Valpo Law Closing: Final Straw 3/3

This is post #3 of 3 on the closing of Valparaiso School of Law, looking at recent events. But this is only the mere effects with very little usefulness to the consideration of long-term systemic injustice. For root historic causes, refer to Doomed to Fail, (post #2). Full overview and disclosure of conflict here



So let's run through these dates with a little more color:

• June 17, 2016 - Noam Scheiber for The New York Times publishes a well-researched, factual, and extremely critical piece on Valpo Law School.* 
• October 2016 - Completely unrelated, The American Bar Association holds hearings on Valpo Law "based on data collected in the spring of 2014... which examined the previous seven years. [2008-2014]" 
• November 1, 2016 - Application deadline for early decision for fall 2017 admission
• November 15, 2016 - ABA publicly censures Valpo Law School. They cite requests for admission data and LSAT scores in their exam. Certainly couldn't make their censure appear to be a direct response to the NYT article. So they used statistics from years earlier and that had to be provided by Valpo. If they cited declining bar pass rates from long ago data, it would be a direct admission of failure to supervise. 
• March 1, 2017 - Last deadline for fall 2017 admission
• March 2017 - Valpo hires Ogilvy Public Relations who offers that the law school would be reducing class sizes and offering faculty buyouts.
• May 17, 2017 - Moody's downgrades Valpo bonds from A2 to A3
• May 23, 2017 - Valpo discloses to bond holders missing required financial information for 2014-2016, including tuition, fees, and room and board charges, and Moody's rating downgrade.
• June 12, 2017 - Valpo posts new $40.6 mm muni offering - $31 mm for refund 2007 issues '22/'27/'33. No mention of current ABA censure or any concerns with the law school. 
• November 13, 2017 - The ABA removes censure from Valpo Law.
• November 16, 2017 - Valpo Law suspends admissions, admits financial challenges, and exploring options
• November 20, 2017 - Valpo first discloses to muni holders challenges facing the law school, and the intent to suspend admissions.
• May 21, 2018 - Valpo graduates one of the smallest classes (83) in years. Indiana Court of Appeals Chief Judge Nancy Vaidik, JD '80, received an honorary doctorate.
• June 25, 2018 - Announces in talks to transfer to Middle Tennessee State University
• October 15, 2018 - MTSU transfer declined 
• October 30, 2018 - Valpo Law announces ceasing operations.
• November 1, 2018 - Valpo issues what is only titled "Voluntary Disclosure" to bond holders

ABA Sanction
The above-the-law arrogance / assumption of public ignorance (or ambivalence) of the ABA top brass was on full display. They appear to have worked hard to maintain plausible deniability for their supervisory failure, and not acting in response to the NYT by never citing low bar pass rates. But on the same day, the ABA announced probation for the Charlotte School of Law, the only other law school negatively addressed in the NYT piece (that was led by Valpo's former dean).

If the panel cited low bar pass rates from 2008 to 2014, data it had access to for a long time, it would be a direct admission by the ABA of a systemic failure to supervise, possibly jeopardizing the entire regulatory body. But the ABA considering only data prior to the NYT article, might hint that the ABA willfully attempted to cover up failures of supervisory duties. And given the ABA's quasi-government regulator role, there may be valid reason for FOIA to apply. Try to argue that one in court and keep your law license! 😅

Muni Issuance, Intentionally Misleading? Failure to Disclose?

• The November 2016 ABA censure of Valpo's Law School was never disclosed to bondholders. Possibly that is the reason for this next statement to hedge its legal risk. 
• The November 2017 voluntary disclosure of "enrollment and financial challenges facing its Law School." Mentioned alternatives that did not include closing. Valpo is "making this disclosure out of an abundance of caution, and does not believe this event will have a material adverse effect on.. overall operating results or.. ability to satisfy its obligations to bondholders."
• After I mentioned the possibility that Valpo misled investors, or at least failed to disclose, but to the law firm representing Valpo in my lawsuit, it appears that someone from Ice Miller, LLP, a different firm, that advised Valpo on the bond issue, started digging around. No reason to do that if they have no concern about misleading bondholders.

• Regarding enrollment, here's the offering disclosure:

• Valpo had reasonable insight and ability to project fall 2017 enrollment numbers and statistics in May/June of 2017 (note the above deadlines) when it refinanced existing debt with a new issue. Looking at later disclosed 2017 financials attendance only declined by 2.8%. However, the percentage of students accepted versus applied was higher, yet the number who enrolled versus accepted was lower. To maintain enrollment numbers, it appears that Valpo relaxed standards and increased financial incentives. Valpo increased student university funded financial aid to students by 14% (or $9mm) from the 2016-2017 school year. Also the average SAT score of enrolled students declined to 1,069 from 1,100 the prior year. If this includes more than freshmen, that is a noticeable decline and a worrying trend. Even more worrying is the above misleading statement on FTE (full-time equivalent) enrollment increase from fall 2012. Looking at the actual numbers, it appears that the trend was not as positive as suggested above.

• So did Valpo admit concerns in May, 2017 to Moody's that justified the downgrade, but that Valpo failed to disclose publicly? It would be ironic given this this 2012 paper in the Valpo Law Review calling for an end to bond rating agencies having access to non-public information.

Potential Conflict(s) of Interest

• Susanne (Heckler) Johnson, Valpo President Heckler's daughter, graduated from Valpo Law School in 2013.
• In 2015, President Mark Heckler was the 8th highest paid president within the 30 members of the Independent Colleges of Indiana. 
• The Horizon League is suing Valparaiso University for leaving without paying a breakage fee. Horizon, headquartered in Indy, is represented by an attorney from Susanne (Heckler) Johnson's firm. I wonder if AD's from remaining colleges know who is representing them.
• Valeo Financial Advisors, LLC sued me, and is currently being sued by me, along with Mark Heckler, and Susanne (Heckler) Johnson, among other partners at Johnson's firm, Hoover, Hull, Turner, LLP. Valeo may be the manager of the Independent Colleges of Indiana endowment, based on Valeo's fee schedule, and ICI disclosures (as I assert in the lawsuit). The manager of that endowment is decided by the ICI directors, including Heckler. 
• Valeo by disclosure, invests in individual municipal bonds for its clients. If Valeo purchased Valparaiso municipal bonds, especially from the new issue, for its clients, while being represented by Johnson's firm, and at the same time as managing the ICI endowment, at a time that Valpo appears to have been knowingly struggling financially, but withholding certain information from bond purchasers, and none of the parties disclosed this to those owed a fiduciary duty...

I will update this post later with added developments and analysis of Heckler's compensation per student, especially after the law school closes, and I plan to look at duration on the refinancing. Just a quick glance, it does appear that Valpo saved interest expense in paying off the 2007 issues with new debt. But given the bulleted choices on which issues to pay off, the numbers should bear out some logic for their choices. If not, then there may be a question as to who may have held the called bonds that may have had interest in avoiding increasing financial risk that was not disclosed to new bondholders. Further, I would then wonder if anyone at the Indiana Finance Authority had any knowledge. But next I turn my attention to the heralded success of Indiana's Commercial Courts.