Questionable Insider transactions:

Despite the extraordinary growth and upbeat tone from management, insiders have been selling stock at a rapid clip.  The timing of some of these sales is particularly interesting given they were done the two days after Senator Harkin's HELP committee hearings on August 3^, 2010 and two days after Bridgepoint boosted guidance and announced a $60mn share buyback.  Sales just after that hearing were:

Andrew Clark, CEO, sold 150,297 shares on 8/5/10-8/6/10

Daniel Devine, CFO, sold 59,583 shares on 8/5/10-8/6/10

Ross Woodard, SVP/Chief Marketing Officer, sold 87,697 shares on 8/5/6/10

Jane Mcauliffe, SVP/Chief Academic Officer, sold 90,000 shares on 8/5/10

Rodney Sheng, SVP /Chief Administrative Officer, sold 100,000 shares on 8/5/10-8/6/10

Christopher Spohn, SVP and Chief Admissions Officer, sold 37,116 shares on 8/5/10

Post the Harkin hearings, BPI on August 6^th  acknowledged they received a letter requesting a plethora of data to provide Senator Harkin and the HELP committee (Note: all publicly traded for-profits received this request).  Given the BPI press release was issued at 6am on August 6^th, one would figure they had received it before most of their insider sales? 

So management signals to the market that the stock is cheap and announces it intends to buy-back stock, yet offloads it themselves two days later?  We note that at the time of insider sales, the stock was trading between $15 and $17, much lower than its recent highs.  Why sell stock now when it was recently at $25?

Department of Education Office of Inspector General (OIG) Investigation

Ashford University has had an ongoing audit of its operations by the OIG since May 2008.  On January 21, 2011 BPI noted that the audit contained the following findings:

• Finding 1-The university designed a compensation plan for enrollment advisors that provided incentive payments based on success in securing enrollments and did not  establish that its plan and practices qualified for the regulatory safe harbors.
• Finding 2-The university did not always perform return of Title IV aid calculations properly, resulting in the improper retention of a total of $29,036 of Title IV program funds for 38 students in the OIG's sample sets of 85 students.
• Finding 3-The university did not in all instances return Title IV program funds timely for Title IV students who withdrew or went on a leave of absence from school.
• Finding 4-The form formerly used by the university to obtain authorizations to retain student credit balances did not comply with applicable regulations.
• Finding 5-The university did not in all instances disburse Title IV program funds in accordance with applicable regulations or university policy because they were made prior to the students being eligible to receive them.
• Finding 6-The university did not in all instances maintain documentation to support online students' leaves of absence due to the lack of support for the start dates for 19 leaves of absence. 

The findings were accompanied by recommendations to the Department of Education's Office of Federal Student Aid and are shown on P36 of BPI 10k.  BPI notes that for Findings 2, 3 and 5 the OIG recommended that the FSA consider appropriate action which may include "a fine against the university or to limit, suspend or terminate the university's participation in Title IV programs." 

ACCREDITATION:  Is Ashford at risk at losing accreditation?  We think yes.

 It is important to note the reasoning behind Bridgepoint's decision to acquire a tiny rural religious university in Iowa.  Franciscan University was regionally accredited by the Higher Learning Commission (HLC).  Regional accreditation is considered more prestigious than national accreditation and it is more difficult for a new institution to obtain.  The acquisition of Franciscan provided Bridgepoint a regionally accredited institution that had marketability and access to Title IV. 

Given how important regional accreditation was to Bridgepoint, we find very interesting that Bridgepoint announced on 9/23/10 that it was looking to migrate to another regional accreditor, the Western Association of Schools and Colleges (WASC).  Per Bridgepoint's press release: 

"BRIDGEPOINT EDUCATION'S ASHFORD UNIVERSITY INITIATES WASC ACCREDITATION PROCESS"  SAN DIEGO, CA (September 23, 2010) - Bridgepoint Education, Inc. (NYSE:BPI), a provider of postsecondary education services, today announced that Ashford University has recently initiated the process of seeking regional accreditation from the Accrediting Commission for Senior Colleges and Universities of the Western Association of Schools and Colleges (WASC, http://www.wascsenior.org). Ashford University is working collaboratively with the Higher Learning Commission of the North Central Association of Colleges and Schools (HLC, http://www.ncahlc.org) and WASC to facilitate the migration. During the process, Ashford will continue to maintain its current regional accreditation with HLC. Bridgepoint Education's University of the Rockies has not applied for WASC accreditation.

In 2006 Ashford University stated that it had received re-accreditation from the HLC for ten years.  So, the question we ask is: why change accreditors now?  The answer lies within the HLC.  In June 2010, the Board of Trustees of the HLC adopted revised bylaws:

 "...which outline the basis on which an institution may claim that it is within the commission's jurisdiction.  The revised bylaws stated that an institution must be incorporated within a state in the 19-state north central region and also have a "substantial" presence in the north central region to be considered within the commission's jurisdiction... The institution must provide evidence that the majority of its educational administration and activity, business operations and executive and administrative leadership are located or operating within the north central region." 

Ashford's headquarters are based in San Diego and 99% of its student population is online (or outside the Clinton, IA campus).  Its enrollment counselor call center is based in San Diego.  The company technology which hosts the online university is based in San Diego as well.  Essentially, Ashford University does not meet HLC guidelines.  Thus, they are being asked to seek accreditation elsewhere. 

Commentary available on Senator Tom Harkin's website is likely a preview of next week's hearing. 

From Harkin's December 2010 statement:  "Let me focus, for a moment, on Bridgepoint. Bridgepoint operates Ashford University and is based, sort of, in Clinton, IA. A group of private equity investors purchased a small Catholic school in 2004, when it had about 375 students. In 2004, this small Catholic school in Clinton, IA, had 375 students. They transformed it into a for-profit school. It now has 67,000 students, a 17,000-percent increase in student population in 6 years, 17,000 percent.

Ashford still operates the small campus in Iowa. About 600 students go there. The other 67,000 take classes online. I, obviously, was very interested to know how the heck they can be doing such a good job for students with that kind of growth. What the data we have collected for our investigation can tell us, for the first time, is they are not doing a very good job for their students.

Eighty-four percent of the students seeking an associate's degree and 63 percent of bachelor's degree-seeking students leave Ashford within 1 year, without finishing their programs.

But look at the growth--17,000 percent growth. This is not terribly surprising because Bridgepoint offers no tutoring or other student services. If a student starts to have difficulties at Ashford online, they have two options: talk to their part-time teacher online or ask the computer avatar, who is the online student resource center.

Should a student succeed in completing a degree at Ashford, they had best not expect a lot of help finding a job. While Bridgepoint employs 1,703 recruiters, they employ just one person to handle career planning. They employ 1,703 recruiters, and one person to handle career planning for the entire student body of 67,000 students. According to a recent study, 60 percent of all community college students need extra help to succeed in school. They need tutoring and classes to make up for what they may not have learned in middle school and high school. For-profit colleges have served a similar population with similar needs. As they often remind us, the for-profit sector serves a group of students that traditionally lack access to higher education. Their students are the ones who are the most vulnerable, the ones who didn't have parents who went to college, who didn't grow up in a fairly wealthy household. And to make it through college, they require a significant support structure that is not available at these for-profit schools."