WASHINGTON, June 2 A Chicago charter school
operator lied to holders of $37.5 million of municipal bonds
about conflicts of interest and risked having to liquidate its
schools, the U.S. Securities and Exchange Commission said on
Monday in charging the operator with defrauding investors.
The SEC said UNO Charter School Network Inc did not admit or
deny the charges, but agreed to a settlement where it would
improve its internal procedures, including appointing an
independent monitor. The commission's enforcement division is
continuing to investigate, as well. The attorney for UNO did not
respond to requests for comment.
The charges and settlement stem from a spending scandal that
led the state of Illinois to suspend grants to UNO, which
operates 16 charter schools. The scandal also prompted the
resignation of UNO's long-serving Chief Executive Officer Juan
Rangel in December, according to the Chicago Sun-Times.
According to a complaint filed in federal court in Chicago,
UNO breached a conflict of interest provision in grants it
received from the Illinois Department of Commerce and Economic
Opportunity (IDCEO) to build three schools. It contracted with
two companies owned by its chief operating officer's brothers,
with one company installing windows for $11 million and the
other acting as an owner's representative during construction.
One of the brothers was a former UNO board member, as well, the
The bond offering document had a specific section assuring
investors of a "robust" policy against conflicts of interest,
the SEC said. UNO also failed to tell investors that the
commerce department could take back all of its grant money if
the provision was violated.
"Had IDCEO exercised its rights under the grant agreements
and recouped the entire amount of the grants, UNO would not have
had the cash to repay the grants and therefore would have had to
liquidate its charter schools - the very revenue-producing
assets essential for repayment of the bonds," the SEC said in a
For more than a year the SEC has cracked down on the $3.7
trillion U.S. municipal bond market, often using its greatest
regulatory power over tax-exempt debt - citing issuers for not
disclosing information important to bond buyers.
When it comes to charter schools, though, credit rating
agencies have led the charge. Last July Fitch Ratings said the
average charter school it rates had speculative-grade credit as
the schools, which receive charters from their local districts
to operate independently, had burdensome debt levels and
Over the course of five years, UNO received $280 million in
public money but had very little oversight from Chicago's
educational agencies, according to a profile published in
Chicago Magazine in February.
(Reporting By Lisa Lambert; Editing by Tom Brown)