By Jonathan Stempel
(Reuters) - Career Education Corp has agreed to pay $10.25 million to settle a New York state probe in which the for-profit education company was accused of inflating job placement rates to attract prospective students to its schools.
The settlement was announced on Monday by Eric Schneiderman, the state's attorney general.
New York accused Career Education of inflating job placement rates from 2009 through the spring of 2011, disclosing annual placement rates of 54.9 percent to 80.2 percent that should have instead been 24.1 percent to 64.1 percent.
The settlement requires Career Education to make $9.25 million in restitution to students, pay a $1 million penalty, hire an independent company to verify placement rates for three years and change what employment qualifies as placements.
Career Education did not admit or deny the state's findings, but Schneiderman said the Schaumberg, Illinois-based company fired several high-level managers involved in inflating placement rates and took steps to modify its practices.
Mark Spencer, a spokesman for Career Education, said the settlement "closes an important chapter and allows us to move forward with a heightened focus on student outcomes, including our critically important job placement services."
Career Education said it has more than 90 campuses serving roughly 57,600 students. The New York probe focused on activity at seven campuses and two online institutions.
The state said Career Education inflated placement rates through such means as counting employment at one-day "health fairs," and the employment of criminal justice graduates in retail sales and data processing.
It cited one example in which a criminal justice graduate who processed parking ticket data was credited as having obtained a "related field" placement because the graduate's duties involving dealing "with the courts."
"Students pay thousands of dollars to for-profit colleges because they rightly believe education is the ticket to success in their careers," Schneiderman said in a statement. "That's why it's so unfortunate that this company exploited students' aspirations and published misleading information."
In a regulatory filing this month, Career Education said other regulators, including Illinois' attorney general and the U.S. Securities and Exchange Commission, have inquired about its placement rate practices, and that it is cooperating. It also said it had set aside $10 million to cover a settlement with New York.
Matt Mittenthal, a spokesman for Schneiderman, confirmed that the New York attorney general's office has open investigations of practices at other for-profit schools.
(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr and Dan Grebler)