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US Taxpayers Got Little From a College’s Canceled Debt

Is the government letting founders of a defunct for-profit college off too easily?
Is the government letting founders of a defunct for-profit college off too easily? (Photographer: Bloomberg/Bloomberg)
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In terms of a return on investment, it’s hard to imagine a worse outcome than the deal that American taxpayers got from Corinthian Colleges Inc., the for-profit college that closed and filed for bankruptcy in 2015. 

Last week, the government agreed to erase $5.8 billion in debt owed by more than 500,000 former students who had borrowed money to attend classes at Corinthian’s campuses. The hefty number represents all remaining debt racked up by students dating back to 1995, when the company was founded. That’s on top of another $171 million in debt relief for Corinthian students announced in 2016. 

On the other side of the ledger, the Securities and Exchange Commission levied a total of $100,000 in fines in 2019 to Corinthian’s former Chairman and Chief Executive Officer, Jack Massimino, and its former Chief Financial Officer, Robert Owen, for a “failure to disclose material risks related to the company’s primary source of revenue.” More specifically, Corinthian used “questionable accounting” to access federal education funds from the Department of Education that it wouldn’t otherwise be allowed to obtain. That’s not exactly an even deal.

While it’s clear that Corinthian’s aggressive business tactics, as first documented by then-California Attorney General Kamala Harris nearly a decade ago, left thousands of its former students holding the bag, it’s a bit of a mystery as to why the government hasn’t gone after the company’s former executives and directors for more money. It should, if for no other reason than to set an example. Sure, getting money out of executives and directors long after the fact may just prove to be too difficult and expensive. But refusing to try, even with a clearly stated law that provides for such an outcome seems like an open invitation for someone new to come along and replicate the problems that once plagued for-profit colleges such as Corinthian.

Virginia Democrat Bobby Scott, Chair of the US House Committee on Education and Labor, first asked that question last August in a letter to Education Secretary Miguel Cardona. Scott, citing a law dating back to 1992, argued that the Department had the ability to go after former executives and directors, including those at Corinthian. But a spokesman for the Department of Education says the department disagrees with Scott’s interpretation and has no plans to go after the company’s former executives and directors.

This may seem like a lot of inside the Beltway wrangling, but what’s clear is that Corinthian executives made lots of money while the company was luring thousands of students to its campuses with false promises of solid careers paid for by government loans. And now taxpayers are footing the bill to get these students out of debt.

According to the company’s last proxy statement filed in October 2013, Corinthian executives were very well paid. Massimino took in almost $3 million in cash compensation between 2011 and 2013 and received an additional $3 million in stock options. There were also generous perks, such as the $55,000 the company spent to cover Massimino’s travel expenses between his home in Provo, Utah, and the company’s offices in Santa Ana, California.

Back in the early 2000s, when Corinthian’s stock was trading above $50 a share, the officers and directors were actively trading shares in the company’s stock. During the last five months of 2003, the corporate officers and directors sold $57 million in company stock, according to Insider Score, a data service that tracks insider trading disclosures. They sold another $280 million in stock in 2004. Sales tapered off substantially after that.

Since filing for bankruptcy in 2015, most of Corinthian’s officers and directors have largely disappeared, at least in terms of the internet. Several of their LinkedIn profiles continue to list them as current executives of Corinthian, seven years after the campuses closed. Others have moved on to new ventures. Massimino now has a real estate management company called Chopstyx Development located in Bend, Oregon. Calls to a cell phone that appeared to be Massimino’s weren’t answered and the phone wasn’t accepting messages. 

Stan Mortenson, the company’s former general counsel, now works for an investment firm called Seidler Equities Partners in Marina del Rey, California. His experience at Corinthian does not appear in his online bio. Instead, it notes that he worked as in-house counsel for publicly traded companies, although the bulk of that time was spent working for Corinthian, which he joined in January 2000. Responding via email, Mortenson declined to comment, instead sending a link to a Wall Street Journal editorial describing last week’s settlement as the government’s own fraud on taxpayers.

Hank Adler, who is an assistant professor of accounting at Chapman University and once served as chair of Corinthian’s audit committee, also declined to comment on the settlement.

While Corinthian didn’t just implode on its own and no single executive or director bears the brunt of the blame, as a group they created an atmosphere where getting students in the door was more important than student outcomes. Many of these students were left with worthless or incomplete degrees and insurmountable debt, so asking them to bear that cost was simply unconscionable, even if taxpayers are stuck footing the bill. But given a clearly stated law, we shouldn’t be.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michelle Leder is a Bloomberg Opinion columnist. Creator of Footnoted.com, a site devoted to SEC filings, she is author of “Financial Fingerprint: Uncovering a Company’s True Value.”

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