Prescott Valley, Arizona-based nonprofit charter school operator Park View School filed for bankruptcy protection July 21 following years of financial mismanagement and a federal enforcement action targeting a fraudulent municipal bond offering.

Bond holders have a lien on the school, which listed $9.4 million in liabilities and $9.7 million in assets, according to court documents. Park View also has $116,926 outstanding in unsecured claims. A meeting of creditors is scheduled for Aug. 23 as a telephonic hearing.

But the bankruptcy proceeding represents the most recent development in the school’s battle to stay afloat that began around 2011 and came to light in the SEC’s lawsuit against Park View School and its then-president Debra Kay Slagle.

The SEC brought a complaint against both the school and Slagle in September 2020, alleging that Slagle misled investors in connection with a 2016 bond offering by lying about the school’s financial condition.

In April 2011, Park View was the conduit borrower for a $6.6 million bond offering by the Pima Industrial Development Authority. The bonds were subject to an indenture agreement which set up two funds: an operating reserve fund to protect investors if other reserve accounts were depleted and the repair and replacement fund that was required to have a minimum balance of $125,000 to reimburse the operating reserve fund in case of emergency.

The State of Arizona’s monthly payments were also deposited into the trustee’s account, where they’d pay interest and principal payments on the bonds, reserve account deposits and administrative fees. The remainder would then be transferred directly to Park View to cover its operating expenses.

But in the following years, the school was routinely operating at a financial deficit. Between May 2012 and January 2016, Slagle submitted at least twelve request forms “to withdraw money from the operating reserve fund,” the complaint said. “Nearly all of these withdrawals were impermissible under the 2011 Indenture,” the SEC found.

“Although Slagle certified in writing to the trustee that each withdrawal was permissible for unbudgeted expenses or repair costs, she knew, or was reckless in not knowing, that the withdrawals were used for routine operating expenses or unauthorized transfers,” the SEC complaint said.

The constant shifting of money from fund to fund via withdrawal requests by Slagle continued from 2013 to 2016, when the school was unable to replenish the repair and replacement fund’s minimum balance before the 2016 bond offering.

“Unable to obtain additional cash or loans to pay its expenses and stay afloat, Park View and Slagle decided to seek another bond offering to repay the 2011 bonds and other debt,” the SEC documents said.

“The 2016 Official Statement falsely or misleadingly represented that Park View would reduce its operating expenses during the 2016 fiscal year.”

Park View also made misleading statements about its profitability and its ability to repay the 2016 bonds, which was presented in a feasibility study. Investors then purchased $7.6 million in bonds in the April 2016 offering.

Different from its 2011 offering, the 2016 bonds were issued by the Pima Industrial Development Authority with Park View as a conduit borrower as usual, but Park View received the bond proceeds and was responsible for repaying them.

“Park View allegedly defaulted one year later by reducing the interest payments that it made on the bonds,” the SEC said, alleging that Slagle and the school violated antifraud provisions of federal securities laws.

They both agreed to settle without admitting or denying the allegations enjoining them from future violations and charged Slagle with a $30,000 penalty. She is barred from participating future municipal securities offerings.

Park View’s financial situation continued to deteriorate from there. The school had recurring losses, according to its June 2021 financial statement and was identified for “intervention” by the State of Arizona for having one or more measures “below standard”.

The school did not respond to requests for comment and the school’s bankruptcy lawyer was unavailable for comment on this story.