September 21, 2016

Leaked Powell Emails Detail Ties to Key For-Profit College Investor


The hacked emails from former Secretary of State Colin Powell have been widely noted because of Powell’s candid remarks about topics including Hillary Clinton, Donald Trump, and nuclear weapons. But Republic Report is intrigued by a series of exchanges about the for-profit college industry between Powell and Jeffrey Leeds, a key private equity investor in, and advocate for, schools that have been sued by law enforcement agencies for defrauding students and taxpayers.

The email messages capture Powell and Leeds not only musing about politics but also addressing unfavorable media coverage of their joint involvement with the for-profit colleges, discussing possible acquisition of campuses of disgraced Corinthian Colleges, flagging business opportunities with Bill Gates and investors in Kazakhstan, and contemplating how they could persuade perceived kindred spirits in the Obama Administration to end the government’s supposed “war” on their schools.

Powell, Leeds, and for-profit colleges

Last time I had checked, in June, Powell was listed as the chair of the advisory board of Leeds’ firm, Leeds Equity Partners, which invests in for­-profit education and until 2014 owned a major stake in the second­ largest for­-profit college company, Education Management Corporation (EDMC). It’s not clear if and when Powell ended his involvement with Leeds, but today he no longer appears on the Leeds website.

Pittsburgh-based EDMC, operator of the Art Institutes, Argosy University, Brown Mackie College, and South University, once had a reputation for providing quality higher education, but that reputation went downhill during the George W. Bush years, as a lax regulatory environment gave for-profit colleges incentives to aggressively recruit students, raise prices, and cut funding for actual instruction. EDMC’s descent became even more rapid, as faculty, staff, and students have told me, after Leeds Equity Partners, Goldman Sachs, and another private equity firm took over 85% of the company’s stock in a 2006 leveraged buyout.

Many students, including low-income single mothers, and U.S. military veterans like Chris Pantzke and Mike DiGiacomo, fell prey to EDMC’s deceptive and coercive recruiting and financial aid practices, and they ended up dropping out, without degrees or enhanced job prospects but deep in debt. Pantzke, who suffered from brain trauma during combat and severe post-traumatic stress disorder, was recruited for a two-year art degree at an EDMC school with the promise of special disability services. He was then denied assistance after enrolling, had difficulty attending the online classes because of his disability, and found that the school had used all of his $65,000 in GI Bill benefits, while he incurred another $26,000 in student debt.

With his firm invested in EDMC, Jeffrey Leeds joined EDMC’s board of directors. He also served on the boards of other for-profit education companies, including Datamark, then led by CEO Arthur Benjamin. And Leeds’ company also invested in EduK Group, “the largest private sector provider of postsecondary education in Puerto Rico.”

EDMC, which has been getting as much as $1.8 billion annually in taxpayer-funded federal student grants and loans, was sued in 2011 for $11 billion by the U.S. Justice Department, which claimed the company defrauded taxpayers of that amount between 2003 and 2011. Five state attorneys general joined that lawsuit, and many more have been investigating EDMC.

Last year, EDMC agreed to pay fines or forgive loans worth some $200 million to settle claims with the Justice Department and 39 state attorneys general.

At the time of the settlements, Attorney General Loretta Lynch said, “Operating essentially as a recruitment mill, EDMC’s actions were not only a violation of federal law but also a violation of the trust placed in them by their students – including veterans and working parents – all at taxpayer expense.”

By then, EDMC’s enrollments and stock price had plummeted, and Leeds and Goldman Sachs lost control of the collapsing company, which was taken over by its creditors, led by the firm KKR, in 2014.

With his company heavily invested in higher education companies, Jeffrey Leeds had become an aggressive advocate against accountability for for-profit schools. Leeds has long served, and still serves, on the board of directors of the troubled for-profit college lobby organization APSCU/CECU, and he has sharply criticized regulations issued by the Obama Administration to prevent career colleges from leaving students with crushing debt.

For his part, Colin Powell, the advisory chairman of Leeds’ private equity firm, gave the keynote speech at the annual convention of Leeds’ for-profit college lobbying group, APSCU, in 2011, in Grapevine, Texas. Speaking at a time when congressional investigations and media reporting had exposed abuses at EDMC schools and other for-profit colleges, and the Obama Administration was seeking greater accountability for the industry, Powell reportedly gushed, “Our society has such a need for education and no field has more to help than career and private sector education.” He exhorted the for-profit college owners and executives at the event to “Make the case. The purpose of private sector education is to help … people strive for a brighter future.”

Concern about a news story

In their email exchanges, Powell and Leeds traded thoughts about government and media scrutiny of their for-profit college investments.

In one discussion, Leeds assured Powell that he had pressed the publisher of the New York Post to look into an article in his paper that called attention to Powell’s role in EDMC.

The article, by reporter Michelle Celarier, explored how for-profit colleges under scrutiny for misconduct frequently employ “Beltway heavy hitters” to gain political clout. In a sidebar that accompanied the print edition of Celarier’s story, the Post noted that Powell was an “adviser to the owner of Education Management Corp,” a company “exposed for abusive targeting of veterans” and that the company was facing the $11 billion federal fraud lawsuit.

The morning the story was published, May 26, 2015, Leeds emailed Jesse Angelo, a News Corporation executive and publisher of the New York Post, to complain that the piece was “All opinion and all wrong. Just drivel. Clearly fed by the left and shorts,” referring to Wall Street short-sellers of education stocks. Leeds added, “I think I know who her main source was. He’s a nut ball.”

I don’t know which nut ball Leeds had in mind; neither he nor Powell have responded to my requests for comment.

Leeds further complained to Angelo that the “sloppiness extends to accusation against Colin Powell … she says he and others ‘went to bat for’ for profit colleges,” Leeds wrote, claiming Powell has never promoted the firm and was “never asked to do anything.”

“Don’t know anything about it – will have a look,” responded Angelo.

The exchange was forwarded by Leeds to Powell. “I was tough,” Leeds wrote. “Jesse is the publisher and a very dear friend. Pure hatchet job. No factual basis whatsoever.” Powell later responded regarding the sidebar that mentioned his name: “they should take it off their site so it doesnt google up in future.”

The online version of Celarier’s article does not include the sidebar mentioning Powell. The sidebar, however, is preserved by the news archive website Nexis, and the original print edition of the paper.

As the day wore on, Powell seemed worried that, notwithstanding Leeds’ aggressive complaints to the Post, aspects of the article might be accurate. Powell emailed Leeds, “I was an adviser to the owner of EMC. Duh, is that you?” and quickly followed up, “Are you/EMC being sued for $11B?” and “Until recently didn’t you own more than 10%?” Leeds replied to the last question, “Never.” Leeds explained to Powell, “we are virtually out of EDMC completely. Now controlled by the bondholders.” Leeds apparently did not respond to Powell asking whether EDMC was being sued for $11 billion, which it was. For fraud. By the U.S. Justice Department.

In truth, the Post article was entirely accurate, except for the reference to Powell having been an adviser to “the” owner of EDMC; Leeds was actually “an” owner of the company.

Countering the Obama “war” on for-profit schools

Despite the billions of dollars going to EDMC and other for-profit colleges from the Department of Education, Leeds had written to Powell in 2014 that the Obama Administration was at “war” with their industry. He seemed confident that direct conversations with top administration officials could turn things around.

“If you and I had an hour with Valerie I bet we could make some progress on ending the war,” Leeds wrote to Powell, apparently referencing Valerie Jarrett, one of President Obama’s closest advisors. “The problem is really the government,” Leeds noted. “We need them to stop trying to kill us.”

Leeds’ confidence that he and Powell would quickly be able to sway Jarrett is notable, especially given that President Obama’s prior comments made clear that he personally understood how some for-profit colleges were scamming veterans and other students, as well as taxpayers.

In the same 2014 email chain, the pair discussed the fate of Corinthian Colleges, a large for-profit college operator that declared bankruptcy the following year as it faced a barrage of government lawsuits and fines over fraud. Powell noted that Corinthian is “going under” and that “for-profits” were “under attack.” Powell asked: “What do you make of it all?”

Leeds responded with an overview of his thoughts on the industry and mused that Corinthian’s collapse presented a potential business opportunity:

Everyone is struggling in higher ed, other than those with elite students and massive endowments.  School is hard, many students aren’t  prepared at all, it is expensive and running colleges is people intensive, even with a creative deployment of technology.

So it ought to be an extraordinary time to innovate….

COCO [Corinthian] was easy for the Feds to attack.  The CEO was a jerk (though I kind of liked him — he’s as affable as he is arrogant) and, more importantly, his students were really high risk, so the numbers looked bad.  No one bothers to risk adjust when the college is for profit…

So where’s the opportunity? It’s all over the place…maybe. For example, the Feds are making COCO sell most of their schools, I’d love to buy them BUT not if the Feds are going to continue to wage war.

Leeds followed up by floating a plan to use the purchase of Corinthian Colleges’ campuses as leverage to shape the behavior of then-Education Secretary Arne Duncan and Education Under Secretary Ted Mitchell. Leeds wrote to Powell, “the creative way to do this is to approach Arne or his new guy, Ted Mitchell, who is well liked and respected, and say we will help and buy this schools, but here are the conditions. We lay them out and see if they really do want to save the schools, jobs and kids. We could even approach them with our new friends, the SEIU.” (Leeds’ reference here is interesting, given that the Service Employees International Union has for years been part of the coalition of groups that had taken a strong stand against for-profit college abuses.)

If Leeds saw Ted Mitchell as a potential ally within the Administration, he must be bitterly disappointed now; Mitchell has worked diligently to hold bad actors accountable, getting tougher in his actions as the depth of abuses have been exposed, most recently with the now-collapsed predatory for-profit ITT Tech.

For his part, in the emails, Powell did not express skepticism about for-profit colleges, although he seemed well aware of the criticisms of the industry.

After a taping of Bill Maher’s HBO show, Powell wrote to Leeds that another guest, “a guy named Matthew Segal,” (a founder of the youth organization Our Time), was “bashing for-profit colleges.” In another message, Powell asked Leeds if he had read a Wall Street Journal editorial condemning the administration for its crackdown on for-profit college abuses.

Expanding the business

The emails reveal that Leeds sometimes asked Powell, beyond publicly lending his reputation to Leeds’ firm and investments, to help him make connections for his education properties.

In one exchange, Leeds asked Powell for help luring former Microsoft CEO Bill Gates into for-profit education ventures, writing in April 2o15, “My guys met with some Gates people this week who are signaling strongly that they will be investing, for the first time, in private equity funds in the education space. Would you consider calling Bill and letting him know about us and your relationship to us?”

The previous year, Leeds sought a Powell connection in a Central Asian dictatorship: “Question for you: did you or do you know people in Kazakhstan? One of our companies (INTO) is working on a large contract with leading business people in that country to facilitate their sending students to the UK and US. Would you know senior political and business leaders?  The daughter of the former head of security is involved.”

Leeds’ employment of Powell was not unusual. Many of the largest for-profit colleges  have retained well-connected lobbyists and esteemed former government officials — from Trent Lott to Dick Gephardt, Marc Morial to Bob Dole — as they sought to expand business, prevent accountability measures, and soften bad publicity. These respected figures have seemed all too happy to oblige, in exchange for fees, notwithstanding the mounting accusations that the patron schools have engaged in widespread fraud.

As a private company, Leeds Equity Partners is not required to disclose how much it has paid Powell for his services. But the emails reveal multiple financial arrangements between Leeds and Powell.

In a message to his son, a former chairman of the FCC turned lobbyist for the cable industry, Powell noted that he was in negotiations to be paid an additional salary “in the ball park” of $100,000 by one of Leeds’ leadership training academies.

“Don’t know if I ever mentioned that I am on a nice monthly retainer with Leeds equity,” Powell added to the message. “I chair his advisory committee over all his holdings and have an equity position in one.”

Leeds, once a law clerk to iconic liberal Supreme Court Justice William Brennan, has apparently done well for himself through his investments in for-profit education and other industries — and his high-profile connections. He hosts dinner parties with celebrity guests at his Manhattan residence. His ex-business partner is William Weld, the former Massachusetts governor and current Libertarian candidate for vice president. And Leeds has made generous campaign contributions to politicians including Rudolph Giuliani, Barack Obama, Hillary Clinton, Jeb Bush, Lamar Alexander, Chuck Schumer, and Senator Sheldon Whitehouse (D-RI), his Yale College roommate.

Undaunted, Senator Whitehouse is a strong advocate for students harmed by predatory schools.

This article also appears on Huffington Post