WASHINGTON — The Education Department is removing a law firm hired to oversee the turnaround of schools owned by Corinthian Colleges Inc., a for-profit education company whose financial collapse had placed at risk more than $1 billion in federal student loans.
An Associated Press investigation identified conflicts with the ostensibly independent monitor.
The department said it was removing the firm, Hogan Marren Babbo & Rose Ltd. of Chicago, after the AP reviewed with senior agency officials its findings last week after a nine-month investigation examining the Obama administration’s response to Corinthian’s extraordinary collapse in 2014 amid allegations of mismanagement and fraud.
The monitor has been overseeing the business practices of Zenith Education Group, an offshoot of a student-loan debt collection firm that took over Corinthian’s operations. It was serving as the U.S. government’s close-up eyes and ears, reviewing Zenith’s marketing materials and admissions phone calls and the accuracy of graduation and employment statistics.
“I’ve notified Zenith and Hogan Marren that we do not intend to approve renewal of Hogan Marren as the independent monitor,” Education Undersecretary Ted Mitchell told the AP. “We believe we need a monitor with different capacities to serve in this next phase of Zenith’s development.”
The AP’s investigation found that the way the monitor had been hired created an attorney-client privilege relationship that shielded its work from outside scrutiny and obligated it to act in Zenith’s interest. The firm had been hired directly by Zenith as legal counsel. That distinction created the attorney-client privileged relationship.
After the AP questioned the arrangement, the Education Department last fall altered the terms of its monitoring arrangement. Contract addendums expressly warned that Zenith was not permitted to edit Hogan Marren’s compliance reports before they were presented to the department. Nor could the firm solicit additional work from Zenith during its monitoring.
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