Whistleblower Lawsuit Claims University Of Phoenix Defrauded The Federal Government

You can now add the University of Phoenix and its parent company, Apollo Education Group, to the list of for-profit educators who find themselves on the defendant end of a whistleblower lawsuit. A former Phoenix employee is accusing the company of submitting false student aid information in order to receive federal funding it was not entitled to.

The lawsuit [PDF] was filed in July 2014, but was only unsealed last week after the U.S. Department of Justice declined to join the complaint. Apollo Education Group revealed the suit’s existence in a recent filing [PDF] with the Securities and Exchange Commission.

According to the lawsuit, since at least 2008, the University of Phoenix has been in violation of the Federal False Claims Act by falsely certifying that it was in compliance with various regulations under the U.S. Higher Education Act.

Among other things, the suit alleges that the company pressured employees — who until recently received free tuition to the school — to enroll in classes to inflate graduation and job placement statistics and to help the institution meet the “90/10 Rule.”

The 90/10 Rule stipulates that a college must receive at least 10% of its revenue from a source other than the federal government.

“UOP urged employees to represent to the federal government that they are paying full tuition, causing them to receive thousands of dollars in financial aid to which they were not entitled,” the lawsuit states. “Defendants boast to their employees that these fraudulently procured federal grants and loans are a direct benefit of being a UOP employee and that they should be though of as a ‘bonus.'”

The suit claims that school executives, including the director of enrollment, were aware of the fraudulent practice, and even boasted about taking their families on vacations and other outings using the funds.

Additionally, the complaint alleges that University of Phoenix trains enrollment counselors and students to falsify the loan applications of students who do not qualify because they lack a GED or have not graduated high school from an accredited school.

In one example, the former employee says he was told to falsify the loan application for a student and that a manager said he was in “no position to turn away students.”

The whistleblower alleges that when the school learned in 2011 that he might notify authorities of the institution’s illegal actions, University of Phoenix ordered every employee to “power down” their computers” for routine maintenance.

“When employees were allowed to return to their computers, various evidence of UOP’s intentional violations had been removed and new disclaimers suggesting complaint were added to various documents, including past completed applications for student loans,” the suit states.

The lawsuit estimates that the University of Phoenix’s alleged illegal practices caused the U.S. government to lose billions of dollars a year in federal funding.

Consumerist has reached out to Apollo Education Group for comment on the lawsuit; we’ll update this post when we hear back.

In revealing the complaint in a 8-K filing yesterday, the company said it was evaluating the complaint.

While the lawsuit was filed nearly two years ago, it’s not unusual for details to be unreported. In general, whistleblower lawsuits are kept under seal until the Department of Justice can determine if the case is one they would like to join.

The DOJ declined to join the University of Phoenix suit on March 2, 2016, leading to the complaint being unsealed on March 3, according to Apollo’s SEC filing.

The for-profit chain has come under scrutiny in recent years after claims surfaced that it had inflated graduation rates and taken part in illegal recruiting practices.

Apollo was briefly suspended from receiving Department of Defense tuition assistance funds because of its questionable recruiting practices for servicemembers last year.

The company announced last month that it would go private by selling itself to a group of investors for $1.1 billion. If the company does indeed go private, it may no longer be required to provide filings such as those that revealed the whistleblower lawsuit.