Feds Expand Investigation of Dallas County Schools

SEC looking into whether investors were tricked into believing DCS was financially secure when they bought bonds

Another federal agency has joined the FBI in investigating the financial disaster at Dallas County Schools, with the focus being on whether investors were misled into believing they could profit from buying DCS bonds.

NBC 5 Investigates has obtained a copy of a subpoena, issued by the Securities and Exchange Commission, asking for DCS records that, among other things, details the agency’s purchase of millions of dollars’ worth of surveillance cameras for North Texas School buses.

Those camera deals caused the financial collapse of DCS and triggered an FBI investigation that has so far secured a guilty plea from the agency’s former superintendent, Rick Sorrells, on bribery charges.

In addition, a New Orleans businessman has pleaded guilty to money laundering for his part in funneling bribe money to the ex-superintendent.

The SEC’s role in the investigation is different, looking instead into whether investors were tricked into believing DCS was financially secure when they bought bonds offered by the agency.

“The SEC will come at it with that investor protection focus,” said Shawn Cleveland, a Dallas attorney with years of experience in financial investigations.

“Everything they do will be tied to the real value of these bonds and whether there were misrepresentations about that,” said Cleveland, who defended Enron CEO and Chairman Kenneth Lay for fraud and conspiracy in Enron’s collapse.

Sorrells, the former DCS superintendent, pleaded guilty to taking $3 million in bribes in exchange for the agency buying the surveillance cameras.

Many of the cameras were purchased with money from bonds issued by DCS.

Those bonds plummeted to junk-bond status, leaving investors to wonder if they will ever be paid back, after the camera program nearly put DCS in bankruptcy.

The agency is in the process of being shuttered after voters in Dallas County elected last November to close DCS permanently, transferring to school districts the responsibility of busing kids to class.

The subpoena asks for detailed information about the agency’s camera contracts, and about a questionable sale of DCS bus lots that were exposed last year by NBC 5 Investigates.

It also asks for “all financial statements for DCS,” and “the complete offering file for each DCS (bond) offering.”

While the SEC cannot bring criminal charges, it does have the ability to recover money for victims if it determines that investors have been defrauded – a process that could take years to complete.

“Nothing moves at light speed, but they can move pretty quickly, particularly when you’re dealing with a criminal case,” said Cleveland.

An SEC spokeswoman declined comment when asked about its interest in DCS.

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