ST. PAUL -- Kristina Anderson sees any chance of recovering the $80,000 she spent on a useless degree from Globe University slipping away.
“Not a single penny,” the Stacy, Minnesota, resident said. “I’ve pretty much accepted that I will never get my money back.”
The law is on the former criminal justice student’s side. A Hennepin County judge ruled in 2016 that Globe and the Minnesota School of Business defrauded Anderson and 1,300 others who attended the schools hoping to become police and probation officers.
The criminal justice degrees they earned did nothing to advance their dreams of careers in law enforcement.
The schools have been ordered to give the students their money back, plus interest. But three years after the verdict, Anderson fears she will never see restitution, especially in light of the schools’ recent bankruptcy filing.
Messages to the schools and their attorneys seeking comment were not returned. Throughout the state’s lawsuit, school leaders maintained any wrongdoing was limited and the institution should never have been forced to close.
The schools have spent the three years since the fraud ruling fighting in court how many students they owe restitution, the amount of civil penalties and attorneys fees owed to the state.
During that time, state officials accused the schools of selling off real estate assets and giving the proceeds to school leaders in the form of forgivable loans. School officials denied those claims, and in 2017, a judge set restrictions on how the schools’ assets could be used.
“It was pretty obvious to me that this was their plan all along,” Anderson said of the bankruptcy. “That speaks to their character. They don’t care at all about the students who were affected by this.”
State officials have vowed not to be deterred by the bankruptcy filing.
“The schools committed fraud and the state is entitled to recover every dollar possible to recoup losses to Minnesota students they victimized,” Attorney General Keith Ellison said. “The schools’ bankruptcy filing complicates our efforts, which is what they intended. It’s also strengthened our resolve to get money back for the people they defrauded.”
Ellison has taken over the legal fight against the now-defunct schools that began under his predecessor, Lori Swanson.
“It’s been a five-year saga trying to get money back for these students,” said Swanson, who characterized the case as one of the worst examples of “bad corporate behavior” during her tenure.
“At every step along the way, the school used every opportunity to deny restitution to students, drag their feet, appeal and elongate the process,” she said.
Fraud and illegal loans
Minnesota sued Globe University and the Minnesota School of Business in 2014 after students came forward saying they were misled by the schools to believe completing associates degrees in criminal justice would help them become police and probation officers.
A judge agreed, finding the schools’ advertisements and promotion of the degrees were fraudulent because they did not meet any of the state’s requirements to earn law enforcement credentials.
The September 2016 fraud ruling led to the schools being unable to operate in Minnesota and losing access to federal student financial aid programs. The schools began closing campuses around the time of the trial and fraud ruling.
In addition to that ruling, courts later found the schools had also issued illegal loans to about 6,000 students with interest rates above what is allowed by Minnesota law. The state Supreme Court found those loans were not enforceable.
In the Chapter 11 cases filed in U.S. Bankruptcy Court in November, Terry Myhre, president of the two school chains, says the institutions have combined debts between $50 million $100 million.
Those debts include an estimated $20 million owed to former criminal justice students and another $18 million owed to recipients of the illegal loans, according to the schools’ bankruptcy. State officials have argued the money owed to former students could be even more.
The schools also owe the U.S. Department of Education for discharged student loans and a loan servicing company. It’s unclear what other debts the schools face.
Most of the schools’ remaining assets are in real estate. The bankruptcy filing details six related companies managing real estate for the schools that are worth about $36 million.
That’s not including $8 million in mortgages on those properties — former school buildings from Blaine to Lakeville and Brooklyn Center to Woodbury.
Those buildings are generating income through rents from new tenants, the bankruptcy filing says.
Ellison says he’s concerned the schools are abusing federal bankruptcy protections reserved for businesses that want to remain open, because these schools are permanently closed.
“Filing under Chapter 11 puts the schools in charge of recovering assets for the benefit of the state and other creditors, even though they’re the ones who committed the fraud,” Ellison said.
Past disbursements to school leaders?
Buried in hundreds of pages of court filings are a few details of state officials’ belief the schools sold off property around the time of the fraud ruling and gave the money to school leaders.
In 2016, the schools sold campuses in Rochester, Plymouth and Elk River worth about $17.5 million. Much of the public court record has been redacted, but the records and exhibits that are public show state attorneys believed the schools paid the proceeds of those sales to school leaders through private loans that were later forgiven.
The schools’ lawyers denied the state’s accusations as an “unproven theory” and fought to keep some of the financial records private. They maintained all assets were used to wind down the schools’ operations, something state attorneys have contested.
In 2017, a judge went on to limit how the schools could spend money on hand or proceeds from future sales.
In light of the recent bankruptcy filing, Ellison says his staff is eager to take another look at what happened to those real estate proceeds. “We’re looking at all of our options for getting that money into students’ hands,” he said.
Bankruptcy court would be the state’s best chance at clawing back any of the money from past real estate sales to reimburse students.
“What I would like to see is a very aggressive bankruptcy trustee appointed who will look in the rearview mirror and see where relevant money went and try to recoup it for what happened to students,” Swanson said.
Other students seeking payback
It’s not just former criminal justice students and recipients of illegal loans who may be eligible to seek restitution for money borrowed or paid to attend Globe and the Minnesota School of Business. Any student enrolled at the time of the fraud can seek federal loan forgiveness and other remedies.
Nell Kaas, a nursing student at the time the schools began closing, wrote to the bankruptcy court Dec. 9 seeking help. The schools’ closure kept her from earning a bachelor’s degree and she was forced to retake many classes she paid for at the Minnesota School of Business, the letter said.
“The school stole my dignity, my financial stability, my marriage, my time, my health,” Kaas wrote. “I deserve something in return, for what’s been stolen from me.”
That sentiment is shared by many former students who are trying to move on with their lives after their experiences at the schools.
The institutions continue to maintain, through a website, that there was no “widespread” fraud and that most students were happy with their education.
That’s little solace for Anderson.
“I spent $80,000 and I can’t even do what I was going to school for,” she said.