Pomerantz LLP

Pomerantz Takes a Bite Out of For-Profit College Scheme in Corinthian Colleges


On April 22, 2015, in Erickson v. Corinthian Colleges, Inc., Pomerantz scored a significant victory for investors against the much-criticized and poorly regulated for-profit college industry, when Chief Judge George King of the Northern District of California denied the defendant’s motion to dismiss the action. 

Corinthian Colleges was historically one of the largest for-profit college systems in the country, and when our firm filed an amended complaint in the case, the company was operating 111 campuses in 25 states. For-profit colleges are big business, making most of their profits from federal student aid programs. However, many for-profit colleges have come under fire in recent years for their deceptive practices (especially for their promises to adult students regarding the potential for gainful employment upon graduation), leading President Obama to implement new federal student loan and job placement guidelines. 

Our amended complaint alleges that Corinthian was misrepresenting its job placement rates, compliance with applicable regulations, and enrollment statistics. Our complaint relied on a host of sources: in addition to testimony from 15 confidential witnesses from all over the company, we also relied on documentary evidence cited in the California Attorney General’s complaint against the company (showing that job placement data was manipulated, errors were rampant, and placements were not verified consistently) and a Congressional report criticizing the for-profit college industry (especially with respect to Corinthian’s practice of constantly “churning” its student body to keep up enrollment rates, by enrolling massive numbers of new students each year to hide the fact that so many previous enrollees had dropped out after a short time). While the Court dismissed the regulatory compliance statements as too vague to be actionable, it upheld the job placement rate and enrollment statistic misrepresentations. 

The Court put all our allegations under a microscope and determined that the specific facts we alleged supported our claims that many of defendants’ public statements were false, and that the senior executive defendants knew it.

In addition, the Court agreed that we sufficiently alleged loss causation because public disclosures of the Attorney General’s lawsuit and the Congressional report raising these allegations led directly to significant drops in the market price for Corinthian’s securities.

This victory is especially noteworthy because Judge King has dismissed two prior lawsuits against Corinthian with similar allegations and because pleading loss causation in the Ninth Circuit has become particularly difficult in the wake of a recent decision by that court in another case.