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On The Money: EdFund Lawsuit

$40 Million Claim
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A building once paid for -- but unoccupied -- by EdFund. (File Photo)

A building once paid for — but unoccupied — by EdFund. (File Photo)

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By Mike Luery

SACRAMENTO (CBS13) — California is already deep in debt, so the last thing the Golden State needs is a claim to pay out millions of dollars. Yet that is exactly what taxpayers are now facing in the form of a $40 million claim against the state. California may be on the hook for allegedly failing to pay rent on two buildings in Rancho Cordova owned by Mather Development Partners.

The dispute goes back to a story On the Money first reported last year. Last July, a CBS 13 news crew was stopped by a security guard while getting video of EdFund’s empty office building.

“I’m going to have to ask you to stop filming,” the security guard told CBS 13 news photographer Peter Roney.

“Don’t touch the camera,” Roney responded.

“Ok then,” said the security guard. “Stop filming.”

“It’s assault,” Roney said.

“Stop filming,” the security guard insisted.

But photographer Peter Roney was equally adamant.

I do not have to stop filming at all,” Roney said.

That security guard didn’t want anyone to see Edfund’s empty office building. Taxpayers were shelling out $1.3 million a year in rent for the empty building leased to EdFund – an offshoot of the California Student Aid Commission.

And now EdFund – and the Student Aid Commission are the targets of a claim for $40 million in unpaid rent. The claim was filed by the building owners, Mather Development Partners IV, L.P. Their lawyer, George O’Connell told me today, “California stiffed my clients for $40 million in unpaid rent.”

The claim accuses EdFund of making false and misleading statements about its financial condition. The complaint states, “Had MATHER been informed of EDFUND’S true financial condition and status, MATHER would not have bid on the project or entered into the lease.” The claim also says, “EDFUND did not, and does not, have requisite control or authority over its revenues and assets.” Instead, that control rests with the California Student Aid Commission, the Department of Finance and/or the California State Controller’s Office, according to the claim.

The federal government has since terminated the Student Aid Commission as the guarantor of student loans – and EdFund is no longer in existence, having been replaced by Educational Credit Management Corporation (ECMC) of Oakdale, Minnesota to take over the student loan portfolio.

So for now, the claim against EdFund goes before the California Victim Compensation and Government Claims Board.

The Board has not yet set a hearing date – but it’s expected to result in a $40 million lawsuit against California – at a time when the state is drowning in red ink. The Department of Finance was studying the claim and had no immediate comment.

Send your On The Money story ideas to onthemoney@kovr.com. You can also follow On The Money stories in progress via Twitter at http://twitter.com/#!/mikeluery.

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