College Bound: An `F' For Conduct?

In the end, Janet Ronkin just couldn't bring herself to tell the truth. Toby Rose, director of College Bound Inc.'s Miami-area centers, called her at home on Apr. 23 to ask whether she and her husband, George, had resigned from their respective jobs as president and chairman of College Bound, after being charged with civil fraud by the Securities & Exchange Commission. Ronkin denied it. Then she hung up.

Moments later, Ronkin called back. She admitted that she and George were resigning from the college-test-preparation company but said she had hoped to keep the news quiet until after a weekend engagement party for her son. And she denied to Rose, who had just bought more than $4,000 in College Bound stock, that the SEC's charges were true. "I was totally used and abused and mutilated," says Rose. "I'm totally angry."

College Bound is now near complete collapse after an Apr. 29 filing for bankruptcy protection. That action followed a move by the SEC on Apr. 28 to freeze the Ronkins' assets. The SEC maintains that the Ronkins deposited $505,250 of College Bound funds into their personal bank accounts and transferred $624,000 more of College Bound's money into Swiss bank accounts last December.

There's more: In a suit filed on Apr. 23, the SEC contends that the Ronkins inflated College Bound's 1991 pretax income of $8.7 million by at least $5.2 million, mostly by funneling money from corporate bank accounts to accounts at its testing centers, then reporting the funds as revenue. The suit also says that this year's first-quarter statements were inflated by misstating receivables. The array of suits caps a months-long SEC investigation, reported in the Feb. 10 issue of BUSINESS WEEK.

SINKING SHIP. Meanwhile, the SEC halted trading in College Bound stock on Apr. 20. The company's New York attorney, Robert W. Berend, and the Financial Relations Board Inc., which handled public relations, have resigned. So has its accountant, Arthur Andersen & Co.

For now, the Ronkins aren't talking, though their current attorney, Morris Weinberg Jr., says "there is a lot that is misunderstood, a lot that has been written that is fiction, but we haven't had an opportunity to address the allegations in the complaint, which we will do in due course." As for freezing the Ronkins' assets, he says, the SEC is "absolutely wrong" about the money transfers.

It is a long way down for the once high-flying College Bound, which the Ronkins founded in 1985. In 1988, the company went public, by merging with an existing shell company. It raised more than $30 million from European investors, and its stock started a quick ascent, rising to a peak of $24 a share last August, from $4.75 in December, 1990 (chart). The rapid rise caught the attention of short-sellers, who make money by betting that a stock will fall.

By last summer, many shorts were convinced they were onto a sure bet. At the time, several reported calling College Bound's centers, only to find that some of the locations advertised weren't yet open. Others visited centers to find just a handful of students. But College Bound's stock seemed oddly unaffected. The shares would drop slightly on the rumors, then recover quickly.

COSTLY SNUB. One short-seller, Valerie McDowell, may have provided the information that helped crack the case. After being "disinvited" to a road show in November to hawk College Bound's latest bond offering, she checked on a College Bound escrow account said to be holding $15 million. Using the bank account number available on public documents, she called on Dec. 10 to find out the balance and the account activity. To her surprise, the account held just $6.29 million, and there had been a series of round-number withdrawals. Suspicious, she called an SEC contact.

The SEC was already deep into its own investigation. With a team of eight attorneys, plus accountants, the agency was painstakingly piecing together records of College Bound's bank deposits and receipts. They subpoenaed testing-center directors, who could provide information on activity and revenue.

The SEC's probe appears to be far from over. Recently released court papers show that the agency is also looking into stock manipulation. The SEC contends that as of June, 1991, 84% of College Bound's outstanding stock was held in the names of two Swiss banks.

George and Janet Ronkin used to say, as criticism of College Bound mounted, that they were simply victims of short-sellers. "We're always defending ourselves," George Ronkin told BUSINESS WEEK. Now, it looks as if that was just practice for the real thing.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE