SEC Charges Former Executive Officers for Their Roles in Corinthian College's Disclosure Failures
Litigation Release No. 24410 / February 25, 2019
Securities and Exchange Commission v. Jack D. Massimino and Robert C. Owen, No. 2:19-cv-01374 (C.D. CA/Santa Ana Division, filed February 25, 2019)
The Securities and Exchange Commission announced the filing of a settled civil injunctive action against two former executives of Corinthian Colleges, Inc., for their roles in Corinthian's failure to disclose material risks related to the company's primary source of revenue.
Corinthian, which has ceased operations, was a reporting company listed on NASDAQ and headquartered in Santa Ana, California. As alleged in the complaint, Corinthian borrowed tens of millions of dollars from its credit facility immediately before fiscal year end, to increase the long-term debt it reported to the U.S. Department of Education (DOE) and the "Composite Score" that ED calculated to determine Corinthian's access to federal education funds. Immediately after the start of the next fiscal year, however, Corinthian repaid the year-end borrowing.
In August 2013, after reviewing Corinthian's 2011 financial submissions and score, the DOE informed Corinthian that reporting such immediately-repaid debt as long-term was a "questionable accounting treatment" under the DOE's regulations, which improperly inflated Corinthian's Composite Score. As alleged in the complaint, under the direction of former CEO Jack D. Massimino and former CFO Robert C. Owen, Corinthian disclosed the DOE's finding in Commission reports filed in August and September 2013. The reports omitted, however, that Corinthian had inflated its Composite Scores in 2012 and 2013 with such borrowings, resulting in risk that the DOE would lower Corinthian's Composite Score for those years, which in turn would jeopardize its future access to federal education funds and its status as a going concern.
Both Massimino and Owen have agreed to settle the Commission's action. Massimino has agreed to consent to an injunction against violations of Section 17(a)(3) of the Securities Act of 1933 and aiding and abetting violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-11, and to pay an $80,000 civil penalty. Owen has agreed to consent to an injunction against aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-11, and to pay a $20,000 civil penalty.
The SEC's investigation was conducted by Robert C. Hannan and Jody Z. Moore, and supervised by David Reece in the Fort Worth Regional Office. The SEC's litigation is being handled by Janie Frank and B. David Fraser in the Fort Worth Office and Doug Miller in the Los Angeles Regional Office.