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Thomas Olson 412-320-7854
Business Writer
Pittsburgh Tribune-Review

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Pending FDA approval, trials to begin on ALung’s artificial lung

Education Management Corp. disclosed on Friday that it is under investigation by the Securities and Exchange Commission for possible accounting irregularities.

The Downtown company, which operates post-secondary for-profit schools, received a subpoena on Tuesday from the SEC seeking documents and information related to the corporation's valuation of goodwill and its allowances for bad student loans, according to regulatory filings. It was not clear what period the subpoena covered.

EDMC is the nation's second-largest for-profit educator, with 110 schools in 32 states and Canada, including the Art Institute of Pittsburgh. The company employs 23,000 people, including 2,400 in Pittsburgh.

The company's filing said EDMC intends to cooperate with the investigation. EDMC spokeswoman Jacquelyne Muller did not immediately return calls to her office and cellphone after hours on Friday. SEC spokesman John Nester declined to comment.

EDMC recorded $2.6 billion in goodwill in connection with its 2006 acquisition by private equity firms led by Providence Equity Partners, Goldman Sachs Capital Partners and Leeds Equity Partners, according to securities filings. The company carried $964 million in goodwill on its balance sheet as of Dec. 31. Goodwill is the price, or premium, that is paid for an asset above its true value.

The company's allowance for bad student debt was $19.2 million as of Dec. 31, versus $9.4 million a year earlier. The amounts relate to loans EDMC makes to students to cover tuition and fees they cannot pay from government and private loans.

EDMC has been struggling with declining enrollments for a year, particularly in its online education programs, in the face of the sluggish economy and a reputation tarnished by litigation. Its profit for the October-to-December quarter dropped 51 percent from year-ago levels.

The company faces federal lawsuits by former employees and the Justice Department that seek to recover about $11 billion in federal and state student aid it received. The claimants argue Education Management obtained the money by violating a federal ban on paying recruiters based on the number of students they enrolled. The company denies the claim.

Shares of EDMC closed on Friday at $3.65, down 3 cents.

Thomas Olson is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or tolson@tribweb.com.

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