SEC Examining Los Angeles iPad Deal, Newspaper Says

Associate Editor

The Securities and Exchange Commission recently opened an informal inquiry into the use of bond funds in the Los Angeles district’s iPad initiative, according to an article in the Los Angeles Times.

The SEC, which protects the interests of investors, wanted to ensure that officials in the nation’s second largest school district “complied with legal guidelines in the use of bond funds” for what was supposed to be a $1.3 billion project, wrote reporter Howard Blume. That project, launched in 2013 with the promise of putting an iPad into the hands of every student, is now in shambles, with the district earlier this week demanding a refund from Apple for the Pearson curriculum that was loaded onto the devices. 

The Times received documents reflecting the agency’s concern about whether the district “properly disclosed to investors and others how the bonds would be used,” Blume’s article stated. 

Judy Burns, a spokeswoman for the SEC, declined to comment on the report about an informal inquiry into LAUSD’s actions. And district officials told the Times that they were “optimistic that they had addressed the SEC concerns.”

This is apparently the second time federal authorities have scrutinized the L.A. technology initiative. The Federal Bureau of Investigation seized documents  related to the procurement in December from district offices.

When the L.A. project was launched, Education Week raised questions about the issue of using long-term bonds for technology that had a life expectancy far shorter than the repayment term. Districts’ attempts “to use long-term bonds to underwrite major purchases of tablets and laptops, which have a limited shelf life, are coming under fire from both taxpayers and financial experts,” wrote my colleague Michelle Davis.

SEC Charges Against Other Schools

Such an inquiry can have serious repercussions if it becomes a formal invesigation and the agency finds cause to file charges.

In July 2013, the SEC charged the West Clark Community Schools in Indiana, and its municipal bond underwriter, with defrauding investors. In that case, the two parties were charged  with “falsely stating to bond investors that the school district had been properly providing annual financial information and notices required as part of its prior bond offerings.”

And last year, the SEC charged a charter school operator in Chicago with defrauding investors in a $37.5 million bond offering for school construction by making misleading statements about transactions that presented a conflict of interest.

LAUSD: Apple-Pearson ‘Disassociation’ to Begin

The question of an SEC inquiry was the second public blow to the failed initiative this week.

In demanding a refund for what it paid for Pearson’s curriculum, which was loaded on the iPads the district bought in 2013, the district directed clear criticism at the global education company: “LAUSD is extremely dissatisfied with the work of Pearson [in this initiative.] While Apple and Pearson promised a state-of-the-art technological solution…they have yet to deliver it,” wrote David R. Holmquist, general counsel for the district, in a letter to Apple.

Thus far, L.A. Unified has paid Apple almost $73.7 million for 120,400 iPads loaded with Pearson courses, so recouping the costs from Apple would require the reimbursement of millions of dollars. As it is, only two schools out of 69 are still trying “to use the Pearson application regularly,” according to an internal memo from the L.A. district. The district wants talks to begin with Apple next week about how to “best accomplish the dissociation from Pearson” and recoup the costs from Pearson’s licenses that were paid for, but that the schools have “been unable to use,” Holmquist wrote.

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Sean Cavanagh contributed to this story.

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