For-profit college firm to pay $5M to ex-CEO

The filing shows former Career Education Corp. chief Gary E. McCullough will get $1.6 million for two years of his salary; $2.4 million for two years of his average bonuses; $1 million for his prorated 2011 bonus; $88,000 for retirement and other benefit plans; up to $100,000 for outplacement services; and two years of continued health, dental and vision benefit coverage and life insurance coverage.

Illinois-based Career Education owns several campuses in California, including the Brooks Institute, California Culinary Academy and the chain of Le Cordon Bleu schools.

Many Career Education campuses' newly published job placement rates now fall below the minimum rate required by accreditors. Colleges and universities must maintain accreditation in order to continue to be eligible to receive federal financial aid funds.

The Accrediting Council for Independent Colleges and Schools has ordered Career Education to show cause at the group's meeting this month as to why 49 colleges should not have their accreditation withdrawn, documents show.

Career Education, like many other for-profit education companies, receives the bulk of its revenue from taxpayers. About 82 percent – or $1.7 billion – of Career Education's tuition revenue in 2010 came from federal financial aid sources, according to the company's annual report. Yet compensation for executives at the large for-profits often far outpaces presidential compensation at the nation's most prestigious nonprofit universities.

McCullough, who served as CEO for four and a half years, earned $4.6 million in salary, stock and option awards, and other compensation in 2010, according to an April 2011 company filing.

Career Education has been scrutinized for its job placement statistics and enrollment practices on several fronts. The company's internal investigation was spurred by the need to respond to a subpoena from the New York attorney general's office. Earlier this year, the company agreed to pay $40 million to settle a class-action lawsuit involving the California Culinary Academy in San Francisco. In that case, former students claimed they had been duped by the college's claim that 97 percent of graduates got jobs in the field.

"Personally, I would prefer not to have any of my tax dollars spent to pay for the services of Career Education Corporation or its ilk," said attorney Ray Gallo, who represents more than 800 individual plaintiffs who have sued the California School of Culinary Arts (now called Le Cordon Bleu) in Pasadena on allegations of providing prospective students with misleading placement rates.

McCullough's Nov. 1 resignation announcement came the day before Career Education disclosed that an internal investigation had determined the company had inflated its job placement rates in order to meet accreditors' minimum standards.

Yet McCullough's separation agreement indicates he was not terminated for cause and therefore was entitled to several years of bonus payments. Under the terms of McCullough's employment agreement, the company could have terminated him for cause if he admitted to or was convicted of fraud, was convicted on felony criminal charges, committed willful misconduct or malfeasance in performance of his duties, or willfully misrepresented anything material to the company or the board.

Under the severance agreement, the company also releases McCullough from any claims related to his employment at Career Education and agrees not to sue him.

Gallo said the question is probably whether McCullough had responsibility for inaccurate placement rates and, if he did, whether that translates into cause for termination within the definition of McCullough's written employment agreement.

"We have alleged that CEC intentionally and fraudulently published misleading placement rates," Gallo said. "I don't know what, if anything, McCullough knew about these practices. But my understanding is that CEC prepared most of its placement rates in a highly standardized way that was determined in Chicago."

Story courtesy of our media partners at California Watch (A Project of the Center for Investigative Reporting)

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