Join        Login             Stock Quote

The Questionable Activities Of For-Profit Schools

 October 22, 2010 01:18 PM

Federal prosecutors in Manhattan and Georgia last week scored a major Medicare fraud bust with the indictments of 44 members of an Armenian-American crime syndicate who billed Medicare for more than $100 million of treatments that were never performed or received. The group reportedly succeeded in stealing $35 million in Medicare reimbursements, making it the largest Medicare fraud operation conducted by a single group to result in criminal fraud charges.

"With 118 phantom clinics and over $100 million in bogus billings, this group of international gangsters allegedly ran a veritable fraud franchise," Preet Bharara, the United States attorney in Manhattan, said in a statement announcing the charges. "As charged, they stole taxpayer dollars earmarked for the elderly and infirm and got away with it, until now."

[Related -Gold hasn’t lost its allure in my portfolio]

If Bharara and his federal colleagues are genuinely concerned about misuse of taxpayer money, it is my sincere hope that they are taking a close look at the GAO's allegations that many of the nation's leading for-profit schools engaged in equally deceptive practices involving taxpayer dollars.

As someone who has investigated Wall Street for more than three decades, I've seen an incredible amount of wrongdoing. However, the activities of for-profit education schools appears to take the cake. Most Wall Street wrongdoing involves firms or brokers simply ripping off their customers; there is considerable evidence suggesting that for-profit education companies may have systematically defrauded the Department of Education, ruined, possibly forever, the finances of already hard-pressed low-income students, and deceived investors about the true condition of their business. The extent and the magnitude of the wrongdoing could possibly rival the sub-prime mortgage debacle.

[Related -Should You Buy HP's Stellar Rebound?]

The GAO reported in August that undercover tests at 15 for-profit colleges found that all made "deceptive or otherwise questionable statements" to the agency's undercover applicants. One admissions representative told an applicant to fraudulently remove $250,000 in savings on a financial aid form. A student interested in a massage therapy certificate costing $14,000 at a for-profit college was told that the program was a good value, but the GAO said the same certificate from a local community college cost $520. Recruiters at these schools also frequently engaged in aggressive marketing tactics to pressure these students, who had few options and limited financial flexibility, into enrolling. To review the extent of the alleged wrongdoing, here's a link to the GAO report. Warning: the accompanying video will make your blood boil.

My firm represents investors who bought for-education stocks that were aggressively touted by their brokers. The clients were told that for-education stocks would prosper in the wake of the downturn because millions of people would seek vocational retraining. The investors, of course, were never told that for-education companies were boosting their financials using questionable sales and marketing practices. The stocks of these companies have plummeted.

President Obama has repeatedly been bashing Wall Street for its greed and unscrupulous practices but so far his rhetoric rings hollow. The SEC remains as ineffective as ever under his administration, merely meting out wrist slaps to alleged fraudsters like Goldman Sachs and Angelo Mozilo. I say alleged because despite agreeing to pay fines of $550 million and $67.5 million respectively, they weren't required to admit any wrongdoing.

If President Obama truly cared about curbing Wall Street's reckless and ruinous behavior, he'd be at the forefront calling for a public investigation of for-profit companies and criminal prosecutions for defrauding any government program, not just Medicare.



Comments Closed

rss feed

Latest Stories

article imageTackling China's Debt Problem: Can Debt-Equity Conversions Help?

China’s high and rising corporate debt problem and how best to address it has received much attention read on...

article imageWill Job Growth Kill The Bear-Market Signal For Stocks?

It’s all about jobs now. Actually, it’s always been about jobs. But the stakes are even higher—perhaps more read on...

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Melt Up Or Melt Down?
More Articles on: Finance

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.