SEC launches informal inquiry into LAUSD's use of bonds for iPads

The federal SEC has opened an informal inquiry into LAUSD's use of bonds for its iPad project

The federal Securities and Exchange Commission recently opened an informal inquiry into whether Los Angeles school officials complied with legal guidelines in the use of bond funds for the now-abandoned $1.3-billion iPads-for-all project.

In particular, the agency was concerned with whether the L.A. Unified School District properly disclosed to investors and others how the bonds would be used, according to documents provided to The Times.

District officials said they were optimistic that they had addressed the SEC concerns.

The news of the SEC inquiry came the same week that L.A. Unified officials demanded a refund from computer giant Apple over curriculum supplied on the devices by Pearson, which sells education services and materials worldwide. Pearson was a subcontractor to Apple under a contract approved by the Board of Education in June 2013.

That fall, problems immediately plagued the rollout of devices to campuses, and questions soon arose about whether Apple or Pearson had an unfair advantage in the bidding process. An ongoing criminal investigation by the FBI is looking into that matter. Current and former district officials have denied any wrongdoing.

Apple has not responded to requests for comment. Pearson has consistently defended its actions, including on Thursday, when top executive Michael Barber said that L.A. students would benefit if the district stayed the course with the company's product.

The SEC declined to comment and does not, by policy, confirm or deny investigations. L.A. Unified acknowledged meeting with an agency attorney.

The federal agency is charged with protecting investors and maintaining fair, orderly and efficient markets. Its enforcement division frequently looks into "misrepresentation or omission of important information about securities," according to the commission.

With the help of an outside law firm, L.A. Unified prepared a presentation, dated March 31, that outlined measures it took to inform the public and potential investors about how the taxpayer-approved bond funds would be spent.

"LAUSD was transparent regarding the program and its funding," and all necessary disclosures were made to the public, underwriters, rating agencies and investors, the district told the SEC representative.

The district also distinguished between the L.A. Unified bonds and different types of bond debt that are issued under other disclosure rules.

The L.A. Unified general obligation bonds are paid back over time through property taxes. Projects funded by the bonds have no role in generating revenue to investors, the district said.

"The particular use of the bond proceeds is not material," the district wrote.

California law allows school construction bonds to be spent on technology; districts also list the intended uses of bond funds in ballot materials available to voters.

L.A. Unified clearly designated funds for technology, but did not mention tablets. At the time of the district's most recent bond issue, in November 2008, iPads were still two years away from entering the marketplace.

But officials have maintained that tablets are a modern equivalent of the traditional computer lab and therefore a legal and appropriate use of bond funds.

A separate question has been whether the district acted properly in using bond funds to purchase curriculum on the devices. But that issue was not part of the district's presentation.

School board member Bennett Kayser said Thursday that legal questions regarding use of the bonds were not sufficiently examined before the project moved forward.

"I wish the SEC had looked into this over a year ago," Kayser said.

(Kayser did not participate in the original discussion or vote on the contract because he owned a small amount of Apple stock. He sold his holdings and emerged as a project critic, although he later voted to purchase additional devices for schools and for testing.)

The district's demand for a refund came in the form of a letter sent Monday to Apple.

L.A. Unified bought 43,261 iPads with the Pearson curriculum. The curriculum added about $200, for a three-year license, to the total price of $768 for each device. (The district purchased another 77,175 iPads under the contract without the Pearson curriculum to be used initially for state standardized tests.)

Pearson offered only a partial curriculum during the first year of the license, which was permitted under the agreement.

The product has not caught on in L.A. Unified. Only two schools of 69 with the devices use Pearson regularly, according to an internal March report from project director Bernadette Lucas.

The report cited a litany of complaints, including content that could not be fully adapted for students with limited English skills, a large group in L.A. Unified. The district also claims the curriculum lacks important features such as online tests and data on how and when students are using it. Another problem has been getting access to the online curriculum quickly and consistently.

Barber, Pearson's chief education advisor, acknowledged that there have been difficulties and said that Pearson, Apple and the district shared responsibility as partners in the effort. But he added that Pearson was willing to work through such issues.

With such sweeping change, "you're going to have glitches. You're going to run into challenges," he said. In the long run, he predicted, Pearson's product could help "transform teaching and learning."

"Once you get used to using these materials," he said, students and teachers would find them "very engaging, very empowering."

The iPad project was pushed by then-Supt. John Deasy, who resigned under pressure in October, largely due to fallout from the iPad effort and a faulty new student records system.

howard.blume@latimes.com
Twitter: @howardblume

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