Former Montebello official denies many of SEC's claims
The former chief business officer of a troubled California school district denies many of the claims brought by the Securities and Exchange Commission, telling a federal court he was acting in good faith and that his alleged violations were unintentional.
In a response to the SEC filed in federal court in Los Angeles, Ruben James Rojas’ lawyer said the SEC’s complaint should be dismissed and that the SEC is “barking up the wrong tree.”
“The SEC is barking up the wrong tree and when the facts are able to come out, it will show that Mr. Rojas did not act in any way that was in violation of the securities laws,” Rojas attorney Andrew Holmes told The Bond Buyer. “He does look forward to his day in court.”
This stems from an SEC complaint filed in September charging the Montebello Unified School District in Los Angeles County, Rojas and Montebello Superintendent Anthony Martinez in connection with a December 2016 bond offering of $100 million. The district and Martinez agreed to settle in an administrative proceeding without admitting or denying the SEC’s findings. Rojas faces civil charges that he violated Section 10(b)5 of the Exchange Act and 17(a) of the Securities Act, known as the anti-fraud provisions of the securities laws.
The district sold municipal bonds to investors for new facilities and maintenance, allegedly concealing in the offering documents that its own auditor had raised concerns about potential fraud and internal control problems at the district.
Since Rojas acted in good faith, Holmes said Rojas did not have the necessary state of mind to violate the anti-fraud provisions.
“Legally speaking, if he acted in good faith, he’s doing what he thought he was supposed to do as opposed to doing something that violated an anti-fraud provision,” Holmes said.
Rojas denies that he concealed from investors in the OS that the auditor had raised concerns about the district's financial practices.
Rojas also denied that a senior Montebello accounting officer told the district’s independent auditor about allegations of fraud and accounting improprieties at the district. The SEC alleged that the audit firm asked for information regarding those allegations, but Montebello and Rojas failed to provide timely responses, impeding the audit’s timely completion.
The SEC alleged that the audit firm repeatedly warned Rojas, other Montebello officials and Montebello’s Board of Education that the firm could not complete its pending audit for fiscal year 2016 without conducting further analyses of the fraud allegations and the district’s accounting controls. Rojas denied that the audit firm warned him.
Montebello’s bond offering documents deceptively stated that the audit firm served as the independent auditor of the district and attached the fiscal year 2015 audited financial statements from the firm, with a clean audit opinion from the previous fiscal year, the SEC said.
“These statements and omissions gave investors the false impression that the fiscal year 2016 audit, and a clean opinion for that audit, would be forthcoming,” the SEC said.
On Dec. 15, 2016, Montebello’s board, superintendent, general counsel and Rojas discussed the audit firm’s concerns and request to perform expanded audit procedures during a closed board meeting session, the SEC said. No members of the public were permitted to attend and therefore their discussion was not made public.
During that meeting, the board and management refused to authorize fees for the requested expanded procedures, which precluded the audit firm from being able to investigate its concerns or finish its audit, the SEC said. During that meeting or a few days after, Montebello decided to terminate the firm, the SEC said.
Rojas admitted in the court filing that he was part of a meeting to talk about the firm’s concerns and that it was a closed meeting. Rojas admitted that the Montebello Board, but not management refused to authorize the fees requested by the audit firm. Rojas also said he did call the audit firm to say it had been terminated by Montebello, but only did so because the board’s president asked him to make that call.
Rojas denied that Montebello or himself concealed the firm’s terminations and concerns from investors in the December bond offering.
Rojas also denied that the district’s bond counsel, disclosure counsel, financial advisor and underwriters were not aware of the reasons for not providing the 2016 audit — the auditor’s concerns — and added that they were all present at open session meeting where the matter was discussed.
Montebello placed Rojas on temporary paid administrative leave for one month beginning in late summer 2016 and terminated his contract in March 2017.
Next steps will be a discovery phase in which the SEC and Rojas will be able to request documents relative to the case. There is a possibility of a settlement, or the case will go to trial. Rojas demanded a jury trial.