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Worlds Leaders

A Texas School District and its Former Chief Financial Officer have been Charged With Fraud

On Wednesday, a Texas school district and its former chief financial officer and auditor settled fraud charges with the Securities and Exchange Commission after the district allegedly misled investors when it ran out of money to pay for construction projects, resulting in the loss of $20 million in bond sales.

The SEC claims that Crosby Independent School District, which is located in the Houston suburbs, spent all of the money it had set aside for new projects such as building a new baseball stadium and renovating its football stadium, and that it lacked the $12 million needed to finish the projects in 2016.

According to the SEC, former CFO Carla Merka changed the end date of the district’s 2017 fiscal year because she “incorrectly” believed it would save the district money, and then prepared a financial statement for fiscal year 2017 that “materially understated liabilities” and “overstated” the district’s money.

Merka reportedly undervalued the district’s outstanding construction bills and provided misleading claims to the district’s auditor regarding its obligations, as well as understated teacher wages when the fiscal year dates were changed.

Merka’s “false and deceptive” financial statement was subsequently used to assist the district borrow $20 million in bonds in 2018, according to the SEC, and Merka allegedly filed the paperwork knowing they were incorrect.

The SEC filed a lawsuit in federal court against Merka, stating that the former CFO, who left the district in early 2018, committed fraud in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Crosby ISD and Shelby L. Lackey, the auditor who approved the allegedly faked 2017 financial figures, were also accused by the SEC.

As part of a settlement pending court approval, Merka agreed to pay a $30,000 fine and refrain from participating in future municipal bond offers, while Crosby ISD and Lackey agreed to resolve the accusations with the SEC without admitting or rejecting any of its findings.

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