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Sunday, May 25, 2014

Charleston Law School Founders Withdrew $25 Million in Profits, Leaving School in Precarious Financial Condition

Charleston LogoFollowing up on my prior posts (links below):  Charleston Post and Courier, Charleston School of Law Founders Withdrew $25 Million in Profits Leaving School on Shaky Financial Ground:

Five respected judges and lawyers started the Charleston School of Law a decade ago with the lofty goal of training attorneys committed to public service.

But beginning in 2010, the well-connected founders and owners with deep South Carolina roots began draining money from the school, withdrawing $25 million in profits by 2013 that they split among themselves.

The owners had a great deal of support from the Charleston community to launch the school, including a below-market-rate land deal from the city aimed at helping it remain on the peninsula and earn accreditation from the ABA.

Their taking out the profits instead of re-investing in the school has left it in such financial shambles its future remains uncertain.

Kevin Hall, a Columbia lawyer who represents InfiLaw System, a company trying to purchase the school, revealed the surprising financial information about founders Robert Carr, George Kosko, Ralph McCullough, Alex Sanders and Ed Westbrook at a public hearing last week. "The Charleston School of Law, ladies and gentlemen, is in a financial tailspin," Hall said.

Carr, Kosko and Westbrook, the three remaining owners, confirmed Hall's description of the school's financial situation, and they all agreed that it got that way because owners for years had been pulling profits from the institution.

Charleston's tuition is $37,874 per year.  89% of Charleston's Class of 2013 took out student loans, in an average amount of $146,766 (the 14th highest amount among all law schools).  53.3% of Charleston's Class of 2013 secured full-time, long-term, bar passage required jobs (compared to the 57.0% national average).

Prior TaxProf Blog posts:

Update:

http://taxprof.typepad.com/taxprof_blog/2014/05/charleston-law-school-.html

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Comments

Sorry, but isn't "draining profits" from a for-profit business called "paying dividends"?

Posted by: profess2impress | May 25, 2014 1:23:31 PM

I, for one, am utterly shocked at this completely unexpected news.

Posted by: No, breh | May 26, 2014 6:00:03 PM

@profess2impress, yes, but the for-profit form got packaged differently. I know the institution and some of its personnel. Charleston Law took the position that it was basically an eleemosynary institution that chose not to incorporate as a nonprofit. The Founders presented themselves, and were accepted, as benevolent stewards. I think they really meant it. At least for a while. So while draining profits is perfectly okay for this corporate form, it breached an understanding.

Posted by: Lurquer | May 26, 2014 6:33:59 PM

Maybe a lawyer should told them to reduce the "understanding" to writing and limited the dividends. In any event, this is a sad move for Charleston Law. From bad to worse.

Posted by: Alex M | May 27, 2014 6:54:57 AM

"The Founders presented themselves, and were accepted, as benevolent stewards. I think they really meant it. At least for a while.

Future Democratic candidates for Congress.

Posted by: cas127 | May 27, 2014 9:02:12 AM

While it is certainly easy to see how a law school could be in dire financial straits in these times, let's keep in mind that the only evidence we have that the school is in dire financial straits is from the InfiLaw representative trying to scare the Commission into granting them permission to acquire the school.

Posted by: ATLprof | May 27, 2014 9:29:55 AM

Alex Sanders was a the Democrat sacrificial lamb against Lindsey Graham in the 2002 US Senate race in South Carolina. He is a former federal judge, university president and exemplar of the Foghorn Leghorn style of rhetoric.

Posted by: Rex Luscat | May 28, 2014 5:38:56 AM