The court-appointed receiver now overseeing the operations of distressed Dream Center Education Holdings (DCEH) has written to the Betsy DeVos Department of Education that Studio Enterprise, a company designated to service former and current DCEH schools, is taking service fees from the deal without providing any services, draining badly-needed cash from the operation. That troubling arrangement seems to be part of a worrisome disappearing act involving millions in taxpayer-funded student aid, as the meltdown of this entire operation intensifies.

Mark Dottore, the receiver, wrote to Acting Under Secretary of Education Diane Auer Jones on Thursday, with an accounting of the $51 million in taxpayer dollars the DeVos Department had provided in January and early February to Argosy University, South University, and the Art Institutes, the three chains that DCEH purchased from Education Management Corp. a year ago. (The letter was attached to a federal court filing today on behalf of DCEH students by their lawyers from the National Student Legal Defense Network.)

Dottore told Jones that the DCEH receivership faces a “dire cash situation” made worse because of the plan to have Los Angeles-based Studio Enterprise manage the schools. “Studio was not equipped to provide any services to the Universities,” Dottore wrote, “so Studio had agreements with DCEH to continue to provide all of the operational services….” Yet, under the deal, Studio is receiving substantial fees, a fact that Dottore declares “hard to understand.” In addition, Dottore wrote, he understands that the schools paid Studio in advance, and Studio “was required to send the money on to DCEH, and “it appears that over $6 million is due to DCEH from Studio for services to support the Universities; this money may never be paid short of legal action.”

Dottore also told Jones that he understood that unnamed “investors” were “supposed to inject $10,000,000 to make sure DCEH paid for the Universities’ operations. Unfortunately, there was no cash investment into DCEH by anyone. If any investor cash was contributed, it was consumed by administrative expenses, legal fees and / or Studio management fees.”

As the Arizona Republic reported last week, after speaking with Dottore, Argosy University campuses nationwide have failed to pay millions of dollars in financial aid to students, even though the school received the payments in advance from the DeVos Department. Dottore’s letter to Jones reports that his receivership cash balance is $3.8 million, while $13 million is owed to Argosy students alone.

Students at DCEH schools across the country have been writing to me, telling of their severe financial hardships from their schools withholding stipends; they can’t afford rent and other basic necessities.

As Republic Report has detailed in articles since last May, non-profit DCEH appeared to be seeking to leverage its operation of the former EDMC schools to provide revenue to for-profit schools — including Woz U and Southern Careers Institute — and other businesses tied to DCEH CEO Brent Richardson, his family members, and his long-time associates. Among other misdeeds, DCEH falsely told students that some of its campuses remained accredited, when its accreditor had suspended that status.

DCEH, which closed many of the former EDMC campuses late last year, blames its problems largely on EDMC and EDMC executives, whom it says concealed the depths of the schools’ financial woes at the time of the sale a year ago. And a source close to DCEH management says that DeVos Department officials directed it to misstate the accreditation status.

Last month, Republic Report revealed that the Education Principle Foundation (EPF), which, with the blessing of the DeVos Department, acquired many of the DCEH schools, was in fact a creature of Colbeck Capital Management, a firm also tied to Studio Enterprise, the firm slated to reap taxpayer money off the EPF-owned schools. The public was not informed of this blatant conflict of interest and abuse of non-profit status.

As to the schools not sold to EPF and thus included in the federal receivership — Argosy and some Art Institutes campuses — Dottore told Jones that he is “working with eight active potential purchasers” with hopes of selling “as soon as possible.”  Dottore told the Pittsburgh Post-Gazette last week that he was cancelling the announced March 31 closure of the Art Institute of Pittsburgh, which houses the school’s online division, as he seeks a buyer. That school, along with Argosy, is now at risk of losing accreditation because of accreditor concerns.

Dottore, an experienced receiver, was apparently DCEH’s preferred choice for the role. A source close to DCEH management has strongly expressed (to me) opposition to the DeVos-approved transfer of campuses to EPF and Studio.