September 11, 2005
The Decline and Fall of Drake Business Schools: A Textbook in Crisis Nonmanagement
By KAREN W. ARENSON, NY TIMES

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When David Cary Hart was appointed chief executive of Drake Business Schools in February 2004, the schools had virtually no money, they were behind on their rent, and New York State was demanding repayment of roughly $5 million in tuition grants.

Mr. Hart moved quickly to save the company, long regarded as a flagship in a troubled industry. He dismissed two top executives. He had the former comptroller arrested on theft charges. He even found a way to interest banks in lending Drake money.

Then, just before Memorial Day, as he entered the subway near Drake's Queens campus in Astoria, he was shot, and the police speculated that the attack might have been related to his inquiry into Drake's finances. As he lay in the hospital, Drake's trustees shut the schools and filed for bankruptcy.

"Orthopedic surgeons reassembled my hip with glue and screws," Mr. Hart wrote in an account of the school's demise. "Arterial surgeons performed a lifesaving procedure. Drake was not so lucky."

The abrupt closing disrupted the lives of nearly 1,000 students and 120 employees. All that remains of the schools - which had campuses in Queens, the Bronx, Manhattan and Staten Island - are years of student records in color-coded folders at the State Education Department.

On Friday, there was another harsh reminder of Drake and its problems, as Richard A. Brown, the Queens district attorney, announced the arrests of a former Drake supervisor and another person on charges that they stole $800,000 from Drake between 1998 and 2004. "As fast as money came in the front door," the prosecutor said, "it was going out the back door and allegedly into the pockets of these two defendants and others."

The story of Drake's collapse involves years of poor management, some of it criminal. But it is also the story of a school that filled an important niche, and that encountered forces beyond the control of any executive: the terrorist attack on Sept. 11, just blocks from Drake's biggest campus; the state's efforts to balance its budget by delaying payments to schools; and government efforts to close down fly-by-night schools, which made it tougher for legitimate schools to operate.

Drake was part of a little-understood but important sector of postsecondary education: schools that do not grant degrees, but act as a last resort for tens of thousands of students, many sent by government welfare offices, city employment offices and the courts. These schools often receive millions of dollars in state and federal financial aid for their students.

"Their role is to serve kids who hate school, who just want to learn something that will get them a job," said Roger L. Geiger, a professor at Pennsylvania State University.

Founded in 1873, Drake started life as a school that taught young men to type. In recent years, its main focus involved preparing men and women for office and business jobs. And until its closing, educators saw it as one of the most effective career schools in New York.

"Drake had a terrific reputation," said Michael J. Hattan, president of Global Business Institute, a competitor. "It was a great school."

Steven A. Eggland, executive director of the Accrediting Council for Independent Colleges and Schools, Drake's accreditor, said that Drake's placement rates ranged from 79 percent at the Manhattan campus to 90 percent at Staten Island, well above the 74 percent average for graduates with associate's degrees at other schools accredited by his group.

Students, too, said that Drake served them well.

"When Drake was open, I loved it," said Edith Martinez, who was in the medical assisting program when Drake closed. "The teachers, they gave us their all."

But year by year, Drake's problems mounted: high default rates on student loans, plummeting enrollment after the World Trade Center attack, the state's decision to defer financial aid payments in 2003, and internal management problems.

"It's a wonderful story that ended very sadly," said Mary Ann Lawlor, a former chairwoman and president of Drake.

The last decade of Drake's life had a "Perils of Pauline" quality, with periods of growth and calm broken by crisis after crisis.

The first crisis was new federal rules that suspend schools with high default rates on student loans from the loan program - an important source of financing for the low-income students that schools like Drake tend to attract.

In 1997, two Drake campuses became ineligible. To compensate, they converted from profit-making ventures to nonprofit institutions, which meant that their students were eligible for larger tuition grants from New York State. Drake's two other campuses converted a few years later. They all continued to be run by the same people under a management contract.

But the transition was slow and there was half a year when many students were without aid.

"When the loans stopped coming in, Drake barely held on," said Basil P. Katsamakis, who became Drake's chief executive when Ms. Lawlor retired in 1994.

He said that students who lost their subsidized loans remained at the school, and that Drake lost more than $1 million in revenue.

As the schools began to recover, they were hit by the attack on the World Trade Center. Drake's Manhattan campus, two blocks away, shut for several weeks and enrollment there fell 70 percent.

As Drake was trying to steady itself, state auditors scrutinizing the Bronx campus found many problems. It had not licensed all of its teachers properly and had certified students as eligible for aid who were not. The state comptroller's office calculated that the school owed the state about $5 million.

Schools are typically allowed to work with the state to correct their shortcomings and whittle down the amount they repay, and Drake started that process. But then it was hit with another blow: To save money, the state decided in 2003 to defer 30 percent of its tuition assistance grant payments until the next fiscal year. For Drake, this created a shortfall of about $1 million. Drake pleaded unsuccessfully for a waiver.

By this point, Mr. Katsamakis and the board were having growing disagreements. The board had been stunned by the audit and other problems, including a report by Mr. Katsamakis that Drake's comptroller had written thousands of dollars in school checks to himself. Neither Mr. Katsamakis nor the board reported that finding to the police. (A lawyer for the former controller said recently that his client denied any wrongdoing.) The trustees were also unhappy that Mr. Katsamakis had not found a buyer for the schools.

Mr. Katsamakis charged that the owners were not investing enough capital in the business. In August 2003, he resigned, and was followed by other senior executives.

Drake scrambled to replace them. The new comptroller became acting president, and then was succeeded by Mr. Hart, a longtime Drake consultant.

Mr. Hart said that he had relished the challenge to revive Drake, but had been stunned to find far more problems than he anticipated. He said he found lapses in reconciling bank statements, mislaid bills and about $1.5 million in student debt that the school appeared not to be trying to collect. He said he also believed there was wider malfeasance but had not had the opportunity to document it because of the shooting.

Still, the board's decision to close immediately took nearly everyone by surprise.

"The Drake people walked away and left us holding the bag," said Concetta Gallo, an associate in the Education Department's Bureau of Proprietary School Supervision.

Ms. Lawlor said that the pressure of eviction notices, the lack of operating cash and the absence of anyone to take charge left the board no alternative.

But state education officials said that even keeping the schools open another month, as required by state regulations, would have allowed for a smoother transition. Under state regulations, when a licensed proprietary school closes, the bureau works to place its students in other schools in a process known as a "teachout."

Ultimately more than 350 students were placed. And Ms. Gallo and her colleagues began to try to gather student records. Since Drake had filed for bankruptcy, education officials had to persuade a locksmith to break open school locks to get to the records. On Friday, Joseph P. Frey, an assistant commissioner in the State Education Department, said that the thefts, if proved, were "a clear indication that Drake's board of directors and senior management did not have appropriate internal controls."

Efforts to reach Ms. Lawlor, the former chairwoman, and Mr. Katsamakis on Friday and Saturday by phone and e-mail were unsuccessful. But in an earlier interview, she said that the board had been pleased with Mr. Katsamakis and the other managers for many years. "We were trusting," she said. "We had no reason not to trust people."The department has been searching for ways to keep better tabs on the financial viability of the nondegree schools they license and on whether they deliver the skills they promise.

Drake's accrediting body has temporarily barred more than a dozen former executives from similar jobs. The police are continuing to search for whoever shot Mr. Hart. The Queens district attorney continues to investigate the case.

Despite the problems, Drake continues to stir fond memories among former students and employees. About 20 former staff members get together every few months. And a former student, Fernando Ramos, who graduated in 2003 and now works in Florida, recently suggested a class reunion.

"I learned a great amount of working skills," he said. "I also learned how to be a better person because of Drake Business School. I am proud to be a Drake graduate."

Notice of Drake's ceasing operations:

Drake Schools Ceased Operations on June 3, 2004

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September 4, 2005: A message from David Hart, former Drake CEO
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I have been assisting former students via this web site (maintained on my server) for 15 months. As of today (September 4, 2005), I am no longer accepting any requests for transcripts or information.

Transcripts can only be obtained by contacting the New York State Education Department in writing.
A transcript request form and instructions can be downloaded here.

If you have questions or problems with transcripts, please contact the Education Department directly:

New York State Education Department
Bureau of Proprietary School Supervision
116 West 32nd Street, 5th Floor
New York, New York 10001
Telephone number: (212) 643-4760.

TASA Acquires Drake Business Schools, March 1998
NEW YORK--(BUSINESS WIRE)--March 27, 1998--Touchstone Applied Science Associates (NASDAQ:TASA), Brewster, NY, announced today at its annual stockholder meeting that it has reached agreement to acquire the Drake Business Schools. Drake operates and manages post-secondary schools in the New York City metropolitan area. Mr. Andrew Simon, Chairman and Chief Executive Officer, made the announcement of the signed letter of intent. The cash purchase price of $2,500,000 is to be financed by bank borrowings.

Mr. Simon told stockholders "TASA is currently in both the instructional and assessment segments of the educational marketplace. As part of our strategic plan, we identified expansion into the educational delivery channel as a key objective. Within this new channel, we made the decision to explore acquisitions in the post-secondary proprietary schools market. In our opinion, this category is counter cyclical, has demonstrated strong growth trends, and we anticipate that it will show long-term accelerated growth based upon the changing socioeconomic trends. Finally, the barriers to entry by new competitors is great.

"After examination of a number of candidates in numerous geographic areas, we have been fortunate to execute a letter of intent to acquire the Drake Business Schools. These schools have been in existence for 125 years in the New York City area and enjoy an excellent reputation. We believe that by acquiring the Drake Business Schools, TASA has established a highly successful delivery channel consistent with our overall long-term objectives." Mr. Simon noted, "Management and leadership are very important to us. Mr. Basil Katsamakis, President and CEO of Drake, has agreed to continue in that role for TASA post acquisition. Mr. Katsamakis has led the Drake Schools to continuing annual growth."

Mr. Simon continued, "This acquisition should be accretive to per share earning, and positions TASA to continue its growth. Between 1996 and 1998, TASA will have more than doubled its core business revenues. Based on Drake's estimating approximately $8 million in revenues for its fiscal year ended April 30, 1998 and anticipated future growth, our revenues should again increase over 350% between 1997 and 2000. Further, the acquisition of Drake should result in our reporting an EBITDA of over $3 million in fiscal 1999, the first full fiscal year after the acquisition.

The acquisition of Drake is subject to execution of a Stock Purchase Agreement, final due diligence and other customary conditions. The closing of the acquisition of Drake is anticipated to occur on approximately June 30, 1998.

TASA is an educational information and learning company. TASA provides the educational market, including individual states, schools and colleges and universities with select learning, assessment, and evaluation tools. The Company develops, publishes, and distributes a highly regarded, proprietary line of reading tests, and designs tests specifically to meet clients' measurement specifications. Through its wholly-owned subsidiary, Modern Learning Press, Inc., the Company designs, publishes and distributes affordable "consumable" student workbooks for grades K-4, and creates and publishes books and pamphlets for elementary school teachers and parents. The Company's subsidiary, BETA, Inc., designs tests and evaluates assessment needs for states, school districts and test and textbook publishers.
For further information, please contact either Mr. Andrew Simon 914-277-8100 or Mr. John M. Dutton at 213-630-4401. -0-

Statements contained in this release, which are not historical facts, are "forward-looking" statements as contemplated by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied in the forward-looking statements.

CONTACT: Touchstone Applied Science Associates Inc
Andrew Simon, 914/277-8100 or John M. Dutton 213/630-4401

We guess The Bureau of Proprietary School Supervision (BPSS)
did not provide Drake's administration with adequate oversight and accountability:

Notice of Closure to Drake Students

Office of Inspector General: Audit of Drake Business Schools

Office of The Inspector General about Corruption in Vocational Schools