School Districts Proclaim Innocence to SEC

At least three of the four school districts that borrowed heavily to invest in Orange County’s ill-fated investment pool have responded to a federal notice that they could face fraud charges.

The Irvine Unified School District, the Orange County Department of Education and the North Orange County Community College District told the Securities and Exchange Commission that they didn’t violate securities laws, said Robert Beall, the attorney representing the districts.

Beall declined to discuss the districts’ position in detail or to divulge a copy of the response, which was due Monday.

“Our position is: We didn’t do anything wrong, and we would like to sit down and see if we can work something out,” Beall said.

Each of the districts issued bonds worth tens of millions of dollars to raise money to put in the county’s investment pool. Each suffered steep losses when the county declared bankruptcy in December 1994.

The SEC apparently concluded that the school districts failed to properly disclose to bond investors that they intended to use the money on the bet that interest rates would remain low. Each of the three districts received so-called “Wells notices” from the SEC last year alerting them of possible charges.

SEC enforcement actions could range from formal complaints filed in U.S. District Court to administrative proceedings aimed at getting cease-and-desist orders.

Sandy Harris, assistant regional director of enforcement for the SEC, declined to comment on the case.

The fourth school district, Newport-Mesa Unified, also received formal notice of potential charges from the SEC. Superintendent Mac Bernd declined Monday to comment on his district’s status.