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L.A. schools iPad program subject of inquiry by SEC

SEC conducts 'informal inquiry' into the use of bond funds to purchase iPads at L.A. Unified.

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.

Problems plagued the fall 2013 rollout of the iPad project and questions later 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.

Pearson also has consistently defended its actions. Apple has not responded to requests for comment. In the iPad effort, Pearson was a subcontractor to Apple.

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

The mission of the federal agency includes 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 bond funds would be spent.

The district presentation noted that in August 2012 then-Supt. John Deasy "announced his desire to provide tablets to LAUSD students to improve instruction and to provide students with the tools necessary to take electronic standardized tests."

"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 was at pains to distinguish between the L.A. Unified bonds and different types of bond debt that are issued under other disclosure rules and could invite a different sort of scrutiny. 

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 permits the spending of school construction bonds on technology, although it's also important to list the intended uses of bond funds, experts said. In ballot materials, L.A. Unified clearly designated funds for technology, but did not mention tablets or that students would be allowed to take home the devices. In fact, iPads did not exist when voters approved the most recent bond issue in November 2008. 

But district 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. 

Twitter: @howardblume 

Copyright © 2016, Los Angeles Times
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