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Sweetwater Union High School District, ex-CFO charged with misleading investors in SEC complaint

Posted at 1:27 PM, Sep 16, 2021
and last updated 2021-09-16 20:17:45-04

(KGTV) – The Securities and Exchange Commission filed a complaint Thursday that charges the Sweetwater Union High School District and its former chief financial officer, Karen Michel, with “misleading investors who purchased $28 million in municipal bonds.”

In a news release, the SEC said: “… in April 2018, Sweetwater and Michel provided investors with misleading budget projections that indicated the district could cover its costs and would end the fiscal year with a general fund balance of approximately $19.5 million, when in reality the district was engaged in significant deficit spending and on track to a negative $7.2 million ending fund balance. The order finds that Michel managed the bond offering for the district and was aware of reports showing that the projections were untenable and contradicted by known actual expenses. Nevertheless, as stated in the order, Sweetwater and Michel included the projections in the April 2018 bonds' offering documents and also provided them to a credit rating agency that rated the district, while omitting that the projections were contradicted by internal reports and did not account for actual expenses. Additionally, the complaint alleges that Michel signed multiple certifications falsely attesting to the accuracy and completeness of the information included in the offering documents.”

Michel is charged with violating Section 17(a)(3) of the Securities Act of 1933.

SEC officials added, “Without admitting or denying the allegations in the complaint, Michel agreed to settle with the SEC and to be enjoined from future violations of the charged provision as well as from participating in any future municipal securities offerings. She also agreed to pay a $28,000 penalty. The settlement is subject to court approval. Sweetwater also agreed to settle with the SEC and consented, without admitting or denying any findings, to the entry of an SEC order finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, and requiring it to engage an independent consultant to evaluate its policies and procedures related to its municipal securities disclosures.”

A district spokesperson sent ABC 10News the following statement regarding the SEC announcement:

“Sweetwater Union High School District (the ‘District’) has entered into a settlement agreement with the U.S. Securities and Exchange Commission (the “SEC”), resolving a previously announced investigation into disclosures made in connection with the 2017–18 budget and an April 2018 General Obligation bond offering. This settlement resolves all outstanding SEC claims against the District, and represents another positive step in the District’s ongoing remedial efforts to continuously evaluate and improve its fiscal health. As required by the SEC’s order, the District neither admits nor denies the findings or charges in the order.

Under the terms of the settlement, the District has agreed to retain an independent consultant, who will review and make recommendations to the District’s written policies and procedures regarding the District’s municipal securities disclosures. The District looks forward to implementing the improvements and changes outlined in the SEC’s order. It will continue to take steps to ensure it provides accurate disclosures and information to the public.”

The Sweetwater Union High School District has faced financial troubles dating back to September 2018, when they self-reported a $30 million budget shortfall.

District officials had attributed the shortfall to factors such as declining student enrollment and declining revenue, and not financial mismanagement.

Over the years, budget issues have resulted in district-wide teacher/staff cuts, the elimination of bus routes and the reduction of bus service, class size increases, and the ending of some school programs.

In June 2020, an audit conducted by an independent California fiscal agency found that the district may have committed fraud or misappropriated funds.