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SEC scrutinizing LAUSD's bond-funded iPad program

The Securities and Exchange Commission is looking into the Los Angeles Unified School District's $1.3 billion bond-funded iPad program, district sources and documents obtained by KPCC confirm Thursday. 

The agency is examining, among other information, if the school district's disclosures to bond holders were adequate and whether plans to purchase the iPads were properly explained to investors. 

Some local voters have complained that they were misled when they approved $20 billion in bonds beginning in 1997 to upgrade and build new campuses to relieve overcrowded classrooms. Some of the bond funds were later used for the iPad program.

Officials at L.A. Unified could not be reached for comment on the SEC action, first reported by the Los Angeles Times. Asked about SEC's interest in the iPad program, agency spokeswoman Judy Burns said: "We are going to decline comment."

According to a presentation obtained by KPCC, district representatives met with the SEC on March 31 to discuss the use of bonds to purchase iPads. 

The district said it used general obligation bonds secured by taxes assessed on real property, and argued how the bond proceeds were used should not be an issue.

But the district said, nonetheless, it disclosed in multiple ways that it would use the funds for its technology program as it was allowed to do under the bond authorization called Measure R. The disclosures were made in public statements, school board resolutions adopted in 2013 and 2014, public notices, investor presentations, and through other avenues, the district said.

The district also said there was no "diversion of bond proceeds for personal gain.”

LAUSD board member Steve Zimmer said, "I don’t think we tried to be deceptive, but there was always questions among some about whether we should be using bond dollars.” 

Stuart Magruder, who oversees bond funds as a member of the district’s School Construction Bond Citizens' Oversight Committee, has been a vocal critic of the iPad purchases.

“Everyone who is an L.A. resident and voted doesn’t think this is what they were approving,” Magruder told KPCC. “They thought it was construction bond funds, which doesn’t sound like desktops and iPads.”

California law states school bonds can be used to supply “school buildings and grounds with furniture, equipment, or necessary apparatus of a permanent nature.” But it was unclear if technology such as tablets would be an allowable purchase given the statutory wording.

In 2012, then Superintendent John Deasy asked the law firm Sidley Austin to analyze the technology purchase. Sidley’s attorneys concluded the tablets could be bought with bond funds, so long as they were not “removed from school facilities.”

But the attorneys told L.A. Unified more details from the district would be needed before software purchases could be fully cleared. It’s not known if the district followed through on the legal advice.

The SEC probe comes as the district is demanding a refund from Apple Inc. for Pearson software that it installed on its iPads. Most students have not been able to access the Pearson lessons, prompting the district to drop its use of the software.

L.A. Unified has not disclosed how much it is seeking to recoup, but records obtained by KPCC show $3.3 million has been spent on Pearson's software thus far.

Apple has not responded to calls for comment. Pearson released a statement this week saying it is proud of its work with LAUSD, but acknowledging there have been problems.

"This was a large-scale implementation of new technologies and there have been challenges with the initial adoption, but we stand by the quality of our performance," the company said.

The FBI has also been investigating the district's iPad purchase in what is believed to be a public corruption case, though no charges have been publicly filed.

Emails obtained by KPCC in August 2014 showed top district staff had close ties with Pearson executives, raising questions as to whether the bidding process was fair. 

The emails prompted an investigation by the district's Office of the Inspector General.

Under pressure, then Superintendent John Deasy canceled the contract with Apple and later resigned in October. His successor, Ramon Cortines, resurrected the Apple deal and grew the district's tablet inventory to 120,000 iPads.

Cortines recently said the district cannot afford the technology program as originally planned. Deasy had called for placing a computer in the hands of each of the district's 650,000 students.

This story has been updated.