My initial reaction is that you and your fellow members are more likely to be victims than co-conspirators. You do need to find good, competent counsel fast to conduct a major forensic audit and to be in contact with the IRS and Franchise Tax Board about the situation. Those agencies, in my experience, appreciate someone who takes the bull by the horns. The same is true of the police.
There are several excellent lawyers on Avvo that are in the Southern California area that have the requisite experience. Don't wait on this.
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Mr. Jacobson gives a very good answer. The only thing I might add is a civil action against the Manager by the Members for breach of fiduciary duty, among other causes of action.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
I agree with the previous posts. First, conduct the audit to determine the scope of the impropriety. Second, consult with a criminal attorney to determine whether you have any potential criminal liability. Third, consult with a civil attorney to determine your rights to seek reimbursement from the manager. Fourth, consult with a Tax Accountant to determine whether you might obtain an extension to file the necessary tax forms.
I am a civil attorney and could assist you with this matter. Please feel free to contact me for a free consultation (408 796-9616).
You want to end your relationship with the culprit and exonerate yourself from any activities in which that person was engaged. Police are interested in crimes but not equipped to investigate business activities. Whatever area of business is involved most likely has a state or local official assigned to monitor illegal activities. That is who you want to report the possible irregularities. You will need a lawyer to advise you, for there are action to be taken on the civil side, such as dissolving the legal entity and obtaining a final accounting. What I hope you will recognize is that you are involved in a technical legal world and need advise. The solution may turn out simple, but only if an experienced attorney reviews the matter and so advises you.
The advice provided is in good faith but not a guaranty of accuracy under all circumstances.