Is UC regent’s vision for higher education clouded by his investments?

Conflicts of interest almost always involve money, but sometimes they raise more questions about the subjects’ perspective than about their wallets.

Consider the large investments University of California Regent Richard C. Blum has made in two for-profit higher education companies, Career Education Corp. and ITT Educational Services Inc.

Blum’s San Francisco investment firm is the largest shareholder in both firms, owning nearly 20% of Career Education and more than 10% of ITT Educational.

The firm’s combined holdings in these two stocks is valued at about $700 million, based on their recent market prices. That sounds like a lot of money, but I think we can concede as a matter of courtesy that Blum, who is a billionaire and the chairman of the real estate firm CB Richard Ellis, probably wouldn’t take any action as a regent merely to juice the value of those holdings.

But what do these investments say about Blum’s vision for higher education? Should an important official of what is arguably the most prestigious system of public higher education in the world also be a leading financial backer of an industry that has been coming under intense regulatory scrutiny because of persistent allegations of fraud?

Or put another way: If the chairman of the World Wildlife Fund held significant investments in, say, BP, wouldn’t people wonder exactly what he thought about how to balance environmental protection and oil industry regulation?

Blum, who was appointed to an unpaid 12-year term as regent by Gov. Gray Davis in 2002 and is the husband of U.S. Sen. Dianne Feinstein, holds two degrees from Berkeley and has been a generous donor to the school. He has been especially outspoken about the role of UC and shortcomings in its strategic planning and administrative structure.

It may be inevitable that the holdings of a professional investor such as Blum would create the appearance of a financial conflict with some of UC’s own financial dealings. UC’s endowment pool and retirement fund have also held shares in Career Education and ITT Educational Services. UC says the peak value of the two stocks in the portfolios it outsourced to professional managers was about $10.3 million.

As of the end of 2009, those managers had sold off those shares, although both stocks are still held in the university’s passively managed portfolios, which are the equivalent of index funds.

“It’s misguided to assume that there’s a conflict of interest simply because there’s an overlap between personal investments by University of California regents and investments made by the UC treasurer’s office,” Lynn Tierney, a UC spokeswoman, said last month. Her statement was issued in response to an inquiry by Peter Byrne, a Northern California journalist who has written about Blum’s investments, including those in the for-profit educational sector.

Tierney said UC has strict policies designed to inoculate the decisions of its investment managers from interference by regents. “The real issue is whether regents communicate with the treasurer’s office about specific investments,” her statement said. “They haven’t and wouldn’t, period.”

Yet that raises the question of whether Blum’s ownership in Career and ITT is entirely consistent with his role as a UC regent. The question arises because these companies belong to an industry with a reputation for placing profits before educational attainment.

Blum’s office didn’t respond to my request for a comment.

As Sen. Tom Harkin, D- Iowa, observed in a recent report following a hearing, “evidence suggests that for-profit schools charge higher tuition than comparable public schools, spend a large share of revenues on expenses unrelated to teaching, experience high dropout rates, and, in some cases, employ abusive recruiting and debt-management practices.”

More than 90% of students in bachelor degree programs at for-profit schools graduate with federal loans outstanding, compared with 60% at public universities — and they default on those loans at three times the rate, Harkin noted.

Federal prosecutors investigated ITT in 2004, looking for evidence it had falsified grades, attendance and post-graduate employment rates; the investigation was closed the following year.

As for Career Education, last year, the inspector general of the U.S. Department of Education noted that the company’s flagship institution, American InterContinental University, got full accreditation from a professional oversight body, the Higher Learning Commission of the North Central Assn. of Colleges and Schools even after the commission found that AIU inflated credit hours assigned to some of its undergraduate and graduate programs. The inspectors found the accreditation to be “not in the best interest of students” at AIU and suggested that the department consider whether it should “limit, suspend, or terminate” its recognition of the accreditation body.

Students and former officials at Career Education’s culinary schools have alleged in court in Los Angeles and San Francisco that the schools misled students into believing that their admission policy was selective and their placement rates excellent.

The lawsuits allege that the schools are open to anyone with a high school diploma or equivalency and the money for tuition, and that the high placement rates include graduates with jobs as pastry assistants and Starbucks baristas.

A lawsuit filed in federal court in Atlanta by former officials at AIU alleges that the school has violated a congressional ban on paying recruiters based on the number of students they sign up — and that the pressure to meet enrollment quotas led some recruiters to sign up students who couldn’t read.

Career Education has taken issue with all these points. Its spokesman, Jeff Leshay, told me it considers the government’s assertion that the accreditors failed to act diligently in dealing with AIU “unfounded.”

He wouldn’t respond specifically to the allegations in the lawsuits but said, “we stand by the quality of education and student-focused services that we deliver at all of our institutions.” In fact, he said, the company fills a void by providing career-based education to “a diverse and underserved student population, including many working adults.”

But the enduring questions about the integrity and performance of an educational sector in which Blum is a major investor places him in a curious and, yes, conflicted position. He’s a major player in the preeminent public university system in the world — and in an industry with probably more congressional investigations in its future. Can one man wear such different shoes?

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at http://161.35.110.226/hiltzik, check out https://www.facebook.com/hiltzik, and follow @latimeshiltzik on Twitter.