Corinthian Court Order to Warn Students, Closings Sought

Corinthian Colleges Inc. (COCO), the for-profit owner of career schools that will sell or shut them in the biggest collapse in U.S. higher education, may be ordered to warn students of its financial woes.

Corinthian continues to enroll new students without disclosing that it plans to sell or close schools, California Attorney General Kamala Harris said in a lawsuit seeking to require disclosures in the company’s ads and on its websites.

Harris accuses Corinthian of misrepresenting its job placement rates, advertising non-existent programs and using unlawful debt collection practices on student loans. She said the Santa Ana, California-based company also fails to tell consumers it’s been suspended from enrolling veterans and is at substantial risk of financial collapse.

As recently as July 7, Corinthian websites described the schools as “stable and permanent” entities and it advertised military tuition assistance programs without disclosing that it was suspended from participating in a G.I. Bill program in California, Harris said in San Francisco state court filings. Her lawyers are set to ask a judge for an order today.

Corinthian denies the allegations and says in court filings that Harris’s lawsuit uses “selective, misleading and out-of-context quotations that attempt to turn the school’s commitment to high standards against it.”

‘False Allegations’

Lawyers for the company said in filings responding to the lawsuit that it has communicated extensively with students and explained its situation. Changes of ownership are common, students are protected if schools are sold or closed and Harris’s proposals for warnings are alarmist and would drive away students, they said in the filings.

“Since filing its complaint on October 10, 2013, the government has not substantiated its false and misleading allegations against the school,” the company’s lawyers said.

Krissy Humenesky, a Corinthian spokeswoman, didn’t immediately respond to a voice-mail message yesterday seeking comment on Harris’s request.

Harris said in a court filing that, without a court order, veterans, minors and parents “will continue to be misled by CCI’s false advertisements as they make important educational decisions and enroll in CCI’s programs, and they will continue to be tricked into providing marketable personal information to CCI.”

72,000 Students

Corinthian, which serves 72,000 students through its Everest, Heald and WyoTech brands, reached an agreement with the U.S. Education Department July 3 for a plan to sell or shut its 107 campuses in the U.S. and Canada.

Corinthian said it would put 85 of its U.S. schools up for sale as well as its campuses in Canada, and gradually close operations at 12 other U.S. locations as students complete their programs.

The government will provide $35 million in student aid so the company can continue classes for existing students who choose to continue their studies, the Education Department said in a statement.

On June 19, the Education Department imposed a 21-day waiting period for the company to draw on the federal student aid that accounts for almost all its revenue. The agency released $16 million on June 23, enough for Corinthian to survive for about a week, the company said. Even with federal money, the company said it wouldn’t be able to fund operations without additional bank financing, which it said it has been unable to obtain.

The case is People of the State of California v. Heald Colleges LLC, CGC-13-534793, California Superior Court (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.