Corinthian Falls After SEC Starts Probe on Recruitment

Corinthian Colleges Inc. fell the most in more than a year after the U.S. Securities and Exchange Commission began an investigation of the for-profit college chain.

The SEC issued a subpoena for documents related to student recruitment, attendance, degree completion, job placement, loan defaults and compliance with U.S. Education Department rules, Corinthian said yesterday in a filing.

Congress, the Justice Department and state attorneys general have been investigating recruitment practices and student borrowing at for-profit colleges. Santa Ana, California-based Corinthian received a subpoena from the California attorney general in the quarter ended Dec. 31, and another from the Wisconsin attorney general in January.

“The SEC investigation creates an additional overhang for a company dealing with various regulatory issues,” David Chu, an analyst at Bank of America Corp. in New York, wrote today in a note to clients. He rates the shares underperform.

Corinthian slid 12 percent to $2.46 at the close in New York, the biggest decline since May 2012. With today’s drop, the shares are now little changed this year.

Aid Eligibility

Corinthian is also facing an obstacle to eligibility for federal student aid because of its financial responsibility score, an Education Department measure derived from a company’s financial statements. Corinthian may have to raise cash or post a letter of credit for about $176 million if the Education Department doesn’t revise the company’s score, currently at 0.9 out of a possible 3, to 1 or above, Chu said.

Corinthian has taken steps to navigate a “tough environment,” including reducing pricing, cutting costs and expanding program offerings, Chu said.

The SEC has been investigating Carmel, Indiana-based ITT Educational Services Inc., and Pittsburgh-based Education Management Corp. The regulatory agency’s regional office in Chicago is probing reported student job-placement rates at Career Education Corp., based in Schaumburg, Illinois.

“It’s clear that the SEC is taking a renewed interest in the space,” said Jarrel Price, an analyst with Height Analytics in Washington. “They appear to be reviewing the financial responsibility aspects of these companies and how they’re using the accounting models to comply with certain metrics at the Education Department.”

Corinthian intends to cooperate with the investigation, according to the statement yesterday. Kent Jenkins, a Corinthian spokesman, declined to comment.

The Bloomberg For-Profit Education Index of 13 companies fell 1.5 percent.

(Updates share performance in first, fifth paragraphs.)
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