E-Mails Spice Up Lawsuit Over Private Colleges

Posted: October 5, 2010 in News
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Hedge-fund manager Steven Eisman made a fortune shorting subprime debt, and at last May’s Ira Sohn Conference in New York he announced his next target: For-profit colleges. Now Eisman’s efforts have inspired a nasty lawsuit by a Florida school that accuses him of conspiring with administrators at two competing public colleges to drive down the value of for-profit schools.

I’d file this under “sour grapes” along with any number of similar suits against short-sellers, or the United States Football League’s hail-Mary antitrust suit against the NFL. Except for two things: Plaintiff  Keiser University in Fort Lauderdale used the Freedom of Information Act to get all sorts of nasty e-mails from public school administrators to the short-sellers. And the law firm at the bottom of the complaint, Bartlit Beck , has a well-deserved reputation for top-gun litigation.

The suit is curious because it doesn’t name Eisman or the other short-sellers as defendants and the plaintiff, Keiser, isn’t one of Eisman’s publicly traded targets. Instead it names Steven Wallace and Susan Lehr, chief executive and head of government relations, respectively, at Florida State College at Jacksonville. But more litigation may be coming soon. Keiser got 15,000 documents in its FOIA request including some that might give ammunition to public companies should they decide to sue.

“There are other documents out there that were not necessarily relevant to our lawsuit that certainly implicate claims by others,” said James Waldman, in-house counsel at Keiser. Since they’re all public documents, Waldman said, he’s in a sharing mood.

The suit accuses Florida State College of disparaging Keiser and other private schools of feeding “false stories to the media” that the private schools ripped off students and provided worthless degrees. That was Eisman’s investment thesis, of course, as well as a frequent complaint by critics of for-profit career schools that often operate on a stream of federal loan money.

Named as “co-conspirators” are Eisman of Frontpoint Partners in Greenwich, Conn.; Gilchrest Berg of Water Street Capital in Jacksonville; Antal Desai with CMCG in Dallas and officials with several groups opposed to the private student loan industry as well as U.S. Public Interest Group.

“Here’s a bunch of good stuff to get you started in your exploration of greed, corruption and predatory schemes among Florida’s proprietary and for-profit career `colleges,’” Wallace says in one e-mail to Berg the plaintiffs say they obtained under a FOIA request. In another e-mail, Wallace boasts to Berg that a planned new public technical colleege “is designed, in part, to drive the sleazebags out of our region.”

Wallace and Lehr were at a meeting and unavailable for comment Tuesday.

The lawsuit details correspondence between various public-education advocates and reporters at USA Today, Bloomberg, the Miami Herald and others. The suit says such efforts tortiously interfered with the relationship between Keiser and its students and constituted “injurious falsehood.”

In his May speech entitled “Subprime Goes to College,” Eisman ripped the entire sector as providing subpar educations financed with subsidized federal loans. He was particularly critical of Washington Post Co., which has long since moved on from its newspaper roots and now derives most of its earnings from for-profit education including its Kaplan testing unit.

So far, Eisman’s bet has paid off, with for-profit schools falling up to 50% amid rumblings the government will impose new rules tying access to federal loans with the schools’ success in finding graduates jobs.

Meanwhile in August, the General Accountability Office released a report showing that undercover tests of 15 for-profit colleges found that all 15 had engaged in deceptive practices including overstating “undercover applicants’ potential salary after graduation” and failing to disclose all costs. Perhaps mindful of future litigation, the report was careful to state that “results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.”

From: http://blogs.forbes.com/danielfisher/2010/10/05/e-mails-spice-up-lawsuit-over-private-colleges/



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