February 1, 2024

Investor Report Highlights Abuses At Adtalem and Walden

Investor Report Highlights Abuses At Adtalem and Walden
Fahmi Quadir

A report released Tuesday by investment firm Safkhet Capital details predatory abuses at — and financial and regulatory perils now faced by — the for-profit college company Adtalem Global Education.

Safkhet is headed by Fahmi Quadir, who has been nicknamed “The Assassin” for her record of aggressively targeting companies, notably Valeant Pharmaceuticals, whose stock she has shorted, meaning she has bet the share price will decline. In the report, Safkhet acknowledges that it has taken a short position in Adtalem. But the report’s conclusions are backed by extensive and diligent research. 

The Safkhet report highlights a number of concerning developments with respect to Adtalem, the Illinois-based company that was formerly called DeVry Education, back when it operated one of the biggest for-profit schools, DeVry University.

Adtalem sold DeVry in 2018 to an operation run by private equity investor Bradley Palmer, after the school got into major law enforcement trouble for deceptive practices; Adtalem in 2016 agreed to pay $100 million to settle Federal Trade Commission claims of false advertising by DeVry.

But Adtalem then turned around and announced in 2020 that it planned to acquire another troubling school, online Walden University, from another for-profit giant, Laureate Education. In 2021, two hedge funds argued that Adtalem should not buy Walden, citing, especially, a Justice Department and Department of Education investigation into a whistleblower lawsuit alleging abuses in Walden’s graduate nursing program. The sale proceeded anyway later that year.

Then, in January 2022, former students filed a class action lawsuit against Walden, alleging that the school lured Black and female students into a business doctoral program with deceptive information, then required them to complete more credit hours than originally claimed. The students assert that such fraudulent practices cost them $28 million. 

Adtalem also operates nursing school Chamberlain University and Caribbean-based American University of the Caribbean School of Medicine, Ross University School of Medicine, and Ross University School of Veterinary Medicine — all of which, as the Safkhet report details, have their own issues with quality and student debt. 

Among the information and analyses that Quadir’s firm highlights about Adtalem:

— The U.S. Department of Education is investigating Walden’s doctoral program — a development that was disclosed in a November 2023 notice from the school’s accreditor, Higher Learning Commission.  

— Enrollment is declining at Adtalem’s medical and veterinary schools, and Walden enrollments are down nearly 50 percent since their peak in 2015. 

— The Department of Education’s new gainful employment rule, which will terminate college programs that consistently leave graduates with overwhelming debt, “will likely result in the closure of numerous [Adtalem] degree programs.” Safkhet estimates that 50 percent of Walden’s programs flunk a key gainful employment rule measure. (Adtalem this week disputed that analysis.) 

— Congress’s tightening of the 90-10 rule, which requires for-profit schools to obtain at least ten percent of their revenue from non-federal funds, imperils Adtalem’s Ross medical school. 

— Since 2016, Adtalem has received $11.34 billion in federal student loan disbursements. Now, the company faces heightened risks of liability as the Department of Education increases its efforts using the “borrower defense to repayment” law — which allows the Department to cancel federal loan debts for students ripped off by their colleges, and to seek recoupment from schools for the losses.  

— Most Adtalem schools are operating on expired program participation agreements with the Department of Education, meaning that, if a school misbehaves, the Department can promptly impose tough conditions, such as requiring serious collateral, or even terminate financial aid eligibility.  

— In fiscal year 2023, Adtalem paid its top six executive officers over $15 million, of which over $8 million went to the company’s CEO, Stephen Beard.

The Safkhet report concludes that Adtalem’s business model is “fast and loose admissions made possible by aggressive and sometimes deceptive tactics” and that Adtalem’s “future contains far too many potentially great and existential risks which are not adequately reflected in its current value.”

Looking at the for-profit college industry as a whole, and its impact on a student population that includes single mothers and veterans, Safkhet concludes, starkly, that “taxpayers are sending hundreds of billions to schools that widen the wealth gap and leave even our military in a cycle of poverty.” 

Adtalem shares dropped 19 percent Tuesday, the day Safkhet released its report, losing some $400 million in value, the worst single-day fall in five years.

Adtalem responded by moving up, from Thursday to Tuesday evening, its quarterly earnings call with investors, and on the call the company projected an upbeat stance on its future. It insisted there was “no existential risk” of losing federal aid and disputed Safkhet’s gainful employment and graduation rate calculations.  The company said it was “fully cooperating” with the Department of Education’s request for information.

BMO Capital Markets, which analyzes the for-profit education industry, then issued a report, typical of cheerleading analysts for this sector, calling Tuesday’s stock sell-off “an overreaction” and predicting “the stock will recoup some of yesterday’s losses.” They’re probably right on the market prediction, at least in the near term. But dead wrong by ignoring the moral outrage that for-profit college abuses create.

Of the giant for-profit college companies that were taking in billions in federal aid at the height of the industry’s unchecked fraudulent rampage about a dozen years ago, some, including Corinthian Colleges, ITT Tech, EDMC, CEHE, and Education Corporation of America, collapsed under the weight of shocking revelations and law enforcement probes. Others, like Kaplan University, Keiser University, Ashford University, and the University of Phoenix, have tried, with various degrees of success, or are seeking, to conceal their rotten predatory cores behind the facades of new non-profit structures and retain their principals’ large compensation packages. But a few, including Adtalem and Perdoceo Education Corp., have carried on as classic predatory for-profits, selling substandard educations through deceptive marketing, and somehow have stayed alive through efforts by the Obama and Biden administrations to hold bad-behaving schools accountable.

Whether Fahmi Quadir is right and Adtalem is headed toward failure will depend on factors including if the public, media, students, and investors start paying more attention to problems with the operation, and if the Department of Education and other oversight agencies advance efforts to stand up for students and taxpayers.