UPDATE: For-Profit Education Company EDMC Agrees To Pay $95.5M To Settle Fraud, Recruitment Violations

Image courtesy of (EDMC on Linkedin)

UPDATE: Education Management Corporation, the operator of for-profit college chains such as Brown Mackie College, Argosy University and the Art Institutes, will pay $95.5 million to settle claims it violated state and federal False Claims Act (FCA) provisions regarding its recruiting practices. 

The Department of Justice announced the settlement, which involves 39 states and the District of Columbia, putting an end to a long-running lawsuit accusing the second largest for-profit education company, Education Management Corporation, of defrauding the federal government.

In all, the settlement resolves four separate FCA lawsuits filed in federal court in Pennsylvania and Tennessee.

The primary allegation in the suit revolved around EDMC’s unlawful recruitment of students by offering employees bonuses or incentives based on the number of students they enrolled.

“Operating essentially as a recruitment mill, EDMC’s actions were not only a violation of federal law but also a violation of the trust placed in them by their students – including veterans and working parents – all at taxpayer expense,” U.S. Attorney General Loretta E. Lynch said in a statement.

Additionally, the deal settles a consumer fraud investigation by a consortium of 40 state Attorneys General into EDMC’s deceptive and misleading recruiting practices.

The consumer fraud settlement requires EDMC to undertake various compliance obligations, including detailed disclosure obligations to students; prohibitions on deceptive or misleading recruiting practices and oversight by an administrator to ensure compliance.

“This civil enforcement action holds EDMC accountable for what we allege were unfair and deceptive recruitment and enrollment practices,” Iowa Attorney General Tom Miller said in a statement. “EDMC’s practices were unfair to our state’s students, and they were also unfair to our nation’s taxpayers who backed many of these federal student loans that were destined to fail.”

—ORIGINAL POST—

A long-running lawsuit accusing the second largest for-profit education company, Education Management Corporation, of defrauding the federal government is expected to be resolved today, with the operator of schools like Art Institutes, Argosy University, Brown Mackie Colleges and South University reportedly set to pay $90 million.

The settlement would resolve a complaint first filed in August 2011 that accused Education Management – which is partially owned by Goldman Sachs – of violating a federal law against paying recruiters based on the number of students they manage to enroll.

In all, the deal, which would represent the largest ever involving false claims made to the Department of Education, would resolve accusations against the company under the consumer protection laws in 39 states and the District of Columbia, The New York Times reports.

The case against the company was initiated in 2007 after two whistle-blowers, former Education Management employees, made complaints about the company. One of the employees filed charges against the company in federal court under the False Claims Act, which permits private citizens who know of fraud against the government to sue in the government’s name.

In 2011, the Department of Justice and four states joined the case, along with a second whistle-blower.

According to the complaint, the company violated a federal ban on per capita incentive compensation at institutions that participate in federal student financial aid programs.

The suit alleges that nearly 90% of the tuition funds collected by the company between July 2003 and June 2011 – about $11 million – were the result of the fraudulent practices.

In addition to paying employees based on the number of students they enrolled, the suit alleges that company also implemented a system of bonus incentives, including the so-called President’s Club trips: all-expenses-paid vacations to destinations including Cancun and Puerto Vallarta, both in Mexico, and Las Vegas, and were permitted to take a loved one at no cost, according to the complaint.

The Times reports that had the case gone to trail it could have resulted in a billion-dollar verdict. However, it’s likely the government agreed to a smaller settlement given Education Managements current financial difficulties.

For-Profit College System Expected to Pay Millions [The New York Times]