Test Prep Company Files for Bankruptcy After Settling Fraud Lawsuit
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Test Prep Company Files for Bankruptcy After Settling Fraud Lawsuit

January 28, 2013


Education Holdings 1 Inc., the test preparation outfit that used be known as Princeton Review, is filing for bankruptcy protection, according to a report from Bloomberg News, after settling a fraud lawsuit with the United States Justice Department.

According to the government’s lawsuit, which was filed against the Framingham, Massachusetts-based company in the spring of 2012, when the company was operating as the Princeton Review, it allegedly received millions of dollars from the federal government for providing fraudulent tutoring services to children in New York City.

The company allegedly billed the government tens of millions of dollars for services that never existed, although, thanks to the settlement, the company will likely avoid further criminal penalties for its actions.

The Justice Department announced the settlement on December 20, claiming the settlement may have been as high as $10 million, although sources do not give a firm estimate of the total damage incurred by Education Holdings.

Nevertheless, the amount of the settlement put a serious dent in the company’s finances, which likely prompted it to file for bankruptcy this week in a Delaware bankruptcy court.

Sources say Education Holdings claimed to hold both debts and assets in an amount between $100 million and $500 million. This amount of variation is fairly typical in initial bankruptcy filings, at least within the portions of the petition that are available for public viewing.

The company’s biggest creditors include Falcon Investment Advisors LLC and Sankaty Advisors LLC. Sources say Education Holdings owes each of these entities more than $56 million.

In its filing, Education Holdings also said it had already reached a prepackaged bankruptcy plan that had received unanimous support from both senior and junior creditors.

According to the filing, the company has received a "sufficient number and amount of votes in favor of the prepackaged plan."

Sources also note that a similarly named company, TPR Education LLC, which is currently operating as The Princeton Review, was not sued by the Justice Department, and is not part of the recent bankruptcy filing.

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