WASHINGTON — The Education Department is removing a Chicago law firm hired to oversee the turnaround of schools owned by Corinthian Colleges Inc., a for-profit education company whose financial collapse had placed at risk more than $1 billion in federal student loans.
An Associated Press investigation identified conflicts with the ostensibly independent monitor.
The department said it was removing the firm, Hogan Marren Babbo & Rose Ltd. of Chicago, after the AP reviewed with senior agency officials its findings last week after a nine-month investigation examining the Obama administration’s response to Corinthian’s extraordinary collapse in 2014 amid allegations of mismanagement and fraud. The department had previously said only that it intended to review the firm’s performance going forward.
The chairman of the firm’s education practice, Charles P. Rose, declined Monday to discuss his firm’s removal.
The monitor has been overseeing the business practices of Zenith Education Group, an offshoot of a student-loan debt collection firm that took over Corinthian’s operations. It was serving as the U.S. government’s close-up eyes and ears, reviewing Zenith’s marketing materials and admissions phone calls and the accuracy of graduation and employment statistics.
“I’ve notified Zenith and Hogan Marren that we do not intend to approve renewal of Hogan Marren as the independent monitor,” Education Undersecretary Ted Mitchell told the AP. “We believe we need a monitor with different capacities to serve in this next phase of Zenith’s development.”
The AP’s investigation found that the way the monitor had been hired created an attorney-client privilege relationship that shielded its work from outside scrutiny and obligated it to act in Zenith’s interest. The firm had been hired directly by Zenith as legal counsel. That distinction created the attorney-client privileged relationship.
After the AP questioned the arrangement, the Education Department last fall altered the terms of its monitoring arrangement. Contract addendums expressly warned that Zenith was not permitted to edit Hogan Marren’s compliance reports before they were presented to the department. Nor could the firm solicit additional work from Zenith during its monitoring. The changes also allowed the government to request copies of the firm’s underlying work product.
The AP found that the firm also had advocated on behalf of for-profit colleges, helped broker the purchase of Corinthian’s assets and argued in a legal brief that for-profit schools had a free speech right not to inform prospective students about poor graduate employment outcomes.
Also, two lawyers overseeing the new for-profit operations, Rose and Dennis Cariello, were former Education Department officials who had worked at law firms employed by Corinthian in the months before it collapsed financially. Neither Zenith nor the attorneys would tell the AP whether they had personally performed legal work for Corinthian.
“The Department of Education can’t accept them as independent, period,” Sen. Sherrod Brown, D-Ohio, a member of the Health, Education, Labor and Pensions Committee.
The Education Department said it will hire a new monitor with a more prosecutorial mindset, though it has not outlined the structure of the arrangement or identified potential candidates.
The AP’s investigation found that significant problems remain at the formerly for-profit college — including its flagship Everest College brand — even after Zenith’s takeover. Zenith still recruits students through large-scale telemarketing. Major changes to its curriculum have not yet occurred. It has retained senior Corinthian executives in key posts. And it continues to recruit students using some of the same ads that Corinthian ran during the same daytime TV talk shows.
Recent graduates told the AP they are struggling to find work that would allow them to pay back their student loans, raising the prospect that the government is seeding a new crop of loan defaults.
BY JEFF HORWITZ, Associated Press