The parent advocacy group that previously accused Denver Public Schools of financial misconduct in court documents has escalated its claims, alleging the district engaged in racketeering through its bond and lease-financing structures.

Mamás de DPS filed a complaint in Denver District Court on Tuesday, accusing district officials of violating the Colorado Organized Crime Control Act. The lawsuit also names the Denver School Facilities Leasing Corp. and Wells Fargo Bank as defendants.

The lawsuit alleged that district officials violated the statute by creating a “shell corporation” and “unlawfully mortgaging” DPS buildings “for the purpose of permitting a bank trustee (here, Wells Fargo) to use public monies to generate investment revenue for private parties.”

It contended that the leasing corporation was structured to do what the district itself cannot under the Colorado Constitution — assume long-term debt without voter approval.

The complaint alleged that the leasing corporation constitutes an unlawful enterprise.

Under the Colorado Organized Crime Control Act, plaintiffs must show the existence of an enterprise and a pattern of racketeering activity. The complaint alleged both elements are present in the district’s long-running lease-financing structure.

Scott Pribble, a district spokesperson, and Amy Highland Jones, a Wells Fargo spokesperson, both declined to comment, citing the ongoing litigation.

‘The Supreme Court has never examined this issue’

This lease-financing structure is widely used in public finance circles but is little understood by the public.

Here’s how the arrangement works.

The district transfers ownership of some of its school buildings — often for as little as $10, with deeds reflecting an $81 recording fee — to the leasing corporation, which uses the buildings as collateral to raise money by selling what are known as “Certificates of Participation” or COPs.

Investors who buy the COPs are repaid by DPS through lease payments to use the schools. Because certificates of participation are not backed by the full faith and credit of the district, COPs typically carry higher interest rates than voter-approved general obligation bonds.

District officials have argued in court filings that the lease-financing structure is lawful because the debt is incurred by the leasing corporation, rather than DPS. Lease payments are subject to annual appropriation and therefore do not constitute constitutional debt, the district has maintained.

Chief Financial Officer Chuck Carpenter has acknowledged that buildings transferred to the leasing corporation could, in theory, serve as collateral under the agreements.

“The property could, theoretically, become collateral,” Carpenter has said.

Carpenter, however, downplayed the risk of the district losing any school buildings under the COP structure.

“This never happens,” Carpenter has said. “It’s not something that is practically possible.”

A Denver Gazette review of district budgets shows no stand-alone line item for COP payments, making it unclear how the board separately appropriates those funds each year.

DPS also contended that the leasing corporation is a “public entity” entitled to governmental immunity from lawsuits.

Colorado courts have upheld certificates of participation as constitutional, ruling that when structured as a renewable lease payment, rather than as long-term debt, it does not require voter approval, although challengers have argued COPs function like debt in practice.

Finance documents reviewed by The Denver Gazette show payment schedules that span decades.

While the COP financing mechanism has been used in Colorado for decades — and by DPS since at least 1984 — it has never faced a legal challenge like this one.

The Mamás de DPS lawsuit argued that DPS’ structure goes beyond what the courts have previously approved, contending that the non-appropriation clause is illusory because a default would allow the leasing corporation to foreclose on 33 school buildings.

In practice, the group’s attorney argued, that requires the district to continue making lease payments.

While Mamás de DPS contended the COPs are long-term debt, the organization — through its attorney, Lisi Owen — additionally argued the leasing corporation is structured to avoid having to obtain voter approval.

“The (Colorado) Supreme Court has never examined this issue of creating a separate entity,” Owen told The Denver Gazette.  

‘Bond money to repay other debt’

Owen, who ran unsuccessfully for Denver district attorney in 2023, is founder of Vanguard Justice LLC, which describes its work as “anti-corruption.”

“What I’m obsessed with is the structure of the deal itself,” Owen said.

The complaint also advanced a separate theory alleging district officials have been “fraudulently inducing” Denver voters into approving bond debt, in part to repay COP obligations and stabilize prior financing structures.

District records show that 2020 bond funds were used to retire at least $11 million of an earlier COP obligation and $25 million for what internal documents described as “general fund relief.”

District officials now described those transactions as lawful refinancing consistent with voter-approved authority. In earlier statements, however, a district spokesperson denied that bond funds were being used to retire COP debt.

District officials pointed to staff-prepared materials presented to the board outlining materials spending categories as evidence the transactions were authorized.

The 2020 ballot language does not expressly reference “general fund relief” or repayment of lease-backed obligations.

The complaint argued that distinction is legally significant.

“It is unlawful in Colorado to use bond money to repay other debt (especially debt that was not voter approved) and to supplement the general fund,” the lawsuit stated.

The complaint further contended that the district has increasingly relied on voter-approved bonds to sustain its broader financing structure, citing nearly $3.3 billion in bond measures since 2008.

“The purported repayment amount for that principal is $6.2 billion,” the complaint stated.

The lawsuit traced those concerns back to a 1997 mortgage structure involving the leasing corporation and to a 2008 transaction, in which the district issued $750 million in COPs with a derivative component under then-Superintendent Michael Bennet.

As previously reported by The Denver Gazette, the 2008 borrowing was tied to the district’s effort to exit its internal retirement system and join the Colorado Public Employees’ Retirement Association or PERA. The deal carried a variable interest rate linked to market conditions and was executed shortly after the collapse of Bear Stearns.

The district later paid tens of millions of dollars in termination fees to unwind portions of that arrangement.

“DPS knows that if it tells voters that it requires new debt in order to pay off old debt, it may not receive the voter approval it needs in order to issue general obligation bonds,” the complaint stated.