Career Education Corp. Denies Fraud Accusations Made by Former Employees
By ELIZABETH F. FARRELL
Accusations of fraud by former employees at some of the Career Education Corporation's campuses have spurred a lawsuit, a potential lawsuit, and an internal investigation by the company into its record-keeping practices.
The company, which owns more than 70 proprietary colleges and has 40,000 students, is publicly traded on the Nasdaq exchange. Despite three announcements by the company that the allegations were false, its share price fell by 28 percent on Wednesday, and plunged further on Thursday.
News of the lawsuit, filed by Twana Rose, a former career director at the company's Gibbs College in Montclair, N.J., surfaced in mid-November, when Career Education issued a brief statement asserting that her complaint was "without merit."
In her lawsuit, Ms. Rose alleged that she had been wrongfully terminated in June after refusing to change data about student retention and graduation. Ms. Rose also said that officials at Gibbs had allowed students to graduate, even when they did not pass courses or fulfill graduation requirements.
Enrollment and graduation data, which show consumer interest and satisfaction, are viewed by shareholders as indicators of Career Education's financial strength and stability. Accreditors also consider those figures when granting and renewing accreditation status.
In the second legal conflict, the company filed a motion for discovery -- apparently in anticipation of litigation -- in late November against Yahoo Inc. in an Illinois county court. The motion seeks to force Yahoo to divulge the identity of one of its chat-board members, who has harshly and anonymously criticized Career Education.
The member has written, among other things, that some Career Education institutions alter their placement and enrollment numbers. According to the motion, the company suspects that the chat-board member is one of its employees.
Yahoo declined to comment on the situation on Thursday.
In September, Cam Van Wingerden, a former registrar at Brooks Institute of Photography, a Career Education campus, filed a formal complaint with its accreditor, the Accrediting Council for Independent Colleges and Schools. According to Steven A. Eggland, executive director of the accreditor, the complaint alleges that Brooks officials forged students' signatures and otherwise tampered with student files.
The allegations remained private until news-media coverage this week prompted Career Education to issue three press releases, on Wednesday and Thursday. In the first, released on Wednesday, the company said a thorough internal investigation had found Ms. Van Wingerden's accusations to be "false, malicious, and possibly libelous."
On Thursday, the company announced that it had established an independent whistle-blower system to handle any complaints of fraud that employees might have. Later in the day, the company said in a separate statement that it would hold a conference call to discuss the various allegations today at 8:30 a.m., Eastern time.