Corinthian Colleges’ Illegal Recruiting Incentives May Be Grounds for Fraud Claims by Ex-Students

Thursday, June 23, 2016
A former Corinthian student reads legal notice about the school (photo: Al Seib, L.A. Times via Getty Images)




By Gretchen Morgenson, New York Times


Corinthian Colleges, once one of the nation’s largest for-profit education companies, engaged in apparently unlawful practices by paying its recruiters based on how many sales leads they converted into actual students, according to documents unsealed late last week.


The disclosure may make it easier for former students of the defunct institution to have their federal loans forgiven by helping them establish that they were defrauded or that Corinthian violated federal law while it was operating.


The materials released by a three-judge panel of the 9th U.S. Circuit Court of Appeals are internal Corinthian documents known as “Ad Rep Performance Flash Reports.” They were originally provided by two former employees who sued Corinthian and its auditor in 2007. Most of the documents the employees produced in the case — almost 800 pages — remain under seal.


The filing also contains a sworn affidavit filed by Nyoka June Lee, one of the former Corinthian employees, who stated that her compensation was based upon meeting enrollment quotas. “Making my numbers was the only requirement to get a raise,” Lee said.


It is against the law for a school to make incentive payments to recruiters based on the students they enroll. Nevertheless, Corinthian compiled the flash reports weekly, according to Lee, who filed the suit under the False Claims Act, enacted to encourage individuals to report fraud against the government.


On June 9, the 9th Circuit affirmed a lower court’s dismissal of the employees’ case. The lower court had thrown out the case on the grounds that the employees’ allegations had already been publicly disclosed. The Justice Department had a different view, however, saying in a 2013 brief in the case that the Corinthian employees “supplied vital facts that were not in the public domain.”


Not long ago, Corinthian Colleges was a for-profit career education powerhouse with a roaring stock price. In operation since 1995, Corinthian’s schools — almost 100 Heald, WyoTech and Everest campuses and online programs — were enrolling 74,000 students by 2014. The vast majority of Corinthian’s students took out federal loans to pay for their schooling.


Corinthian filed for bankruptcy in May 2015, roughly a year after the Education Department put its campuses under tighter financial scrutiny. The government determined that Corinthian schools had falsified job placement rates used to recruit students.


Because Corinthian failed, taxpayers will cover any loan discharges.


A spokesman for the Education Department did not respond to an email seeking comment.


Years earlier, in 2010, state attorneys general had begun investigating Corinthian’s recruitment operations. By 2014, the company was fielding information requests and subpoenas from more than 20 such officials as well as the Securities and Exchange Commission and the Consumer Financial Protection Bureau.


Throughout the state investigations, Corinthian has been able to keep documents relating to its business practices confidential, arguing that they were trade secrets. This has stymied the efforts of investigators to help students get their loans forgiven.


That’s one reason Maura Healey, the Massachusetts attorney general, asked the 9th Circuit on June 16 to unseal the Corinthian flash reports. It did so the next day.


“The commonwealth believes it is important, both for deterrence and informational purposes, for the public to know what unlawful actions Corinthian took to obtain access to public funds,” Healey’s brief said.


The Education Department makes it tough for students to get their loans discharged.


Last June, the government announced a program to help Corinthian students with their debt. It said Corinthian students could have their loans discharged under two circumstances: first, if they attended a Corinthian school that closed on April 27, 2015. And second, if they believed that the school they attended had either violated state law or defrauded them. In such cases, students were required to file a claim with the Education Department known as a defense to repayment.


Making defense-to-repayment claims is complicated and time-consuming; they are typically decided individually.


The release of the Corinthian flash reports may make this complex process easier, according to Barmak Nassirian, the director of federal relations and policy analysis at the American Association of State Colleges and Universities.


The disclosure “is a big deal,” he said, “mainly for the relief it may provide to Corinthian victims but also because it exposes how a multibillion-dollar corporation actually operated in clear violation of the law.”


The Education Department is considering how to amend its defense-to-repayment rules, Nassirian added. But even under existing guidance, he said, the flash reports could give Corinthian borrowers “a very strong case for relief in regard to their federal student loan obligations.” Students who paid off their Corinthian debts could also be eligible for reimbursement, Nassirian said.


Scott D. Levy is a lawyer in Houston who represented the former Corinthian employees who filed suit against the company and its auditor, Ernst & Young. He said Corinthian and Ernst & Young asked the court in 2013 to seal the documents supplied by the former employees when it became clear that state attorneys general were investigating the education company. Corinthian argued that the release of the materials would disclose trade secrets.


John La Place, a spokesman for Ernst & Young, said it had not objected to the recent release of the Corinthian flash reports. He declined to comment on the company’s position regarding the almost 800 pages of material in the case that remain under seal.


Even though the case has been dismissed, Levy wants the court to unseal all the documents produced in it. With Corinthian Colleges in bankruptcy, any argument that the materials involve trade secrets should be rejected, he said.


Healey, the Massachusetts attorney general, agreed.


“Any information about Corinthian’s illegal conduct and aggressive recruitment tactics should be made public,” she said in a statement, “in order to provide accountability to the students and taxpayers who have suffered the consequences.”


Recent developments in the case involving Trump University, a defunct trade school started by Donald J. Trump, provide a precedent for unsealing the Corinthian documents, Levy argued. In late May, Gonzalo P. Curiel, the federal judge overseeing the trial in California, ordered the release of internal Trump University documents showing predatory recruitment practices. (Trump has maintained that criticism of the school came from a small number of former students and that most had positive experiences.)


Another reason the court should unseal all the Corinthian documents, Levy said, is that they may constitute the last remaining record of the company’s practices. As part of its bankruptcy case in Delaware, Corinthian obtained an order from the court allowing it to destroy its original documents.


“Keeping the documents sealed will further increase the cost and difficulty of the attorneys general who are trying to get fair treatment for their students,” Levy said. “Why should Corinthian’s fraud be partially concealed from the students or the state governments?”


To Learn More:

Education Dept. Fires Law Firm Investigating Fraud-Plagued Corinthian Colleges Collapse (by Jeff Horwitz, Associated Press)

85,000 More Ripped-Off Corinthian Students Can Dump Their Loans (by Ken Broder, AllGov California)

Feds Bar New Students at For-Profit Heald Colleges and Fine Parent Corinthian $30 Million (by Ken Broder, AllGov California)

Feds Sue Corinthian Colleges, Ask Court to Wipe Out Private Student Loans (by Ken Broder, AllGov California)


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