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Hedge fund drops out of EDMC lawsuit, but 2nd remains |
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Hedge fund drops out of EDMC lawsuit, but 2nd remains

One of two hedge funds suing to block a restructuring deal at Education Management Corp. has dropped out of the case.

Magnolia Road Capital this week dismissed its claims against the Downtown-based operator of for-profit colleges. The New York hedge fund gave no reason but said that it would not rejoin the case at a later date.

When reached by phone Wednesday, Magnolia founder Jame Donath declined to comment.

“We would refer to the publicly available documents in the court,” he said.

Magnolia’s dismissal does not mean that EDMC is in the clear. The other plaintiff, Marblegate Asset Management, is continuing to pursue its claims against the company.

Spokesmen for EDMC and Marblegate declined to comment on Wednesday. Telephone and email messages left for attorneys representing all parties were not returned.

Marblegate’s lawsuit aims to stop a deal that would wipe out most of EDMC’s debt and make creditors the majority owners of the troubled company. If the restructuring goes forward, it would lower EDMC’s $1.5 billion debt to $400 million.

The investor lawsuit has been only one headwind facing EDMC as it fights for survival. The company, which reported a $664 million loss last year, is the subject of whistle-blower lawsuits accusing it of using deceptive recruiting practices. One brought by six EDMC admissions officers and a former paratrooper accuses the company of lying on student financial aid applications to collect more money under the GI Bill. Another whistle-blower case, which includes the Justice Department, alleged EDMC pays recruiters based on the number of students they enroll — a violation of federal law.

EDMC has previously said that both cases are without merit.

EDMC has 125,560 students on campuses in 32 states and in Canada, and employs 20,800 people, including 2,000 in Pittsburgh. Its schools include The Art Institutes, Argosy University and Brown Mackie College.

Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or

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