Credit Suisse got the attention of Wall Street last week when it issued a report recommending that investors buy shares in one of the largest for-profit college companies, DeVry Education Group. The report came less than a week after the Federal Trade Commission sued DeVry for allegedly misleading students about job placement rates and salaries for the school’s graduates, with damages potentially reaching $8.6 billion.
The Credit Suisse analyst note, issued last Tuesday, told investors that DeVry shares were worth $29 — more than 50 percent higher than the trading value that day. On Wednesday, the stock closed up by 9.73% to $19.84 on heavy trading. (By the end of Friday, the stock was down to $17.02; it was at $23.74 on the day before the FTC filed its suit, and it had peaked, in July 2011, at $65.99.)
But financial reporters didn’t note that the co-author of the Credit Suisse paper, newly-hired Trace Urdan, is an analyst with a long history of optimistic assessments of troubled for-profit colleges. Indeed, Urdan, from his previous perch at Wells Fargo Securities, offered overall positive evaluations of notorious Corinthian Colleges even as media exposes and congressional investigations revealed that Corinthian underspent on teaching, gave false information to students and regulators, and left many students worse off than when they started, and as federal and state law enforcement investigations of the company proliferated.
Urdan on Corinthian
In July 2012, the Senate HELP committee, under chairman Tom Harkin (D-IA), issued a lengthy report based on its comprehensive investigation of the for-profit college industry, and Corinthian received one of the most negative evaluations:
… the company’s tuition prices are among the highest the committee examined. This forces many students to both borrow the maximum available Federal financial aid and to take on additional private debt. The student withdrawal rates for the Associate programs are among the highest analyzed by the committee staff and the withdrawal rates for the Certificate programs are above the sector average. The company also had unusually high rates of students defaulting on student loans during the period examined.
The Senate committee specifically questioned whether Corinthian should continue to receive federal funds, which accounted for 83 percent of Corinthian’s revenues: “It is unclear that Corinthian delivers an educational product worth the rapidly growing Federal investment taxpayers and students are making in the company.”
By May 2013, Corinthian was under investigation by at least six state attorneys general for potential deceptive business practices and other legal violations.
That month, Urdan advised investors that Corinthian “remains viable and potentially appealing in the long term” for investors.
In June 2013, Urdan tweeted (to me) about Corinthian, “School offers quality instruction and opportunity. Students make of it what they will.” He appeared to blame bad outcomes at Corinthian — three quarters of former students were unable to pay down their loans — on the quality of the enrollees, whom he had termed “sub-prime” students.
In October 2013, California’s attorney general, Kamala Harris, sued Corinthian for allegedly “misrepresenting job placement rates to students, misrepresenting job placement rates to investors, advertising for programs that it does not offer, unlawfully using military seals in advertising,” and more.
In the wake of California’s lawsuit, Urdan took issue with Harris’s characterization of Corinthian as “predatory.” In a report to investors, he conceded, “we cannot discount the potential impact of the press coverage in what is the company’s largest state,” but he sought to reassure investors that Corinthian higher-ups were not complicit in the bad behavior, and that the company would be cleared in the case:
We are confident that the company has procedures in place to ensure that accurate information is presented in writing to consumers; however the potential for individual enrollment counselors to embellish and exaggerate, particularly prior to the 2010 Federal OIG investigation, is high in our view. Although we are not attorneys, we would be very surprised if the state is able to prove its case with regard to investor misrepresentation as based on our observations, the company has always been very careful.
At the time that Urdan wrote that analysis for Wells Fargo Securities, Wells Fargo, one of the biggest banks in the U.S., was the largest institutional investor in Corinthian, with about $22.5 million in shares of a company whose market capitalization at the time was $133 million.
Corinthian sold or shut down all its campuses in 2015 after the U.S. Department of Education made detailed findings that Corinthian schools had falsified job placement rates, and the Department imposed an unprecedented $30 million fine on the company. Corinthian is now in bankruptcy, and all those shares owned by Wells Fargo, and by any investors who responded positively to Urdan’s analyses, are worthless. Corinthian had been receiving as much as $1.4 billion per year from U.S. taxpayers in student loans and grants — and millions more from high-interest private loans taken out by students, many of whom were left without jobs and buried in student loan debt.
One of the latest indications of Corinthian’s systematic abuses comes in a December 2015 court filing by Illinois Attorney General Lisa Madigan. Among other allegations: Corinthian counted its Medical Administrative Assisting graduates as placed in jobs in the relevant field when they worked as cashiers at CVS; Corinthian “grossly inflated” the percentage of massage therapy graduates placed in field by counting students as placed who failed to pass the state licensing exam; and Corinthian inflated placement rates by printing business cards for students and claiming they were self-employed, without regard to students’ income or lack of licensure.
On top of all the wronged Corinthian students, and unemployed Corinthian teachers and staff, and financially injured Corinthian investors and creditors and U.S. taxpayers, there was one more casualty of this mess: Once Corinthian shares and that of some other big for-profit colleges had plummeted to around zero, Wells Fargo Securities stopped intensive coverage of the industry and laid …read more