The U.S. Justice Department has expanded its investigation into Career Education Corp., the parent company of Lehigh Valley College.
At issue are allegations the company made false statements to students regarding job placement and tuition costs, according to the company's financial filings.
''This clearly turns up the heat on the company and could represent a setback after various steps forward,'' Harris Nesbitt Corp. analyst Jeffrey Silber wrote in a note to investors. Analyst Kelly Flynn of UBS AG wrote that the news was ''a surprising and significant negative.''
In a regulatory filing last week, Career Education of Hoffman Estates, Ill., said the Justice Department's Civil Division wrote to the company asking ''that we provide documents relating to representations made to current or prospective students at certain designated schools regarding job placement or placement rates and the costs of attending school.''
The Justice Department has declined to comment on the matter. A Career Education spokeswoman said Tuesday LVC is not part of the expanded probe.
The Morning Call reported last year that LVC engaged in hard-sell sales tactics to boost enrollment, and that its job placement services fell short of its sales pitch. High tuition and fees $30,400 to $37,500 for an associate's degree, compared with $5,400 to $5,640 at the area's community colleges then left students with heavy debt.
The Justice Department also asked Career Education for documents ''relating to the compensation structure of admissions personnel.''
In a story last year, The Morning Call described the internal mechanics of LVC admissions: Recruiters had to make 125 calls and schedule five appointments a day, and enroll 10 applicants a month. Top performers would get vacations to the Bahamas. Those who failed to sign up enough applicants were asked to resign.
In a separate letter, the U.S. Education Department took Career Education to task because many of its schools failed to provide reliable audit data.
The Career Education spokeswoman said she did not know whether LVC is among those schools.
The Education Department had told Career Education in June 2005 that it was reviewing the company's restated financial results for 2000 to 2003 and was barring the approval of any new school acquisitions or expansions in the meantime. In its letter last month, the department said a ''significant number'' of Career Education schools still have not completely satisfied auditors.
''This problem has not been ameliorated, but, in fact, has grown worse,'' the department said. ''The inability of CEC to produce audits with unqualified opinions at nearly 45 percent of its schools, standing alone, gives the department reason to retain the growth restrictions it imposed.''
Career Education had said two weeks ago that the Education Department was ready to drop its restrictions.
In February, Career Education ended a controversial high-interest loan program that exacerbated some LVC students' debt. The Morning Call's reporting on the program last year spurred an ongoing investigation by the Pennsylvania attorney general and a state legislative hearing.
Reporter Paul Basken of Bloomberg News contributed to this story.