any circumstances, and that " after hours dinners off campus" would " probably not" constitute proper expenditures of charter school funds. Defense witnesses Caprice Young, founder of the California Charter Schools Association; [5] Eric Premack, executive director of the Charter Schools Development Center; and Roger Lowenstein, the founder and director of a charter school, all testified that such expenditures could be appropriate. Premack added that a charter school would need to have " reason to believe that it helps the school achieve its instructional goals," and Lowenstein agreed that charter schools have a duty to guard public funds.

         III. Rent Increase

         In June 2004, defendants' other business entity, AJFK, entered into a 10-year sublease agreement with J & N Amoroso Family Investments, LLC, for a property to use as Ivy Academia's campus. Under the sublease, which Selivanov and Berkovich personally guaranteed, AJFK agreed to pay rent of $18,390 per month for a 24,520-square-foot building on De Soto Avenue in

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Woodland Hills. The rent was adjustable, but increases were pegged to the Consumer Price Index and capped at 5 percent per year.

         Without the knowledge of landlord J & N Amoroso Family Investments, AJFK assigned the sublease to Alternative Schools, Inc. (Ivy Academia), on September 1, 2004, for a period of two years. Ivy Academia moved into the De Soto Avenue building shortly thereafter. Under the terms of the sublease assignment, Ivy Academia became jointly and severally liable for AJFK's obligations under the sublease, including the monthly rent of $18,390 per month.

         On October 2, 2008, more than two years after the original sublease assignment expired, Selivanov presented the Ivy Academia board with a proposal to approve another assignment and assumption of the sublease. The new " Assignment Assumption of Lease" would be " made as of July 1st, 2007 by and between Academy Just For Kids (EGeneration LLC) ... and Alternative Schools Inc. ... for a period of seven years." Under the terms of Selivanov's proposed Assignment Assumption of Lease, Alternative Schools, Inc. (Ivy Academia), would agree " to make a monthly payment to [AJFK/EGeneration], or its designee, in the amount of $43,870.05 for the use of the facility and lease guarantees." [6] The monthly rent was scheduled to [210 Cal.Rptr.3d 134] increase 5 percent each year on July 1. Selivanov presented to the board a " Broker Opinion of Value" prepared by real estate brokerage firm Lee & Associates. That opinion stated that the reasonable fair market value of monthly rent for the approximately 27,000-square-foot building " in its current condition and existing use" as of October 28, 2007, was approximately $1.75 per square foot, triple net, or $47,250.

         Defendants recused themselves from voting on the Assignment Assumption of Lease. The remaining two board members who were present decided the substantial rent increase it contained " was an appropriate risk that the school was taking" and approved the Assignment Assumption of Lease. However, one of them, Alex Kauffman, testified at the preliminary hearing that he never

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reviewed the original sublease. Selivanov signed the undated Assignment Assumption of Lease on behalf of AJFK/EGeneration, and board treasurer Arthur Sarkisian--who had been absent from the meeting at which the proposal was presented and approved--signed on behalf of Ivy Academia.

         According to Kauffman's preliminary hearing testimony as read at trial, the board discussed " the fact that Ivy's monthly payment is only 90% of the fair market value of the facilities as determined by Lee & Associates and the school has just rented [a] new high school facility at $1.75 per square foot in tremendous competition with another charter school." [7] Kauffman further testified that the board also viewed the rent increase as the fair market value of the " constant risk" defendants assumed when they obtained a loan from Western Commercial Bank to improve the premises. (See IV. Western Commercial Bank Loan, post, at pp. 744-746.)

         LAUSD investigator Michael Atkinson testified that the effect of the board's approval of the Assignment and Assumption of Lease was an increase in the monthly " rent that Ivy Academia has to pay from [$]18,390 per month to $43,870.05 per month," an increase of approximately $25,480 per month, or nearly 139 percent. The total net amount of increased rent owed from the agreement's effective date of July 1, 2007, through June 2, 2008, was approximately $237,000. This amount--$237,000--was entered into Ivy Academia's Due to EGeneration QuickBooks account as a liability to EGeneration on June 30, 2008, roughly three months before the board was apprised of and approved the Assignment and Assumption of Lease on October 2, 2008.

         Jason Amoroso, a real estate attorney involved with the original sublease between J & N Amoroso Family Investments and AJFK, testified that the fair market value of the De Soto Avenue property was that originally agreed upon: $18,390 per month, increasing each year in step with inflation. He also testified that he was not aware that AJFK ever assigned the lease to Ivy Academia. QuickBooks printouts introduced by defendants showed that Ivy Academia continued to pay J & N Amoroso Family Investments the originally agreed upon rent even after the increase was approved by the board and booked [210 Cal.Rptr.3d 135] into Ivy Academia's QuickBooks. Amoroso, however, testified that " we received checks from Ivy Academia[,] EGeneration, various entities ... and they stated they were involved with the school."

         Prosecution witness James Balbin, a certified public accountant, opined that the rent increase was a " sham transaction" that was " just absurd." He

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further testified that there was " no business purpose to increase the lease payment due on this rent." Defense expert Jan Goren, a certified public accountant, countered that the rent increase reflected various business risks: the risk that defendants would need to satisfy their guarantee on the original sublease, the risk that they would have to remove various leasehold improvements from the premises, and the risk that Ivy Academia could lose its charter.

         Selivanov presented testimony from Robert Gutzman, a real estate appraiser. Gutzman conducted a historical appraisal of the property, which he determined to be 27,854 square feet. Gutzman testified that the property was worth approximately $1.66 per square foot, or $46,125 per month, as of July 1, 2007, and approximately $1.70 per square foot, or $47,250 per month as of October 1, 2008.

         The People alleged that certain payments made to EGeneration after the rent increase constituted both misappropriation of public funds (§ 424, subd. (a); count 7) and embezzlement of public funds (§ § 504, 514; count 8).

         IV. Western Commercial Bank Loan

         In June 2006, Alternative Schools, Inc. (Ivy Academia), obtained a five-year, $500,000 loan from Western Commercial Bank to finance " phase two remodeling" of the De Soto Avenue premises from a warehouse into a school. In August 2006, the loan amount was increased to $600,000.

         In March 2009, when the outstanding balance of the loan stood at $390,000, Selivanov asked Western Commercial Bank to change the borrowing entity on the loan from Alternative Schools, Inc., to EGeneration, LLC. According to former Western Commercial Bank underwriter Jennifer Irrizary, Selivanov made the request because he needed some additional write-offs. The bank effectuated the change on March 20, 2009. Both defendants signed in their capacity as managers of EGeneration, and Selivanov personally guaranteed the loan.

         Just as the rent increase was documented in Ivy Academia's QuickBooks months before it was presented to and approved by the board, changes to the loan were entered into Ivy Academia's QuickBooks long before Western Commercial Bank formally transferred the loan to EGeneration. According to prosecution witnesses Atkinson, Delos Santos, and Balbin, Ivy Academia's QuickBooks documented an " asset sale" on July 1, 2007, when the loan had an outstanding balance of $520,000. According to those witnesses, the asset sale consisted of EGeneration's assumption of responsibility for the $520,000 loan balance in exchange for Ivy Academia's transfer of $520,000 worth of

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improvements on the De Soto Avenue property to EGeneration. The property improvements were not physically transferred to EGeneration, because Ivy Academia was using them on its campus. However, the property improvement assets were removed from Ivy Academia's balance sheet and transferred to EGeneration's along with the loan liability. Delos Santos and Franchise Tax Board special agent Rigoberto Salazar both testified that EGeneration claimed a depreciation deduction for the assets on its 2007 limited liability company return of income taxation form.

          [210 Cal.Rptr.3d 136] The asset sale transaction was presented to and approved by the Ivy Academia board on October 2, 2008, concurrently with the rent increase. The board minutes, which the parties stipulated were admissible as business records, state that the board " noticed that the sale of assets is beneficial to Ivy as it allows the school to strengthen its balance sheet, while EGeneration LLC will only be able to recognize about 30c on $1 benefit from this purchase through the depreciation of assets." The board accordingly approved the transaction, which was documented in the same Assignment Assumption of Lease that effectuated the rent increase. As noted above ( ante, fn. 6), a single sentence in the one-page Assignment Assumption of Lease contained both provisions. That sentence stated that Ivy Academia " agrees to sell to [EGeneration] $520,000 of tenant improvements, in return [EGeneration] agrees to assume $520,000 of [Ivy Academia's] bank loan from Western Commercial bank, and ... [Ivy Academia] agrees to make a monthly payment to [EGeneration], or its designee, in the amount of $43,870.05 for the use of the facility and lease guarantees; this payment will increase 5% every July 1st."

         After liability for the loan was transferred from Ivy Academia to EGeneration, Ivy Academia continued to make loan payments directly to Western Commercial Bank. According to Delos Santos and Pilyavskaya, these payments--totaling $126,654.73--were recorded in Ivy Academia's QuickBooks as rent payments. Pilyavskaya agreed on cross-examination that payments on the loan were recorded as rent payments " as of at least August 16th of 2008," predating both board approval of the asset sale transaction (Oct. 2, 2008) and the formal transfer of the loan to EGeneration (Mar. 2, 2009), but postdating the putative effective date of the asset sale transaction (July 1, 2007).

         After the rent increase, Ivy Academia owed $43,870.05 in rent per month. That amount, less that month's payment to J & N Amoroso Family Investments and the loan payment to Western Commercial Bank, was documented in the Due to EGeneration account each month as a liability Ivy Academia owed to EGeneration. According to defense expert Goren, this arrangement was a consequence of the " or its designee" clause in the Assignment Assumption of

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Lease the board approved on October 2, 2008: " [Ivy Academia] agrees to make a monthly payment to [EGeneration], or its designee, in the amount of $43,870.05 for the use of the facility and lease guarantees ... ." Goren explained that, after the rent increase, Ivy Academia owed $43,870.05 in rent to EGeneration each month. However, EGeneration named J & N Amoroso Family Investments and Western Commercial Bank as its designees to which Ivy Academia should make monthly payments in partial satisfaction of the total increased rent. In other words, Ivy Academia would pay some portion of the $43,870.05 rent to J & N Amoroso Family Investments, and another portion to Western Commercial Bank, at EGeneration's behest. Any remaining amount owed beyond those two payments each month was booked as a liability in the Due to EGeneration account. There is no documentary evidence formalizing these designations.

         The People alleged that the loan payments Ivy Academia made after transferring the loan to EGeneration constituted both misappropriation of public moneys (§ 424, subd. (a); count 39) and embezzlement of public funds (§ § 504, 514; count 40).

         V. Transfers of Funds to EGeneration

         As noted above, Ivy Academia had three QuickBooks accounts recording amounts [210 Cal.Rptr.3d 137] owed to Selivanov, Berkovich, and their business entities: Due to Management, Due to Academy, and Due to EGeneration. The latter two accounts, which documented debts to both the former (AJFK) and current (EGeneration) names of defendants' other business entity, were consolidated in Ivy Academia's QuickBooks in June 2008. After that point, the Due to Academy account was zeroed out.

         Because the Due to Academy and Due to EGeneration accounts were eventually consolidated, and because AJFK and EGeneration were the same entity, prosecution witnesses treated these two accounts as one for purposes of determining the balance Ivy Academia owed to AJFK/EGeneration and, ultimately, Selivanov and Berkovich, the owners of that entity. Even though the Due to Management account also reflected money owed to defendants (their deferred salaries), neither the Ivy Academia QuickBooks nor the prosecution combined the Due to Management account with the Due to Academy or Due to EGeneration accounts. Defense expert Jan Goren opined that all three accounts should have been considered together because the amounts owed to defendants' business entities ultimately were owed to defendants personally.

         Prosecution witnesses Atkinson and Delos Santos testified that the combined balance of the Due to Academy and Due to EGeneration accounts reached zero on August 1, 2007, meaning that, at that point, Ivy Academia no longer owed money to AJFK and/or EGeneration. Ivy Academia subsequently

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made three large monetary transfers to EGeneration, however: $25,000 on August 1, 2007, $20,000 on November 19, 2007, and $20,000 on December 1, 2007. Shortly after the $25,000 transfer, EGeneration issued a $24,000 check to Selivanov, leaving EGeneration with a total of $1,540.65 in its bank account. Before the first $20,000 transfer in November 2007, EGeneration's bank account balance dipped to $46.80. Following that transfer, EGeneration wrote a $7,000 check to Selivanov. Atkinson testified that absent the $20,000 transfer from Ivy Academia, EGeneration would not have had enough money to make the $7,000 payment. EGeneration's bank account balance slipped to $3,386.53 before the final $20,000 transfer in December 2007; shortly after that payment was deposited into its bank account, EGeneration issued two checks totaling $15,300.

         On April 1, 2008, the balance in the Due to EGeneration account was negative, meaning that EGeneration owed money to Ivy Academia. Ivy Academia nevertheless issued a $5,000 check to EGeneration that day.

         The Due to EGeneration account balance was still negative on June 30, 2008. On that date, however, a liability of $237,000 was added to the account, turning its balance positive; now, the account showed that Ivy Academia owed $208,623 to EGeneration. The $237,000 liability was the total net amount of increased rent Ivy Academia owed from the effective date of the rent increase, July 1, 2007, through June 30, 2008. This additional liability was added to Ivy Academia's QuickBooks three months before the rent increase was presented to and approved by the board.

         After the balance of the Due to EGeneration account was bolstered by the addition of the retroactive rent liability, Ivy issued a series of small checks to EGeneration. On September 24, 2008, Ivy Academia issued a $5,000 check to EGeneration. It subsequently issued three additional checks to EGeneration: a $5,000 check on October 1, 2008, a $3,000 check on December 20, 2008, and a $5,000 check on March 16, 2009.

          [210 Cal.Rptr.3d 138] While all of the aforementioned transfers to EGeneration were being made, the amount owed to defendants as reflected in the Due to Management account remained unchanged at approximately $230,000. Prosecution witnesses Atkinson, Delos Santos, and Balbin and defense witness Goren all agreed that the amount due to defendants as documented in the Due to Management account exceeded the total amounts Ivy Academia transferred to EGeneration in 2007 and 2008. The balance of the Due to Management account was not reduced when any of the transfers to EGeneration were made, however, or at any time prior to 2008 and 2009, when Ivy Academia made several deferred ...


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