Corinthian Colleges Deal Sends Appeal Packing

     PASADENA, Calif. (CN) – The 9th Circuit remanded a securities fraud class action against Corinthian Colleges after the for-profit school reached an agreement with the U.S. Department of Education’s to close its campuses by the end of the year.
     More than four years ago, investor Jimmy Elias Karam sued Corinthian in a federal class action in Los Angeles.
     The parties had been scheduled to argue the case last week before a three-judge panel, but the 9th Circuit’s Sept. 15 order vacated that hearing.
     Karam had claimed for the class that the school inflated tuition costs and encouraged students to falsify federal financial aid forms.
     Corinthian was little more than an “enrollment mill,” Karam said in a brief to the appeals court: admitting as many students as possible “regardless of their qualifications,” in violation of federal law.
     The school’s deceptive practices allowed its stock price to soar, Karam said. But when the truth came out, shares plummeted by almost 80 percent, leading to hundreds of millions of dollars in investor losses, Karam said in his February 2013 brief to the court.
     Karam said 90 percent of Corinthian revenue came from federal funding. Seventy-two thousand students were enrolled at Corinthian schools, and received $1.4 billion in federal financial aid each year, according to the U.S. Department of Education.
     In 2012, U.S. District Judge George King ruled in favor of Corinthian.
     King said that Karam and its investors Netherlands-based Stichting Pensioenfonds Metaal En Techniek pension fund, and Wyoming Retirement System failed to make clear that Corinthian had intentionally misled investors, or tied Corinthian’s alleged misrepresentations to an actual loss.
     The plaintiffs appealed to the 9th Circuit.
     While the case was pending at the court of appeals this July, the U.S. Department of Education reached an agreement with Corinthian Colleges to sell or close its campuses before the end of the year.
     That agreement came after “stunning new revelations” of “widespread misconduct” Karam said in a court filing at the 9th Circuit. The agreement prompted Karam to ask Judge King to reconsider the claims under Federal Rules of Civil Procedure.
     “Plaintiffs argued in the ex parte application that these new developments, together with the previously pled allegations, would have satisfied the district court’s concern whether Corinthian’s misconduct was isolated or widespread and thereby provided the requisite inferences of falsity and scienter that the district court previously found lacking in dismissing the complaint,” the Aug. 14 motion to remand stated.
     Judge King will hear the case early next year.
     Based in Santa Ana, Corinthian runs 24 Everest, Heald and WyoTech campuses in California, 111 North American campuses and three online programs.
     In September, the Consumer Financial Protection Bureau accused the for-profit school of preying on society’s poor and vulnerable to boost its admissions, and making false claims about job placements.
     Corinthian urged students to take out expensive student loans to cover their tuition and then bullied them to repay the loans while they were still in school, the CFPB alleged in a complaint that sought $500 million in damages for predatory lending.
     Former Corinthian student Francisco Lopez wrote on the CFPB website that Corinthian Colleges had used “horrible tactics” to place a “financial burden” on students. Lopez said Corinthian had persuaded him to take a medical insurance billing and coding program in 2011.
     “All I wanted was to continue my education in order to get a job that would lead me to a joyous and prosperous career, the epitome of the American dream,” Lopez wrote in comments. “Instead, I was deceived at a time when I was most vulnerable and I foolishly embarked on an eight month long program that was not worth the $20,000 plus price tag that came along with it, much less the level of education that you receive.”
     Corinthian ads target single parents close to the federal poverty level of $19,530 for a three-person household, the California Attorney General said in a state court filing against the school last year. The college and its subsidiaries, however, often charge more than $40,000 for tuition, fees and books, the prosecutor said.
     In August, Corinthian reported to financial regulators that prosecutors had served the school with a federal grand jury subpoena, signaling potential criminal charges.
     Corinthian has been sued in the nation’s courts hundreds of times, according to the Courthouse News Service database.
     Representatives for Karam and Corinthian did not immediately respond to requests for comment.

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