Posted on: Wednesday, September 8, 2004

Corinthian Colleges shares get poor grades

By Dana Calvo
Los Angeles Times

With a successful business as a personal chef, Elizabeth Simek was living the dream of every weekend gourmet.

Her Busy B's Personal Chef Service in Peoria, Ariz., was pulling in more than $50,000 a year. But Simek worried that it wouldn't last. So the entrepreneur set out to earn a bachelor's degree in business management through an online program from Florida Metropolitan University, one of dozens of trade and technical colleges run by Santa Ana, Calif.-based Corinthian Colleges Inc.

Nearly two years into the process, she made a distressing discovery: None of her credits would transfer to any college in Arizona. And she wasn't the only disgruntled student. Simek joined one of three lawsuits against FMU alleging that the school lied about accreditation.

"All my hard work is going nowhere," she said. "It's very frustrating."

A long stretch of bad employment news has helped for-profit education companies like Corinthian, with enrollments industrywide surging 30 percent to 60 percent in the last three years.

But Corinthian has gotten poor grades from Wall Street because of lawsuits like those in Arizona, earnings disappointments and investigations by state and federal officials into the company's business practices.

Corinthian stock has fallen more than 50 percent from its peak of $36.19 reached in April.

David G. Moore, Corinthian's chairman and chief executive, acknowledged the difficulties but said the company had just completed a fiscal year of "unparalleled growth."

"It's a rite of passage," Moore said. "We're large enough that we're attracting attention."

Business Week magazine in June ranked Corinthian No. 7 on its 2004 Hot Growth list of America's fastest-growing small companies. The rankings were based on the companies' three-year results in sales, earnings growth and return on capital, according to the magazine.

As for the student lawsuits, Moore said FMU was working to improve the transferability of credits to other educational institutions. In any event, he said, students are warned when they enroll that FMU has no control over whether another school will accept its credits.

In California, the attorney general's office is investigating Corinthian as part of a broad examination of the industry.

At the federal level, the Department of Education found violations of student loan application rules at a Bryman College campus in San Jose, Calif., owned by Corinthian, the company said in June.

The California probe sparked several lawsuits accusing the company of misleading investors. Corinthian has said the suits are without merit.