Profits of Doom – Updated

There are many ways to build a business in this country but one of the less savory is to dragoon potential customers into buying your product through fear and intimidation. The mafia used to excel at this. One day a bunch of young thugs would show up at some small shop in the neighborhood and either threaten physical harm or actually trash the premises. The next day a smooth talking older figure would show up and “suggest” that the store’s owner really could benefit from employing his “protection” services. The hook was in and the racket was on.

It took decades to eliminate this kind of strong arming from the American economy and in some places variations on this theme still occur. Hence the popularity this century of the Sopranos.

It’s a surprise, perhaps even a shock, then, to watch something similar rolling out inside the environment of the American law school. As only one example, an entity that calls itself “Law School Transparency” set up shop a while back with the alleged aim of providing free information to prospective law students about the cost of going to law school. The real aim seems to have been to discourage people from actually going to law school or at least to particular law schools. Their analysis suffered, as the recent Simkovic and McIntyre paper demonstrates, from a basic misunderstanding of the value of a JD.

When I first entered the debate about the future of the American law school I expressed the view that law school critics like LST had a basic problem grasping the nature of macroeconomics, particularly the longstanding role of economic cycles on the value of a JD. That view has also been demonstrated clearly in the Simkovic and McIntyre paper. What was surprising, though, was that LST and its friends, including a few anonymous former law students and a couple of law professors here and there, were not interested in a genuine discussion about these complex issues. Instead, they kept up a wall of denial and obfuscation which quickly turned to personal attack or attack on the particular institution that any of their opponents happened to come from.

Steven Davidoff picked up on this trend when he reviewed, favorably, the Simkovic and McIntyre results for The New York Times: Their “data [detailing the value of a JD to a majority of law school graduates] refutes some of the arguments made by those who say law school is a ‘scam.’ It is no surprise that this study would be attacked by many of the same people. After all, the law school scam industry has been bountiful for some, just like being a Kardashian.”

I began to suspect that there was another agenda at work. One possibility I suggested was that LST actually was operating like a startup business and it intended, god forbid, to make money from its efforts. Therefore, because of the obligation to build the business no matter what rational thoughts entered the heads of the young LST founders they would suppress them to support their business model. This was denied and not just denied but, in the case of LST ally Professor Deborah J. Merritt of Ohio State, called a “malicious” and “unfounded” claim that should have been censored by the moderators of Faculty Lounge where I suggested this possibility. Professor Merritt is partners with Kyle McEntee, the founder of LST, in another venture called Law School Cafe, which I am sure, she will contend, is as purely non-profit as the driven snow.

In fact, there was some basis for my suspicion about LST, first, because of the way the critics behaved in the face of any genuine effort to consider alternative explanations for the challenges facing law schools other than the assertion that law schools themselves bordered on being criminally fraudulent institutions; second, in the fact that LST was unable to provide the evidence that it had filed the document (a Form 990) required by the IRS for entities claiming non-profit status; and third, by the public statement by LST founder Kyle McEntee himself to the ABA last year that he was seeking $500,000 in angel funding.

And sure enough, now, LST itself has publicly stated it is starting a new “fee for service” product that extorts, I’m sorry, suggests to shop keepers, oops, Deans, that they might need the protection oh, sorry, “certification” by LST that a law school is meeting the requirements of ABA Standard 509 regarding disclosures to students about financial aid and employment outcomes. For an annual fee of $2,750.00, of course. If LST signs up 50-100 law schools that’s a nice little pile of cash coming in every year and perhaps even enough to attract the interest of that angel or VC that McEntee says he is on the lookout for. In fact, LST says it will lose money at this rate so they are, indeed, seeking funding from other sources.

After several years of the critics beating up on law schools (without substantial basis as the Simkovic and McIntyre paper and several court decisions demonstrate) and attempting to intimidate anyone who dares criticize LST (LST’s “research director” Derek Tokaz on the website he operates has called for me to be fired when I first called out the now clear business goals of LST) there may be a few vulnerable marks out there in the law school world tempted to fall for the LST gambit. Deans should give them a pass. Let’s keep the American law school clear of the unsavory business practices that once weighed so heavily on the wider economy.

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Update: With respect to the IRS filing, after various people including McEntee himself and Bernie Burk of UNC dismissed my concerns as unfounded, it appears that LST now admits they need to make such a filing. Their new Facebook page includes the following statement:

Company Overview

We are a nonprofit working on legal education reform, incorporated in the state of Georgia. Our staff and board are preparing to submit the necessary paperwork to the IRS to officially recognize LST as a 501(c)3, at which point all donations dating back to our date of incorporation in GA (Aug. 2012) will become tax deductible. Until then we encourage you to donate as we expand the organization.

McEntee confirms today on Faculty Lounge that they are filing the form required to get 501(c)3 status. That will allow their donors to deduct their contributions. It will also mean that LST must file an annual report referred to as a Form 990. Let’s hope LST takes the “T” for transparency in its title seriously and exercises its option to file a full 990 rather than the minimalist 990-N postcard.

Interestingly, on Faculty Lounge McEntee said LST was incorporated in 2009 yet now only those people who donated since August of 2012 will be able to claim a deduction. This is most likely because of their failure to make the 501(c)3 filing in a timely manner.

It would also be nice to know the names of all of their advisory board members and their precise relationship to the class action lawyers and law suits they have publicly backed against the same law schools they now hope to extract fees from.

With respect to the question of “angel funding,” LST founder McEntee told Faculty Lounge that he is now seeking something called an “angel donor,” which is a previously undetected form of funding species, especially one willing to “donate” a half million dollars. If McEntee were smart, he would tap into the very large “social venture” fund world where VC or angel type funding is readily available for ambitious non-profits.

Of course, as I have suggested here, LST and its founders – in their various efforts around the web – have behaved in a manner that goes beyond just being ambitious. The word predatory comes to mind. Apparently some law school deans have reacted to the latest moves of LST in the same fashion, as Brian Leiter explains here.