SEC investigating Education Management Corp.

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Education Management Corp., which has seen both its stock and enrollment battered by ongoing inquiries raised about recruitment tactics used by the for-profit colleges and tightened federal student loan rules, is now the target of an investigation by the Securities and Exchange Commission.

The Downtown-based company that operates the Art Institutes, in addition to other post-secondary educational institutions, filed a regulatory notice Friday disclosing that it had received a subpoena Tuesday from the SEC's enforcement division.

Regulators requested "documents and information relating to the company's valuation of goodwill and to its bad debt allowance for student receivables," according to the filing.

Education Management said it intends to cooperate with the SEC in its investigation.

In EDMC's most recent quarterly report filed with the SEC, the company disclosed that its goodwill value at the end of the year had not changed since June 30. That figure reflected a decision to write down the value of its goodwill by $1.6 billion.

Goodwill is the difference between what the company paid for assets and the current market value of those assets.

Education Management also disclosed it expects bad debt expenses to increase because of the reduced availability of federal and private student loans. The company said it is responding by offering more scholarships to Art Institutes students and extending larger loans to students who were denied federal PLUS loans. It also extended the maximum length of payment plans from 36 to 42 months.

The measures "will likely result in higher bad debt expense as a percentage of net revenues in future periods," the company stated.

In the second quarter, EDMC reported revenue had fallen 11 percent from the same period a year earlier, primarily due to a 12.7 percent drop in average enrolled student body for the three months ended Dec. 31.

A few weeks ago, the company announced it would freeze tuition at its Art Institutes through 2015, as part of an effort to boost enrollment and retain current students.

The company's stock, like other for-profit colleges, has taken a hit in recent years after the high of $20.05 in February 2011. On Friday, it closed at $3.65 a share.

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Len Boselovic: or 412-263-1941. Teresa F. Lindeman: or at 412-263-2018.


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