Investing

SEC Settles Muni-Bond Fraud Charges With Chicago Charter School Operator

Chris Lange

Published: June 22, 2016 9:55 am

Last Updated: January 13, 2020 6:31 am

The U.S. Securities and Exchange Commission (SEC) recently announced a settlement with Juan Rangel, the former President of UNO Charter School Network and former CEO of United Neighborhood Organization of Chicago, for his role in a misleading $37.5 million bond offering to build three charter schools.

As per the agreement, Rangel agreed to pay a $10,000 penalty and to be barred from participating in any future municipal bond offerings to settle the SEC’s fraud charges. The SEC announced a settlement with UNO in 2014 for defrauding investors in the same 2011 bond offering.

The agency’s report alleged that Rangel negligently approved and signed a bond offering statement that omitted the charter schools’ multi-million-dollar contracts with two brothers of UNO’s chief operator officer, conflicted transactions that could have threatened UNO’s ability to repay bond investors.

According to the SEC’s complaint filed in U.S. District Court, in 2010 and 2011, UNO entered into grant agreements with the Illinois Department of Commerce and Economic Opportunity (IDCEO) to build three charter schools. Rangel signed the agreements, which required UNO to certify that no conflict of interest existed and to immediately notify IDCEO in writing if any conflicts subsequently arose. If UNO breached the requirements, IDCEO could suspend the grant payments and recover grant funds already paid to UNO.

The SEC further detailed in its report:

The complaint alleges that UNO breached the agreement when, at Rangel’s direction, it contracted with its COO’s brothers, agreeing to pay approximately $11 million to one brother’s window company and approximately $1.9 million to another brother for services during construction.  According to the complaint, UNO did not notify IDCEO in writing about either transaction and its offering statement disclosed only the $1.9 million contract, not the larger $11 million contract.  In addition, the offering document did not disclose that by breaching its agreement, IDCEO could seek to recover the grants, requiring UNO to liquidate its charter schools to repay them, losing the assets it depended on to repay bond investors.