The Tip of the Iceberg? “China’s New Oriental accused of US application fraud”


tip-of-the-icebergIt is thanks to the crack reporting of Reuters that we have this  high-profile story about New Oriental Vision Overseas (NOVO) Consulting, a China-based educational consulting company that has allegedly behaved badly.  Otherwise, it would be business as usual.  You can be sure that this is not an exception to the rule but rather a widespread practice in this often less than savory industry. The fraud allegations include writing application essays and teacher recommendations, as well as falsifying high school transcripts.  (Yes, this is not unique to China.)  

As I’ve mentioned on several occasions, including a December 2014 essay entitled Walking the walk – Ethical agency-based recruitment and a September 2016 essay entitled Take responsibility for ensuring ethical recruitment, external stamps of approval can be useful but have their limitations.  This is an object lesson that supports that assertion in spades. 

NOVO’s parent company, New Oriental Education and Technology Group, is not your average, run-of-the-mill education consultancy.  It is a multi-billion dollar company with a market capitalization of $6.91 billion, a nearly 40% one-year return, and a listing on the New York Stock Exchange (NYSE). 

Here’s a description taken from the company website:

New Oriental is the largest provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence. New Oriental offers a wide range of educational programs, services and products consisting primarily of English and other foreign language training, test preparation courses for major admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education.

And here are its first fiscal quarter results from earlier this year:

New Oriental Announces Results for the First Fiscal Quarter Ended August 31, 2016
Quarterly Net Revenues Increased by 16.5% Year-Over-YearQuarterly Student Enrollments Increased by 31.2% Year-Over-YearQuarterly Operating Income Increased by 17.5% Year-Over-Year

BEIJING, Oct. 25, 2016 /PRNewswire/ — New Oriental Education and Technology Group Inc. (the “Company” or “New Oriental”) (NYSE: EDU), the largest provider of private educational services in China, today announced its unaudited financial results for the first fiscal quarter ended August 31, 2016, which is the first quarter of New Oriental’s fiscal year 2017.   Source:  Official Press Release

When the story broke, the stock fell to as low as $37.16 per share and the Relative Strength Index, which “measures momentum on a scale of zero to 100,” hit 29.3.  (A stock is considered to be oversold if the RSI reading falls below 30.) 

Since investors are concerned about the value of their stock holdings and controversy can damage the bottom line, it’s no wonder that a number of investor alerts were issued.  Khang & Khang LLP, an Irvine, CA-based law firm, is investigating claims against New Oriental “concerning possible violations of federal securities laws.”  So is the American International Recruitment Council (AIRC), since that New Oriental is an AIRC-certified agency.

I’m not sure what the AIRC investigation will produce but you can be sure that the organization will rely heavily on the information gleaned the agency itself, the Reuters report, and other investigations conducted by players with substantially more resources at their disposal, including the aforementioned law firm in CA. (Here is the company’s official response to media reports and The Motley Fool assessment of the situation.)

The bottom line, dear colleagues, is that you need to decide whether or not to work with educational consulting company A based on your own set of screening criteria and whatever external information you have access to.  The buck stops with you. 

Kudo to Reuters reporters for another round of outstanding investigative reporting.  And the truth will set you free, or at least alert you to yet another scandal in the education industry!

MAA

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