School Officials and Advisors Indicted For Securities Fraud

April 1, 2017

by Richard Michael
California School Bonds Clearinghouse

In the biggest round-up of its kind in history, 343 California school superintendents, 242 chief business officers, and 546 governing board members were arrested today by U.S. Marshals around California, swept up in a massive securities fraud investigation.

School officials were not the only ones targeted as 85 lawyers (bond counsel) and 62 financial advisors who participated in the planning and issuance of securities and disclosure documents connected with over $15 billion in local school bonds over the last three years.

No one could be reached at Jones Hall, the leading bond counsel in California could be reached for comment.

Jon Isom, of Isom Advisors, a leading financial advisor, was visibly upset as he was brought to the Federal Court House in Los Angeles were specially assigned magistrates were on hand for arraignments.

The charges include multiple felonies for false statements in bond disclosure documents.

The arrests resulted from a joint investigation by the Securities and Exchange Commission and the Federal Bureau of Investigation surrounding the pay-to-play scandal surrounding disgraced former Clovis Unified superintendent and former Coalition for Adequate School Housing (C.A.S.H.) chair Terry Bradley. The investigation quickly expanded to other districts connected with C.A.S.H. and Bradley's business associates.

State Superintendent of Public Instruction Tom Torlakson said that this couldn't have a occurred at a worse time, in the middle of a school year, and with school districts around the state finally having found religion with their sanctuary policies.

State Treasurer John Chaing, who is running for governor in 2018, was not surprised. "The lack of oversight and misuse of bond funds has been on our radar for some time," he said.

Details of the just unsealed indictments revealed that the school officials and their advisors knowingly conspired to mislead investors into believing that the funds would be used for "construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities." The disclosure documents quoted the California constitution, but did not reveal that the measures that authorized the bonds explicitly or implicitly provided that the funds would be used for all kinds of school operating costs and administrator salaries.

The securities charges may not be the end of the troubles for the school officials targeted in the investigation. Under California statutes, the misuse of public resources by public employees is a felony as well. It's unclear at this time how much of the bond funds were actually put to a prohibited use.

In addition, accountancy firms that audited performed financial and performance audits under Proposition 39 may be facing charges with respect to audits that overlooked the misuse of the bond funds for projects that were not specifically listed in the measures that authorized the bonds.

Californian's can rest easier tonight knowing their criminal public employees and their partners in crime will eventually receive the justice they deserve.