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Fahmi Quadir, chief investment officer and founder of Safkhet Captial LP, speaks during the Contexto Leadership Summit in Las Vegas, Nevada, U.S., Wednesday, May 9, 2018.
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Quadir told CNBC that he has a short position in the stock, meaning he is betting that the share price will go down. His report is expected to be released Tuesday.
Quadir, 33, became a financial industry celebrity in 2018 after a prominent role in the Netflix documentary “Dirty Money.” The third episode of the show focused on the fate of the pharmaceutical company Valeant, which Quadir correctly predicted. His history of shorting companies has earned him the nickname “The murderer.”
“We believe that Adtalem is not investable at all, the amount of existential risks that exist today should cause alarm to any investor investigating this company,” Quadir said.
She predicts that the company is wasting federal tax dollars on programs that are ineffective and faces several major financial threats. And she points out that more than 70% of Adtalem’s revenue comes from federal student aid dollars.
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“It makes me angry and I feel like everyone should be angry that our money is being abused in such a careless and careless way,” Quadir said. “And what do the executives of these for-profit universities do? Well, they pay very well and also repurchase many of their stocks.”
He also believes that schools in Adtalem’s portfolio are imposing unsustainable debt loads on many students.
“These are hard-working students; they worked hard to get their degrees,” he said. “They paid a lot for their degrees. But they tell me there is no way in their lifetime they will be able to pay off their loans, even if they make diligent payments each month, sometimes to the tune of thousands of dollars a month.”
Quadir’s report found that Walden has a graduation rate of just 29% and Chamberlain has a 40% rate.
In a statement, a spokesperson for Adtalem said: “As a leading health educator and an organization with more than 300,000 learners, Adtalem offers quality educational programs that aim to prepare our students for paid employment and are a good return on investment. investment for both our students and American taxpayers.”
The spokesperson also noted that graduation rates include a population of full- and part-time students who earn their degree while working full-time.
“These students may need more time to complete their degree than the scorecard’s 8-year limit, however, we are committed to ensuring that all students are workforce ready when they graduate,” the company said.
Adtalem’s share price has soared more than 75% in just seven months, from just over $33 per share in late June to more than $60 per share at Monday’s open. The company’s shares are largely held by institutional investors, including Blackrock and Vanguard.
Quadir’s criticism focuses on several key areas of the company’s finances.
She says Adtalem has not disclosed that its Walden University unit is the subject of an investigation by the Department of Education into its doctoral programs, citing a public record published in November by the company’s accreditor, the Higher Education Commission.
That document says the commission “has assigned a Government Investigation designation to Walden University in Minneapolis, Minnesota, based on an investigation initiated by the U.S. Department of Education related to the institution’s doctoral programs.”
Quadir notes that the company’s “composite financial responsibility score” was downgraded by the federal Department of Education in September to a rating of 0.2, which she says could force the company to seek additional letters of credit for continue receiving federal students. loan funds.
A spokesperson for the Department of Education did not respond to a CNBC query about its financial policies.
Quadir also notes that the Biden Administration is reestablishing something called “paid employment rule” in July of this year, which ranks student outcomes based on income and debt load.
Safkhet Capital’s report predicts that many of the company’s programs will not meet the Department of Education’s metric thresholds for preparing students for gainful employment.
According to the department, programs who “do not meet the standards on the same metric twice in a three-year period will not be eligible to participate in the Department’s federal student aid programs.”
“From the data we have today, for these programs, we have estimated that they will fail.” Quadir said. “And there’s really little the company can do.”
Quadir also questions the company’s accounting for Walden University’s assets, particularly how it values the school’s eligibility to receive federal student loans. According to Adtalem, Walden’s “Title IV eligibility and accreditations” is an “intangible asset” worth $496 millionas of September 30, 2023.
Quadir is scheduled to detail his short position in a speech Tuesday in Miami at a conference hosted by the Managed Funds Association.
An Adtalem spokesperson responded to each of the points raised by Quadir.
The company noted that the Department of Education’s investigation into Walden University’s doctoral programs “does not accuse Walden of any crime” and the company “is cooperating fully with the Department’s request for information.”
Adtalem also said he expects “the vast majority” of his programs to pass the Biden Administration’s gainful employment rule. “If a program cannot meet the (gainful employment) standards, we will have the opportunity to make adjustments to maintain Title IV eligibility.”
Regarding the accounting for Walden’s intangible assets, the company said: “As Walden University is an online educational institution, it has few physical locations. As a result, a large portion of the purchase price is attributed to intangible assets. We are confident “To ensure the accuracy of this attribution and as a publicly traded company, Adtalem is audited by Pricewaterhouse Coopers.”