The Wall Street Journal – July 20, 2012
‘The Dark Knight Rises” hits theaters this week, and no surprise some liberals are comparing the villain Bane to . . . care to take a guess? In this comic conception of the world, corporations always play the Bane to government’s Batman. Regulators may have expansive powers, but they’re rarely so heroic. In fact, they’re often the real bane.
Take the case of for-profit Decker College, which a federal bankruptcy judge has concluded was driven into bankruptcy seven years ago by its accreditor’s falsehoods that followed unusual regulatory intervention. A fact-finding report by Judge Thomas Fulton of the Western District of Kentucky last week vindicates the college, but it comes too late to save the company and many of its creditors, who include students and workers.
Decker spiraled into insolvency in the fall of 2005 after the Council on Occupational Education unfairly withdrew accreditation of its online programs in carpentry, electrical science and HVAC (heating, ventilation and air conditioning). That made Decker ineligible for federal student aid, its largest revenue source.
CEO William Weld, the former Massachusetts Governor, had no choice but to close up shop and hand control to bankruptcy trustee Robert Keats to settle $57 million in claims. Some 500 employees lost their jobs, and stories about Decker undermined Mr. Weld’s attempt to run for Governor in New York in 2006.
Mr. Keats has sought to recoup some federal student aid by challenging the Council’s statements to the Department of Education that it had never accredited Decker’s online programs. As a parenthetical, it may seem odd to teach construction over the Internet, but about 100 proprietary schools now do. When Decker introduced the programs in 2004, it was at the cutting-edge.
At any rate, Mr. Keats argued that the Council had approved Decker’s online construction programs but yanked its accreditation under pressure from a Department of Education official. His evidence?
Decker agents had discussed its online programs in detail with Council representatives in 2003 and 2004 prior to submitting an accreditation application, which also included numerous references to its “online courses,” “distance education” and “Division of Distance Education.”
The Council claimed that these references were “buried,” but Judge Fulton notes that Decker’s “disclosures, however cursory, put Defendant [Council] on notice that Plaintiff [Decker] intended to use some form of distance education to deliver course content” and that if the Council “was truly concerned about the mode of delivery of course content, as opposed to the course content itself, it would have sought formal clarification” from Decker about its intentions.
In June 2004 the Council sent Decker letters approving its programs. Two months later Decker submitted a self-evaluation, which again referred to its Division of Distance Education. No eyebrows raised. When an eight-member audit team visited the school in August, it didn’t raise any red flags about the online programs. Nor did the Council’s executive director Gary Puckett sound the alarm when he met with Mr. Weld and then chairman of the House Education Committee John Boehner in May 2005 to discuss the programs.
All of which suggests—and the judge concludes—that the Council had been aware of and approved Decker’s programs. So then why in June 2005 did Mr. Puckett tell the Department of Education that the Council didn’t know that the programs were being offered online?
Mr. Keats suspects it had something to do with a phone-call Mr. Puckett received in June 2005—around the same time that the Council itself was up for reaccreditation by the federal government. The call came from Kansas City’s Federal Student Aid case team director Ralph LoBosco inquiring into Decker’s online programs. Mr. Puckett, the accreditor, testified that Mr. LoBosco’s solicitations were unusual and that—in the words of the court—he “felt the need to assure” the Council’s government regulators that it had not approved Decker’s online programs. Hmmm.
After correspondence with Mr. LoBosco and the Council’s regulators, Mr. Puckett sent a letter to Mr. Weld (copying Mr. LoBosco and the Education Department’s director of accreditation and state liaison John Barth) that the construction programs “were not approved to be taught primarily through the distance education mode of delivery.” And there went Decker’s eligibility for federal student aid.
The judge concludes that Mr. Puckett’s statements were false but doesn’t attempt to pinpoint his motive. Mr. Puckett’s testimony, however, suggests that he was under pressure from Mr. LoBosco to deny Decker’s accreditation. (Mr. Puckett didn’t respond to our request for comment.)
But what would explain Mr. LoBosco’s unusual interest and involvement? Mr. Keats alleges that Mr. LoBosco had a personal axe to grind. As a U.S. attorney in the 1980s, Mr. Weld had prosecuted Mr. LoBosco’s former employer the Wilfred American Education Corporation for fraud, and cost Mr. LoBosco his job.
Mr. LoBosco, who is still at the Department of Education, didn’t respond to our request for comment. A department spokesman tells us that the trustee’s allegations against Mr. LoBosco were unfounded and that the judge’s report finds that the accreditor is at fault for misleading government regulators.
However, there’s nothing in the public record showing that regulators who were privy to Decker’s self-study or annual report questioned the Council’s suspect statements or Mr. LoBosco’s history with Mr. Weld, which at the very least would appear to be a conflict of interest.
The Decker case smacks of regulatory abuse and is a reminder of how easily businesses can be broken by bureaucratic power. Perhaps Congress should invite Mr. LoBosco and his supervisors to testify under oath. Who’s watching the watchmen?