A Superior Court ruling in a case between the state of Arizona and former Scottsdale Unified School District Chief Financial Officer, Laura T. Smith, has granted the defendant’s motion to remand.
The ruling, provided by the Honorable Frank W. Moskowitz, was filed by the clerk of Superior Court on Jan. 14. The motion to remand was filed by Ms. Smith’s attorney, Richard Gaxiola, challenging that the Grand Jury was not presented with clearly exculpatory evidence, Mr. Gaxiola says, describing the Grand Jury was not given a clear picture.
“At this point the case is stopped,” he said on Jan. 15.
Mr. Gaxiola said that the court’s ruling to grant his motion to remand ultimately means the state may return the case to a new Grand Jury to determine whether there is probable cause to file charges against Ms. Smith. However, the state is now required to provide any new Grand Jury with all of the contested evidence contained in his motion to remand and the subsequent court ruling. Given the court’s tone and definitive language employed in its ruling, it’s an uphill battle, Mr. Gaxiola said.
Mr. Gaxiola said he believes their next court date on Jan. 28, will most likely include the judge giving a deadline to the state of Arizona to return the matter to a new Grand Jury against Ms. Smith or dismiss the case.
Ms. Smith was indicted by a state Grand Jury, Attorney General Mark Brnovich announced on May 14, 2018.
Ms. Smith is facing 11 felony charges, including two counts of fraudulent schemes and practices and eight counts of conflict of interest.
The Grand Jury determines whether charges will be filed against the defendant.
In Ms. Smith’s case, the Jan. 14, ruling finds the state of Arizona failed to present exculpatory evidence, presented false and/or misleading information to the Grand Jury, and did not present the Grand Jury with two exhibits: Ms. Smith’s employment application with SUSD, and her disclosure of outside employment form.
“This evidence is of such weight that, if presented, it would deter the Grand Jury from finding the existence of probable cause. It is therefore clearly exculpatory evidence,” the ruling states.
Katie Connor, public information officer for the Arizona Attorney General’s Office, says there is no comment to provide at this time.
“The case is ongoing. We have no further comment at this time,” Ms. Connor said on Jan. 15.
Ms. Smith served as CFO for less than one year, and resigned from SUSD on Jan. 26, 2018, amid the outcome of a then-ongoing internal investigation.
In December 2017, Gust Rosenfeld attorney Susan Segal publicly announced that she was investigating Ms. Smith’s conflict of interest with the district.
While employed as Scottsdale Unified School District’s CFO, Ms. Smith is accused of approving purchase orders and change orders for Professional Group Public Consulting, Inc., also known as PGPC. Both Ms. Smith and her sister had ownership interest in PGPC, according to the AG’s office.
The conduct is alleged to have taken place between February and October 2017.
Ms. Smith’s two counts of fraudulent schemes and practices occurred on or about Feb. 24, 2017, and May 3, 2017, the indictment at the time states. It accuses her of knowingly falsifying, concealing or covering up material by any trick, scheme or device, or making or using any false writing or documents knowing such documents contained false, fictitious or fraudulent statements.
Conflict of interest charges detail Ms. Smith, a public officer or employee of a public agency, knowingly had, or whose relative had, a substantial interest in any decision of a public agency failed to make known such interest in the official records of such public agency and failed to refrain from participating in any manner as an officer or employee in such decision. A number of purchase orders are included in the indictment.
In Ms. Smith’s January 2018 resignation letter, she states she allegedly signed three conflict of interest statements, and signed two change orders regarding purchase orders to compensate PGPC for services, calling it “an inadvertent mistake.”
Ms. Segal’s internal investigation into the matter showed that two conflict of interest documents were signed by Ms. Smith. Ms. Smith’s resignation letter states her sister, Caroline Brackley, is also listed as a principal of the company.
The motion to remand was filed after Mr. Gaxiola says he obtained the case file for Ms. Smith and went through the thousands of documents included.
“I made a challenge that the Grand Jury was not presented with clearly exculpatory evidence, they were not given a clear picture,” he said.
He described the ruling as being really significant for his client.
The ruling document outlines counts 1 and 2 of the indictment, followed by counts 3-11.
For counts 1 and 2, indictment charges of fraudulent schemes and practices, the court finds cause to remand the two counts to the Grand Jury, citing a failure by the state to present clearly exculpatory evidence.
Citing exhibits 7 and 8, the document says Ms. Smith specifically listed her sister, Caroline Brackley as a reference on her application with the school district. She provided an address, an email address and a phone number for Ms. Brackley, and a reference letter in PDF format.
“The Defendant also discloses her current employer as ‘The Professional Group Public Consulting, Inc.’ and her title as ‘Director,’” the ruling states.
“She goes on to list Ms. Brackley as her supervisor and again provides Ms. Brackley’s email address and phone number. She provides a physical address for her employer, which matches the physical address she provides for her reference, Ms. Brackley.”
Secondly, exhibit 8 shows the defendant discloses having continued employment with PGPC, which she describes as “consulting to school districts for financial advice, outside of SUSD hours.”
Furthermore, the ruling outlines that the state presented false and/or misleading information to the Grand Jury. Specifically, the state’s investigator, Mr. Hirsch’s testimony was false and/or misleading. The document outlines a question-and-answer segment where Mr. Hirsch testifies that district employees were not aware of the relationship between Ms. Smith and Ms. Brackley until later in the year; and SUSD was not aware of ownership interest Ms. Smith or her sister had in PGPC.
However, the judgment states Mr. Hirsch interviewed Steve Nance, the assistant superintendent of education services at SUSD.
“When asked about when he first learned about the Defendant’s relationship with PGPC, he told Mr. Hirsch ‘I’ve known that for years and years… He knew that she was a ‘partner’ in the company… [He] also knew that [the Defendant] and Brackley were related years ago.”
The Grand Jury also was not told about Mr. Hirsch’s interview with former SUSD employee, Rose Smith, who retired in June 2017. Ms. Smith told Mr. Hirsch that the Governing Board knew about the relationship between Ms. Smith and PGPC.
Additionally, Mr. Hirsch interviewed former SUSD CFO and Chief Business Officer, Daniel O’Brien, whom Ms. Smith replaced as CFO after he was transferred to the CBO role. Mr. O’Brien told Mr. Hirsch that he “always kind (of) known that they were related in some way,” the ruling states.
For counts 3-11 of the indictment, charges of conflict of interest, the court finds cause to remand.
“To be clear, the court does not find cause to remand the part of the charges that the Defendant failed to refrain from participating in any manner as SUSD’s CFO regarding the referenced purchase orders. The current charges in Counts 3 through 11, however, are not in the disjunctive,” the document states.
“The current charges are that the Defendant (1) failed to make her or her sister’s substantial interest in any decision of SUSD known in SUSD’s official records and (2) failed to refrain from participating in any manner as SUSD’s CFO in such decision.”
The document states the court’s concern is twofold: The state did not properly instruct the Grand Jury on what constitutes SUSD’s official records; and the state did not present clearly exculpatory evidence.
The state did not instruct the Grand Jury about Arizona Revised Statute, 38-509, which requires SUSD to “maintain for public inspection in a special file all documents necessary to memorialize all disclosures of substantial interest made known pursuant to this article.”
After a Grand Juror’s question about “what is the fraud,” the Grand Jury was told that “information should be posted within a file, in a sense, that’s easily accessible to the members of the public about that information that there is a relationship between [the Defendant] and her sister, ownership of PGPC, and [the Defendant] and her ownership of PGPC” and that certain referenced written disclosures were deficient in that regard.
The exhibits 7 and 8 that the state failed to present, made known in SUSD’s official records that the defendant was a director at PGPC, and intended to continue working for the company, the document states. The records also made known that Ms. Brackley was the managing partner, Ms. Smith’s supervisor and one of her references.
“Therefore, the Court concludes that the Grand Jury could not have fairly and impartially indicted the Defendant on Counts 3 through 11 for her failure to make something known in SUSD’s official records, when as here, the Grand Jury was not properly instructed on what constitutes SUSD’s official records, and not presented with clearly exculpatory evidence.”