The financially-troubled College of Santa Fe, N.M., is being accused of fraud for how it handled a 2006 bond transaction.
The private college, which is on the verge of either closing or being taken over by New Mexico Highlands University, has defaulted on the $25 million bond debt and $2 million in associated fees.
Radian Insurance, the company that insured the debt, is alleging that the college committed fraud in its insurance application and that the financial statements provided by the college failed to disclose its true financial picture.
College President Stuart Kirk said he didn’t know about the allegations. He began his presidency about eight months after the bonds were put on the market.
Former president Mark Lombardi, now president of Maryville University in St. Louis, Mo., could not be reached for comment.
The college took out the variable rate demand bonds in September 2006, the same year it changed the way it kept its books. It switched from an accrual accounting method, which requires financial statements to reflect debt when it’s incurred, to a cash method that reflects only debt that is paid.
The $25 million in bonds provided money to restructure existing debt and included an extra $4 million for improvements on campus.
The fraud allegations are revealed in New Mexico Highlands’ acquisition plan for the college. The document suggests that a legal battle could ensue if an agreement isn’t reached on payment of the debt.
It states that while the bonds purchased by the Royal Bank of Canada were insured by Radian Insurance, Radian has threatened not to pay out on any claim because the application and financial statements were fraudulent.
The NMHU document also states that between the bonds and other debts owed, the college’s entire 100-acre campus has been mortgaged.
Kirk said the college’s financial state stems from declining enrollment. However, tax returns and other public documents show the college was spending money it didn’t have on ad campaigns, a new student services building, its movie theater and a tennis facility.
The college posted annual operating deficits of nearly $2 million in 2005, $2.7 million in 2006 and $2.5 million in 2008. An audit of 2008 hasn’t been completed, but Kirk expects it to show “a significant loss.”
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