In the Matter of BETH ROCHEL SEMINARY,
Docket No. 92-110-ST
Student Financial Assistance Proceeding
Appearances: Leigh Manasevit, Esq., and Diane Vogel, Esq., of Washington, D.C., for
Respondent Carol Bengle, Esq., of the Office of the General Counsel, U.S. Department of
Education, for the Office of Student Financial Assistance
Before: Judge Ernest C. Canellos
DECISION PROCEDURAL HISTORY
Beth Rochel Seminary "Seminary), of Monsey, New York, is a nonprofit, post-secondary
institution offering a 5-year program to Orthodox Jewish women leading to a Certificate in
Judaic Studies. It participates in the Pell Grant Program, authorized under Title IV of the Higher
Education Act of 1965, as amended (HEA), which is administered by the Office of Student
Financial Assistance Programs (SFAP), United States Department of Education (ED). Bais
Rochel, a secondary school, is located in the same facility as Seminary, with the same
administrator overseeing both institutions.
On September 23, 1992, SFAP issued a notice advising Seminary of its intent to terminate its
eligibility to participate in federal student financial programs under Title IV of the HEA, and to
impose a fine of $270,000. Seminary timely requested a hearing. By SFAP letter of January 5,
1993, the proposed fine was reduced to $245,000. An emergency action, imposed on August 27,
1992, has remained in effect through the course of this proceeding.
A program review was conducted at Seminary by ED's Regional Office in New York from
February 4-7, 1992. Based upon their review of student files and other pertinent information,
program reviewers determined that Seminary had committed the following violations: 1)
disbursal of Pell Grants to students who were ineligible to receive them because they were
simultaneously enrolled in high school; 2) establishment and maintenance of student records that
were false and inaccurate; 3) failure to meet the standards of financial responsibility; and 4)
failure to meet the required fiduciary standard for administering Title IV funds.
Seminary presented testimony on Orthodox Jewish education and practices. In essence, religious
instruction at the Hebrew High School level begins immediately after the age of Bat Mitzvah
(13) and continues through the age of sixteen. It is common to find students beginning their
religious training at a time when they are enrolled in secular studies equivalent to the 7th or 8th
grade. By the time they ordinarily begin secular high school, these same students already have
had two years of religious high school studies. Students then go on to postsecondary religious
studies with no secular component. Judaic High Schools do make allowance for the cultural
expectations of some high school students wanting to continue secular studies by allowing them
to continue studies leading to graduation and a secular high school diploma. Yet, this in no way
is required for admission into the postsecondary religious studies program.
Rabbi Rosenbaum testified that Seminary administrators were first aware that they had misread
the student eligibility criteria after receiving notice of the initiation of an emergency action. They
were told that the policy of accepting students for postsecondary instruction and Pell eligibility
based on the students' religious high school diploma was in error as long as such students
continued in the secular portion of high school. The Seminary was advised that, as a result, 25
out of 469 students in 1990-91 and 6 out of 280 in 1991-92 were ineligible Pell recipients.
Seminary now admits to having erroneously disbursed Pell funds to those students for
postsecondary instruction and Pell eligibility based on their attainment of a religious high school
diploma, and offers to repay ED for those grants. It asserts that such error does not amount to any
breach of its fiduciary duty.
ED, however, alleges that Seminary's disbursements to ineligible students went beyond error and
represents a plan to fraudulently obtain Pell funds, as evidenced by Seminary's placement of false
and inaccurate records in student files. Specifically, ED points out that there were only five
diplomas found in student files at the time of the program review, that these diplomas were in
Hebrew, and appeared to be genuine diplomas and, when asked about them and appeared to be
genuine diplomas and, when asked about them during the program review, were told that they
were "high school diplomas." After the on-site review, ED reviewers discovered that many of
Seminary's students, including the 5 whose files contained the apparent high school diplomas,
were still enrolled in secondary school.
ED goes on to claim that Seminary compounded this error by supplying student information
containing implausible "graduation" dates in light of student birth dates, and inconsistent records
of graduation dates for 2 students which listed 1991 as the graduation date, while the diplomas
on file stated June 1990 as their graduation date. Aside from showing implausible data, ED raises
one incident where Seminary is claimed to have issued a false diploma for a student who did not
even attend its secondary level (Bats Rochel).
ED's position is that the most credible explanation for variances between information on
admissions applications and "diplomas" is that intentional falsifications were made by Seminary.
This takes Respondent's actions out of the realm of error and calls into question its exercise of
due care and diligence as a fiduciary.
Seminary urges that its religious high school diplomas should not be considered invalid or
termed "fraudulent." It argues that the unfamiliarity of ED personnel in dealing with the
Orthodox Jewish Community and its fragmentation of education into religious and secular
studies with differing graduations is not the kind of basis upon which to allege fraudulent
activity. They continue that here we have a situation of a very specialized kind of religious
school where the focus and expertise is religious, not secular education. As such, there is every
reason to give the Respondent the benefit of the doubt and accept its explanation. This means we
should start with an assumption of good faith and that error, not falsification or other actions
equivalent to fraud, occurred.
Seminary summarizes it argument on this issue by stating that while ED has established
variances between graduation dates, birth dates, and admissions application information, and
challenged later supplied graduation records in student files, this qualifies as erroneous
information at worst. It closes by asserting that ED has an extremely high burden to prove
falsification of documents and that this has not been met.
In disputing ED's claim of a violation of fiduciary duties, Seminary relies on the discussion of
fiduciary duty in Southern Vocational College, U.S. Dept. of Ed., Docket No. 90-41-ST (Dec.
21, 1992). There, in reviewing the actions of a fiduciary, and quoting 90 C.J.S. Trusts, § 247(d)
(1955), the Judge found the fiduciary duty to be qualified as follows:
A trustee is a fiduciary of the highest order who is held to a high standard of conduct..., but he is
not an insurer of the trust property or of the results. and [he] will not be held responsible for mere
mistakes or errors of judgment or for losses not attributable to lack of fidelity. (emphasis added).
Seminary argues that by applying this characterization of fiduciary to its situation, the error in
mistakenly disbursing Pell funds to some ineligible students who were concurrently enrolled in
high school is not enough to support the finding of breach of fiduciary duties. It maintains that
the record does not establish that it acted maliciously or with ill will, or that it engaged in a
schematic attempt to wrongfully obtain Pell Grant funds. Rather, it asserts that its erroneous
disbursements of Pell Grants were made due to it's flawed internal policy of allowing
postsecondary admission based on graduation from a Hebrew High School.
ED argues that an institution cannot use Hebrew diplomas as proof of completion of a secondary
school program under New York State law. Such "diplomas" clearly do not have legal status as
certificates of completion of secondary school or its equivalent because they lack a secular
component and Seminary's attempt to justify their claim that the religious diploma suffices as
proof of completion of high school for Title IV purposes is totally unreasonable.
For Pell Grant eligibility, a student must be enrolled in an eligible postsecondary institution and
may not be enrolled, at the same time, in a secondary school. 20 U.S.C. §1091 (a) and 34 C.F.R.
§ 668.7 (a)(2). ED's regulations do not define what enrollment in a secondary school means;
therefore, we must rely on the common meaning of the term. In providing evidence of Beth
Rochel students' enrollment at the secondary level, ED proffered East Ramapo School District
book and bus lists for students which identified names and grade levels for the two years in
question, 1990-91 and 1991-92. The lists are compiled from information given by parents before
the start of school to support their request for bus transportation for the upcoming year. ED
maintains that both book and bus lists demonstrate reliable proof of student enrollment in
secondary school. Significantly, Seminary did not refute the accuracy of the book or bus lists.
ED's presentation of School District bus and book lists and the testimony of School District
officials to verify the authenticity of those lists is convincing. The students in issue were
secondary students by District and State definition, receiving subsidized books and bus
transportation, but were, nonetheless, being given Pell Grant funds as postsecondary students.
Seminary admitted during the hearing that these students took secular courses at the high school
so that they could then take advantage of the secular opportunities occasioned by the possession
of a traditional high school diploma. I cannot think of a more obvious example of "being
Finally, ED alleges that Seminary did not meet the standards of financial responsibility by failing
to pay a $52,268 debt owed to ED, in violation of 34 C.F.R. §668.13, which provides:
(b) In general, the Secretary considers an institution to be financially responsible if it is
...(3) Meet all of its financial obligations, including but not limited to
...(ii) Repayments to the Secretary for liabilities and debts incurred in programs
administered by the Secretary.
The debt in question has been the subject of extensive litigation over a seven year period and is
final. ED basically argues that nonpayment is proof of financial irresponsibility. However, the
simple fact that the debt exists does not automatically contravene Beth Rochel's status as a
financially responsible institution. ED has presented neither evidence of collection efforts, nor of
Seminary's refusal to pay. Moreover, the size of the debt is not overwhelming when compared
with assets of the school. As well, there is nothing in the record to indicate Beth Rochel is
incapable of presently satisfying the debt.
The procedures for initiating the termination of eligibility of an institution to participate in the
Title IV, HEA programs are set forth at 34 C.F.R. § 668.86. Section 668.86(a) provides:
The Secretary may terminate or limit the eligibility of an institution to participate in any or all
Title IV, HEA programs, if the institution violates any provision of Title IV of the HEA or any
regulation or agreement implementing that Title.
ED seeks termination for Beth Rochel's violation of 34 C.F.R. §668.7(a)(2), which states that
students enrolled in either an elementary or secondary school are not eligible to receive Title IV
assistance. The record clearly supports such a violation as Beth Rochel did, in fact, disburse Pell
Grant funds to students knowing they were attending secondary school and it has admitted its
The disbursement of Title IV funds to noneligible students is a very serious offense and one
which, standing alone, warrants termination of an institution.See footnote 11 Its procedures of assisting
students in securing Pell Grants as postsecondary students while, at the same time, assisting
these very same students in getting New York State assistance as secondary students, is
aggravating. Seminary's claim that they believed that the religious high school diploma was
sufficient to qualify the students for Title IV aid is less than believable.
In further support of its proposed termination, ED points to violations of the general
record-keeping requirements at 34 C.F.R. § 668.23(f) and Pell-specific record-keeping
requirements at 34 C.F.R. §690.82(a)(1), by maintaining records which contained erroneous
information. Clearly, the records did contain erroneous information. I need not speculate on the
motive behind such action because, if caused by either fraudulent intent or mistake, the
cumulative effect of such errors is so egregious as to evidence a failing of Seminary's fiduciary
In addition to the proposed termination of eligibility, ED seeks a fine of $245,000 pursuant to
§487(c)(3)(B) of the HEA, and 34 C.F.R. 668.84. ED describes Beth Rochel as a large
institution because its students received more than $1 million in student aid in the 1990-91
award year. The actual figure taken from ED's Institutional Data System was $1,034,986.
ED treats the violation for wrongful disbursement of funds to students Beth Rochel knew or
should have known were ineligible as serious and seeks a fine of $155,000. ($5000 for each of 6
ineligible students in 1991-92 and $5000 for each of 25 ineligible students in 1990-91).
The remainder of the fine sought is premised on Beth Rochel's failure to comply with
record-keeping requirements. ED considers this to be a grave violation in Beth Rochel's case as
it claims the Seminary created and maintained false records so as to mislead or defraud ED. ED
seeks a fine of $90,000 for this conduct ($5000 each for 5 student files with false high school
diplomas and $5000 each for 13 student files with false high school graduation dates on
In reviewing the proposed fines, I note the Secretary's Decision in Puerto Rico Technology and
Beauty College. and Lamec. Inc., U.S. Dept. of Ed., Docket Nos. 90-34-ST & 90-38-ST (June
11, 1993). There the Secretary iterates the statutory and regulatory requirement that in setting an
appropriate fine, one must take into account the gravity of the violations and the size of the
institution. The Secretary did not delineate what qualified as a large, medium or small institution,
but did indicate that size should be a mitigating factor in establishing the appropriate level of the
fine. In determining Beth Rochel's size, there is other case precedent which reviews numbers of
students receiving Title IV funds and total amounts of such funds in making the determination of
size.2 Therefore, despite ED's claims that Beth Rochel qualifies as a large institution in light of
its student assistance receipts in the last recorded year, Beth Rochel should more appropriately be
described as a small-to-medium institution.
Also, whether the violations were intentional is not so clear cut. No doubt, Beth Rochel erred in
meeting record-keeping requirements. I find no evidence of fraud, however there is clear
evidence of failure to diligently enforce program regulations. Therefore, I believe a category fine
is warranted instead of a cumulative fine based on singular incidents. As a starting point, the
maximum categorical fine is $25,000, as set forth in 34 C.F.R. § 668.84(a), and this amount must
then be reduced for mitigating factors. Puerto Rico. supra. Because the School is at the
small-to-medium School level, a reduced fine in the amount of $10,000 for this conduct is
adequate and reasonable.
For the disbursement of Pell Grant funds to ineligible students, ED claims a fine of $155,000. In
this case, ED has a stronger claim that a fine should be based on a per incident basis. However,
there was a showing that the violations were decreasing in the two award years. Giving
consideration to this and to the mitigating factor of size, an appropriate fine would be $2,000 per
violation for a total of $64,000.
In sum, a total fine for the two categories of violations noted above is $74,000. When assessing
an appropriate "punishment" for the violation of program regulations, it is the total punishment
that must be appropriate. This sum of the fine seems to be reasonable and just in light of the
imposition, above, of the severest sanction available, that of termination.
See In the Matter of Southern Institute of Business and Technology, U.S. Dept. of Ed., Docket
No. 90-62-ST (May 28, 1991), and In re Hartford Modern School of Welding, U.S. Dept. of Ed.,
Docket No. 90-42-ST (Jan. 31, 1990).
I FIND the following:
Beth Rochel disbursed Pell Grants to students who were ineligible to receive them because they
were enrolled in high school.
Beth Rochel violated record-keeping requirements by establishing and maintaining erroneous
There is insufficient evidence to show that Beth Rochel did not meet standards of financial
Beth Rochel breached its duties as a fiduciary.
Beth Rochel's participation in federal student financial assistance programs under Title IV of the
Higher Education Act of 1965, as amended, should be terminated.
A fine of $74,000 is warranted against Beth Rochel.
On the basis of the foregoing it is hereby-
ORDERED, that the eligibility of Beth Rochel to participate in the student financial assistance
programs under Title IV of the Higher Education Act of 1965, as amended, is terminated.
ORDERED, that Beth Rochel immediately and in the manner provided by law pay fines in the
total amount of $74,000 to the United States Department of Education.
Judge Ernest C. Canellos
Issued: October 20. 1993