Well, that didn't take long. Only last week, Career Education (NASDAQ:CECO), the country's second-largest for-profit chain of colleges, announced that the Education Department had satisfactorily concluded its financial review of the company and might allow it to graduate to making acquisitions once again.
But just this morning, the company announced that the Justice Department was giving it detention again, investigating allegations that some of Career Education's schools had submitted false claims or statements to the Education Department. The DOJ also wants information related to compensation for admissions personnel, the use of Pell Grant funds at one school, and student refund calculations at another.
Career Education has more than 80 campuses, more than 100,000 students enrolled, and a $3.2 billion market cap, putting it in second place among for-profit higher education. The much larger Apollo Group (NASDAQ:APOL) leads the industry with 95 campuses and 159 "learning centers," enrolling more than 300,000 students. Apollo also sports a market cap nearly three times larger than Career Education's, at $9 billion.
The company, and indeed much of the industry, has been dogged by allegations of misrepresenting graduation and job-placement rates, lowering admission standards, and paying recruiters to get warm bodies in their classrooms. Last year, Apollo was fined $9.8 million for admitting unqualified students to boost enrollment at its University of Phoenix online campus.
Yet while these types of charges have been raised many times over the years, most of the complaints have turned out to be unproven. ITT Educational Services (NYSE:ESI) was investigated by the Securities and Exchange Commission and the Department of Justice and subsequently exonerated of wrongdoing. And Corinthian College (NASDAQ:COCO) was also given a passing grade by the SEC last year.
Still, the industry's continuing legal woes have taken their toll on share prices of some of the industry's main players. But like the academic trajectory of advanced-placement students, some key players continue to excel despite the ennui gripping the rest. ITT, Strayer (NASDAQ:STRA), and DeVry (NYSE:DV) have continued to graduate to higher market caps.
Career Education has been able to grow over the years by making a sizeable number of acquisitions, which the Education Department investigation had held back. The company hoped that being cleared of any wrongdoing would let it resume adding schools and students and gaining market share from its competitors. But the Justice Department inquiry, which the company assures us is only "informational in nature," may just put another mark on its permanent file. Further delays can only be bad news for Career Education, and even worse tidings for investors seeking satisfactory returns.
Go to the head of the class with these related Foolish articles:
- Education Stocks Flunk Grade
- ITT Graduated
- Corinthian Exonerated
- Career Education Aces Annual Exam
- The High Price of Higher Education Stocks
- Big Winners for Small Investors
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
