THE UNITED STATES ATTORNEY'S OFFICE
NORTHERN DISTRICT OF TEXAS
More American Commercial Colleges, Inc. Executives Plead Guilty to Federal Charges
|FOR IMMEDIATE RELEASE||May 23, 2014|
LUBBOCK, Texas — Two executives of American Commercial Colleges, Inc. (ACC), James Michael Otto and Bruce Alan Reed, appeared this morning in federal court in Lubbock, Texas, before U.S. District Judge Sam R. Cummings, and pleaded guilty to federal charges. U.S. Attorney Sarah R. Saldaña of the Northern District of Texas made the announcement this afternoon.
Otto, 61, of Lubbock, was the Chief Operating Officer and Campus Director for ACC’s Lubbock campus. Reed, 64, of San Angelo, Texas, was the Campus Director for ACC’s San Angelo campus. Otto and Reed each pleaded guilty to an Information, filed earlier this week, charging one count of misprision of a felony, admitting they knew about the criminal activity but failed to report it. Each faces a maximum statutory penalty of three years in federal prison and a $250,000 fine. Judge Cummings ordered presentence investigation reports with sentencing dates to be set following the completion of those reports.
Yesterday, the president of ACC, Doyle Brent Sheets, 58, of Lubbock, and ACC also pleaded guilty to federal charges. ACC stole government funds by converting Federal Student Aid (FSA) program funds, and thus caused a loss to the government of approximately $972,794. Sheets admitted that he knew about the theft but did not report it, and he agreed that he would be personally, individually, jointly and severally liable for the total loss amount.
According to their plea agreements with the government, both Otto, Reed and Sheets are excluded, directly and indirectly from participating in any FSA programs. This voluntary exclusion is also a voluntary debarment, and they will not contest any actions taken to execute the debarment. Each agreed they will not have any ownership or interest in, or serve as an officer, director or any legal entity acting as a post-secondary educational institution participating in any FSA program.
ACC is a proprietary institution with corporate office in Lubbock. At one time, ACC operated five campuses in Texas — Lubbock, Abilene, Odessa, San Angelo and Wichita Falls — and one in Shreveport, Louisiana. ACC admitted that it knowingly converted FSA program funds from its students solely for its benefit to represent falsely to the U.S. Department of Education that it complied with the requirement that a proprietary institution may not derive more than 90% of its revenue from the FSA program to remain eligible to participate in the FSA program. The remaining 10% of revenue must come from other sources. This is known as the 90/10 Rule, and if an institution did not satisfy it, it would lose its eligibility to participate in the FSA programs.
In 2007, 2008 and 2009, ACC failed to meet the requirements of the 90/10 Rule, however, as early as 2003, ACC had devised a scheme to represent falsely to the Department of Education that it had met the requirements. From 2007-2009, ACC had students obtain private loans from a private bank in San Angelo, Texas, with whom ACC had made arrangements, of approximately $953,897. ACC recorded the loan funds received from the private bank as “good cash,” thus falsely representing to the Department of Education that ACC complied with the 90/10 Rule. By obtaining the loans from the private bank and delaying the students’ FSA program funds, ACC lowered their total FSA program funds revenue for the 90/10 Rule. ACC repaid and intended to repay those loans with approximately $972,794 of FSA program funds to give the appearance of complying with the 90/10 Rule. The private short-term loans were obtained entirely to benefit ACC so that it could falsely represent its compliance. To further the scheme, ACC employees advised students that the school would close if they did not satisfy the 90/10 Rule, and this would jeopardize the students’ education at ACC.
Otto admitted participating in the scheme to falsely represent to the Department of Education that ACC met the 90/10 Rule requirements. Otto and Reed identified ACC students who were already enrolled at ACC and eligible to receive FSA program funds, and used these students to obtain the short-term private loans from a private bank. ACC and Reed induced that private bank in San Angelo to provide those short-term private loans, and in 2009, Otto and Reed had students from the San Angelo campus obtain loans from that bank for $65,276.
ACC repaid those loans with approximately $66,606 of FSA program funds to give the appearance of complying with the 90/10 Rule. Otto and Reed each admit knowing that ACC converted $66,606 in FSA program funds from it students to falsely represent it was in compliance.
The United States Department of Education, Office of Inspector General, is conducting the investigation. Assistant U.S. Attorney Paulina Jacobo is in charge of the prosecution.