Profit-Seeking Colleges Take on the GAO

WASHINGTON (CN) - Profit-seeking colleges filed a third lawsuit challenging federal regulations written to rein in fraud in their business. This time the chain colleges' trade group took on the GAO report that exposed rampant corruption in the colleges' recruiting and loan practices. The Coalition for Educational Success claims the GAO report "contained inaccurate, incomplete and out-of-context information, and drew unsubstantiated, erroneous and unfair conclusions - all of which were to the detriment of the career colleges."

The GAO issued a report in August 2010 after sending investigators who posed as student seeking enrollment at 15 colleges. The Government Accountability Office found that four colleges "encouraged fraudulent practices" and that every college investigated "made deceptive or otherwise questionable statements" to the applicants.

Many of the profit-seeking chain colleges already had been sued, sometimes repeatedly, by students who claimed they had been lied to about loans, tuition, accreditation, curriculum and other essential elements of education. After the GAO report was issued, and widely covered by newspapers, another string of lawsuits followed, shareholder class actions accusing the chain schools of inflating their share prices by concealing their unethical practices.

The colleges' trade group, the Chicago-based Coalition for Educational Success, says fallout from the GAO report has been severe.

"In the days following the release of the error-ridden August Report, the market capitalization of the publicly traded organizations that own and operate career colleges dropped nearly $4.4 billion or about 14 percent," the colleges say in their complaint.

They say the industry was forced to "spend substantial sums" on public relations to "set the record straight." These expenditures apparently refer to full-page ads, in The New York Times and elsewhere, in which young people represented as students ask Congress and the president not to close their school.

In its 22-page federal complaint, the Coalition claims the GAO investigators were not properly trained and "failed to adhere to applicable professional standards and protocols in preparing its finding." It also claims that Congress and the GAO began the investigation from a biased standpoint.

The complaint states: "because the investigation was not impartial but was preordained to reach conclusions against career colleges, the GAO produced findings that were riddled with errors and replete with biased and unsubstantiated conclusions."

The congressional began after more than 100 lawsuits were filed across the country, including more than a dozen class actions, by students who claimed the schools lied to them to boost enrollment and collect federal aid dollars while failing to deliver the promised education. One of the class action plaintiffs was the state of California.

The Coalition says the GAO issued a revised report to correct errors in the initial report, but that report distorted the truth too.

"Even the revised report contains a large number of errors and distortions evidently designed to support the conclusion that the GAO investigators found substantial evidence of wrongdoing. A comparison of the tapes of some of the interviews with the descriptions reveals that the revised report describes conversations that did not take place and misinterprets numerous other statements in suggesting they were inaccurate," the Coalition claims.

The profit-seeking schools already have sued the Department of Education twice, once to enjoin it from enforcing its new regulations, and then to demand a response to its FOIA request for documents the Coalition claims may show collusion between the Department of Education and short sellers of career college stocks.

Its latest complaint, against the United States, seeks "money damages in an amount to be determined at trial" for professional malpractice.

The Coalition is represented by Paul Smith with Jenner Block.

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