February 9, 2016

Who Owns the Colleges The Obama Administration Just Shut Down?


Last week the U.S. Department of Education took the rare step of cutting off federal student aid to two for-profit college chains, each accused of deceiving the Department and their own students. The allegations against the schools, while similar to abuses exposed at other schools in the past, are startling. But what’s also interesting is the ownership of the two chains: While one chain is a long-time family-owned and run operation, the other has been partly owned since 2004 by a well-connected New York private equity firm, Quad Partners, that includes former New Jersey Governor Thomas H. Kean. Quad’s leader, Lincoln Frank, has been an aggressive advocate in Washington, pressing policymakers not to impose new measures to hold for-profit colleges accountable.

The family-owned chain, Computer Systems Institute (CSI!), has about 2600 students on five campuses in the Chicago and Boston areas. Of the two chains, it has the more colorful set of abuses. According to a letter from the Department to CSI’s CEO, Julia Lowder, CSI gave its accrediting agency, and the Department, false information about job placements for students. But, oh, how they did that.

Some of the fabrications were achieved via an “employer” called Home Health Consultants (HHC), which CSI reported had hired some 42 of its health care and business career students. The investigators visited the business address of HHC and found a house with a man named Zoharel Quinn, who stayed behind his closed screen door and offered absurdly unconvincing answers about his operation.

The Department investigators also interviewed the supposedly hired students, and almost none had ever heard of Quinn or HHC. Two students did say Quinn had “hired” them — to hand out flyers on the street to elderly persons “for what the students said were ‘bogus medical services.'” One of these students, according to the Department’s letter, said that “Mr. Quinn called her, and she worked for him for four days, nine hours each day, passing out pamphlets for what she described as ‘lies; tricking old people out of their money.'” Only one of the two students was paid, and she got $100 for more than 80 hours of work, about $1.25 an hour.

The investigators also visited the address of “Dream Team Hope Health Care Services”(DTH), the supposed  employer of 14 other CSI graduates. They found a nearly-empty warehouse. What follows from the Department’s letter is presented for your aggravation and/or amusement, or you can skip down below the block quote, and just know that what is described is a sketchy, sleazy mess:

Shortly after the Department’s visit to the address noted above, DTH’s supposed “Owner/Operator,” Samuel Patrick Hunter, called the Department, and said that he heard that the Department was looking for him. He claimed that he heard from someone at the garage at 70 East 63rd Street that the Department had come to arrest him. Despite multiple assurances that he would be free to leave afterward, and after he failed to confirm an arranged in-person interview, Hunter consented to a telephone interview. During that interview, Hunter claimed he filed paperwork with the State of Illinois and made a down payment, but lost the opportunity to incorporate DTH because he failed to pay the remainder of the incorporation fee. Because of the above, DTH never operated as a licensed business, but he said that he was still “working on paperwork.” He claimed to be homeless, and said that he splits his time between homeless shelters on the North and South sides of Chicago, which he refused to name.

Hunter claimed that his contact at CSI was a black male named “Chaz,” whose last name he did not know. He claimed that Chaz said he would send CSI students to work for DTH. Hunter stated that he talked with CSI’s vice president, Tom Claxton, on one occasion, although he did not say when. Hunter said that Claxton told him, that because Hunter did not possess the proper paperwork, CSI could not use DTH to place CSI’s graduates. Hunter also stated that Claxton told him that some CSI students reported as placed with DTH were working as either “homemakers” or “ in marketing.”

Hunter said that DTH provided no employment in the home healthcare aspect of the business, but rather for “marketing,” and that when employed, CSI students worked in marketing for yet another “company,” called Ashia Healthcare (Ashia), a company Hunter claimed was owned by his ex-fiance, Kimberly Burton, rather than DTH. Despite this statement, neither Ashia nor Kimberly Burton is identified as an employer or supervisor on CSI’s placement backup data.

When Burton was interviewed by the Department, she stated that she never owned, operated, nor had any affiliation with DTH.

Where were the former CSI students actually working?  As recounted in the Department’s letter, at jobs like cashier at the O’Hare airport’s McDonalds, and as a janitor — jobs that did not require an expensive (as much as $14,000 a year) CSI degree.

CSI took $20 million in federal Pell grants and student loans in the 2014-15 award year.

The other for-profit chain on which the Department acted is Marinello Schools of Beauty, which last Friday shut down all 56 of its campuses across seven states, serving about 4,300 students, after the Department informed Marinello that it was terminating access to federal student aid at 23 of those campuses.

A Department probe found that Marinello was creating fake high school diplomas for students to make them eligible for federal aid.  Marinello partnered with Parkridge Private School in Long Beach, California, which supposedly was giving students their high school educations while attending Marinello. In fact, the Parkridge requirements were almost nonexistent, and students had no contact with Parkridge  instructors. Marinello administered the supposed Parkridge exams and allegedly helped the students cheat or coached them until they passed. Worse, according to the Department, some students were told their Parkridge diplomas would be invalidated if they withdrew from Marinello — as if to confirm how bogus these “degrees” actually were.

Faking high school degrees to get student aid money was what last year got Alejandro Amor, owner of Miami’s FastTrain college, convicted by a jury of federal theft and conspiracy charges.

The Department of Education also found that Marinello forced students to pay some of their tuition out of pocket, when they were entitled to financial aid to cover those costs.

Marinello received more than $87 million in federal grants and loans last year.

“We want you to know that we did everything in our power to avoid this unfortunate conclusion and keep your school open,” Marinello Chairman & CEO Rashed Elyas said last Thursday in a letter to students. “Unfortunately, the Department of Education’s unprecedented and unfounded actions left us with no other option except to close our schools.”

Marinello Schools of Beauty should have known better than to abuse students and taxpayers this way, because its owners should have understood the stakes.

Marinello is operated by B&H Education, Inc., based in Beverly Hills, CA. B&H, in turn, has been partly owned since 2004 by a private equity firm that is well-known to close observers of the for-profit college industry. That firm is New York-based Quad Partners.

As captured on the Internet Archive Wayback Machine, B&H appeared on the Quad Partners website as part of Quad’s portfolio at least until January 27, 2016, and, I believe, was listed there as late as today (February 9). But now it has vanished from the list of “CURRENT” holdings — and doesn’t even make the list of “PREVIOUS” investments. Also until recently, the Quad website stated that a Quad founding partner, Daniel P. Neuwirth, sits on the board of B&H Education. That reference has also now vanished.

UPDATE 02-10-16 5:45 pm: According to an update posted this afternoon on an article (see below) on the website of Inside Higher Ed, whose majority owner is Quad Partners, Quad’s current stake in “a holding company that owns Marinello” is 3.6 percent. Internet searches indicate that Quad transferred part of its stake in B&H Education to another private equity firm, Boston-based Abry Partners, in 2o10. Abry Partners also recently made B&H Education disappear from its portfolio page. I have sought to find out when Quad reduced its share to its current level, but so far do not have an answer.

Quad Partners founder and managing partner Lincoln Frank was one of two co-chairmen (with Avy Stein) of the Coalition for Educational Success, a trade group aimed at curbing the Obama Administration’s gainful employment rule and other oversight of for-profit college abuses. The group, considered by some a more aggressive counterpart to the long-time trade association APSCU, included some of the biggest publicly-traded college companies — ITT Tech and EDMC — and the notorious, now-shuttered ATI, and it was headed, for a period, by relentless Washington lobbyist Lanny Davis.

The group launched an offshoot called the Foundation for Educational Success, which was charged with creating a voluntary code of conduct for the industry as an alternative to government regulation. The foundation and code of conduct were trumpeted in a press release and in a Politico op-ed by two members of the foundation’s new board of advisors, former governors Kean (R-NJ) and Ed Rendell (D-PA) — neither of which disclosed that the foundation was funded by for-profit colleges or that Kean is himself one of the Quad Partners. The code of conduct dissolved into mere public relations when the board of advisors and the entire Coalition for Educational Success, without explanation, simply ceased to exist.

As Republic Report was the first to report last March, in late 2014 Quad Partners acquired a controlling stake in the influential industry trade publication Inside Higher Ed — raising questions about whether Quad was seeking influence over a media outlet that covered its industry.  That publication’s co-editor told me at the time that Quad would have no role in editorial operations. He also said that if there were significant references in IHE to specific Quad-owned companies, the publication would disclose the relationship.

IHE published a straightforward account of the Department’s action against Marinello last week, but made no reference to the fact that IHE and Marinello share a common owner.

UPDATE 02-10-16 5:45 pm: As noted above, Inside Higher Ed this afternoon posted an update to its article on Marinello Schools of Beauty that states in part, “Quad Partners, which is an owner of Inside Higher Ed, owns 3.6 percent of a holding company that owns Marinello.”

CSI’s ownership is a different story. Ella Zibitsker founded the Skokie, IL-based company in 1989, and she remains the chair of the company’s board. The current CEO, Julia Lowder is, I learned from a social media profile, Ella Zibitsker’s daughter. 

From social media and networking sites, one learns that Lowder started working at CSI in 1994, just after graduating from the University of Wisconsin-Milwaukee. Lowder’s husband is CSI’s director of finance. The family in recent years has taken vacations to Rome, to Mexico’s Yucatan Peninsula, to Uruguay and the Dominican Republic, plus skiing in Beaver Creek and Vail, CO.

Lowder attended the Clinton Global Initiative meeting in New York in June 2014.  A video about a program to train adults for careers, featuring and acknowledging CSI, was shown at the CGI event, and Lowder managed to have at least a brief exchange with President Bill Clinton in between sessions.

There are also photos of raucous dancing at a 2009 CSI staff party.

All of this while students were left unemployed after earning their CSI degrees, and CSI was presenting phony job descriptions to the federal government department that was sending it millions of taxpayer dollars each year.

As I’ve said before, even a once well-intentioned owner might be led astray by the torrents of federal dollars available to for-profit career training programs. I don’t know what happened with CSI. Julia Lowder has not responded to various media requests, according to other published accounts, and she did not respond to a detailed voicemail I left for her through CSI’s Skokie headquarters.

This article also appears on Huffington Post.

NOTE 02-10-16 5:45 pm: I have updated my piece to note that Inside Higher Ed updated its own piece to disclose Quad’s minority ownership stake in Marinello. I also updated my piece to make clear my understanding that Quad Partners is not the sole, or even majority, owner of Marinello at this point. I was aware that Quad had shared ownership of B&H with other entities from the time of its initial investment and had transferred part of its stake in B&H to another private equity firm, Boston-based Abry Partners, in 2010, but I had not tracked down the details of Quad’s current ownership. I did not mean to imply that Quad was the sole owner of Marinello, and I should have stated that I was uncertain about the size of Quad’s current stake; that was an error on my part.  I have sought to find out when Quad’s share reached its current level, but so far do not have an answer. As I note above, Abry Partners also recently made B&H Education disappear from its portfolio page.

I also have updated this piece to note that Quad’s website until recently listed its founding partner Daniel P. Neuwirth as sitting on the board of directors of B&H Education.