Antitrust Law Daily Wrap Up, ADVERTISING NEWS: California AG targets deceptive advertising, misrepresentations to investors by for-profit colleges, (Oct 11, 2013)
Organizations Mentioned:Career Choices, Inc. | Choices, Inc. | Corinthian Colleges, Inc. | Corinthian Schools, Inc. | Everest College Phoenix, Inc. | Florida Metropolitan University, Inc. | Heald College, LLC | MJB Acquisition Corp. | Rhodes Colleges, Inc. | Sequoia Education, Inc. | Titan Schools, Inc. | U.S. Army
By Tobias J. Gillett, J.D., LL.M.
California Attorney General Kamala G. Harris filed a complaint yesterday in the Superior Court of the State of California, County of San Francisco, charging that Corinthian Colleges, Inc. (CCI), and subsidiaries that operate Everest, Heald, and WyoTech colleges, had deceptively advertised their job placement rates to students and investors, advertised programs that they did not offer, and unlawfully used military seals in their advertising (People of the State of California v. Heald College, LLC, filed October 10, 2013). The complaint alleges violations of California’s False Advertising Law, Unfair Competition Law, and laws against securities fraud, as well as breaches of an injunction previously entered against CCI and its subsidiary Titan Schools, Inc.
According to the complaint, CCI advertised placement rates to students as high as 100 percent, even though the placement rate data in CCI’s own files was frequently far lower than the advertised rate. Moreover, communications between senior CCI executives demonstrated that they knew that CCI had “a placement compliance problem.” CCI also allegedly advertised programs—such as those for ultrasound, x-ray, radiology, and dialysis technicians—that CCI did not actually offer. CCI and its subsidiary Heald College also purportedly included U.S. Army, Navy, Air Force, Marine Corps, and Coast Guard official seals in its advertising, despite having no connection to or approval from those military branches, and without including required statutory disclaimers.
In addition, CCI allegedly misrepresented its job placement rates to investors and accrediting agencies. CCI allegedly claimed a job placement rate of 68.1 percent in materials and presentations given to investors, despite knowing that the representations were false when made. Internal audits purportedly showed job placement error rates between 53 percent and 70 percent, and an e-mail cited in the complaint stated that two campuses of CCI’s subsidiary Everest College had paid a temporary employment agency “to place students to meet the accreditation deadline and minimum placement %.”
CCI also allegedly double-counted job placements, failed to maintain required records of reported job placements, and followed a strategy of closing or selling underperforming campuses. CCI’s misrepresentations regarding its job placement rates were material to investors and constituted securities fraud, according to the Attorney General.
The complaint also charges that CCI violated a final judgment and injunction entered against it by the Los Angeles Superior Court in People v. Corinthian Schools, Inc., et al., No. BC374999 (2007), by providing the false and misleading job placement rate information, running advertisements for programs that it did not actually offer, and failing to disclose in telephone calls that it did not offer those programs.
CCI targeted its Internet, telemarketing, and television advertising at low-income, vulnerable populations, according to the complaint, including single-parent families and those with incomes near the federal poverty line. The complaint cites internal company documents referring to these consumers as “isolated,” “impatient,” having “low self-esteem,” “stuck,” “unable to see and plan well for future,” and as having “few people in their lives who care about them.”
“The predatory scheme devised by executives at Corinthian Colleges, Inc. is unconscionable,” said Attorney General Harris. “Designed to rake in profits and mislead investors, they targeted some of our state’s most particularly vulnerable people—including low income, single mothers and veterans returning from combat. My office will continue our investigation into the for-profit college industry and will hold accountable those responsible for these illegal, exploitative practices.”
According to the Attorney General, a CCI security filing revealed that it charges $40,000 in average tuition for an associate’s degree, and $34,000 in average tuition for an online associate’s degree. CCI currently operates 24 Everest, Heald, and WyoTech campuses in California, 111 total campuses in North America, and three online programs. 81,000 students attend CCI colleges, of which approximately 27,000 are in California. CCI has assets of over $1 billion, and federal funds account for almost all of its annual revenue.
Attorneys: Kamala D. Harris, Attorney General of California, and Nicholas G. Campins, Deputy Attorney General, for the People of the State of California.
Companies: Heald College, LLC; Corinthian Colleges, Inc.; Corinthian Schools, Inc.; Sequoia Education, Inc.; Career Choices, Inc.; MJB Acquisition Corp.; Titan Schools, Inc.; Rhodes Colleges, Inc.; Florida Metropolitan University, Inc.; Everest College Phoenix, Inc.
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