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DeVry Faces FTC Lawsuit for Deceptive Ads; Shares Fall 15%

Shares of DeVry Education Group, Inc.DV lost more than 15% on Jan 27 after the Federal Trade Commission (FTC) filed a lawsuit against DeVry University challenging the employment potential of its graduates.

DeVry University is DeVry Education Group's largest subsidiary which offers graduate and undergraduate courses in technology, science, business and arts.

According to the FTC, advertisements/marketing by DeVry University has falsified the job and income prospects of its graduates, thereby misleading students. DeVry's advertisements claim that 90% of its graduates get jobs "in their field" within six months of graduating. Also, it claims that its graduates' average income is 15% higher - a year after graduation - than those of other colleges or universities, which is misleading.

In fact, according to the FTC, some of DeVry graduates have not found jobs "in their field" contrary to the institute's ad campaigns. In the press release, the FTC cited examples of a DeVry business administration graduate working as a waiter and a technical management graduate employed as a driver.

In conjunction with the FTC lawsuit, the U.S. Department of Education (ED) also issued a notice to DeVry to discontinue the misleading advertisements. It has also directed the education company to substantiate the truthfulness of its employment outcomes, failing which it could lose federal student financial aid.

However, DeVry has issued a statement denying the allegation and stating that it has used appropriate measures and standards to support the statistics. The company plans to vigorously contest the lawsuit.

As it is, DeVry University has been witnessing weak revenues and enrolment trends for several years due to soft demand. The recent issue will only make matters worse.

Nevertheless, DeVry is not the only one. There are other education companies that have come under strict scrutiny of the ED due to violation of federal securities law. Last year, Corinthian Colleges, Inc., shut down its ground campuses under ED's order for allegedly falsifying job placement rates and misplacing students' attendance records at some of its schools.

ITT Educational Services, Inc. ESI faced ED's spat for allegedly providing inaccurate financial statements. The Pittsburgh-based education company, Education Management Corporation EDMC , had also been accused of illegally paying incentives to recruiters and exaggerating the career-placement abilities of its schools last year.

DeVry carries a Zacks Rank #2 (Buy) but that could definitely change after the latest FTC lawsuit. Another education company worth considering is Bridgepoint Education, Inc. BPI with the same rank as DeVry.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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