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CAREER EDUCATION CORPORATION.
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BOSTIC R STEVEN
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Steve Bostic issued the following press release on May 10, 2006:
FOR IMMEDIATE RELEASE
Steve Bostic Urges Stockholders to Vote to Restore Integrity and Sound
Educational Values at Career Education Corp. to Protect the Value of Their
Investment
Urges Fellow Stockholders to Vote the BLUE Proxy Card
SEA ISLAND, GA, May 10, 2006 -- Steve Bostic, the beneficial owner of
approximately 1% of the outstanding stock of Career Education Corporation
(NASDAQ: CECO), today issued the following letter to his fellow stockholders.
The letter urges stockholders to vote for the alternative slate of directors,
comprised of James E. Copeland, Jr., R. William Ide III and himself, in order to
ensure effective Board oversight, and restore integrity and sound educational
values to the company:
May 10, 2006
Dear Fellow Stockholder,
At Career Education Corporation's Annual Meeting next week on May 18, 2006, you
have a critical decision to make. CEC can continue down its current path, which
has led to multiple regulatory investigations, shareholder lawsuits and, of
gravest concern, the looming potential loss of the accreditation of American
InterContinental University (AIU) by the Southern Association of Colleges and
Schools (SACS) - or you can take the first step towards restoring the company on
a path to greater profitability and value for stockholders.
This election is about integrity and credibility. It is about protecting the
value of your investment in CEC from a management that appears incapable of
operating the company within the required regulatory framework, and it is about
electing directors with the experience, skills and knowledge for CEC to be put
back on track. In its report placing AIU on probation, SACS found a lack of
integrity in recruiting, admissions and student communications. This is
literally jeopardizing AIU's future because, as the prologue to the SACS
accreditation criteria states, "everything is predicated on integrity".
Stockholders must ask themselves whether present management has the necessary
credibility to convince SACS that it can restore integrity.
SACS placed AIU on probation in December of 2005. Since then, management has
repeatedly told stockholders that it has a "plan" to fix the problems at AIU,
that "progress" is being made, and that it is "building momentum". How can this
be, when during the week of April 24, 2006, AIU's London campus became the first
university in history to fail an audit by the U.K.'s Quality Assurance Agency
(QAA)! The QAA found "alarmingly low" standards of student achievement and
"misleading" marketing claims at AIU London and added, "At present, no
confidence can be placed in the soundness of AIU London's management of the
quality of its programmes." Is this Jack Larson's idea of "progress" and
"momentum"? Naturally, management has not bothered to include the news of the
failed QAA audit in its numerous misleading communications with stockholders
over the last several weeks.
There is a complete disconnect between management's rhetoric and what is
actually occurring on a day-to-day basis at CEC's institutions. Jack Larson has
trumpeted 2006 as "the year of the graduate," and he claims that CEC makes
"student success" a top priority. For some time, we have been asking management
for information on graduation and drop-out rates, but they have refused to give
it to us or the investment community. But just recently we received a copy of an
internal CEC drop report, which is part of the pleadings in a pending class
action suit, and that report states that 96,388 students dropped out of CEC
programs in the first quarter of a recent reporting period- a number approaching
CEC's total student population! In order to enable students and investors to
accurately assess the value of an
education at CEC colleges, we again call upon CEC to provide complete
information on enrollments, drops and graduates for each and every CEC college
for the past three years.
Behind the alarming number of dropouts is a grim reality that belies Larson's
rosy view of the operations of CEC colleges:
CEC'S DECEPTIVE ADMISSIONS PRACTICES
Using weekly and daily campus "flash reports", Larson and his team have
pressured admissions representatives to focus on higher headcounts and school
rolls, regardless of qualifications and interests of prospective students.
Students have been referred to bogus high schools to "buy" diplomas or have been
enrolled and signed up for loans in the often illusory hope that they would
obtain a high school diploma or GED within their first 30 days of classes. As
one former professor at AIU's Los Angeles campus put it, "If you can breathe and
walk, you can get into the school."
To make the numbers, students have been enrolled several weeks after classes
began. Other students wanting to take only one or two isolated courses have been
pressured into signing up for full programs, in order to generate higher
full-time student metrics. Admissions representatives have been asked to sign up
themselves, family members and friends, just long enough to be included in
enrollment figures. Dropped students have been induced to re-enroll with the
promise of bogus scholarships, forgiveness of institutional loans and token
gifts. Along with this push for high numbers has come widespread late and
inaccurate reporting of true enrollment status to the federal National Student
Loan Database System, a finding made by a 2003 U.S. Department of Education
(DOE) review of CEC's Collins College in Tempe, Arizona, internal CEC audits of
other CEC colleges, and annual compliance audits.
CEC IS MISLEADING ITS STUDENTS AND REGULATORS
A 2004 state licensing agency report on CEC's Brooks Institute of Photography
found that "the institution's advertisement and promotion [about placements and
salaries] is false and misleading." Former students of various CEC colleges,
including Gibbs, Sanford Brown and Brooks, have complained that they were
induced to enroll with false promises about the quality of the training and
their employability, only to find themselves without jobs and a mountain of
debt. Students also have complained about being given inflated graduation and
placement figures, grossly unrealistic salary figures, and false information
about the availability of major programs, day or night classes, and tutoring
assistance. The most recent of such complaints is a lawsuit filed in late April
by a group of students at the Sanford Brown campus in Maryland, who allege that
CEC induced them to enroll in medical programs by misrepresenting the
availability of externships. Along with misrepresentations to CEC students, the
DOE has accused CEC of misrepresenting information to it about federal financial
aid awarded to CEC students, including a 2003 program review finding that
Collins College had used "a coordinated subterfuge to under-report the effect"
of federal financial aid dollars disbursed in order to show compliance with the
so-called 90/10 Rule and also a 2006 program review finding that CEC's
Pennsylvania Culinary Institute had improperly retained $469,000 of federal aid
for students who had failed to actually attend classes, withdrawn or gone on
leaves of absence.
QUALITY EDUCATION IS NOT A PRIORITY AT CEC
After enrollment, students have been allowed to remain in high-priced programs
despite failing to maintain required attendance levels and satisfactory academic
progress. At some institutions, faculty have been pressured to allow students
who missed well over 50% of their classes to belatedly make up assignments and
take tests. The 2003 program review of Collins College found that "many students
failed to meet the attendance threshold...[and that the College's] practice of
not considering failed
courses as part of the [cumulative GPA] at the time that students fail the
course...may...be falsely permitting those students to remain eligible for Title
IV disbursements." The SACS probation report also cited AIU for failing to use
appropriate grading criteria, as well as for deficiencies in program content and
faculty.
WHAT CEC IS REALLY DELIVERING TO ITS STUDENTS
Perhaps the worst harm inflicted upon CEC students has been high levels of
student loan debt accumulated under high interest private loan programs, which
now are the subject of class action litigation and state investigations.
According to news reports, some CEC students will wind up paying over $100,000
on loans for tuition of around $30,000 to $37,000, due to annual interest rates
ranging from 13% to 17% -- rates only verbally explained at enrollment. Many CEC
grads and drops have become delinquent on their loans, damaging their credit
ratings and in some cases filing for bankruptcy.
And how has management responded to these mounting delinquencies? Rather than
remedy the underlying causes - improper recruiting and retention of students -
management's response has been to harass students and manipulate the numbers.
Campus staff have been directed to "BARRAGE...past due students with requests
for payment...[including] phone calls from the collections staff...[on] evenings
and weekends." Internal CEC audits have revealed that campus officials have been
told to treat any amount of payment, even amounts ranging from $25 down to $1,
as sufficient to treat a loan as performing. Another manipulative practice
uncovered by internal CEC audits is delaying reporting on dropped students until
after the close of a reporting period, because drops require a higher bad debt
allowance.
All of the "subterfuge" (in the DOE's words) occurring at CEC's colleges is
catching up with the company, as reflected in its recent missed earnings,
reduced enrollment at its brick and mortar schools, and multiple analyst
downgrades. The value of your investment is at risk.
WE HAVE A PLAN TO RESTORE VALUE
Jack Larson pretends that the main objective at CEC is "student success". But,
as the practices described above indicate, under Jack Larson and the current
Board's supervision of him, CEC's focus instead has become what one AIU student
called "money intake rather than the quality and care of its product." The
result of these policies is the web of regulatory investigations and litigation
in which CEC is now entangled, most critically AIU's endangered accreditation
with SACS. How can stockholders have any confidence that present management can
protect AIU's accreditation given the systemic breakdown of integrity that has
occurred under their watch, and that is continuing or worsening as evidenced by
the QAA's findings just a few weeks ago? Where is the current Board's oversight
in ensuring that the critical elements of integrity and trust are present at
CEC? The loss of AIU's accreditation would be a catastrophic blow to stockholder
value. The time to act is now.
My fellow nominees and I have a plan to solve the problems plaguing CEC and to
restore integrity and value to the company. If elected, we would propose a
course of immediate action to address all of CEC's regulatory and operational
problems and to bring transparency and trust to CEC's relationships with its
students, its regulators, its employees and its shareholders.
VOTE TO PROTECT THE VALUE OF YOUR INVESTMENT
SIGN, DATE AND RETURN YOUR BLUE PROXY CARD TODAY
Even if you have already returned a white management card, you have every right
to change your vote by sending in a later-dated BLUE proxy. Only your latest
dated proxy will count.
Thank you for your support.
Sincerely,
/s/
Steve Bostic
IMPORTANT
If your shares are held in your own name, please sign, date and return the
enclosed BLUE proxy card today. If your shares are held in "Street-Name," only
your broker or bank can vote your shares and only upon your specific
instructions. Please return the enclosed BLUE proxy card to your broker or
bank and contact the person responsible for your account to ensure that a
BLUE proxy is voted on your behalf.
Do not sign any White proxy card you may receive from CEC.
If you have any questions, or need assistance in voting your shares, please
contact the firm assisting us in the solicitation of proxies:
INNISFREE M&A INCORPORATED
TOLL-FREE: (877) 750-9499
Banks and Brokers call collect: (212) 750-5833
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Peter Duda
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J.J. Rissi
Weber Shandwick
917-587-7090
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