TENS OF TRILLIONS OF DOLLARS TAKEN TO OFFSHORE ACCOUNTS FOLKS......THESE ARE VISIGOTHS!
Regarding Basu's statement of youth and home ownership:
Basu hit on two subjects put forward in this morning's local news...using foreclosure money to augment developer's costs in construction and the inability of youth to buy homes because of lack of income/personal wealth. Both involve an artificial poverty created by massive corporate fraud.
We want to continue to remember...everyone in government knew massive fraud was systemic in the housing market for years and that it would bring the economy crashing down and yet they allowed people to enter these contracts. Most people on the other hand did not know the economy was imploding with massive fraud and entered contracts....whether mortgages or education loans thinking they would have their 20-30 years to pay down and renegotiate these loans. These people grew up with a government that protected citizens from fraud and regulated business so that open fraud did not happen. These people who are trapped in this debt are for the most part not bad people....they are not irresponsible people....they are working class people who simply trusted institutions to do the right thing.
As subprime loan fraud brought the economy down and led to high unemployment ...... youth with loans were left unable to pay. Did the financial aid offices in these universities and all of the local politicians know that the economy was ready to collapse and that these students would be trapped with debt? YES!
Much of student debt is with for-profit career college debt that was as fraudulent as the subprime loans. From Kaplan to University of Phoenix.....all those for-profit education businesses have been investigated and found guilty of hundreds of billions of dollars in fraud. Private universities that allowed working class students to take on tens of thousands of dollars in debt at a time the economy was being brought to implosion did so simply to move money into university coffers. Private banks paid these loans to the schools and now private banks are fighting bankruptcy and are manning the Department of Education with credit collection agencies to get that dough.
All of this would be resolved if the US Attorney's office simply reinstate Rule of Law....investigate.....prosecute and bring back all the fraud to government coffers and individual's pockets. A War on Fraud funded by the few hundred billion in postage stamp settlements would bring tens of trillions of dollars in corporate fraud back....paying for itself....no taxpayer money or republican votes to do it. NEO-LIBERALS IN CONGRESS AND OBAMA REFUSE TO HOLD CORPORATIONS RESPONSIBLE SO AMERICANS ARE LOSING THEIR RETIREMENTS, HOUSING, EMPLOYMENT SO THAT MASSIVE FRAUD CAN STAND.
Does that youth living at home want a housing loan with banks known to be just a criminal as ever? The answer is NO! No one wants to do business with banks. Then there is the other major problem in foreclosure housing titles with millions of houses processed through MERS many of which now have no clear title and ownership challenged at any point. The subprime mortgage settlement would have addressed the clearing of this titling system but not a cent was spent on MERS fraud. In Maryland if developers are not buying huge bundles of foreclosures for urban development as we see in Baltimore's captured real estate market....the most toxic of foreclosures are being given to organizations like Habitat for Humanity. 'We are getting lots of foreclosures' Habitat tells me. I ask if they are clear titles and I get no response. What we are seeing is the same working class and poor buying homes that may again be taken from them in the future because of the MERS fraud. Don't forget, the MERS fraud was based in the Washington suburbs and it was a Maryland court that declared that MERS was not fraud. The level of corruption is staggering. TAKE OUT A BANK LOAN? ARE YOU CRAZY?
I want to revisit these frauds so that we remember that when a government suspends Rule of Law....it suspends Statutes of Limitations. WE NEED TO KNOW THAT OUR ELECTED OFFICIALS KNEW ALL OF THIS WAS HAPPENING LAST DECADE.....DO YOU HEAR YOUR ELECTED OFFICIAL SHOUTING LOUDLY AND STRONGLY DEMANDING THE PUBLIC BE PROTECTED?
In Maryland the Maryland Assembly actually have laws that make it harder for citizens seeking justice from corporate fraud. AND YOU KEEP RE-ELECTING THESE CORPORATE NEO-LIBERALS!
Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof? The financial juggling that helped cause the 2008 crisis may be coming back to haunt banks—and help homeowners. Document Actions by Ellen Brown posted Aug 18, 2010 YES!
Photo by Sarah Gilbert
Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles—and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof. Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.
A committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”—an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.
That means hordes of victims of predatory lending could end up owning their homes free and clear—while the financial industry could end up skewered on its own sword.
California Precedent The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:
Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law. Notice that it was a Maryland court that reversed this and that no one took this to higher courts.....that is where we need to go!
In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:
Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.
The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:
This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.
While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.
What Could This Mean for Homeowners? The Poor People's Economic Human Rights Campaign holds a rally and press conference against the foreclosure of a house in Minneapolis.
Photo by Fibonacci Blue
Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.
An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.
In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:
Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.
Criminal Charges? "MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments." Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants . . . participated in a criminal enterprise affecting interstate commerce.”
Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” Let's look at Maryland's QUI TAM Laws...... The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.
By Their Own Sword: MERS’ Role in the Financial Crisis MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”
Taking Financial Reform Into Our Own Hands
Why we can't let this financial reform bill be our only response to the economic crisis.
MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:
Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept....
After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible .... The servicer was interested in only one thing – making a profit from the foreclosure of the borrower’s residence – so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the ‘beneficiary’ under millions of deeds of trust in Nevada and other states.
Axing the Bankers’ Money Tree If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
. . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .
Nationalization of these giant banks might be the next logical step—a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.
The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a “people’s bank,” making low interest loans to consumers and businesses through branches all over the country.
With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the U.S. is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.
While the state that was the source of MERS...(MD and VA) and whose lawyers were enriched by MERS business does not have the whistle blower laws to pursue fraud.....the Federal laws do.
Why is this massive crime that targeted lower-class families important to everyone? It sucked trillions from our economy....crippled it creating a cascade of wealth lost throughout the country. The failure to enforce Rule of Law in these cases has given corporations a green light to act openly and we now have systemic fraud throughout US business with politicians openly AIDING AND ABETTING THESE CRIMES BY SIMPLY REFUSING TO ENFORCE THE LAW. This lawlessness hurts everyone.
The following states have false claims laws (QUI TAM) that apply only to fraud involving Medicaid or other state healthcare funds: Arkansas, Colorado, Connecticut, Louisiana, Maryland, Michigan, Missouri, New Hampshire, Oklahoma, Texas, Washington and Wisconsin.
Keep in mind that many of these subprime loans involved Federal housing grants and loans so all of these frauds were punishable by the US Attorney who, with Obama....saw no fraud.
The False Claims Act (31 U.S.C. §§ 3729–3733, also called the "Lincoln Law") is an American federal law that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. The law includes a "qui tam" provision that allows people who are not affiliated with the government to file actions on behalf of the government (informally called "whistleblowing").
TruthOut.org / By Danny Weil
For-Profit Education Fraud Tied to Political Elite
A bipartisan group of the nation's political leaders have close ties to for-profit college scams. Now, an $11 billion lawsuit is forcing some of them into the spotlight. Photo Credit: Wikimedia Commons
April 20, 2012 | On Friday, April 13, 2012,
Courthouse News reported a class-action lawsuit by students filed in federal court against the Art Institute of California and its owner, Educational Management Corporation (EDMC). As reported in Truthout, Sen. Olympia Snowe's (R-Maine) husband, former governor of Maine John McKernan, is chairman of the board of EDMC and a former CEO of the company. The company also faces an $11 billion false claims lawsuit by the federal government and 11 states.
The lead plaintiff in the class-action suit, Chinea Washington, claims The Art Institute of California, Hollywood, led her to believe that federal grants and loans would cover the entire $89,000 cost for a bachelor's degree in interior design.
In November 2011, after three years of study, Washington was provided notice by the "college" that she had reached the federal loan/grant aggregate limit of $52,340 and that it would cost $37,000 to complete the degree. Washington dropped out with $52,160 in debt. Because The Art Institute's credits are not transferable, Washington has been swindled out of $52,000 and three years of her life.
The only way to describe $89,000 for a four-year degree with non-transferable credits from a non-academic college is as a fraud and a swindle, and that characterization possibly fails to convey the frustration and downright victimization students like Washington must feel.
Like subprime mortgages, for-profit colleges are a scam driven by payment of commissions to sales staff known as recruiters. The payment of commissions to high-pressure salespeople is so central to the scam that the umbrella trade group for for-profits, the Association of Private Sector Colleges and Universities (APSCU), has sued the federal government to overturn its ban on incentive pay.
It cannot be stated strongly enough: for-profit colleges could not engage in the ongoing exploitation of students and theft of federal money without the direct cooperation and assistance of the federal government in what can only be termed an immoral economy. The same forces that demonize everything government does or attempts to do are busy feeding from the government trough. The hypocrisy is untenable, the federal subsidies unfathomable and the lack of criminal prosecution unconscionable.
For-profit colleges are a kickback scheme where politicians enact favorable legislation and regulations that allow for-profit colleges to maintain access to student loans and grant money. The for-profit colleges then "give" a small cut of the federal money back to the politicians to enact favorable legislation.
In the cases of Senator Snowe and Sen. Dianne Feinstein (D-California), their husbands have operated under the cover of their wives as they directly benefited, and continue to benefit from, their positions as shareholders in for-profit college companies. Snowe and Feinstein are accomplices in the ongoing evisceration and defrauding of citizen taxpayers and students, which explains the pair's complete silence on this matter.
The so-called ruling class of government officials and elected politicians, to which Feinstein and Snowe clearly belong, is little more than a gaggle of white-collar criminals which facilitates and benefits from the diversion of taxpayer money into private coffers. It all takes on the appearance of legitimacy. Unfortunately, this is not a victimless crime. Like Washington, thousands of students who attend these subprime institutions are left with tens of thousands of dollars of nondischargeable debt which ends up ruining their lives.
There is a vast network of former and current government officials who actively participate in the for-profit college swindle. Some of the conspirators are well known, and include: Mitt Romney, Rep. Virginia Foxx (R-North Carolina), John Kline (R-Minnesota), Alcee Hastings(D-Florida), Trent Lott (R-Mississippi), Lamar Alexander (R-Tennessee), Steve Gunderson (R-Wisconsin), Virginia Democratic Party Chairman Brian Moran, Snowe, Feinstein, Nancy Pelosi (D-California), and John Boehner (R-Ohio). The group also includes Obama administration officials and supporters such as Lanny Davis, Anita Dunn, Hilary Rosen, Anthony Miller and Charles Rose.
I want to emphasize that just because leaders in office are choosing not to pursue this fraud does not mean it is over....we are a Rule of Law nation with Equal Protection.....no government can choose not to enforce laws.
STOP ELECTING THESE NEO-LIBERALS WHO ARE WORKING FOR WEALTH AND PROFIT.
We saw the Washington Post bid to Amazon's owner but the Post family wants to hold on to Kaplan.....WONDER WHY? FRAUD-FILLED PROFITS ANYONE!
Scandal at The Washington Post: Fraud, Lobbying & Insider Trading
Rusty Weiss — March 8, 2012
In the summer of 2010, business columnist for The Washington Post Steven Pearlstein lifted the veil on the little-known company operating procedure that involves an incestuous relationship between his own employer, and the scandal-plagued, for-profit university known as Kaplan.1 In his column, Pearlstein made the argument that while personnel in the newsroom may have nothing to do with Kaplan, they most certainly have “benefited from its financial success.”
So what is it about Kaplan that has been so beneficial to Post employees? Aside from being one of the largest for-profit colleges in the country, Kaplan is not only a subsidiary of The Washington Post, up until recently it has been the single most profitable aspect of the company. In 2009, the year prior to the Pearlstein article, Kaplan accounted for 58% of the Post’s revenue and generated the bulk of company profits, while newspaper and magazine publishing—in other words, journalism—accounted for a mere 19% of revenue and operated in the red.2 In 2010, Barron’s estimated that the value of The Washington Post company was roughly $8.5 billion, and that Kaplan represented about $5 billion.3 So it was no surprise when Pearlstein stated that Kaplan “has provided the handsome profits that have helped to cover this newspaper’s operating losses.”
With a financial resumé like that, and status as the cash cow keeping the Post afloat, why wouldn’t CEO Don Graham be singing the praises of Kaplan University? Perhaps because there is a longstanding history of allegations of fraudulent practices, with hundreds of millions of dollars of profits diverted to Kaplan executives. Perhaps it’s also Kaplan’s generation of such profit on the backs of poor students and returning war veterans, preying on their vulnerabilities only to later reward them with degrees of questionable value, massive student-loan debt, and little employment opportunity. Perhaps it is Kaplan’s curious hiring of lobbyists to influence legislation at the state and federal levels, including a former Obama staffer, Anita Dunn, just as the heat was being turned up on for-profit colleges to rein in out-of-control practices.
Whatever the reasons, Kaplan remains part of an industry that provides little educational value for its students—and raises many questions about how it has compromised the integrity of The Washington Post newspaper.
In 2010, Bloomberg investigative reporter Daniel Golden relayed the story of Keith Melvin, a disabled Iraq War veteran who had been awarded a medal for “outstanding dedication to duty.”4 Upon returning home from his tour of duty, Melvin sought to pursue collegiate studies in the legal field. He performed an online search, filled out forms, and was eventually contacted by Kaplan University. The university convinced Melvin that it could further his educational pursuits through a litany of phone calls and e-mails, pressuring him to commit. One selling point that sealed the deal? Kaplan’s relationship with the prestigious Washington Post Company.
“With Kaplan having its credentials backed by The Washington Post, I thought, ‘How can this go wrong?’” Melvin said. “It sounded too good to be true, and it was.”
A former admissions adviser for Kaplan explained how The Washington Post was used in their sales pitch to prospective students.
“One of the things that I always said was, ‘As you may know, Kaplan is owned by The Washington Post, a paper known for having really high ethics,’ he said. ‘As you can imagine, The Washington Post would never involve itself in anything that would reflect poorly on its reputation.’”
But the prestige and high ethics promised by a relationship with the Post never materialized. Melvin learned the hard way, as have other students, that the Kaplan experience consists of “high prices, uneven performance and shady marketing practices.”5 Worse, the university, for all of its selling points, has a dropout rate of nearly 70%, and those who do graduate earn well below the national average for college graduates—outcomes not exactly befitting of a money-making juggernaut and its supposedly ethical parent company.
Unfortunately, Melvin’s experience is not an isolated incident. Targeting and recruiting veterans is such a common practice among for-profit colleges that it prompted Senator Dick Durbin of Illinois to introduce legislation which would eliminate the financial incentive for these colleges to aggressively recruit veterans into pricey programs.6 A report in the Chicago Tribune explains that “military veterans are being aggressively recruited… because of their lucrative forms of federal aid, such as GI Bill funds and Department of Defense tuition assistance benefits.” Such funds are not bound by the 90/10 rule, which bars the for-profits from deriving more than 90 percent of their revenue from the Department of Education’s federal student-aid programs.
Veteran enrollment helps Kaplan circumvent the 90/10 rule, because GI Bill benefits don’t count as government assistance under the law. Congress further aided the for-profit industry by granting a $2,000 exemption per student to the 90/10 rule. Kaplan reported that it “got less than 87.5 percent of its receipts from federal student grants and loans in the fiscal year ended Jan. 3, 2010,” just short of the 90% cap.7 Putting a cap on this source of federal money means placing a limit on the university’s ability to generate revenue. As it stands, the 90/10 limit threatens access to billions of dollars in federal student aid in the for-profit industry.
While Kaplan targets and recruits veterans, in particular because of the federal funding opportunities, it certainly doesn’t restrict questionable tactics to these students. The student complaint board on their website shows over 130 current complaints by students at the college, ranging from general fraud, to misappropriation of funds, to “ignorant service.”8
In 2009, The Wall Street Journal reported on seven Kaplan campuses which had a three-year dropout rate over 30%, a clear indication that the university had been using aggressive marketing tactics to enroll students regardless of their ability to pay.9 Meanwhile, most students who do graduate discover that the grandiose promises of careers and large salaries were merely a sales ploy—and in fact, the product offered by Kaplan has substantially less value than that offered by traditional public and private colleges.
A report from a leading for-profit research company explains that such universities are little more than “marketing firms who happen to market education.”10 A recent shareholder lawsuit against The Washington Post and its CEO Donald Graham was dismissed in December 2011 after the Post filed a motion to dismiss (pages 47-53).11 The lawsuit had alleged that the Post defrauded investors by engaging in deceptive and unethical business practices. The lawsuit was tossed, shockingly enough, because the motion to dismiss argued that the unethical practices were common knowledge, and therefore investors had not been misled. The Post essentially admitted that Kaplan had been running little more than a telemarketing scheme.12 In that filing, the Post stated that it was ‘no secret’ that the Kaplan Higher Education Corporation (KHE) operated under a business model that “depended upon the recruitment of low-income and minority students who were dependent upon federal loans and grants.” The Post concurred that the KHE was operating “football field sized call centers that made use of telemarketing techniques and sales goals.”
Marketing materials at Kaplan University show the depths to which recruiters were required to sink:
“If you can help them uncover their true pain and fear. If you get the prospect to think about how tough their situation is right now, if you talk about the life they can’t give their family right now because they don’t have a degree,” the flier instructs, “…You dramatically increase your chances of enrolling this prospective student. Get to their emotions, and you will create the urgency!”
With a university whose singular goal is to meet quarterly sales quotas by targeting low-income, minority, and veteran students, regardless of their ability to pay, it’s no wonder Kaplan’s business model results in consistent failure to serve the students they claim to help, along with consistently low graduation rates, high number of loan defaults, and a high level of dissatisfaction.
Up until 2011, for-profit colleges had seen consistent double-digit growth in annual revenues, extracted from a litany of federal grants and loan programs under the Title IV program.13 The industry has been generating billions of dollars of revenue through predatory business practices akin to those in the subprime mortgage industry.14
For-profit universities earn money off the backs of service men and women, minorities, and low-income targets (some instances have recruiters seeking out prospective students in homeless shelters), with promises of government loans and grants, and post-graduation employment. At the same time, these colleges are using revenues obtained from the federal government to lobby politicians and weaken regulation. Politicians, backed by corporate influence, have facilitated the transfer of tens of billions of dollars of public funds to these schools in the form of federal grants and loan programs. The result is a staggering level of profit with little of value provided to students or taxpayers.
So when a school like Kaplan pulls in billions of dollars, who has benefitted the most? The very people who are perpetuating the money-making scheme—the executives.
Between 2003 and 2008, executives at Kaplan received stock option payouts of $289 million dollars—nearly half of the school’s entire operating income during the same time frame.15,16 In 2003, Kaplan handed over $119 million in executive pay, more than double the university’s operating income that year, which came in at $58 million.
Nowhere is such lavish compensation more personified than with the case of Jonathan Grayer, former head of the Kaplan education unit, who resigned in 2008.17 Grayer’s resignation, after 17 years at the school, resulted in a $76 million severance package.18 The package included a $20 million bonus paid out in November of 2011, more than the university’s entire third quarter operating income of $18 million.
Meanwhile, The Washington Post, which reported over $6 million in losses during that same quarter, closed a majority of regional news bureaus, and was charged by The Washington Post Guild with “unjustly laying off employees and targeting employees of color.”19,20,21 Recently, they announced the buyout of up to 48 newsroom staff as a cost-cutting measure.
More importantly, under Grayer’s direction, Kaplan and the Post have been involved in the aforementioned shareholders lawsuit, more than a dozen whistleblower lawsuits, and have been the focus of multiple state and federal investigations.22
It can therefore be concluded that the Post did not reward Grayer based on academic performance, but rather on his ability to generate revenue for the company—ignoring the ethical quandary that his leadership created. This is why you do not have businesses in education!!
Last summer, The New York Times reported that the Department of Education and Congress had placed Kaplan and other for-profit institutions under the microscope, because of their recruiting practices and high loan-default rates. The Education Department issued final regulations which will go into effect next July, “requiring career college programs to better prepare students for ‘gainful employment’ or risk losing access to the federal student aid that, on average, provides more than 85 percent of their revenue.”23
Further regulatory efforts will take effect in 2014, but will provide little protection for low- income students to avoid being shackled with unaffordable debt that cannot be discharged through bankruptcy.24 In fact, the 2014 regulations instituted by the Department of Education allow for schools like Kaplan to continue generating funds off the backs of students and taxpayers, allowing colleges to have a loan default rate of up to 40% in any one year, and up to 30% over 3 years.
Lobbying Against Regulation
Despite the announcement of weak regulatory measures, recent years have seen bi-partisan support in Congress against such regulations, and overall support for the controversial industry. The list of high-profile names that support these for-profit organizations include presidential candidates Ron Paul and Mitt Romney, Speaker of the House John Boehner, Dianne Feinstein, Jesse Jackson, and Nancy Pelosi. Last year, Pelosi broke rank with her party and voted to keep billions of dollars in federal student aid flowing into the coffers of for-profit colleges.27 Boehner backed deregulation of the online learning industry, supporting the removal of a law known as the 50 Percent Rule back in 2006, eliminating legislation that had protected students by limiting how many could enroll in online courses.28 The rule was actually put in place back in 1992 in an attempt to curb waste and abuse of federal student aid programs by for-profit colleges. Repealing the 50% rule opened up the floodgates for online enrollment, allowing these colleges to acquire further capital from Wall Street for expansion.
The Obama administration has attempted to rein in for-profit colleges by imposing tighter regulations and limiting the role of private companies in student lending. They vowed to stop for-profit colleges from luring students with false promises. A New York Times article described it as “an opening volley that shook the $30 billion industry” where “officials proposed new restrictions to cut off the huge flow of federal aid to unfit programs.”
However, opposition to such regulations has continued to be an across-the-aisle effort, with Democrats and Republicans alike having accepted funds from such institutions, while simultaneously advocating on their behalf, ignoring the ongoing threat to veterans and low-income students.
Kaplan in particular has come under fire from liberal Democrats and the administration itself, for allegedly conning students into taking out federal loans for a mostly worthless education. During The Washington Post Company’s annual meeting in 2011, Chairman Donald E. Graham acknowledged that his company had been hurt by congressional hearings and negative publicity over Kaplan’s controversial business practices.29 Representatives of stockholders have been repeatedly asking about the future of the company if profits are further cut by government regulation, with some suggesting that the Post may try to sell Kaplan in order to avoid further losses.
So what does one do when their billion-dollar cash cow is threatened? Lobby lawmakers to water down regulations on your behalf, of course.
While Graham refused to name any members of the House or Senate that he had personally lobbied during the annual meeting, there is little doubt that the Post has pulled out all of the stops in order to survive financially and stall regulations that would affect Kaplan. Graham called scrutiny of for-profit colleges an “unusual situation,” and assured shareholders that Kaplan had changed its ways in an attempt to prevent students from being saddled with too much debt, and nothing to show for it. Such lobbying hasn’t been limited to Graham’s speeches at shareholder meetings.
Roll Call had reported last year that “…Kaplan University, which is owned by the Washington Post Co., paid $110,000 to Akin Gump Strauss Hauer & Feld in the first quarter of this year to lobby on the issue and $90,000 to Ogilvy Government Relations.”30 At the end of 2011, funds directed to lobbying efforts were at their highest level ever for The Washington Post, topping out at $1 million, including a final tally of $210,000 to Akin, Gump et al, and $180,000 to Ogilvy.
Source: Open Secrets Blog
Cliff Kincaid of Accuracy in Media reported on the ties between these lobbying firms and lawmakers on both sides of the aisle:31
“Vic Fazio, a former Democratic Congressman from California, is a leader on the Akin Gump team, while GOP operative Wayne Berman leads the Ogilvy effort. The Washington Post Co. has also retained the Democrat- connected firm of Elmendorf Ryan to make its case.”
When adding in Elmendorf Ryan’s $160,000, over half-a-million dollars was spent on three major lobbying firms, with the singular goal of easing federal regulations related to Kaplan’s questionable business practices.
The Post, however, ramped up its lobbying efforts with the hiring of former White House communications director, and good friend to President Obama, Anita Dunn. Dunn played a key role in shaping the Kaplan message that abuse and misconduct were not industry-wide, while aiming to “blunt the impact” of the proposed regulations. She assured The New York Times that, while she has visited the White House roughly 80 times since her departure, she did not speak to colleagues about the issue.32
A major target of the Post and other education companies’ lobbying efforts has been the so-called “gainful employment” rules—rules that seek to tie the cost of higher education programs to the amount of money a graduate can expect to earn and loan repayment rates.
The resolution was designed to reduce the number of higher education loans that are going into default. Youth Today reported that in the first quarter of 2011 alone, “The Washington Post and its subsidiary Kaplan Inc. spent a total of $490,000 on lobbying, including paying five different lobbying firms,” focusing specifically on the gainful employment rules. The New York Times reported that the Post had spent a whopping $1.6 million in lobbying Congress on the gainful employment regulations alone. Bloomberg reported that, “publication of that rule was delayed last year, following a lobbying effort by for-profit colleges.”33
Donald Graham even took the unusual step of writing an editorial for The Wall Street Journal, which urged the White House to change the rules to “avoid disaster for low-income students.”34 A mere two months later, Graham threatened to impose his own disaster upon these same students, attempting to bully Congress into modifying the 90/10 rule, warning that he was willing to raise tuition rates on the financially struggling student body if they did not comply.
In the end, efforts to rein in regulations on the Kaplan money machine were successful and the threat of a major crackdown posed by the gainful employment rules had been averted after lobbying by Washington insiders. On June 2nd, rules handed down by the Department of Education had been significantly weakened.
The Times described it as such:
“…after a ferocious response that administration officials called one of the most intense they had seen, the Education Department produced a much-weakened final plan that almost certainly will have far less impact as it goes into effect next year.”
Millions From Insider Trading
In the summer of ’09, The Wall Street Journal did an exposé on for-profit colleges and their default rates, which featured the following statement:35
“For-profit schools are favorite targets of short-sellers, or investors who try to profit on bets that stocks will fall, and many have focused on default rates. For-profit schools receive more than $16 billion annually in federal student aid, and taxpayers are on the hook for loan losses.”
And with the recent victory at the lobbying table, the Graham family itself benefited after they had successfully kept their money-making machine intact.
In the days after the Obama administration announced a watered down version of the gainful employment regulations, stocks in every publicly traded college corporation rose, with some soaring in gains by over 20%.36 The message had been delivered—significantly weakened regulations would have little bearing on the industry’s profitability.
Armed with the knowledge that Kaplan’s stock rose after the regulation package was introduced, Post Chairman Donald Graham, sold off 24,000 shares in trusts benefitting family members, totaling $12 million. The timing raised eyebrows but the reasons seem clear, as Washington Post Company stock had jumped 9% immediately following reports of the new regulations, while settling back to near-average prices shortly thereafter.37
More curious was Graham’s insistence three months after the stock sales that “I have not sold a share of Washington Post Company stock in over 30 years nor has any trust for my benefit.”38 While the June selloff was not for Graham’s personal benefit, he did perform the transaction on behalf of his family’s trust.
As for the family stock selloff, Graham explains that, “I am also a trustee of several trusts for the benefit of other members of my family. From time to time, these family members who also started out life heavily concentrated in Post stock have asked their trustees to sell stock when, for example, they want to buy a house.”
But the claim of sporadic stock sales for occasional large purchases simply doesn’t ring true. The Graham family has a history of multimillion dollar stock sales over the past four years, in which several of the transactions mimicked the post-regulation stock sale, with prices plummeting after the selloff. For instance:39
- In April and May of 2008, the Graham family sold $29 million in stock at an average of roughly $675 per share, and within days the price dropped to $585 per share. (Chart A)
- In August and September of that same year, the Graham family sold another $14 million in stock, then watched the stock price plummet from $600 per share to $400 per share. (Chart A)
- The aforementioned stock sale of $12 million this past summer was at a cost of $420 per share, dropping 100 points three weeks later, when quarterly reports showed a decline in yearly income of 50%. (Chart B)
- Publisher Katharine Weymouth—who is Don Graham’s niece—sold $45,000 in stock in June of 2011.
Chart B. Source: Market Watch, Wall Street Journal
Additionally, according to a Daily Censored report last year, $20 million in sales were allegedly executed on behalf of Don Graham’s ex-wife’s in April of 2008.
Considering the Graham family’s apparent ability to predict major drop-offs in the company’s stock, one has to wonder about the legality of what appears to be insider trading taking place. At best, Donald Graham has not been honest in telling the media that the family only sells stock when it comes time to buy a house. They sell when they see the most potential for profit. With the post-regulatory stock sale, it is clear that the Graham family prospered by dropping stock immediately after the regulations were announced, possibly with knowledge in hand that future reports would show a year over year income drop of 50%.
Insider knowledge of Kaplan’s business performance, and The Washington Post stock value has been incredibly beneficial to the Graham family.
The Washington Post has seen a decline in newspaper circulation and journalistic business that they have been almost solely reliant on the success of their cash generating education business, Kaplan University. Chairman of the Post Company Don Graham has willfully turned a blind eye to allegations of fraudulent business practices, excessive student debt and hardship, and exorbitant executive compensation at the for-profit college. At the same time, Graham has actively engaged in lobbying to help generate profits on the backs of the very students he claims to serve, and also engaged in suspicious stock trading that has greatly benefited his family.
Even worse, The Washington Post remains a supposedly reputable staple of the mainstream print media, while refusing to report on one of its own despite media coverage from many other sources. The Post’s failure to report nearly all adverse news about Kaplan even prompted its former Ombudsman, Andrew Alexander, to write a piece which argued that the “Post needs to beef up its coverage of allegations against Kaplan.”40
Any company, such as Kaplan, that has been subject to so many government investigations and lawsuits, would be reported on by most responsible news organizations. Why does the Post bury its head in the sand on the Kaplan story, and is Graham personally responsible for suppressing such information?
It’s a question The Washington Post has yet to answer.
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