The Securities and Exchange Commission has settled its fraud case with two municipal advisory firms and their executives. They are accused of using deceptive practices when trying to solicit business from five school districts in California. The advisory firms, School Business Consulting Inc. and Keygent LLC, resolved the administrative proceedings without denying or admitting to the charges.
According to the regulator, School Business Consulting gave Keygent LLC confidential information that allowed it to win municipal advisory contracts from the school districts. School Business Consulting had advised districts about their process for hiring financial professionals.
The SEC said that without the district’s consent School Business Consulting shared the confidential information with Keygent, including questions asked in interviews with the districts and what competitor candidates were proposing and charging. The Commission believes that the unauthorized disclosure of this information gave Keygent an “improper advantage” over competitors.
Municipal entities are entitled to be able to trust that their choice of a municipal advisor is not blemished by any breach of fiduciary duty. As part of the settlement, School Business Consulting will pay a $30K penalty and it has consented to a censure. The company’s president, Terrance Bradley, was ordered to pay a $20K penalty and is barred from acting as a municipal advisor. Keygent is also censured and will pay a $100K penalty. Its principals, Chet Wang and Anthony Hsieh, will pay $20K and $30K penalties, respectively.
In other municipal bond fraud news, ex-UNO Charter School Network Inc. president Juan Rangel has arrived at a settlement with the SEC for his involvement in a $37.5M bond offering to construct three charter schools. Rangel also is the ex-CEO of United Neighborhood Organization of Chicago.
The Commission claims that he was negligent when he approved and signed a bond offering statement that didn’t mention charter schools’ multi-million dollar contract with two men who were the siblings of UNO’s COO. The SEC said this was a “conflicted transaction” that could have impacted UNO’s ability to pay back bond investors. The SEC believes that Rangel approved the offering document without reading it.
UNO and the Illinois Department of Commerce and Economic Opportunity (IDCEO) had gotten into grant agreements together to construct three charter schools. Rangel signed the deals, including a requirement that there could be no conflict of interest. (A breach of the the deal requirements could result in suspension of payments to UNO and recovery of any grant monies already paid.)
The SEC said that UNO breached the agreement when it became involved in a contract with the brothers of its COO. That contract included an agreement that one brother’s window company would be paid about $11M and the other brother would get about $1.9M for services provided during construction. IDCEO was not notified about the $11M arrangement.
In 2014, the SEC settled with UNO to resolve allegations that it bilked investors over the same bond offering.