SEC launches investigation into Rochester City School District

Federal authorities have launched an investigation into Rochester City School District finances, and potentially false statements RCSD officials made when seeking short-term financing earlier this year.

The U.S. Securities and Exchange Commission subpoenaed the city this week for information related to both issues.

While not unexpected, the SEC's arrival significantly ramps up potential implications for current and former RCSD officials. Auditors from the state Comptroller's Office already have been onsite at district offices, digging into these and other matters, and a district spokesman said they are expected to share an initial report as early as next month.

Questions appear focused on what the district told Moody's Investors Services this past spring when seeking $50 million in short-term financing to help with the current fiscal year. In written responses, RCSD officials claimed that finances were trending positively, and they would rely less on reserves than anticipated. In reality, the district was in the red, and would finish the year over budget by $30 million. 

More:RCSD layoff notices coming next week; district also targeting subs

The city — which is responsible for district borrowing — relied on that information when authorizing the notes in June. And Moody's would have shared it with stakeholders in the financial markets.

"It is important to note that the RCSD is a separate corporate entity ultimately responsible for its own management and finances," city Corporation Counsel Timothy Curtin said in a statement Friday. 

"The City will comply with this subpoena and fully cooperate with the SEC's investigation into the RCSD financial situation," Curtin continued. "The RAN (Revenue Anticipation Note) that was issued was based on information for investors prepared and provided solely by RCSD."

There are implications for city taxpayers, however. Moody's has placed the Rochester's credit rating under review, potentially impacting what interest rate the city can obtain on future borrowing.

An SEC spokeswoman declined comment.

RCSD spokesman Carlos Garcia also declined comment, citing the "ongoing investigation." He said the district has not yet been directly contacted by the SEC. As for the state Comptroller's report, Garci said the expectation was for a "general summary within the next month or two at the most," but that a full report was not likely until spring.

BDSHARP@Gannett.com

Backgrounder:Delayed RCSD budget report shows 'gross incompetence or a willful attempt to deceive,' city says

Budget crisis:RCSD layoff notices coming next week; district also targeting subs