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Hand holding out a stack of money tied to the end of a stick for briberyCAST OF CHARACTERS HERE PERFECTED ‘PAY TO PLAY’ SCHEME IN FRESNO

FRESNO BLOGGER UNCOVERS INCRIMINATING EMAILS

CLICK HERE FOR ARTICLE ABOUT HOW MPUSD GOT AROUND CAMPAIGN PROMISE

For more than a year, the FBI and federal prosecutors have been conducting a criminal investigation of the construction contracting process used by the Fresno Unified School District – and it turns out several of the key players in the Fresno scandal have been involved in a remarkably similar series of transactions at the Monterey Peninsula Unified School District.

In both districts, the construction contracts were financed by huge bond measures approved by district voters in November 2010. In both districts, much of the construction work was awarded to Harris Construction of Fresno, much of the architecture work went to the Teter Partnerships of Fresno and the financial adviser overseeing both bond measures was Keygent Advisors.

Each set of bonds was underwritten by a team of bond firms. In Monterey, they were Piper Jaffray and Stone & Youngberg. In Fresno, it was Piper Jaffray and Stifel, which acquired Stone & Youngberg the next year.

And in both cities, the various entities were linked through one man, Terry Bradley, the former superintendent of the Clovis Unified School District, who agreed last month to pay a Securities & Exchange Commission fine of $50,000 for providing Keygent Advisors with confidential information that enabled the company to obtain bond work with five school districts while he was a paid consultant to Keygent.

Though the Monterey and Fresno bond issues — for $110 million and $280 million respectively — were among the largest that involved Bradley and Keygent, they were not among the districts involved in the conflict-of-interest scheme uncovered by the SEC. Those districts were in the San Joaquin Valley communities of Clovis, Caruthers, Dinuba, Reedley and Sanger, each of which was using Bradley as a financial adviser. (See the previous Partisan article on SEC case.)

Newly surfaced emails subpoenaed by the FBI suggest that while Bradley was helping administer the proceeds of Monterey’s Measure P by helping the coastal district select architects and contractors, he also was the mastermind behind a creative contracting process in Fresno designed to guarantee large construction contracts with Fresno firms that agreed to help finance successful bond measures. The biggest beneficiary of that scheme, focus of the FBI inquiry, was Harris Construction, where Bradley maintains his office.

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Terry Bradley, wearer of many hats

Critics of school bonding practices in California have long complained that it has become a “pay-to-play” system: Companies that cough up money for bond campaigns have a distinct advantage when it comes time to divvy up the bond consulting and contracting work. But according to numerous news reports in Fresno, it appears that Bradley took the system a step forward and created a way to guarantee that big campaign spenders would get their reward in the form of construction contracts. Apparently as reward for contributing to the Fresno bond campaign, Harris was given a contract to build a middle school without having to go through a competitive bidding process. Instead, the district used a “lease-leaseback” method, involving secret negotiations with Harris, in a process that an appellate court later ruled to be illegal.

At the Monterey Peninsula Unified School District, or MPUSD, the 2010 bond measure financed considerable renovation work, not new schools, but the district used the same non-competitive, “lease-leaseback” structure to award several renovation contracts to Harris, some of which were worth more than $1 million.

On its Facebook page in 2011, Harris Construction congratulated MPUSD for its facilities upgrade project and said it was “proud to be part of the Lease-Lease Back team implementing the plan ….”

Based on the number of commonalities, including the timing, it seems likely that the Monterey school district’s Measure P of 2010 and Fresno Unified’s Measure Q may have been sold to bonding and construction companies as a package deal. Harris and the Piper Jaffray bond firm contributed to both bond campaigns, for instance. Keygent contributed to both the Monterey and Fresno bond measures.

Although they sound complicated, school bond measures really aren’t that difficult to understand. In most cases, districts wanting to build or renovate schools ask voters to allow the district to borrow money. Rather than simply go to a bank to borrow cash, the districts hire various bond specialists who invite investors to buy the bonds or, in other words, to lend money to the districts at a pre-determined interest rate.

With California schools borrowing billions of dollars annually, a cottage industry has grown up around the state’s education system – a self-perpetuating, self-dealing cottage industry. Bonds can’t be issued without the approval of district voters, so the districts set up quasi-independent committees to run campaigns to persuade the voters to say yes. Those campaigns are largely financed by the various bond specialists who hope to obtain contracts to handle the technical aspects after the successful elections.

In the case of MPUSD’s Measure P, the committee was headed by Sharon Albert, wife of Dan Albert Jr., who retires this week as MPUSD’s associate superintendent for business and finance. Only three bond firms contributed to the campaign and each received a piece of the action. Those were Stone & Youngberg and Piper Jaffray, which each gave $20,000, and Keygent, which gave $10,000. In other words, the decision on who would handle the bonds was essentially made when the bond companies wrote their checks out to the Measure P campaign. Presumably Keygent didn’t need to contribute as much because it had already been hired as the district’s bond overseer.

The San Francisco law firm of Stradling Yocca Carlson & Rauth contributed $3,000 and was later hired as bond counsel for Measure P.

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Measure P-financed construction work at Seaside High School

Fresno’s Harris Construction contributed $2,500 to the Measure P effort. The Teter architecture partnership in Fresno, closely affiliated with Harris, contributed $10,000 to the Measure P campaign before the November vote and $5,000 more two months after voters enthusiastically approved the measure. Like Harris, Teter received several significant contracts for projects financed from the Measure P proceeds.

Which bond firms get the work matters because lack of competition enables them to charge higher fees and could take away incentives to shop for the lowest interest rate for the district. With such a large amount of money being financed over a long period, even tiny variations in interest rates can cost or save a school district considerable sums. In the case of Measure P, MPUSD officials have said it is costing the owner of a $500,000 property about $150 annually.

The best reporting on the Fresno investigation has been by author Mark Arax, a former Los Angeles Times reporter who now produces a blog, the Arax File. In a post this week, he wrote of a series of emails dating to 2010 in which Bradley apparently hatched his plan to attract bond campaign money by promising construction contracts for contributors.

Arax referred to Bradley as “the man in the middle,” a role he played in Monterey as well as Fresno.

In Fresno, Arax wrote, “it was Bradley, also acting as a paid consultant to Fresno Unified, who helped persuade the district to convert to a lease-leaseback method of school building. In doing so, the district’s long practice of competitive bidding gave way to a controversial—and ultimately abused— method in which a single favored contractor controlled the construction process from design to turnkey.”

Key to making it all work was getting the Fresno bond measure passed. To do so, the district turned to Bradley, Fresno Mayor Ashley Swearengin and Harris Construction, headed by Richard Spencer, one of Fresno’s most active builders and most generous campaign contributors.

“Persuading taxpayers to pass the bond was no easy challenge,” Arax wrote. “The economy was mired in a deep recession, for one. The school district and its public and private partners—the so-called Citizens for Quality Neighborhood Schools— were trying to raise tens of thousands of dollars for yard signs and radio, TV and newspaper ads.

“As the campaign kicked off, Richard Spencer and his subcontractors were playing hard to get, emails show. Early on, Spencer had committed $5,000 to the Measure Q effort, but weeks passed without a cash contribution from him or his family members ….

“On Aug. 11, 2010, emails show, Terry Bradley stepped forward to assume the role of a broker. For the first time, he informed a member of the Measure Q committee that the Spencers were holding back on campaign cash because they were unhappy with the way Fresno Unified awarded its construction contracts.

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Marshall Elementary School receiving part of its Measure P facelift

“Whether (district officials) knew it at the time, Bradley was a man with divided loyalties. He was wearing—or was about to wear—three different hats: a paid consultant to Fresno Unified on Measure Q, an adviser to an education bond firm based in El Segundo called Keygent and a promoter of lease-leaseback contracts on behalf of Harris Construction.

“This juggling feat, as it turned out, was not only impressive and highly lucrative but a flagrant conflict of interest that would land Bradley, six years later, in the crosshairs of the U.S. Securities and Exchange Commission.”

Arax wrote that Bradley suggested that Harris would hand over more money for the bond campaign if the district would agree to a more Harris-friendly method of awarding construction contracts.

“’If FUSD would use construction delivery methods that Harris has emphasized for the past several years (construction manager with multiple primes and/or lease-leaseback), the contribution would have been much higher,’” Bradley wrote in one email. “’Contractors are reluctant to give large contributions to bond campaigns when projects are awarded on a design-bid-built delivery method with the project always going to the lowest bidder.’”

Additional discussions transpired and, with the bond measure election rapidly approaching, “the Spencers and their subcontractors would pony up tens of thousands of dollars in campaign contributions for Measure Q; Fresno Unified would soon begin to tout the lease-leaseback method in its public presentations,” Arax wrote.

Over the next two weeks, campaign records show, Richard Spencer gave $25,000 to the Measure Q effort. Over the next four years, without competitive bidding, Harris Construction would receive $117 million of the more than $280 spent by Fresno Unified.

SEE RELATED ARTICLE BELOW

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Dishonest businessman telling lies, lying businessperson holding fingers crossed behind his backINSTEAD OF PAYING ADMINISTRATOR, DISTRICT PAYS A CONSULTANT

When Monterey Peninsula school officials were pitching Measure P in 2010, they knew taxpayers were leery of providing perks for school administrators. So they made an important promise.

The entire $110 million being borrowed by the district would be used to improve district facilities but “no money” would go toward administrator salaries. An auditor reviewing the bond documents wrote that it was clear that the bond money would go for physical improvements “and not for any other purpose, including teacher and school administrator salaries and other operating expenses.”

Was the promise kept?

Sort of, in a way. But not really.

Soon after voters in Monterey, Seaside, Marina and Del Rey Oaks approved Measure P in 2010, Monterey Peninsula Unified School District officials realized they were short on the expertise needed to administer an ambitious effort to maintain and modernize most of the district’s campuses. So Superintendent Marilyn Shepherd returned to her San Joaquin Valley roots and hired Dr. Terrance Bradley, newly retired superintendent of the Clovis Unified School District.

The Clovis district was long known for its old-fashioned approach to education – no long hair for boys, no short skirts for girls – and its sparkling facilities with middle schools that look like high schools and high schools that look like colleges.

Bradley had helped the district set a state record for bond financing, borrowing and spending more than much larger districts, and in retirement he was poised to continue mining his contacts in the school finance industry and various education-related organizations.

Shepherd hired him as a financial adviser shortly after passage of Measure P. Dan Albert Jr., who retires this week as the district’s associate superintendent for facilities and business, said Bradley was brought on board largely to help select architects and contractors to carry out the bond work.

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MPUSD Superintendent PK Diffenbaugh and Associate Superintendent Dan Albert Jr., who leaves the district this week and plans a run for Monterey City Council in the fall

So rather than using bond proceeds to pay for “administrator salaries or other operating expenses,” the district had hired a consultant to do the same thing.

The Measure P bond team was largely in place when Bradley officially arrived in 2011. Coincidentally or not, it was made up largely by entities that had created and contributed to the $200 million Fresno school bond measure of 2010, a bond measure in which Bradley was heavily involved (see companion article.) Common participants included the Keygent Advisors and Piper Jaffray bond firms, the Teter Partnership and Harris Construction of Fresno.

Bradley remained on board as financial adviser until January of this year when Keygent advised Monterey school officials that he and the firm were under investigation by the SEC. The investigation concluded earlier this month with Bradley agreeing to pay a $50,000 fine for leaking confidential information to Keygent from five school districts.

Bradley’s consulting contract with MPUSD was rather modest, paying him $24,000 per year for two days work each month. But the contract didn’t limit the income potential created by his work for the district. In 2012, while working as a “strategic partner” for TerraVerde Renewable Partners, he helped the Marin County firm win a series of consulting contracts to help MPUSD install solar systems at various properties. He earlier had helped the company receive a $2 million contract in Clovis.

A year later, MPUSD officials paid a headhunting firm some $30,000 to have Bradley recruit candidates to replace the outgoing superintendent, Marilyn Shepherd.

While the executive search firm has removed Bradley’s information from its website, Bradley remains active with the Coalition for Adequate School Housing, which advocates for school districts, bonding firms and contractors. The group’s legislative director, Tom Duffy, defends Bradley, who has declined to respond to the Partisan’s inquiries.

“We support Terry,” Duffy recently told the Fresno Bee. “He has a great deal of credibility because of his honesty and what he’s done in California for a long, long time. I’m sure that he’ll work through this and so will the SEC. The work that school districts do is some of the most complex work in California because of laws and regulations, and also because of federal oversight when it comes to anything involving bonds. It’s complex and it’s ever-changing, and is a world that requires a great deal of expertise.”

Shepherd’s replacement, Daniel PK Diffenbaugh, said last week that the district has no plans to review Bradley’s work for the district.

Shepherd - Women LeaderThrough a district spokeswoman, Diffenbaugh said, “The projects and related contracts related to Mr. Bradley have been completed. Expenditures related to these projects were part of the MPUSD bond program and as such, were audited by an independent auditing firm annually per the law. The auditors did not identify any findings. These audits were provided to both the bond program’s Citizens Oversight Committee and our Board of Trustees. MPUSD is satisfied with the results and, to our knowledge, the contracts were executed appropriately. We do not, as of now, have any plans to conduct a review, nor do we anticipate utilizing Mr. Bradley’s services or that of Harris Construction in the foreseeable future.”

School districts pitching bond measures often reassure taxpayers by saying that expenditures will be monitored by citizen oversight committees, but Rick Heuer, who has chaired the Measure P oversight committee, said such groups never get into the hiring or compensation of the various firms providing guidance on bonding details. In Monterey, Heuer said, board policy and the actual bond measure language restrict the committee’s jurisdiction to nuts-and-bolts expenditures.

“All bond oversight committees are toothless entities that only review things after the fact,” Heuer said.

When Bradley was hired in 2011, the district did not require consultants or other contractors to formally pledge to avoid conflicts of interest, but language addressing that issue was added to contracts in late 2012. The standard text read: “Contractor does not have, or anticipate having, any interest in real property, investments, business interests in or income from sources which would provide Contractor, his/her spouse or minor child(ren) with personal financial gain as a result of any recommendation, advice or any other action taken by Contractor during the rendition of services under this Agreement.”

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Concept image of Business Acronym COI as CONFLICT OF INTEREST written over road marking yellow paint line.BRADLEY’S WORK BEGAN AROUND TIME OF GIANT MEASURE P BOND BUT DISTRICT SAYS HIS CONFLICT PLAYED NO PART

A school management consultant and a bond firm that have done considerable work for the Monterey Peninsula school system have been implicated in a conflict-of-interest scheme uncovered by the U.S. Securities and Exchange Commission, but the head business official for the Peninsula district, Dan Albert Jr., says their work for the local system played no role in the federal investigation.

Terry Bradley agreed this week to pay a $50,000 fine for improperly steering work to Keygent Advisors, which was the financial adviser to the Monterey Peninsula Unified School District when it began issuing $110 million in school renovation bonds in 2010.

The Securities and Exchange Commission said Bradley of School Business Consulting Inc., became a paid member of the Keygent advisory board in 2010, shortly before MPUSD hired Keygent as financial adviser on the bond known as Measure P. The SEC complaint against Bradley, formerly the superintendent of schools in Clovis, says he improperly leaked information to Keygent to help the company obtain bond consulting contracts with five school districts, but the complaint does not identify the districts.

Albert said Wednesday that MPUSD’s hiring of Keygent predated its hiring of Bradley. District records indicate that Keygent was first hired in 2008 to perform work related to health insurance and that Keygent was already serving as the Measure P financial adviser when Bradley was hired as general financial adviser in 2011. Albert said the district terminated Keygent’s services in January after the company notified the district of the investigation.

Bradley, 72, retired in 2009 from Clovis Unified School District, which is well known for its expansive and expensive campuses. Despite an annual pension of $198,000, he moved quickly into the private realm, capitalizing on a multitude of contacts throughout the educational establishment to become a consultant throughout California.

For MPUSD, Bradley principally consulted on bond matters, accounting methods, the hiring of architects and, two years ago, the hiring of a new superintendent. As a financial adviser, working closely with Albert and Keygent, he was paid $2,000 a month. At the same time, he was being paid $2,500 a month by Keygent, according to the SEC. He was paid $24,000 for the superintendent search.

In 2010, when voters overwhelmingly approved Measure P, the local district was thin in the area of financial and construction management. The superintendent at the time was Marilyn Shepherd, who knew Bradley from her days as a school administrator in Madera and Fresno counties, and the assistant superintendent for district operations was Albert, whose experience was mostly campus-based. He had previously been principal at Monterey High School.  (Albert is scheduled to retire at the end of this month.) The district’s business manager and fiscal affairs managers also were relatively new.

Keygent is a large bonding company with offices in El Segundo.  It works solely on bonds issued by California school districts and community colleges. One of two underwriters of the initial Measure P offerings, Piper Jaffray, was also based in El Segundo. The SEC documents released this week say Keygent was fined $100,000 and censured and its principals were fined  $50,000 because of the conflict involving Bradley.

Albert said it was Shepherd who brought Bradley on board in Monterey. In Clovis and elsewhere, Bradley also had worked closely with the law firm representing MPUSD, Lozano Smith.

In documents related to the case, the SEC says Bradley solicited many of his clients on behalf of Keygent after joining the bond firm’s board. He told school officials about his relationship with Keygent and did not participate in the formal interview process of bond advisers but “improperly provided Keygent with confidential information about the hiring process, including advance notice of the draft interview questions, the specifics of some competitors’ proposals, and other information. “According to the SEC:
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Bradley

  • Bradley gave Keygent officials advance copies of draft interview questions on several occasions, and Keygent also provided input in the initial drafting of the questions on one occasion so they were aware going into the interview what could be asked;
  • For one school district, Bradley gave Keygent a draft of the district’s RFQ document and then incorporated a change to the document suggested by Keygent which was designed to require a known competitor to disclose in its proposal potentially negative information concerning a past legal issue;
  • For two of these school districts, after they received the proposals from the municipal adviser candidates, including Keygent, Bradley shared information about competitors’ proposals with Keygent, including, in one instance, a chart with all of the other candidates’ fee proposals and, in another instance, a copy of the entire proposal submitted by one of the candidates;
  • Bradley discussed with Keygent how to answer certain interview questions and suggested topics they could discuss at the interview to preempt other candidates’ proposals.

Albert said his recollection was that Bradley was not involved in MPUSD’s hiring of Keygent because the district went through a formal request for qualifications process. The SEC said that in several cases, Bradley helped districts prepare the requests for qualifcations that led to contracts with Keygent.

In addition to being fined, Bradley is barred from any involvement with bond or securities dealer and from working for or with any financial underwriter or investment company. He told the Partisan via email that he could not have any contact with the media but would make his attorney available.

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