Controversies and Federal Scrutiny
CEC was investigated by the United States Securities and Exchange Commission for various issues of non-compliance in 2005. In January 2008, CEC reported that the SEC has closed its investigation and will take no action against the company. A Department of Justice investigation began in 1994 and was terminated in April 2007, with the DOJ declining prosecution. Another investigation on a different matter was begun by the Civil Division of the DOJ in June 2006 and is currently ongoing.
In June 2005, the U.S. Department of Education prohibited CEC from expanding until it had resolved issues with financial statements and program reviews connected with Collins College and Brooks College two CEC schools. In January 2007, the U.S. Department of Education lifted its restrictions on the company opening new schools or acquiring existing ones.
CEC's division, American InterContinental University, was placed on probation in December 2005 with its accrediting agency, SACS. The probation status was reviewed after one year, in December 2006, and extended an additional 12 months. On December 11, 2007, CEC announced that SACS has removed AIU's probation and that the university's accreditation remains in good standing.
Brooks College, a CEC owned school, was the subject of an unfavorable examination of for-profit trade schools in the CBS news magazine 60 Minutes which focused on alleged misrepresentations by admission representatives to prospective students. A CBS producer with a hidden camera visited several CEC schools in the New York area, including the Katharine Gibbs School. In June 2007, Career Education Corporation announced that it will close both campuses of Brooks College.
In January 2007, the New York State Education Department reported deficiencies at the Katharine Gibbs School's New York campus. The problems related to faculty qualifications and remedial course offerings. Career Education has since closed Katharine Gibbs School's New York campus.
California Culinary Academy, which was purchased by CEC in 1999, was the subject of an unfavorable article in the San Francisco Weekly focusing on misrepresentations and omissions made to prospective students to enroll them in the school. According to the Chronicle of Higher Education, a lawsuit was filed over the matter.
On November 1, 2011 CEC's Chief Executive Officer resigned as corporate profits significantly fell and allegations were made involving inflated student placement statistics. Over the year the stock value dropped about 48%. Steve Lesnik was appointed by the Board of Directors to serve as the new CEO. Steve is also a visiting lecturer at Northwestern University and a Director of the Illinois Math & Science Academy Foundation. During this period system wide enrollment also dropped 24%. Several lawsuits were filed by investors who claimed they were defrauded. CEO Gary McCullough was paid nearly $9.8 million in 2011.
Read more about this topic: Career Education Corporation
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