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California district misled construction bond investors, feds says

A Security and Exchange Commission investigation found that leaders in the Montebello Unified district hid serious financial and management problems when trying to sell construction bonds.

Federal investigators say senior officials in the Montebello (Calif.) Unified School District misled investors about serious financial and management problems in the district when they marketed $100 million in school construction bonds.

The Los Angeles Times reports that the actions may have resulted in more favorable interest rates, and lower costs, than the Montebello district would have otherwise received for its construction projects.

as a result of the investigation by the Securities and Exchange Commission, Montebello Supt. Anthony J. Martinez has agreed to pay a $10,000 fine. In addition, the district’s former chief business officer, Ruben James Rojas, has been charged in federal court with falsifying a number of bond documents supplied to investors.

The superintendent agreed to the fine as part of a settlement that also included the school system. Under the settlement, neither Montebello Unified nor Martinez admitted wrongdoing. But the district agreed to establish proper procedures, provide appropriate training for its employees and hire an independent consultant to review district policies and procedures.

In the legal filing, the SEC described a pattern of alleged misconduct, especially by Rojas. The filing accuses Rojas of thwarting oversight of district finances and personal allegations of wrongdoing and then painting a falsely rosy picture of district operations to investors.

Rojas played a central role in managing a $300 million school construction bond that voters passed in June 2016. So far, the district has sold $100 million of those bonds.

In that capacity, “he was ... the primary person” who supplied information through what are called “offering documents” to attorneys, underwriters and advisors for potential investors, according to the SEC.

“Rojas received, reviewed and provided edits for multiple drafts of the Offering Documents, and was the only Montebello staff member whose approval was required before any of the three Offering Documents could be disseminated to investors,” the SEC alleges.

At the time, the district was experiencing turmoil in its leadership. Martinez had recently been appointed as interim superintendent. He was later named superintendent. His predecessor, Susanna Contreras Smith, was fired by the board in November 2016, shortly after placing Rojas on leave, pending the results of an internal investigation.

The board quickly reinstated Rojas after removing Contreras Smith. She, in turn, sued the school system, along with another former senior official, Cleve Pell. Both alleged that they were targeted for attempting to blow the whistle on corruption.

In 2018, a Los Angeles County civil jury awarded Contreras Smith and Pell a combined $3.7 million.

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