Career Education Settlement Gets Preliminary Approval

Career Education Corp. and investors who sued the for-profit college operator for making misleading statements about graduates’ job-placement rates received preliminary court approval of a $27.5 million settlement.

U.S. District Judge John Darrah’s order yesterday tentatively approving the accord was posted today on the Chicago federal court’s electronic docket. The judge scheduled a final approval hearing for April 3.

“It was a good settlement,” investors’ attorney James Hughes, a partner at Mount Pleasant, South Carolina-based Motley Rice LLC, said today in a phone interview. “A good settlement is a settlement in which neither side is happy.”

The Schaumburg, Illinois-based company continues to deny wrongdoing and liability, according to court papers seeking Darrah’s approval. Mark Spencer, a Career Education spokesman, didn’t immediately reply to voice-mail messages seeking comment on the accord.

Career Education is one of several for-profit education companies whose job-placement rate claims have been investigated by state and federal officials. The rates are a factor considered by agencies granting schools accreditation required for access to student loan funding.

Shareholder Sues

Stockholder Thurman Ross sued Career Education last year, claiming the company and its executives inflated placement rates and made misleading statements in U.S. Securities and Exchange Commission filings.

In a later complaint consolidating similar claims, the lead plaintiffs became KBC Asset Management NV, a unit of Brussels-based KBC Groep NV (KBC), and the Oklahoma Law Enforcement Retirement System.

In addition to yesterday’s order in the Ross-filed case, Darrah also tentatively approved a settlement of three lawsuits filed by investors on behalf of the company that accused its former chief executive officer, Gary McCullough, and other board members of breaching their fiduciary duty.

Under that accord, in exchange for a $20 million payment from insurers, Career Education will implement management reforms for four years to strengthen board independence and improve its compliance oversight and the directors’ educational competence, according to court papers.

Final approval of that settlement also is set to be considered on April 3.

The cases are Ross v. Career Education Corp. (CECO), 12-cv-00276, and Cook, derivatively on behalf of Career Education Corp. v. McCullough, 11-cv-09119, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at

To contact the editor responsible for this story: Michael Hytha at

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