Ex-Charter School Chief Settles Fraud Charges

     CHICAGO (CN) — A former community organizer and president of a charter school group in Chicago agreed to settle claims that he signed off on a fraudulent $37 million bond offering.
     United Neighborhood Organization of Chicago is a nonprofit founded in 1984 that is aimed at helping the Hispanic community in the Chicago area.
     Juan Rafael Rangel became CEO of UNO in 1996, and later was named as president of the organization’s charter school network, which operates 16 charter schools in Chicago.
     In 2010 and 2011, the organization under Rangel signed off on three grants to build the Soccer Academy Elementary School, Galewood Elementary School, and the Soccer High School, according to the U.S. Securities and Exchange Commission
     The problem, according to the SEC, is that Rangel had signed off hiring two subcontractors — who were paid roughly $13 million — who also happened to be the brothers of UNO’s chief operating officer.
     Rangel then failed to disclose that conflict of interest to the state or to investors, according to an SEC complaint filed Tuesday in Illinois Federal Court.
     When the conflict of interest was finally revealed in 2013, the Illinois Department of Commerce and Economic Opportunity suspended the grant money from the bond offering and threatened to recall the funds, leading to financial troubles for UNO and a civil investigation into the organization and Rangel.
     UNO also allegedly reassured investors in October 2011 about its conflicts policy but didn’t notify them about the two subcontractors—or that it could be in serious financial trouble if it were required by the state to refund the grant money.
     The SEC had begun to look into UNO after a 2013 article in the Chicago Sun-Times alleged financial improprieties at UNO, and it eventually came out that the organization failed to disclose it had hired a subcontractor to work on window installation on Soccer Academy.
     The subcontractor, who was the brother of the community organization’s COO, charged a substantially higher rate for the services, according to court documents. Another subcontractor, also a brother of the COO, was allegedly hired to serve as an owner’s representative during construction of the schools.
     When the state found out about the conflict of interest, it suspended UNO’s grants, which then meant UNO could not pay its construction contractors and led to liens against one of the schools.
     Rangel quit the UNO board in May 2013, stating at a news conference, “I have failed.”
     He resigned as CEO seven months later after an investigation by the SEC into the 2011 bond offering became public.
     In 2014, the SEC settled with UNO, and the organization agreed to improve its internal policies and procedures and appoint an independent monitor. The organization did not admit guilt under the settlement.
     Rangel, who similarly did not admit guilt under his own settlement, agreed Tuesday to pay the SEC a $10,000 penalty and is barred from participating from future municipal-bond offerings, other than those connected to his personal account.
     “This kind of negligent behavior is unacceptable in the markets,” David Glockner, an SEC regional director, said in a statement.

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