The accreditor that oversees several campuses owned by for-profit college company Career Education Corp. is demanding that it submit more accurate data on its job placement rates as part of a "show-cause" hearing, saying data the firm provided to the accrediting council in December was insufficient.
Illinois-based Career Education – which owns several campuses in California, including the Brooks Institute, California Culinary Academy and chain of Le Cordon Bleu schools – submitted data in late 2011 showing that at least 36 of 49 health and art-and-design colleges had not met the minimum 65 percent job placement rate required by the Accrediting Council for Independent Colleges and Schools.
The revelation about inflated job placement rates came from outside investigators hired by Career Education to respond to a subpoena from the New York attorney general. The attorney general's inquiry had focused on whether the schools were accurately counting the percentage of recent graduates who get jobs in the field – a major selling point for many colleges.
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As a result of the investigators' findings, Career Education submitted data to the accrediting council showing that many of the colleges' 2010-11 job placement rates fell below the minimum standard.
But as California Watch reported in November, the investigators didn’t examine employment information for every single graduate. They only reviewed – and corrected – a “statistically valid” sample.
So at the company's show-cause hearing in December, the accrediting council rejected the data as insufficient and continued the hearing to the council's next meeting in April.
"The council was not satisfied with the depth and breadth of that data (and) did not think it represented a strong enough case for the accuracy of that data," said Albert C. Gray, executive director of the accrediting council.
The council also required Career Education to analyze data from the previous year to see if those job placement rates were inflated.
"They said it's not enough – you need to do a better, deeper, broader analysis than that," Gray said. "You need to have a much fuller analysis of the data than a statistical sample."
Show-cause hearings give colleges the chance to prove to accreditors that a negative action should not be taken. The hearing poses risks for Career Education's 49 health and art-and-design schools because if it leads to revocation of the schools' accreditation, the colleges would no longer be eligible to receive federal student aid, which supplies the majority of Career Education's revenue. About 82 percent – or $1.7 billion – of Career Education's tuition revenue in 2010 came from federal financial aid sources, according to the company's annual report.
Career Education officials acknowledged the seriousness of this risk in a Nov. 21 filing with the U.S. Securities and Exchange Commission, saying that "the failure by the Company to satisfactorily resolve the show cause directive could have a material adverse effect on the Company’s business, reputation, financial position, cash flows and results of operations."
However, ACICS rarely revokes colleges' accreditation. Its website shows 11 schools have lost accreditation since February 2007, and Jeffrey M. Silber, an analyst with BMO Capital Markets, told the Chronicle of Higher Education that many of these colleges were closing or switching programs to another accreditor.
Mark Spencer, spokesman for Career Education, declined to comment on the matter, saying it would be inappropriate for the company to discuss a matter pending before its accreditor.
In December, U.S. Sen. Dick Durbin, D-Ill., called on Career Education to refund tuition to students if their program of study loses accreditation. Durbin's Dec. 9 press release also cited the fact that former Career Education CEO Gary E. McCullough was set to receive a $5 million severance payment, which California Watch had reported a few days earlier.
Meanwhile, several shareholder and shareholder derivative lawsuits have been filed in recent weeks against Career Education. The lawsuits accuse former company officials of breaching their fiduciary duties by reporting inflated job placement rates and other data to the public.
Shareholder derivative actions allow shareholders to sue executives or managers on behalf of the company.
In one shareholder derivative lawsuit filed in December, a shareholder alleges that several former executives who have left for "personal" reasons actually resigned because of involvement in wrongdoing – including former Senior Vice President of Culinary Arts Brian R. Williams, former Senior Vice President Thomas G. Budlong and former Senior Vice President of Art & Design Thomas A. McNamara. All three left the company in October 2011, the lawsuit claims.