Two months after abruptly closing its doors as a result of losing access to federal student financial aid, the for-profit Marinello Schools of Beauty has settled a whistleblower case that accused the school of engaging in various schemes to defraud the government of federal financial aid dollars. 

The lawsuit, filed by a group of former financial aid officers, career counselors, instructors and others employees, accused Marinello and executives of employing a variety of tactics to maximize their federal financial funds, MarketWatch reports.

According to the complaint, the school regularly falsified attendance records for students by marking them as in school for one hour after 13 consecutive days of absence.

Under federal law, if students don’t show up for 14 days in a row, schools are required to return any federal financial aid funds they received on the student’s behalf.

Additionally, the suit claimed that school officials fabricated, didn’t verify, or didn’t require students to have high school diplomas in order to enroll in classes.

Employees said they were aware of ay least 23 student whose proof of education as fabricated before enrollment, MarketWatch reports.

The six former employees filed the suit under the False Claims Act, which allows employees of institutions receiving federal funds to bring claims on behalf of taxpayers.

Terms of the settlement between the school and employees are confidential until the Department of Justice approves the deal.

A lawyer for the employees tells MarketWatch that he and his clients are pleased with the outcome of the case.

Marinello began facing issues in February when the Department of Education denied the application for 23 of the school’s campuses for continued participate in the federal aid program.

The Department alleged that some campuses fabricated high school diplomas so that students would be eligible to receive financial aid.

Some schools also limited the amount of federal financial aid funding students could receive, even when they were eligible for more funding, forcing students to make high monthly payments out of pocket to cover the full cost of the school, according to the DOE notice [PDF].

Days after the DOE denied the applications, the school shut its doors.

B&H Education, which operated the beauty school chain, announced the closure of its campuses in California, Nevada, Utah, Kansas, and Connecticut, leaving about 4,300 student without a school and 800 employees without a job.

Marinello sent letters to students detailing its decisions to shutter its operations, and informing them that a series of meetings will be held next week to provide directions on how to receive transcripts, proof of training and information about their transfer options.

“We want you to know that we did everything in our power to avoid this unfortunate conclusion and keep your school open,” the school said in a letter to students. “Unfortunately, the Department of Education’s unprecedented and unfounded actions left us with no other option except to close our schools.”

Shuttered beauty school settles suit accusing it of faking diplomas, attendance [MarketWatch]

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