A finance expert is alleging that Rancho Santiago Community College District officials likely committed securities fraud by failing to properly account for millions of dollars in necessary renovations at a recently constructed education center.
The district, which consists of Santa Ana College and Santiago Canyon College, closed the Orange Education Center in December 2012 after concerns that the building hadn't received the proper approvals from state architects. Officials also found that the building wasn’t constructed up to code.
The closure came just after voters that November approved a bond measure to pay for more facilities costs, thus raising suspicions that district leaders withheld vital information from the voters in order to pass the bonds.
George Wright, a faculty association executive committee member and professor of criminal justice at Santa Ana College, said he believes district officials working under the previous chancellor engaged in “criminal malfeasance” and that “someone should have gone to jail.”
Now the finance expert, John P. Johns, is alleging that the district also withheld information from bond investors that must be disclosed under securities law. He’s also alleging the district illegally appropriated money to pay for renovations at the center and in a manner intended to shield the spending from public scrutiny.
Johns made his allegations in a report sent to the district’s board of trustees last Friday, attached to an email titled “claim and report of apparent fraud.” Johns previously worked for the faculty association, which has been highly critical of district administration, but said he acted independently in filing the report.
Upon filing the report, he demanded a fee of $27,000 for his work, but has since reduced that to $1.
In an interview, Johns also asserted there should be a criminal investigation given the potential “political fraud,” misstatements on financial disclosures to bond investors, and an improper vote to transfer money.
“[District Attorney Tony Rackauckas] should be going in there and seizing their goddamn computers and taking everything,” Johns said. “I cannot overstate the seriousness of this.”
In a statement issued through an outside public relations representative, the district said Johns' allegations were baseless and characterized the report as a publicity stunt.
According to the report, the district’s 2013-14 audited financial statements did not include a $16 million entry to account for needed renovations of the center before it can reopen. Those financial statements were included in the district’s offering of general obligation bonds in 2014 and violated rules set by the U.S. Securities and Exchange Commission, according to Johns’ report.
“I consider the inclusion of financial statements which were apparently based in part upon material misrepresentations of management (and what could be reasonably construed as of an intentional nature) to constitute a serious violation of continuing disclosure requirements of the Municipal Securities Rulemaking board as well as the Dodd Frank Wall Street Reform and Consumer Protection Act,” the report states.
Johns’ report also claims that a board vote by minute action to appropriate over $8 million for the center’s renovation violated the state administrative code. The action that trustees should have taken was to approve the appropriation by resolution, which contains more information about the spending and is therefore more transparent, according to Johns’ report.
Attached to the report was a claim for fees of $27,000 that Johns said were “earned by virtue of the time and effort I have spent investigating this matter” and “serving the public interest of promoting integrity within our systems of government,” he wrote in a letter to the board.
In response to a reporter's questions regarding Johns' report, district spokesman George Urch issued a statement dismissing it as “nothing more than a strange publicity effort to try to extort a quick buck for himself at the community college and taxpayers’ expense.” It also calls Johns’ demand to be compensated for his research “bizarre and hard to take very serious.”
In went on to state that Johns’ misinterpreted the board’s actions, which were reviewed by the district’s auditors.
However, the statement is silent on Johns’ allegation that the district management misrepresented financial information in its bond sale.
The district hired Urch, who is well known in local media and PR circles and previously worked for the faculty association, after controversy erupted over the district foundation’s deal to consult for colleges in Saudi Arabia.
After Urch’s statement, Johns reduced his claim to $1, provided that the district’s Board of Trustees take an official vote to refer his fraud complaint to the California State Controller or the county district attorney’s office. And he asked that the trustees consider whether fees paid to the Orange Education Center architect are a possible violation of the False Claims Act.
Johns also said that the False Claims Act allows members of the public to act as “private attorney generals” and entitles them to compensation when they expose wrongdoing.
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