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Start: High School Entrepreneurs Promise to Save Millions for Schools

Ann Johansson for The New York TimesJonathan Yan (left) and Zak Kukoff: improving grades and reducing crime.

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The adventure of new ventures.

Founded in January, TruantToday is a messaging service that alerts parents instantly via text and e-mail message when students cut class. The goal? Reducing truancy and restoring state and federal financing to school districts, which can lose as much as $50 each day that a student is missing.

Employees: Three full-time employees and hiring two more: a sales representative and a designer.

Location: Westlake Village, Calif.

Founders: Zak Kukoff, 16, and Jonathan Yan, 18, classmates, started TruantToday after Mr. Kukoff skipped a 7 a.m. honors geometry class at Westlake High School. Administrators took two days to call his parents and notify them of his absence.

“An actual person from the school called and said, ‘Your son was absent two days ago and, you know, get on that,’” said Mr. Kukoff, the company’s chief executive. By then, of course, it was far too late to get him back into class. On top of that, the school was expending limited staff resources to make calls that he felt could easily be automated.

“Being the entrepreneurial sort that I am,” he said, “I immediately thought there was a huge opportunity to make a much more efficient — and much more cost effective — system for the school.”

For the record, Mr. Kukoff adds that he was not actually playing hooky. “I wasn’t skipping to go to the mall,” he said. “I was helping the student government set up for a dance.”

Pitch: “Right now, schools are losing millions of dollars per year because students don’t come to the classroom,” Mr. Kukoff said, adding that public schools in San Diego County alone lost at least $102 million in financing during the 2009-10 term because of absences. “Because we send messages out instantly, and because they go out to parents in a medium they’re already interacting in, parents can then work with the school to bring the student back to the classroom in many cases that same day, which not only saves schools millions of dollars but improves grades, lowers dropout rates and actually lowers crime rates as well.”

Traction: So far, TruantToday has signed up three paying customers in the Conejo Valley region of Southern California: Mr. Kukoff’s own Westlake High School, along with Thousand Oaks High School and Newbury Park High School. The company is running free trials at 10 more schools in Chicago, Los Angeles and New York. It is also in talks with district-level education officials in Sacramento and Seattle, Mr. Kukoff said.

Revenue: None yet. TruantToday charges on a sliding scale — from $10 to $1 per student, annually — with lower rates going to clients with the most students. Mr. Kukoff said the company is on track to start collecting revenue this year but declined to make projections.

Financing: The company is currently nearing completion of a $500,000 round of angel investment, with investors including Dave McClure of 500 Startups.

Marketing: TruantToday has been building buzz with a few early, high-profile coups. Last week, it won $15,000 in funding and took second place in the Innovation Challenge at NBC’s Education Nation Summit meeting. In June, it was voted the most promising of five start-ups selected to participate in CGI America, a Clinton Global Initiative event dedicated to creating jobs and improving economic growth in the United States. In August, the company completed a 13-week program in Boulder, Colo., with TechStars, a start-up accelerator that provides participants with seed financing and mentoring.

Mr. Kukoff said he was pitching TruantToday to media outlets that cater to educators and developing strategies that would give districts incentives to promote the service. He also blogs for The Huffington Post.

Competition: TruantToday’s primary competitor is SchoolMessenger, a service of Reliance Communications, which was founded in 1999 and is based in Santa Cruz, Calif. SchoolMessenger offers a notification system that disseminates information about emergencies, attendance and schoolwide events using voice mail, text messages, e-mail and social media. Earlier this year, New York’s mayor, Michael R. Bloomberg, teamed up with SchoolMessenger as part of WakeUp! NYC, an initiative that sent chronically absent students recorded wake-up calls from Magic Johnson and other celebrities.

Other rivals include Edulink Systems, based in Orange, Calif., and ParentLink, a service of Parlant Technology, which has its headquarters in Provo, Utah.

Mr. Kukoff believes his system is more user-friendly than most other software now available to educators. He also said that TruantToday’s system lets educators address individual absences more rapidly than his competitors’ broad-based messaging services. “We’re pitching a very specific return on investment for schools,” he said. He added that his service was the only one that allows two-way text messaging, which lets parents reply to the schools with their phones rather than connecting to the Internet.

Challenge: Getting the word out and hiring the right team members. “We’re looking for people who are not only going into business just to make profit, but to have a social impact as well,” Mr. Kukoff said. “It’s important to us to have a company that’s founded on an ethos of helping people.”

Now it’s your turn to weigh in. Can this pair of teenage social entrepreneurs go head-to-head with rivals that have been around for more than a decade?

Correction A previous version of this post reported that Mr. Kukoff had said the company had started collecting revenue. He says he meant to say that the company is on track to start collecting revenue.

Article source: http://feeds.nytimes.com/click.phdo?i=1cdd656f219eaa446c1b0650e339ccfe

Fair Game: 5 Wisconsin School Districts and 3 Ill-Fated Securities

UNEARTHING the story of the financial crisis is like conducting an archaeological dig. New shards keep emerging from the dust.

Here’s an interesting find. The Securities and Exchange Commission has sued Stifel Financial, a regional brokerage firm in St. Louis, accusing it of fraud in connection with complex debt securities it recommended to five Wisconsin school districts in 2006. Rather than settle with the commission, as many firms do, Stifel is defending the matter.

The S.E.C. sued Stifel on Aug. 10 because the firm advised the school districts to buy the three ill-fated securities, which the regulator said were unsuitably risky for unsophisticated investors. David W. Noack, the firm’s sales representative, misled school district officials when he told them that the deals, involving corporate bonds and rated AA-minus, were nearly as safe as United States Treasuries, the S.E.C. said. The Wisconsin school districts lost tens of millions of dollars on a $200 million investment, most of which was borrowed.

Stifel earned $1.6 million in commissions. But it did not create the securities — and this is where the case gets murky and interesting. Royal Bank of Canada built the failed investments, using parameters set out by Stifel and secretly profiting on the deal, Stifel said. The S.E.C. has not sued the bank.

In a lawsuit against Royal Bank of Canada, Stifel points to internal bank documents indicating a $5.4 million profit on two of the Wisconsin deals. Stifel also maintains that Royal Bank of Canada hid these and the third deal’s profits and had undisclosed conflicts as the deals’ originator. As such, RBC failed to abide by the contract with the school districts requiring “complete expense and fee transparency and disclosure,” Stifel said.

Kevin Foster, a Royal Bank of Canada spokesman, called Stifel’s allegations meritless and said the firm was trying to deflect blame to others for its central role in the troubled investments. “We never misrepresented our estimated profit to Stifel or the districts,” Mr. Foster said in a statement. “Stifel’s math is flat-out wrong and based on erroneous assumptions. The transactions were not profitable to RBC.”

Stifel and a lawyer for Mr. Noack declined to comment.

Here’s a short history of the transactions. In 2005, the school districts faced $400 million in unfunded health care and other non-pension guarantees for retired workers. Mr. Noack had been financial adviser to the districts for decades; he suggested they borrow money and invest in securities rated AA-minus that would generate more in yield than they had to pay in interest.

This becomes maddeningly complex: The bank from which the school districts borrowed — Depfa, of Ireland — told Stifel that it preferred collateralized debt obligations as the securities against which it would lend money to the districts. Stifel asked for proposals from banks. Royal Bank of Canada won the assignment and began to construct synthetic collateralized debt obligations linked to about 100 corporate bonds. It worked with ACA Management and UBS to select the underlying portfolios.

Depfa lent the money to the districts on a “nonrecourse” basis, meaning that the districts would not have to repay the loan if the securities bought with the borrowed funds defaulted. This arrangement, Stifel argues, shows that Depfa, a sophisticated institution, believed that the investment was not high-risk. Under the deal’s terms, Depfa could seize the collateral if the security’s asset values fell to 95 cents on the dollar and did not return to $1.01 within 30 days.

It didn’t take long for the deals to go south, and for the school districts to lose their $37 million investment. Depfa seized the underlying collateral supporting its $163 million loan. Lawsuits began flying.

Once again, we see the same toxic ingredients that have appeared repeatedly in the aftermath of the crisis: collateralized debt obligations, credit default swaps, ruinous leverage, an overreliance on credit ratings, greed and extreme naïveté.

But the case raises questions about a largely unexplored part of the collateralized debt obligation mania — whether Wall Street firms putting together these deals knew how to game the ratings agency models and profited by selecting debt issues to suit their purposes.

If, for example, a firm was designing an instrument to be used to bet against the underlying collateral — Goldman Sachs’s famous Abacus deal was created so the hedge fund manager John Paulson could short risky mortgages — a firm could assign debt issues to the deal that carried overly optimistic or misplaced ratings. Later, when reality intervened and the ratings were cut, those betting against the underlying collateral would prosper.

Article source: http://feeds.nytimes.com/click.phdo?i=d21a0cca6fa01927a399175926c11d42

Start: High School Entrepreneurs Promise to Save Millions for Schools

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Fair Game: 5 Wisconsin School Districts and 3 Ill-Fated Securities

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