ST. PAUL — Minnesota Attorney General Keith Ellison wants a now-defunct chain of for-profit colleges to liquidate its remaining assets to repay the students it defrauded.
Ellison’s office filed a motion in U.S. bankruptcy court Jan. 3 seeking to either dismiss a Chapter 11 bankruptcy filing by Globe University and the Minnesota School of Business or to convert the case to a Chapter 7 asset liquidation.
The court documents also provide new details about how school leaders moved nearly $18 million in proceeds from real estate sales to owner Terry Myhre and his family days after a judge found the schools committed fraud.
The change Ellison is requesting would mean the schools’ remaining real estate assets would be sold off to fund payments to creditors. He says the Chapter 11 filing currently in federal court violates the spirit of U.S. bankruptcy laws.
Chapter 11 is typically used by struggling businesses working to reorganize and continue operations, Ellison said. Chapter 7 asset liquidation is more appropriate in the schools’ situation because they are permanently closed and need to repay large debts.
“My office and I remain committed to preventing the schools from using bankruptcy to avoid paying court-ordered refunds to student victims for the fraud and usury they committed,” Ellison said in a statement. He noted approving the motion would “ensure at the very least that those who committed the fraud and siphoned funds from the bankrupt estates do not remain in charge of assets that must be safeguarded and collected for the benefit of creditors like the state.”
Millions owed students
The schools owe tuition refunds estimated at up to $42 million to as many as 1,336 students who attended criminal justice programs. In 2016, a judge found the schools fraudulently promoted the programs to students, leading them to believe the degrees would help them become police and parole officers.
There is also almost $5 million owed to former students who took out loans that were later found to be illegal. Additionally, the schools owe a student loan servicing company and the U.S. Department of Education as well as attorneys fees to the state.
The schools’ attorney in the bankruptcy case declined to comment.
The 2016 fraud ruling led to Globe and the Minnesota School of Business closing all campuses by 2017.
Campuses sold, loans forgiven
Ellison’s recent court filing notes the schools now have just three employees “who do nothing but manage the remaining real estate that housed the now-defunct schools and that they do not plan to continue operating as educational institutions.”
The schools were closing campuses and selling off real estate as the fraud case was before a judge in 2016. That included the sale of campuses in Rochester, Plymouth and Elk River worth almost $18 million.
The state’s motion notes that four days after a Hennepin County District Court judge ruled the institutions committed fraud that school leaders forgave $18 million in loans to its owners. Had the schools called for the loans to be repaid, the money would be available to refund students, the motion says.
“It’s clear they made those transfers to make sure that money was not used to pay back the people they defrauded,” Ellison said.
Argument over real estate assets
State attorneys tried in 2017 to strictly limit what the schools’ owners could do with the remaining assets. They made note of the loans that were forgiven, but lawyers for the schools fought to have most of the details sealed from the public eye.
In court hearings and records, the schools characterized the disbursement of real estate proceeds to owners as an “unproven theory.” They said all assets were used to wind down the institutions’ operations.
Eventually, a judge put new limits on how the school could use its remaining assets, but rejected the state’s request to guarantee real estate assets would be used to repay students.
Former Attorney General Lori Swanson, who brought the fraud lawsuit against the schools in 2014, said recently that she hoped a bankruptcy court would be able to ensure students received the restitution they were owed.