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SEC charges UNO with defrauding investors, warns probe 'not done'

Fred Klonsky comment:
Fred bills his blog as Daily posts from a retired public school teacher who is just looking at the data.

UNO charter schools charged with securities fraud. All of Chicago is not surprised.

Chicago's largest charter school operator is UNO. At the time of the fraud UNO's boss was Juan Rangel, Rahm's 2011 campaign chairman.

To the surprise of absolutely no one, the United Neighborhood Organization, was charged today with defrauding its charter school investors.


The Securities and Exchange Commission on Monday announced it had charged charter school operator UNO with defrauding investors in a $37.5 million bond offering for school construction work by failing to disclose conflicts of interest.

The SEC alleged that UNO Charter School Network had failed to disclose a multimillion dollar contract with a windows company linked to one of its top executives, Miguel d’Escoto.

The average working man or woman in Chicago would not be surprised at this point to read that the organization once headed by the campaign chairman for Rham Emanuel would be charged with something.

However some might be surprised that things like charter schools have investors that can be defrauded.

But that's because they haven't been paying attention.

Rahm, Rauner, and Rangel want schools to be run like a business.

It is just that the business they are thinking of is Enron.

Where is the Justice Department? Why not federal indictments?

How were Rahm and Squeezy involved?

Susan Ohanian Comment:

Here's the part that stunned me.

Federal government officials say UNO leaders have agreed to settle the case against it by promising to never again enter into crony contracts and accepting the appointment of a federal monitor to oversee the group's operations for a year.

If a man is caught robbing a bank, do authorities let him off the hook if he promises never again to rob banks?

Is this how justice works in Chicago? In this country?

The Sun-Times reports this is believed to be the nation's biggest subsidy for charter schools. And when they commit fraud they're told, "Promise not to do this again."

from the Sun-Times

Dan Mihalopoulos

The federal government charged the clout-heavy United Neighborhood Organization and its charter-school network Monday with defrauding investors in a $37.5 million bond deal by "making materially misleading statements" about contracts that funneled millions of state taxpayer dollars to organization insiders.

The civil allegations from regulators with the U.S. Securities and Exchange Commission center on contracts the Chicago-based UNO gave to a window company owned by a brother of the group's then-senior vice president, Miguel d'Escoto.

SEC officials say the charter network should have told investors in a 2011 bond offering that it had hired Reflection Window Co., owned by Rodrigo d'Escoto, and that the contracts worth $11 million were awarded in violation of UNO's grant agreement with the state.

The Chicago Sun-Times first reported in February 2013 that UNO had used taxpayer funds from its state school-construction grant to pay Reflection Window and d'Escoto Inc., a construction-management firm owned by another d'Escoto brother.

Federal government officials say UNO leaders have agreed to settle the case against it by promising to never again enter into crony contracts and accepting the appointment of a federal monitor to oversee the group's operations for a year.

But they added that their investigation is continuing.

"We're not done," said Peter Chan, the assistant regional director for the SEC's municipal securities and public pensions unit in Chicago. "We're taking action right now, but with regard to other parties that may have contributed to UNO's securities violations, the investigation continues. So charges against others, including individuals, are possible."

The complaint against UNO filed Monday in U.S. District Court in Chicago appears to point blame squarely at Juan Rangel, who was the longtime chief executive of the UNO Hispanic community group and president of the charter schools that the organization created and managed across the city.

Rangel was co-chairman of Mayor Rahm Emanuel's 2011 mayoral campaign and also had built close relationships with state House Speaker Michael Madigan (D-Chicago) and powerful Ald. Edward Burke (14th) during nearly 16 years as UNO's leader.

Legislation sponsored by Madigan and signed by Gov. Pat Quinn in 2009 promised $98 million to help UNO build new charter schools, which are run privately but rely heavily on Chicago taxpayers to fund operations at 16 schools with more than 7,500 students.

While UNO was busy expanding its charter chain with unprecedented state support, the organization's school network borrowed more than $37.5 million from Wall Street bond investors in 2011. The statement that the UNO schools issued to potential investors in the bond offering "assured investors of the strength of its 'conflicts policy' and also disclosed its engagement" of d'Escoto Inc. as owner’s representative on the school-construction projects, according the SEC complaint.

But the document did not reveal that UNO had hired Reflection Window. The SEC says bond investors should have been told about the contracts with the firm and with d'Escoto Inc. because they violated conflict-of-interest provisions in the state grant agreement.

Under the grant deal -- believed to be the nation's biggest subsidy for charter schools -- UNO officials were required to notify the Quinn administration that they had hired companies with ties to the organization. They did not do that.

The state could have asked UNO to return tens of millions of dollars that already had been spent on building schools.

"UNO would not have had the cash to repay the grants and therefore would have had to liquidate the very revenue-producing assets (i.e., its charter schools) essential for repayment of the bonds," according to the SEC complaint.

The state has given UNO $83 million of the $98 million it was promised five years ago.

The federal government also pointedly notes in the complaint that Rangel approved the contracts with the d'Escoto brothers' companies and signed the official statement to potential bond investors on UNO's behalf.

And the complaint cites allegedly false comments Rangel made during a conference call in March 2013, when he sought to re-assure bond investors who expressed concern about the scandal involving the insider deals.

Rangel, who quit his $250,000-a-year post as UNO's leader in December, could not be reached for comment.

According to the SEC, UNO and its charter schools are represented in the case by Mary Pat Burns of the Chicago law firm of Burke, Burns & Pinelli Ltd., which has close ties to Madigan and served as bond counsel to the charter network in the 2011 deal at the heart of the federal charges. Burns did not return calls.

The underwriters for the bond deal were Milwaukee-based Robert W. Baird & Co. and Cabrera Capital Markets LLC of Chicago.

Cabrera's founder and chief executive, Martin Cabrera Jr., briefly served as UNO's chairman last year, promising to work with Rangel to reform the group in the wake of the contracting scandal. But Cabrera quit after less than three months at the helm, with the SEC investigation underway.

— Dan Mihalopoulos
Chicago Sun-Times





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