Board accepts swaption damages
Bethlehem Area School District (BASD) approved an agreement 9-0 on Aug. 10 to accept a $1.4 million out-of-court settlement in return for dropping further claims for losses in the district's failed attempt at investing in derivative transactions by a previous board.
JPMorgan Chase & Co. and other financial firms had been sued by the U.S. Securities and Exchange Commission for making improper swaption deals.
"There were other claims against Wachovia…now Wells Fargo…" said BASD Business Manager, Stacy Gober in a recent interview. "There may be more settlements."
However, Gober couldn't estimate the amount, if anything, the BASD could expect from future settlements. She said the money, when paid to the school district, will be deposited in the general fund and that the school board would decide what to do with the unplanned-for money.
The settlement is part of an $11.5 million restitution to Pennsylvania municipalities and nonprofit organizations that were victims of a bid-rigging case involving several school districts in the state. Pa. Attorney General Linda Kelly said in a press release the scheme involved the marketing and sale of municipal derivative investments, which are often used by government agencies and nonprofit groups to reinvest the proceeds of tax-exempt bonds until those funds are needed.
"This scheme took advantage of state agencies, local governments, public school districts and nonprofit organizations that were attempting to invest or protect the proceeds of tax exempt bonds," Kelly said. "According to the continuing national investigation, a number of banks, brokers and financial service firms manipulated the bidding process and shared information – causing victims to pay higher fees and receive lower interest rates." Five major institutions have made settlements over the past year: Bank of America ($67 million), JP Morgan Chase ($92 million), Wachovia ($58.75 million), Union Bank of Switzerland ($90.8 million) and GE Funding Capitol Market Services ($34.25 million).According to Kelly, the money "…will compensate Pennsylvania victims for their losses, returning the funds they should have received when they initially made their investments."
Local resident Randy Toman loudly upbraided the school board for accepting the deal. He questioned the fairness of the deal.
"It's the best deal we can get," responded Board of Education President Michael Faccinetto.
The school board heard other unhappy voices at the meeting. Sheri Engelhardt, a mother with two children, one in middle school and one in elementary school, in an emotion-laden speech charged the school board with not caring that children were in classrooms with too many other students.
This brought an unusual response from two board members who defended the school board's money-constrained decisions that required them to make hard decisions including having larger class sizes.
"I resent the idea [the accusation] that we are neglecting students on the Southside," said Basilio Bonilla Jr. "It's insulting," said board member Aurea Ortiz. "Don't come and blame us! Go to your state legislature and blame them!"
Elizabeth Jones, the mother of a fifth-grader, also spoke to the board about excessive class size.
"I've asked the parents of the fifth-graders to let the school board and the administration know of their concerns with the larger class size," said Jones, accompanied by three other mothers of BASD students. All of the parents, after the meeting, met with individual board members and administrators and discussed their issues.
Jones, in an interview, said that she spoke to the administrators and board members following the meeting because she thought her points were overshadowed by the emotional dialog between the school board members and Engelhardt.
"I think they understand and respect my position; however, they to need to come up with the funds to get another teacher," said Jones. "My understanding was that they would use the Block Grant money for that but they are using the money for resource officer, technology department expenses and all-day kindergarten."