January 28, 2022

New University of Phoenix Head Ran College That Closed After Fraud Suit

New University of Phoenix Head Ran College That Closed After Fraud Suit

For-profit college giant the University of Phoenix today named George A. Burnett its new president. Burnett, slated to start work next week, was once the CEO of Denver-based Alta Colleges, operator of Westwood College, which closed in 2015 in the wake of a devastating legal complaint, alleging systematic deceptions of students, filed by the state of Illinois. 

Burnett became Alta’s CEO in 2006, having previously worked at telecom Qwest Communications, which in 2004 paid $250 million to settle Securities and Exchange Commission charges of pervasive fraud, based in part on activity that occurred on Burnett’s watch. 

In 2009, with Burnett, a Dartmouth graduate, at the helm, Alta agreed to pay the U.S. government $7 million to resolve allegations that the company’s schools in Texas submitted false claims for federal student grants and loans; the Justice Department alleged that Alta’s Texas colleges obtained its required state licenses by misrepresenting to the state that they complied with job placement reporting requirements and that their interior design programs complied with requirements for a professional license. Alta’s Texas campuses stopped enrolling new students in 2011 following actions by the Texas Workforce Commission and the U.S. Veterans Administration.

In late 2011, Burnett stepped down as Alta’s CEO, a move that came, according to the Senate HELP committee’s comprehensive investigative report on the for-profit college industry, “following a number of problems involving the college’s accreditation and certification as well as lawsuits brought by former students.”

In 2012, Westwood paid $4.5 million to settle claims by Colorado’s attorney general that it had engaged in deceptive business practices — misleading prospective students, engaging in deceptive advertising, and failing to comply with Colorado’s consumer lending laws.

And in 2014, Illinois Attorney General Lisa Madigan sued Westwood, alleging that the school, starting in 2004 and through the time of lawsuit, “engaged and continue to engage in deceptive, unfair, and abusive practices in the marketing and selling of their Criminal Justice program. By misrepresentation and omission of material fact, Defendants misled and continue to mislead students about nearly every important aspect of the career-focused degree in Criminal Justice – from the financing and cost of the program to the likelihood of a positive employment outcome after the student departs the school.”

Attorney General Madigan’s complaint included devastating allegations of wrongdoing with respect to Westwood’s criminal justice program, which was pitched to low-income students in Illinois and cost more than $75,000:

In the course of marketing the Criminal Justice program to Illinois consumers, Defendants touted future careers in law enforcement – as police, sheriff officers, and FBI agents – and corrections. In reality, only 3.8% of graduates were employed as sworn law enforcement officers or correctional officers. The two most common jobs for graduates of Defendants’ Criminal Justice program were security guard (18%) and retail (8.9%) – positions which typically require only a high school diploma or equivalency degree. Remarkably, graduates of Defendants’ Criminal Justice program have had a median starting salary below the median salary of a 25-year old with a high school diploma. Not surprisingly, Defendants do not promote these poor outcomes for graduates. Instead, Defendants have misrepresented and omitted key and material information from prospective and enrolled students.

One Westwood tactic that the AG described was particularly cruel:

In one recorded phone call with a prospective student, an admissions representative told the prospective student that only a very small portion of interested students will be recommended for admission, giving rise to cause for celebration among Westwood employees: “You know, I want you to know that on a day-to-day basis, we probably interview maybe 50 to 60 students. And out of those 50 to 60 students, we probably are able to, you know, on a good day recommend five to six. And you heard the celebration — you heard the celebration of everybody, you know, when we were able to recommend a student.” In reality, there is no required or formal recommendation process. According to a senior Alta Colleges, Inc., employee, each student determines whether he or she has met the admission requirements by showing proof of high school graduation or equivalency, and then either meeting the requirements of the placement test or submitting prior examination results.

Westwood settled the Illinois case in 2015 for $15 million. A few months later, the school shut down. Alta Colleges, which was owned by the Boston private equity firm Housatonic Partners, had been getting as much as $338 million a year — more than a third of a billion dollars — from U.S. taxpayers for student grants and loans.

In July 2021, the Biden administration approved 1,600 borrower defense claims from former Westwood students who were scammed by the school, requiring a taxpayer bailout of $53 million, money that Alta had pocketed. The action came after years of efforts by Senator Dick Durbin (D-IL) to highlight abuses at Alta/Westwood and obtain relief for former students.

After leaving Alta, George Burnett became in 2012 the CEO and president of another for-profit career school, Northcentral University. Northcentral was acquired by the non-profit National University System in 2019. Around that time, Burnett left to become executive vice chairman of Academic Partnerships, one of the companies engaged in the sometimes troubling and legally questionable business of operating online programs of traditional non-profit and state universities.

So with a new U.S. President who promised to hold for-profit schools accountable for scamming students and taxpayers, the industry’s biggest school has hired a new president who previously ran a scam school? 

Maybe it’s hard to find a new leader in such an uncertain environment for the industry. Certainly, the new heads of predatory college operations Perdoceo and Zovio don’t resemble top draft picks. But in an industry that keeps on recycling the heads of predatory companies, maybe this is just the University of Phoenix showing its own ugly stripes. Phoenix itself has repeatedly engaged in deceptive, predatory, and illegal practices, leading to investigations and actions against it by the Federal Trade Commission, Department of Justice, Department of Education, VA, Department of Defense, and various state attorneys general.

Phoenix has consistently denied wrongdoing and, after being acquired by private equity firms in 2016, has pointed out that conduct that got them in trouble occurred under prior owners. But Greg Cappelli, the CEO of Phoenix’s parent, the Apollo Education Group, under the previous owners, remains an insider board member of the company. They haven’t really changed. A Phoenix instructor who recently left the school told me last fall that, under the new private equity owners, her bosses pressed teachers to keep students from dropping out, no matter how much they struggled with the coursework and showed they would not be able to benefit from it. (The instructor recently repeated her account to federal investigators.) 

The new college president, President Burnett, should fit right in. 

UPDATE 06-02-22 11:00 am:

Republic Report has learned that on June 1 the University of Phoenix’s Board of Trustees met and accepted the resignation of George Burnett as president. The Board appointed Chris Lynne, the company’s Chief Financial Officer, as interim president while it conducts a search for a new president. 

UPDATE 6-03-22 7:30 am:

USA Today reports that documents it “obtained exclusively… show that Burnett’s departure came after an inquiry by the Department of Education. Specifically, the department had questioned Burnett’s time overseeing Westwood College…. The Department’s requests included questions about how long Burnett worked at the college and its parent company, Alta Colleges, Inc., but also his role in the school’s advertisements, recruitment strategies and job placement reports. …. ‘Did you participate in or attend Westwood’s training sessions for its admissions representatives?’ read one of the 17 questions sent to Burnett.” 

(Republic Report knew about the Department information request to Burnett and the University of Phoenix yesterday but was not authorized to report on it.) 

Chris Lynne, the University of Phoenix’s Chief Financial Officer since November 2018 and now its acting president, worked, according to his LinkedIn profile, as CFO at Northcentral University from 2010 to 2014, overlapping with Burnett. In addition, from 2003 to 2010, Lynne was a senior executive of Education Management Corporation (EDMC), another of the biggest for-profit college operations.  EDMC collapsed after in 2015 it settled, for about $200 million, major fraud investigations pursued by both the U.S. Department of Justice and more than a dozen state attorneys general, brought over alleged deceptive practices and other illegal conduct that extended back into Lynne’s tenure at the company. At that time of the settlements, U.S. Attorney General Loretta Lynch called EDMC “a high pressure recruitment mill.”