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UNO charter-school scandal has Wall Street worried

AUDIO: Listen to investors grill UNO CEO Juan Rangel
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Updated: October 16, 2013 3:15PM

N ow under investigation by two state agencies, the United Neighborhood Organization is also facing tough questions on Wall Street from investors who lent tens of millions of dollars to help pay for the rapid expansion of UNO’s charter-school network.

The questions were prompted by Chicago Sun-Times reports on $8.5 million in state grant funds paid to companies owned by two brothers of Miguel d’Escoto, a top UNO executive.

D’Escoto quit his $200,000-a-year post with the politically well-connected group following the reports. And last month Gov. Pat Quinn’s administration halted payments from a $98 million state grant that’s paying for construction of a new UNO high school on the Southwest Side, citing the appearance of a conflict of interest.

During a March 27 “investor update call,” UNO’s chief executive officer, Juan Rangel, tried to reassure the Wall Street interests, who lent his organization $37.5 million in 2011 through state-approved bonds.

He told representatives from Wall Street financial houses he felt UNO still had the support of state officials, according to a recording of the call. He said he expected Springfield would continue to bankroll construction of the new charter high school at 51st and St. Louis and that the half-built school would open, as planned, for next school year and “ensure our long-term viability.”

Steven Levy, an executive with Prudential Financial in Newark, N.J., pressed Rangel about the d’Escoto brothers’ deals.

“It had to be more than just an appearance” of a conflict, Levy, whose firm bought bonds issued for construction of UNO’s schools, told Rangel during the conference call. “There must have been something else going on for [d’Escoto] to quit a job that was paying him 200K a year.”

Rangel responded that d’Escoto quit “to show there’s a good-faith attempt on our end, as the organization, to get past this.”

Levy, who declined an interview request, told Rangel the Chicago Teachers Union “will look for any way to bring down charter schools. Why would you even risk a potential distraction?”

“We’re talking about a construction grant that has no guidelines,” Rangel replied. “In our minds, there was no conflict.”

Levy and others who participated in the investors’ call also questioned Rangel about expected higher expenses in light of plans to unionize teachers at UNO’s schools, who make an average of $20,000 a year less than Chicago Public Schools teachers. Another UNO official said she didn’t anticipate “a massive increase in the pay scale” that’s still to be negotiated.

A month after the call with investors, on April 25, Quinn’s administration suspended the remaining payments from the $98 million grant. The governor, who has been a supporter of UNO, accused the organization of violating terms of its grant by not disclosing the deals involving the d’Escoto family and demanded an audit before state funding can resume.

Work on the new UNO Soccer Academy Charter High School stopped May 1, when the general contractor walked off the job, saying UNO was behind in paying its bills.

The first of the Sun-Times’ reports that prompted the cutoff in state funding was published Feb. 4.

At the time of the call with investors, Rangel says, “The construction of the high school was on track.”

But a Quinn administration spokeswoman said last week that “UNO was well aware that future funding could be at stake.”

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