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Corinthian Shares Sink on Probe News

The college company's stock loses 10% after the Financial Times reports a finding of fraud in federal loan requests.

June 25, 2004|E. Scott Reckard | Times Staff Writer

Shares of Corinthian Colleges Inc. plunged 10% Thursday on a report that the U.S. Department of Education found fraud in federal loan requests at the company's Bryman College in San Jose.

Corinthian shares closed off $2.55 at $22.51 on Nasdaq after trading as low as $20.90.

The Financial Times said the Education Department's Office of Federal Student Aid in San Francisco found that Bryman officials helped students manipulate financial aid documents.

Department spokeswoman Jane Glick said she could neither confirm nor deny the newspaper's report, based on unidentified sources, that a fraud investigation was underway. But Glick said department officials had found "significant noncompliance with our regulations" at the San Jose campus.

Santa Ana-based Corinthian said the Education Department found in December that the school had not properly verified information in students' financial aid applications. As a result, the department had delayed forwarding some funds for student loans and grants.

The company also said it had fired two financial aid officials at the Bryman-San Jose campus.

Corinthian said it "takes the findings of the program review and compliance with all regulatory processes very seriously" but said the action would not have a material effect on its financial results.

Corinthian said it believed it would have identified the problems itself during its next internal audit of the campus. The Education Department has not notified Corinthian of any intention to conduct additional program reviews at other campuses, the company said.

Glickman confirmed that the department had quit advancing financial aid funds to the campus. She said Bryman officials would have to request reimbursement after providing the funds to students.

The government sent Bryman officials a full report on its findings this month, giving the college 45 days to respond.

Glickman said any allegations of fraud would be investigated separately by the Education Department's inspector general's office. She said the bureau never discusses fraud investigations in progress.

Corinthian's colleges offer master's, bachelor's and associate's degrees and diploma programs in healthcare, business, criminal justice, technology and other career areas. The company operates 89 colleges in 22 states in the U.S. and 45 colleges and 15 corporate training centers in seven Canadian provinces.

For-profit career schools have been targeted in recent government investigations, which have produced headlines that have torpedoed the companies' stock prices.

Career Education Corp., operator of the Katharine Gibbs secretarial schools and for-profit colleges, said Wednesday that a Securities and Exchange Commission inquiry into allegations that the firm manipulated financial statements had become a formal investigation. Career Education shares fell from $58.58 to $44.11 on Wednesday, a 25% decline, before recovering slightly Thursday to $44.75 on Nasdaq.

The news about Career Education and Corinthian sent share prices tumbling at other for-profit career schools. University of Phoenix parent Apollo Group Inc. fell $4.77 to $85.85 and Education Management Corp. dropped $1.71 to $32.61, both on Nasdaq; and DeVry Inc. lost $1.45 to $27.11 on the New York Stock Exchange.

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Bloomberg News and Reuters were used in compiling this report.

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