Corinthian Colleges Deal Sends Appeal Packing

Career College Central Summary:

  • The 9th Circuit remanded a securities fraud class action against Corinthian Colleges after the for-profit school reached an agreement with the U.S. Department of Education's to close its campuses by the end of the year.
  • More than four years ago, investor Jimmy Elias Karam sued Corinthian in a federal class action in Los Angeles.
  • The parties had been scheduled to argue the case last week before a three-judge panel, but the 9th Circuit's Sept. 15 order vacated that hearing.
  • Karam had claimed for the class that the school inflated tuition costs and encouraged students to falsify federal financial aid forms. Corinthian was little more than an "enrollment mill," Karam said in a brief to the appeals court: admitting as many students as possible "regardless of their qualifications," in violation of federal law.
  • The school's deceptive practices allowed its stock price to soar, Karam said. But when the truth came out, shares plummeted by almost 80 percent, leading to hundreds of millions of dollars in investor losses, Karam said in his February 2013 brief to the court.
  • Karam said 90 percent of Corinthian revenue came from federal funding.
  • Seventy-two thousand students were enrolled at Corinthian schools, and received $1.4 billion in federal financial aid each year, according to the U.S. Department of Education.
  • In 2012, U.S. District Judge George King ruled in favor of Corinthian. King said that Karam and its investors Netherlands-based Stichting Pensioenfonds Metaal En Techniek pension fund, and Wyoming Retirement System failed to make clear that Corinthian had intentionally misled investors, or tied Corinthian's alleged misrepresentations to an actual loss.
  • The plaintiffs appealed to the 9th Circuit.

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