Crosby ISD and former CFO Carla Merka settled SEC fraud charges for concealing $11.7 million in liabilities and falsely reporting $5.4 million in reserves when selling $20 million in municipal bonds; Merka paid a $30,000 penalty and was barred from future municipal securities offerings.

Crosby Independent School District — SEC Municipal Bond Fraud (2017–2018)

Outcome: Crosby ISD and its former CFO Carla Merka settled SEC charges for knowingly including false financial statements in a $20 million municipal bond offering, concealing $11.7 million in outstanding liabilities and misrepresenting the district's general fund reserves to investors.

Crosby Independent School District serves approximately 6,400 students in the Houston metropolitan area. In January 2018, the district sold $20 million in municipal bonds to pay construction liabilities and fund new capital projects. The bond offering documents included audited financial statements for the district's 2017 fiscal year — statements the SEC alleged were materially false and misleading.

According to the SEC's complaint, Crosby ISD and CFO Carla Merka failed to disclose $11.7 million in payroll and construction liabilities in those financial statements. Additionally, the district falsely reported having $5.4 million in general fund reserves when no such reserves existed. Merka, who served as CFO from approximately March 2014 through May 2018, knowingly allowed these misrepresentations to be included in the offering documents used to market the bonds to investors.

The consequences materialized quickly. By August 2018 — just seven months after the bond sale — Crosby ISD disclosed it was experiencing significant financial difficulties and that the general fund balance was actually negative. The following month, ratings agencies downgraded the district's bonds, causing losses to investors who had purchased them based on the false information.

The SEC's settlement, announced March 16, 2022, required Merka to pay a $30,000 civil penalty and prohibited her from participating in any future municipal securities offerings. Crosby ISD also settled without admitting or denying the allegations. The SEC separately charged the district's external auditor, Shelby Lackey, with improper professional conduct in connection with the 2017 audit.

Primary Source: SEC Charges Texas School District and its Former CFO with Fraud in $20 Million Bond Sale | SEC.gov