Federal regulators have filed suit against the former head of a Chicago charter schools group, saying he violated federal securities laws when he allegedly misled investors by not disclosing conflicts of interest in awarding charter school contracts that jeopardized state grants underpinning municipal bonds issued by the charter schools organization.
On Tuesday, June 21, the federal Securities and Exchange Commission filed a complaint in Chicago federal court against Juan Rafael Rangel, former chief executive officer of the United Neighborhood Organization Charter School Network, alleging he violated antifraud statutes while managing $98 million in state funding to build three UNO schools in Chicago – Soccer Academy Elementary School, Galewood Elementary School and Soccer High School.
At issue is a 2011 municipal bond offering through UNO Charter School Network and United Neighborhood Organization of Chicago. The organization had grant agreements, approved in June 2010 and November 2011, with the Illinois Department of Commerce and Economic Opportunity, each containing a conflict of interest clause requiring UNO to certify there were no conflicts at the time of the contracts and to notify DCEO should any arise. Violations would allow the state to suspend the grant and recover funds.
Rangel and UNO violated these provisions in 2011 and 2012, the SEC alleged, “by engaging one company and approving the engagement of another” that were owned by family members of UNOC’s then chief operating officer. One accepted an $11 million contract for supplying and installing windows, another took $1.9 million to serve as an owner’s representative during construction. In his official capacity, Rangel approved both contracts.
While an Oct. 6, 2011, statement to investors about the strengths of UNO’s conflicts policy disclosed the hiring of the owner’s representative, UNO did not acknowledge that contract breached the conflict of interest clause, nor did it mention the deal with the window contractor. Concealing the violations that entitled the DCEO to reclaim its funding, the SEC argues, enabled UNO to keep investors from knowing the primary source of the funds to repay more than $37 million in bonds was in jeopardy.
“Even though the window subcontractor and the owner’s representative were owned by family members of UNO’s COO, then a senior officer of UNOC, neither (Rangel) nor anyone else at UNO ever” supplied written notice to DCEO. According to the SEC, the state only learned of the conflicts in a Feb. 4, 2013, Sun-Times article. DCEO officials sent a written request for response to the newspaper’s allegations on Feb. 6; UNO responded Feb. 20 and disputed the claims.
UNO also said it terminated its COO, suspended the contract with the owner’s representative and retained a retired federal judge to lead a private policy audit.
DCEO suspended the November 2011 grant, after $25 million of $53 million had been released. After UNO failed to pay contractors, liens were placed on Soccer High School, the complaint said.
The SEC has asked the court to issue a permanent injunction against Rangel and his associates barring them from activities similar to those alleged, as well as from future participation in offering municipal securities. The SEC also has requested civil penalties against Rangel.
Rangel, a Chicago resident who started working for UNOC in 1992 as a programs director, rose to later become UNO’s CEO, president of the UCSN Schools, and a board member of each organization.
Attorneys for the SEC in this matter are Michael J. Mueller and Brian Fagel, of the federal agency’s Chicago office.