The Government Accounting Office shopped the for-profit-college world last year and issued a damning report of fraud and misrepresentation. Now the for-profits have struck back with a lawsuit of their own against the GAO. Herewith, excerpts from the complaint:
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
COALITION FOR EDUCATIONAL SUCCESS, )
One North Wacker Drive, Suite 4800 ) Chicago, IL 60606 )
Plaintiff, ))
) v. ) )
UNITED STATES OF AMERICA, )
Defendant. ))
COMPLAINT
Case: 1: 11-cv-00287
Ass!gned To : Huvelle, Ellen S
Assign. Date: 212/2011 .
Description: PI/Malpractice
COMPLAINT
Federal Tort Claims Act
(Professional Malpractice)
NATURE OF THE ACTION
1. This is an action against the United States under the Federal Tort Claims Act, 28
U.S.C. §§ 1346(b) and 2671, et seq., for negligence and malpractice in connection with the
Government Accountability Office's ("GAO's") recent investigation of career colleges, which
resulted in an erroneous and completely biased GAO Report in August 2010 ("the August
Report") that was subsequently amended in November 2010 ("the Revised Report"). The
evidence will show that the GAO - an investigative agency that prides itself on being unbiased
and apolitical - issued a negligently written, biased and distorted report that foreseeably caused
substantial financial injury to the plaintiff, the Coalition for Educational Success (the
"Coalition"), a group of for-profit "career" colleges, and other career colleges.
2. The GAO's investigation was flawed from the outset. The GAO's investigators
were not properly trained and did not possess the knowledge of the education sector required to
conduct an unbiased and informed investigation. The GAO investigators did not follow the
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GAO’s own professional standards and protocols, which mandated independence, impartiality
and due care. As a result of the GAO’s intentionally biased and negligently conducted
investigation, the GAO’s August and Revised Reports contained inaccurate, incomplete and outof-
context information, and drew unsubstantiated, erroneous and unfair conclusions – all of
which were to the detriment of the career colleges.
3. Indeed, some of the key evidence of the GAO’s negligence and violation of its
own professional standards was provided by the GAO itself. The Revised Report, released
quietly without a press release, corrected errors in the prior version’s quotation or description of
taped interviews conducted by undercover GAO agents posing as college applicants. Out of 28
"scenarios" reported, the November version corrected findings in at least 15 scenarios. Every
correction involved an error made in the same direction – erroneously suggesting fraud or
exaggerating wrongdoing by career college representatives. For example, the August Report
quoted a “college representative” offering what was at least legally questionable advice to the
undercover applicant. The Revised Report substituted the “applicant” (i.e., the undercover GAO
representative) was the one who offered the questionable advice.
4. Even more remarkably, even the Revised Report contains a large number of errors
and distortions evidently designed to support the conclusion that the GAO investigators found
substantial evidence of wrongdoing. A comparison of the tapes of some of the interviews with
the descriptions reveals that the Revised Report describes conversations that did not take place
and misinterprets numerous other statements in suggesting they were inaccurate. Taking into
account both corrected and uncorrected errors, a large majority of the so-called “infractions”
reported in the August Report, which were the basis of the inflammatory claim that violations
were found at 15 of the 15 schools investigated, were not in fact verifiable infractions.
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5. The fallout from the GAO’s faulty investigation was severe and substantial. In
the days following the release of the error-ridden August Report, the market capitalization of the
publicly traded organizations that own and operate career colleges dropped nearly $4.4 billion –
or about 14%. The career college industry was forced to spend substantial sums to respond to
the negligent GAO investigation, in an attempt to set the record straight and show how the
investigation was unsubstantiated and unfair. The damages suffered by the career college
industry continue to accrue because the GAO refuses to withdraw its Revised Report.
6. Had the GAO conducted these tests and written its report accurately and
according to its own professional standards, on information and belief, the Coalition and its
members would have benefited. An honest and professional conducted study by the GAO
consistent with its own standards would have proved that the instances of misconduct and
deceitful practices by career college personnel were exceptional and anecdotal, and not systemic
or pervasive, and thus there was no basis for targeting career colleges for harsh regulation.
JURISDICTION AND VENUE
7. This Court has jurisdiction over this matter under 28 U.S.C. §§ 1331 and 1346(b),
inasmuch as it is a claim arising against the United States under the Federal Tort Claims Act
(“FTCA”), 28 U.S.C. §§ 1346(b) and 2671, et seq.
8. Venue is proper in this district under 28 U.S.C. § 1402(b).
PARTIES
The Coalition.
9. Plaintiff Coalition is a non-profit association that is incorporated under the laws of
the District of Columbia and has a principal place of business in Chicago, Illinois.
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10. The Coalition represents the interests of career colleges in connection with,
among other things, proposed Government regulations and legislation that may affect the career
college sector. The Coalition tries to encourage the Government to act in an informed manner
and evenhandedly with respect to career colleges vis-à-vis non-profit or public institutions. The
Coalition also advocates for Government policies that support wider access to higher education,
particularly for non-traditional students, including full-time workers, workforce returners,
working parents, minorities and veterans.
11. The Coalition counts among its members many of the nation’s leading career
colleges, serving more than 350,000 students at 478 campuses in 41 states and providing training
for students in 17 of the 20 fastest growing fields. Three of the Coalition’s members were
among the 15 schools investigated by the GAO.
The GAO.
12. The GAO is an agency of the defendant United States of America. It is
headquartered in Washington, D.C., and has offices in Atlanta, GA; Boston, MA; Chicago, IL;
Dallas, TX: Dayton, OH; Denver, CO; Huntsville, AL; Los Angeles, CA; Norfolk, VA; San
Francisco, CA; and Seattle, WA. The GAO has over 3,000 employees.
13. The GAO is “the Congressional watchdog.” See GAO website, available at
http://www.gao.gov/about/index.html. Its purpose is to help improve the performance and
ensure the accountability of the federal government, for the benefit of the American People, by
providing the Congress with “information that is objective, fact-based, nonpartisan,
nonideological, fair, and balanced.” Id. The GAO “operate[s] under strict professional standards
of review and referencing; all facts and analyses in [its] work are thoroughly checked for
accuracy.” Id.
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FACTUAL BACKGROUND
GAO Investigations Must Be Professional, Unbiased and Accurate.
14. The GAO’s work for Congress is governed by certain standards and protocols,
which are intended to “provide a means of holding GAO accountable for commitments made to
the Congress and ensuring that GAO is consistent in dealing with all committees and Members.”
See GAO’s Congressional Protocols at p. 1 (2004).
15. According to the GAO’s protocols: “To effectively support the Congress, GAO
must be professional, objective, fact-based, nonpartisan, and nonideological in all of its work.
All GAO products and services must also conform to generally accepted and applicable
auditing, accounting, investigative, and evaluation principles and standards. GAO will …
exercise the independence necessary to ensure that its products and work conform to applicable
professional standards and the agency’s core values of accountability, integrity, and reliability.”
Id. at p. 7 (emphasis added).
16. Further, the GAO protocols state: “It is GAO’s policy to conduct investigations
according to standards established by the President’s Council on Integrity and Efficiency (PCIE)
as adapted for GAO’s work. PCIE standards place upon GAO and its investigators the
responsibility to ensure that (1) investigations are conducted by personnel who collectively
possess the required knowledge, skills, and abilities to perform investigations; (2) judgments
made in collecting and analyzing evidence and communicating results are impartial; and (3)
due professional care (e.g., thoroughness, appropriate use of investigative techniques,
impartiality, objectivity, protection of individual rights, and timeliness) is exercised.” Id. at p.
21 (emphasis added).
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17. The applicable PCIE standards expressly provide that the GAO “use due
professional care in conducting investigations and in preparing related reports.” See PCIE
Quality Standards for Investigations, http://www.ignet.gov/pande/standards/invstds.pdf, at p. 6.
Among other things, that requires that all investigations must be conducted in a thorough,
diligent, complete, fair and equitable manner; evidence must be gathered and reported in an
unbiased and independent manner in an effort to determine the validity of an allegation; and
investigative report findings must be supported by adequate documentation in the case file. Id.
at p. 7.
18. These standards and protocols are not discretionary; the GAO must follow these
professional standards and protocols with respect to all investigative work it performs. See
GAO’s Congressional Protocols at p. 1 (2004), at pp. 21-22.
The GAO Investigation of Career Colleges.
19. Beginning in June 2010, the Senate Health, Education, Labor and Pension
(“HELP”) Committee began a series of oversight hearings intended to examine federal education
spending at career colleges. The hearings were chaired by Senator Tom Harkin, a well-known
and prominent critic of career colleges.
20. In anticipation of the Senate HELP Committee’s oversight hearings, Senator
Harkin requested that the GAO, among other things, conduct an undercover investigation to
determine if career college representatives engaged in fraudulent, deceptive, or otherwise
questionable marketing practices.
21. The GAO failed to perform its essential duties and failed to follow its professional
standards and protocols with respect to the investigation. From May 2010 through July 2010, the
GAO sent individuals posing as prospective applicants applying for admission to 15 career
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colleges located in Arizona, California, Florida, Illinois, Pennsylvania, Texas and Washington,
D.C. This technique of sending individuals undercover who pose as potential consumers (or in
this case applicants) is also referred to as “mystery shopping.”
22. These GAO individuals then noted, among other things, the purported statements
made to them by representatives of the various colleges.
23. The individuals sent by the GAO were not properly trained. In violation of the
GAO’s standards and protocols, the undercover applicants did not possess the knowledge of the
education sector required to conduct an unbiased and informed investigation. They presented the
college representatives with highly unusual and contrived scenarios, with which a typical
financial aid or admissions representatives would have little experience or familiarity. (See, e.g.,
August Report, p. 7 (describing discussions with representatives concerning the potential impact
of a $250,000 inheritance on financial aid).)
24. By the GAO’s own admission, the 15 colleges selected for investigation
constituted a “nonrepresentative” sample. (See August Report, p. 2). Press reports have
suggested “that more than 200 schools were surveyed for the [R]eport but, … the GAO cherrypicked
only the 15 schools accused of deceptive or fraudulent marketing practices. The[re] are
also unconfirmed reports that the Dept of Ed was specifically targeting the University of Phoenix
in response to complaints made by public universities.” M. Hyman, “Assault on Career
Colleges,” The American Spectator, Oct. 6, 2010, available at
http://spectator.org/archives/2010/10/06/assault-on-career-colleges.
25. At least some of these interactions with the college representatives were audio
taped and/or videotaped. On information and belief, and according to several media outlets, the
GAO collected more than 80 hours of recordings during the course of its investigation. However,
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in violation of professional standards and protocols, it appears the recording devices were turned
on and off by the GAO undercover applicants during the interviews resulting in gaps in the
conversations.
The GAO’s August Report.
26. As part of its investigation, the GAO first published its purported findings from
that investigation in its August Report entitled “For Profit Colleges: Undercover Testing Finds
Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.”
(A copy of the August Report is attached hereto as Exhibit A.) In the August Report, the GAO
claimed that four of the career colleges encouraged fraudulent practices and that all 15 colleges
made deceptive or otherwise questionable statements to the GAO’s undercover applicants. The
so-called deceptive or questionable statements were described in detail in the August Report.
27. The August Report was submitted as the written testimony of Gregory D. Kutz,
the Managing Director of the GAO’s Forensic Audits and Special Investigations division, before
the Senate HELP Committee, as part of the Committee’s oversight hearings concerning career
colleges. In that report and testimony, Mr. Kutz claimed that his and the GAO’s investigative
work had been performed in accordance with the professional standards prescribed by the
Council of the Inspectors General on Integrity and Efficiency. (See August Report, p. 4.)
28. However, the GAO failed to adhere to applicable professional standards and
protocols in preparing its findings. Because the investigation was not impartial but was
preordained to reach conclusions against career colleges, the GAO produced findings that were
riddled with errors and replete with biased and unsubstantiated conclusions.
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29. According to the August Report, the GAO observed alleged deceptive marketing
practices at all 15 of the career colleges visited by its undercover investigators and observed
alleged fraudulent practices at four of those schools.
30. Specifically, the August Report accused the schools of making false or misleading
statements regarding, among other things, graduation rates, salaries of its graduates, and the
expected length and cost of the program.
31. As the GAO later admitted, and as set forth in detail below, the August Report
contained many inaccuracies and inappropriate conclusions about career colleges.
32. In addition to its written report, the GAO posted to its own website and to
YouTube clips of video recordings allegedly taken by its undercover investigators, unbeknownst
to the 15 schools. See http://www.gao.gov/products/GAO-10-948T;
http://www.youtube.com/watch?v=4XZp-2HDRG0.
33. The video clips are seconds-long segments devoid of context, but the GAO has so
far refused to release the unabridged video recordings, which would provide context for the
practices that the GAO has alleged to be deceptive or fraudulent.
The GAO’s Revised Report.
34. As a result of its intentionally slanted and negligently conducted investigation, the
GAO’s August Report contained inaccurate, incomplete and out-of-context information, and
drew unsubstantiated, erroneous and unfair conclusions – all of which were to the detriment of
the career colleges.
35. On November 30, 2010, the GAO took the rare and extraordinary step of revising
its August Report and reissuing its August 4, 2010 testimony before the Senate HELP
Committee. (A copy of the Revised Report is attached hereto as Exhibit B.)
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36. The GAO did so with none of the publicity with which its initial report was
released. Instead, the GAO quietly posted the Revised Report on its website, without so much as
a press release.
37. The GAO’s Revised Report exposed numerous and blatant errors in the initial
August Report, which significantly undermined many of the GAO’s allegations and cast serious
doubt on the credibility and objectivity of the GAO’s analysis. All of the corrected errors in the
initial report were to the detriment of the career colleges.
38. In Appendix I to the August Report, the GAO included 28 so-called factual
scenarios of purported “[e]ncouragement of fraud, and engagement in deceptive, or otherwise
questionable behavior.” In the Revised Report, the GAO changed findings in more than half of
these so-called factual scenarios, resulting in corrections to findings for 13 out of 15 schools. As
these changes demonstrate, the August Report inaccurately and unfairly summarized the actual
exchanges between the undercover applicants and the college representatives in order to create or
enhance a negative impression of the career colleges....
39. The GAO made numerous other significant and material changes to its August
Report, correcting the GAO’s admitted errors that were to the detriment of career colleges. For
example, in a Table of supposed “Fraudulent Actions Encouraged by For-Profit Colleges,” the
GAO claimed that a college representative allegedly “told the undercover applicant that by the
time the college would be required by [the] Education [Department] to verify any information
about the applicant, the applicant would have already graduated from the 7-month program.”
(August Report, p. 8, CA college in Table 1.) But the Revised Report attributes that statement
not to the college representative, but to “the undercover applicant.” (Revised Report, p. 8, CA
college in Table 1.)
40. Given that all of these corrected factual findings contained inaccuracies that
reflected negatively on career colleges, the unavoidable inference is that the GAO’s pervasive
and one-sided errors resulted from the intentional bias driving the investigation, in violation of
the GAO’s protocols mandating impartiality and integrity on the part of the GAO.
41. In fact, according to a press release from certain members of the House
Committee on Oversight & Government Reform, “The factual changes to the report have raised
new questions about conclusions reached by the GAO regarding the recruiting practices of
[career colleges].”
42. Moreover, because the GAO’s Revised Report did not correct all of the
inaccuracies and defects in the August Report, it remains biased and inaccurate.
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43. The Revised Report remains replete with erroneous, biased, invalid, or
unsupported conclusions. For example:
a. The Revised Report still maintains that representatives of certain colleges
misrepresented the length of the program by telling the undercover
applicants that it would take two years to complete, but then providing the
applicants with a per-year cost estimate based on more than 2.5 years to
complete the program. (See, e.g., August Report at p. 20, College #2,
scenario 2; Revised Report, p. 20, College #2, scenario 2.) The recordings
of the discussions that have been released tell a far different story. The
recordings demonstrate that the undercover investigators were expressly
told that the cost estimates they received were for “an academic year,”
which is nine months in duration, and that the program is 24 months long
and, therefore, would take two and a half academic years to complete.
These recorded exchanges flatly contradict the GAO’s assertion that the
applicants were misled as to the length or cost of the program.
b. In one case, the GAO reports that an undercover applicant was told that
getting a job “was a piece of cake” and that graduates from this school are
making $120,000 to $130,000 per year. (August Report, p. 20, College
#3, scenario 2; Revised Report, p. 20, College #3, scenario 2.) There is no
evidence of this conversation in the recording that has been released.
c. In another case, the GAO reports that “the college representative did not
tell the graduation rate when asked directly.” (August Report, p. 20,
College #3, scenario 1; Revised Report, p. 20, College #3, scenario 1.)
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However, based on the recording that has been released, the question of
graduation rate was never raised by the undercover agent.
d. In an attempt to paint a college as “over-promising” expected earnings at
graduation, the August Report stated the undercover applicant was told he
could make up to $100 an hour. (August Report, p. 21, College #4,
scenario 2.) The Revised Report adjusts this down to $30 an hour.
(Revised Report, p. 21, College #4, scenario 2.) But the complete
recording, which has been released, reveals that later in the discussion the
undercover applicant is given a data sheet and the admissions
representative states that the minimum average rate per hour for massage
therapists in their area is $22. The GAO never reports this last accurate
piece of information.
e. The August and Revised Reports focus solely on an admission
representative’s statement offered during the conversation regarding the
undercover applicant’s ability to take out the maximum in loans. (August
Report, p. 24, College #11, scenario 1; Revised Report, p. 25, College #11,
scenario 1.) However, the Reports ignore that the admission
representative thoroughly explained student loans and the importance of
financial responsibility, and even suggested the undercover applicant
borrow less than what the applicant needed. Among other things, the
representative told the applicant, “I want you to choose what’s financially
responsible.” Neither GAO Report includes this statement.
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44. On information and belief, the Revised Report contains numerous other
inaccuracies, false statements, and biased and unsubstantiated conclusions. The GAO has
refused to release to the public (or even to the Coalition and the colleges that were investigated)
the GAO’s full, unabridged recordings from its investigation or other documents that it claims
support its findings. On information and belief, discovery in this action will reveal that the
recordings and other documents currently being withheld by the GAO further belie the purported
findings and conclusions in the Reports.
45. Additionally, in violation of the GAO protocols, the undercover applicants did not
possess the knowledge of the education sector required to conduct an unbiased and informed
investigation, which led to incorrect findings in both the August and Revised Reports. For
example, the August and Revised Reports cite as findings of “Encouragement of fraud, and
engagement in deceptive, or otherwise questionable behavior” various statements about
graduation rates and the length and costs of programs and marketing, which are actually in
accordance with Department of Education (“DOE”) requirements and were completely proper.
46. An adequately informed investigator would have understood that these exchanges
involved no improper action. By including these uninformed findings, the GAO Reports unfairly
conjure the specter of improper behavior by career colleges.
47. The Revised Report demonstrates that the GAO continues to violate applicable
professional standards and protocols in connection with its investigation and testimony
concerning career colleges....
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