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4/14/2005

News > News

BAD EDUCATION

 

For Michael Satz, Florida Metropolitan University seemed like a good choice. Already working as a paralegal, Satz could get his bachelor's degree and enroll at Nova Southeastern Law School. FMU, a subsidiary of California-based Corinthian Colleges Inc., offered flexible scheduling, small class sizes, online courses and help securing student loans.

In June 2003, he toured FMU's Fort Lauderdale campus, one of 10 in the state. According to a lawsuit he later filed in Broward County, Satz asked FMU's representatives about the school's accreditation, and whether the credits he earned there would count toward law school at Nova. "Of course you can do this," Satz says he was told. "You'll have no problem going to law school."

Satz, according to his lawsuit, was a model student. He maintained a 4.0 GPA and earned a spot on the president's list. By March 2004, he'd completed 80 credit hours at FMU, all through online courses. Then he contacted Nova about transferring his credits, and hit a major snag.

"I found out that school would not take a single credit," he says. He checked around, and it got worse. "All of the schools in the South Florida region, not a single one would take a single credit."

To Satz that meant that nine months at FMU – which had cost him $20,000 in student loans – were worthless.

FMU is, as prospective students are told, "nationally accredited" by the Accrediting Council for Independent Colleges and Schools, or ACICS. ACICS accredits about 600 schools across the country, primarily vocational or career schools, from ITT Technical Institutes to the Golf Academy of Hawaii.

But Nova, along with 786 other public and private colleges and universities in the southeast – including 74 in Florida – doesn't recognize ACICS. The standard for those schools is accreditation by the Southern Association of Colleges and Schools, or SACS, one of six regional accrediting bodies associated with the Commission on Colleges, the country's foremost accreditation agency. "Certain colleges have national accreditation," Satz says. "It doesn't mean anything. If it's not SACS-accredited, it ain't going anywhere. It's not accepted. FMU does not disclose that."

Corinthian says that it's up to the receiving institution to decide which credits can transfer and which can't, a reality students acknowledge when filing their FMU applications. SACS representatives say their schools don't have a blanket rule against accepting ACICS credits – each school has its own rules.

Satz, who works in the Fort Lauderdale law office of attorney Peter N. Price, filed a class-action lawsuit on March 9, 2004, alleging that FMU misleads students about their ability to transfer credits. His lawsuit largely copies allegations made in a Tampa lawsuit filed a few weeks earlier in 2004 by attorney Dan Clark. Later, Clark filed another, nearly identical lawsuit on behalf of more than 80 FMU students in the Tampa area.

All three lawsuits assert that FMU recruiters and officials tell students there's no real difference between regional and national accreditation, and that credits from FMU will transfer to the state university or community college of their choice. In some cases, the lawsuits allege, students were told that national accreditation was better. Other times, FMU officials told students that the school was seeking SACS accreditation, and would have it by the time they graduated.

Corinthian, in statements to its stockholders, describes the lawsuits as "without merit." Nonetheless, Satz's lawsuit – now in binding arbitration – has attracted at least 150 co-plaintiffs, and he says 350 more have contacted Price's law firm about joining. The Tampa lawsuits have more than 80 students, a number that could potentially expand into the hundreds or thousands. Since many of the students spent $25,000 or more at FMU, a potential verdict could reach into millions of dollars.

And that's just the beginning for Corinthian.

CREDIT MESS

Corinthian is the nation's second largest operator of for-profit universities. In fiscal year 2004, the company had revenues of more than $804 million, up from $517 million the year before. It has grown rapidly since its founding in 1995 with 12 schools. By 2003, Corinthian had 69 schools; today it has 93 schools in 22 states, and 35 more in seven Canadian provinces. It teaches more than 70,000 students.

Corinthian's executives are well-paid, according to documents disclosed to shareholders. Chairman and CEO David Moore made $575,000 in 2004. The prior year he earned $450,000 and a $657,000 bonus. Two other executives make more than $300,000, though the company cut bonuses for its top three moneymakers in 2004. Corinthian employs about 10,000 people in the United States and Canada.

In October 1995, Florida Metropolitan University Inc., a wholly-owned subsidiary of Corinthian, bought out Tampa College, which had four campuses across the state, including two in Orlando. Founded in 1890, Tampa College was the oldest business school in the state. What is now FMU's north Orlando campus, which you can see from I-4 near Lee Road, was established in Orlando in 1953 as Jones College, Orlando, and became Orlando College in 1981.

In early 2000, all FMU-owned campuses took on the FMU name. Today, there are 10 FMU campuses, and 11,000 students.

FMU caters to a different clientele than traditional "brick and mortar" colleges; specializing in night and online courses, it is for students who couldn't otherwise attend school due to work or family commitments.

FMU's focus, according to Corinthian spokesperson Anna Marie Dunlap, is getting its students jobs. "Our graduates, 80 percent of them, are placed in jobs, historically," Dunlap says. "The typical student for FMU and the entire Corinthian system – it's very career-focused."

Just about anyone can get in. There is an entrance exam, but according to the lawsuits and a former FMU professor who spoke to Orlando Weekly on the condition his name not be published, it is by no means difficult.

"I really feel like they need to change who they 'recruit' as students," the professor says. "I think the major issue is that some students took the program seriously and others were total flakes."

According to the lawsuits, FMU admissions representatives go out of their way to secure federal loans for students, sometimes bending the rules in the process. The school charges $250 per credit hour. According to Satz's lawsuit, FMU requires 196 credits for a bachelor's degree, as opposed to the 120 credits required at most other schools. FMU officials say that figure is misleading because they are on quarters, not semesters, and the state of Florida requires 180 quarter class hours for a bachelor's degree. Still, a degree from FMU can cost as much as $50,000.

FMU applied for SACS accreditation in 2002, but withdrew its application in early 2003. The reason, Dunlap says, is that SACS insisted that the FMU schools not expand or add additional programs for two years while SACS processed its application, something FMU declined to do.

Accreditation is vital to a school's integrity. Schools sanctioned by the Commission of Colleges have to prove they have the resources and faculty to provide their students with a well-rounded education.

FMU is accredited by ACICS, a national accrediting agency recognized by the U.S. Department of Education. Interestingly, FMU alumni can't teach at FMU, since the school requires its teachers to have attended regionally accredited schools. Dunlap notes that ACICS is actually stricter than SACS, in the sense that along with typical education requirements, ACICS forces FMU to meet job-placement and completion criteria to remain accredited.

Do SACS-accredited schools not recognize FMU credits because they deem the institution inferior? Not necessarily, says SACS spokeswoman Ann Chard. "I don't think you can make a blanket statement," she says. "Institutions, as far as we're concerned, are responsible for setting their own transfer policies. They're free to set whatever transfer policies they wish to set. … [It] varies widely from institution to institution."

Chard points to Section 3.4.4 of SACS' Principles of Accreditation guidelines, which instructs SACS schools to develop a transfer policy "that is consistent with its mission and ensures that course work and learning outcomes are at the collegiate level and comparable to the institution's own degree programs."

ACICS accreditation entitles FMU students to receive federal loans and grants. In fact, according to a federal class-action lawsuit filed in California on behalf of Corinthian shareholders last year, 82 percent of the company's income came from federal student loans in 2003.

That suit alleges that Corinthian falsifies financial aid applications, encourages students to lie on federal financial aid forms, and alters grades and attendance records to keep failing students enrolled and receiving their federal funds.

A PERFECT STORM

Corinthian had a rough 2004, with bad publicity hitting its stock price hard. By August, the company's stock – publicly traded on NASDAQ as CoCo – had dropped to $9.99 a share, down from $36.19 a few months earlier. It has now settled around $15.83, where it closed on April 8.

In its annual report to its stockholders on June 30, 2004, Corinthian first blamed itself for not having the infrastructure in place to handle rapid growth. That, "coupled with widely publicized news, media stories regarding regulatory issues facing the education industry, mischaracterizations of the particular issues facing Corinthian, and unwarranted legal attacks related to our schools in Florida," caused them to "[face] a 'perfect storm' of bad news that has taken its toll on Corinthian's stock price and the value we have worked so hard to build for our stockholders."

That storm started with Clark's lawsuit in March, and Satz's lawsuit a few weeks later: Both allege widespread fraud.

"FMU/Corinthian's deceptive trade practices are massive and systemic," Satz's lawsuit says. "It includes the changing of failing student's (sic) grades to keep the students in school, merely for the continuation of government and private financial aid issued to the students. The deceptive trade practices are continuing and ongoing. Teachers are trained and admonished that no student is to fail any course, and the grades are changed by staff to ensure no one fails. If a teacher tries to enforce proper learning, they are disciplined and potentially terminated."

Later filings in the Satz case include an affidavit from Orlando Restrepo, a former senior registrar of Florida Metropolitan University Inc., saying he was pressured to change grades to keep failing students in school.

Dunlap told another publication that Restrepo was a student at the time, and the only grades he changed were his own. He was fired. The former professor Orlando Weekly spoke with says he felt no pressure to change grades.

Corinthian paints Satz as an opportunist, saying he essentially ripped off Clark's lawsuit. "He saw an opportunity to jump in here and get a piece of the pie," she says. "He's an expert on conning people."

In June, the U.S. Department of Education launched an investigation into Corinthian-owned Bryman College's alleged financial-aid fraud. The California school allegedly helped students to manipulate student-loan forms by claiming extra dependents to get the maximum amount of available student loans. While the review was ongoing, Bryman was prohibited from receiving financial aid payments in advance, as most schools do, and instead had to ask to be reimbursed. The DOE ended its probe in December without proof of wrongdoing.

In another bit of bad news for the company, the Securities and Exchange Commission informed Corinthian in September that it was being investigated. "[T]he inquiry concerns Corinthian's projections, financial performance and communications with securities analysts and investors during the fiscal year ended June 30, 2004, including interim periods, and for the quarter ending September 30, 2004, as well as the U.S. Department of Education program review at the San Jose, California campus of Bryman College," the company revealed in a Sept. 20 statement.

By January 2005, the SEC called off its investigation without any findings of wrongdoing, according to an article from the Dow Jones News Service. But Corinthian and other for-profit schools still face an inquiry by California's attorney general.

On Oct. 13, Corinthian filed suit against Stephen Backhus and Sean Taylor, two former FMU admissions representatives, for "actions" that "threaten to completely destroy the school's efforts and reputation, which the school obtained through its considerable efforts and substantial expenditure of money," according to an article in OC Weekly newspaper. Backhus and Taylor obtained FMU's student e-mail database and sent out an anonymous letter blasting the school's trade practices, the same practices that led to the lawsuits and investigations. The two were fired.

But the biggest threat to CCI comes from its own stockholders. In July, after CCI's stock price slipped on word of the Department of Education review, a handful of stockholders sued Corinthian for fraud. By February 2005, those lawsuits were consolidated into one big class action lawsuit in federal court in California, headed by the powerhouse Milberg Weiss Bershad & Schulman law firm. That suit contains some truly remarkable – and if proven, potentially damning – allegations.

It charges that "defendants engaged in a deliberate course of conduct where student records and data were systematically manipulated, inflated, and falsified in order to represent to the investing public that enrollment and attendance at Corinthian schools were continually growing along with the company's revenues and earnings. By doing so, defendants artificially inflated the price of Corinthian common stock."

Corinthian schools allegedly falsified financial aid forms, and encouraged students to do the same, in order to get more money from the government, the lawsuit charges. The suit alleges that schools changed grades and attendance figures to keep students eligible for those federal funds, and "[manipulated] job placement data to inflate placement rates in order to satisfy federal and state regulations."

What happened at Bryman was widespread at Corinthian schools, the lawsuit says. "Scores of interviews with 50 former employees at 25 different campuses and 13 different schools reveal common practices and undue pressure (including threat of termination) from senior management to continually increase enrollment and retention at any cost, and to discourage employees from voicing their concerns or objections to unethical and fraudulent practices."

The lawsuit names not only Corinthian, but current and former executives as well.

Dunlap says plaintiffs often name executives because executives have liability insurance, and thus are ripe for a settlement. She says the lawsuit is without merit.

Four years ago, Corinthian's stock fell when the company announced it had bad debt expense. Then, it was only worth $250 million, and no one sued. Now, Dunlap argues, the fact that its revenues are nearing the $1 billion mark makes it a more prominent target.

In November, Corinthian CEO Moore – a co-founder – abruptly quit, as did chief financial officer Dennis Beal. Moore later became chairman of Corinthian's board.

NO GUARANTEES

Corinthian has repeatedly pled its innocence and vowed to "vigorously defend" itself and the current and former executives named personally in the Milberg Weiss lawsuit.

In response to the FMU lawsuits, Corinthian argues that when students enroll, they sign a disclaimer stating FMU can't guarantee credits obtained there would transfer elsewhere: "Information concerning other schools that may accept credits toward their programs can be obtained by contacting the office of the campus president," the disclaimer read. "It should not be assumed that any courses or programs described in the university catalog can be transferred to another institution. Any decision on the comparability, appropriateness and applicability of credits and whether they should be accepted is the decision of the receiving institution.'"

In an e-mail, Dunlap elaborates on FMU's credit-transferring policy: "When students request it, we do help them in the credit transfer process, by providing documentation of what was covered in the course syllabus, and the qualifications of the instructor. We have many examples of students who have successfully transferred their credits. In addition, approximately two-thirds of our courses at FMU use the Florida state standard course numbering system, which the legislature put in place to facilitate credit transfers between the institutions that participate in that system. Although it is difficult to transfer credits in general, we do have many examples of students who have done so."

FMU also made students sign documents waiving their right to sue over any potential conflicts, instead referring the matter to binding arbitration.

Hence, the Satz case is headed toward an arbitrator. But its March 31 motion to add plaintiffs to the lawsuit was rejected, Dunlap says.

In Tampa, Clark is taking a different route with his two lawsuits. He's fighting the arbitration clause by arguing that FMU's actions were "unconscionable" and should be kept in the court system. An as-yet-unscheduled evidentiary hearing is upcoming.

Meanwhile, Corinthian's bad press continues. According to the Orange County Register, in February, 24 students of Corinthian's National Institute of Technology in Long Beach sued, claiming the school misrepresented the students' eligibility to take the Certified Medical Assistant exam.

Dunlap says Corinthian is getting a bad rap. Ultimately, as she points out, both the SEC and the Department of Education investigations turned out favorably. "For anything historically not-for-profit, when a for-profit enterprise enters into it, there's always some resistance to it," she says. "These arguments come up again and again from the nonprofit side. … The problems are not all with the for-profit industry."

When employees screw up, like at Bryman College, they get fired, Dunlap says. "Our goals are to play by the rules and have zero tolerance for employees who don't."

While the legal battles rage on, classes continue at FMU's 10 statewide campuses. As Dunlap notes, a good percentage of FMU students aren't looking for a traditional college education. Instead, they want to get in, get out and get back to the work force. Others, who want to use their classes at FMU as a stepping stone toward another institution may be disappointed, and possibly end up in court.

"If you pay $25,000 for a degree, you expect that it's going to have some value," Satz says.

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