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Career Education Directors Sued Over Inaccurate Student Placement Reports

A Career Education Corp. (CECO) investor sued the for-profit college operator’s board for failing to ensure the accuracy of reported job-placement rates used to determine federal tuition funding eligibility.

The shareholder, Kharran Bangari, sued seven of Career Education’s directors on behalf of the Schaumburg, Illinois- based company today in Illinois state court in Chicago. She accused the board of breach of fiduciary duty and abuse of control, and is seeking money damages for the company and an order compelling the board to reform its corporate governance.

In a regulatory filing last month, the company said 49 of its schools were in jeopardy of losing their accreditation because of job-placement misrepresentations, Bangari said. The board members, some of them on the audit committee and others on the compliance committee, “failed to exercise reasonably appropriate oversight over the internal controls involving accreditation,” according to the complaint.

“The company’s accreditation issues risk the very foundation of the company’s viability as a going concern,” which is access to federal tuition funding, she alleged. “The company has been irreparably damaged.”

Among the named defendants is Chairman Steven Lesnik. Mark Spencer, a company spokesman, said Career Education officials hadn’t seen the complaint and that he couldn’t comment on it.

Accrediting Council

The Accrediting Council for Independent Colleges & Schools directed Career Education to tell it this month why its accreditation shouldn’t be suspended at the 49 health-education and art-and-design institutions, according to Bangari.

Career Education in August disclosed in a U.S. Securities and Exchange Commission filing that it had identified “improper practices” at some of its more than 90 campuses as it was responding to a subpoena issued by New York Attorney General Eric Schneiderman.

The company said it would review the reporting of placement rates at all its U.S. schools. In the course of that review, according to Bangari, Career Education learned that job- placement rates at 36 of the 49 schools were below their previously reported qualifying rate of 65 percent or greater.

The board failed to ensure the company kept reasonably detailed records that accurately reflected graduate job- placement rates and whether its schools were meeting requirements, she said.

The case is Bangari v. Lesnik, 11CH41973, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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