U.S. Sues For-Profit Education Management Corp.

The United States has intervened and filed a complaint in a whistleblower suit pending under the False Claims Act against Education Management Corp. (EDMC) and several affiliated entities, the Justice Department announced.

The company is affiliated with a number of for-profit colleges, including The Art Institutes, Argosy University, Brown Mackie College, South University and Western State University. 

In its complaint, the government alleges that EDMC falsely certified compliance with provisions of federal law that prohibit a university from paying incentive-based compensation to its admissions recruiters that is tied to the number of students they recruit.   

But a spokesman for the company's legal counsel took issue with the filing.

"The pursuit of this legal action by the federal government and a handful of states is flat-out wrong," said Bonnie Campbell, a former Iowa Attorney General. "EDMC’s 2003 compensation plan followed the law in both its design and implementation, as EDMC’s response to the governments’ complaint will show."

“The complaint is wrong in its claim that EDMC disregarded the quality factors in the compensation plan. EDMC worked rigorously to ensure that the plan was properly implemented company-wide," Campbell said.

Congress enacted the incentive compensation prohibition to curtail the practice of paying bonuses and commissions to recruiters, which resulted in the enrollment of unqualified students, high student loan default rates and the waste of program funds.

“Colleges should not misuse federal education funds by paying improper incentives to admissions recruiters,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “Working with the Department of Education, we will protect both students and taxpayers from arrangements that emphasize profits over education.”

Protected from abuse 

“Federal tax dollars must be protected from abuse,” said David J. Hickton, U.S. Attorney for the Western District of Pennsylvania. “This action against EDMC seeks to recover a portion of the $11 billion in federal student aid which EDMC allegedly obtained through false statements and which enriched the company, its shareholders and executives at the expense of innocent individuals seeking a quality education.”

The False Claims Act allows for private citizens to file whistleblower suits to provide the government information about wrongdoing.   The government then has a period of time to investigate and decide whether to take over the prosecution of the allegations or decline to pursue them and allow the whistleblower to proceed.   

If the United States proves that a defendant has knowingly submitted false claims, it is entitled to recover three times the damage that resulted and a penalty of $5,500 to $11,000 per claim.   When the government intervenes, the whistleblower can collect a share of 15 to 25 percent of the United States’ recovery.

The suit was originally filed by Lynntoya Washington, a former EDMC admissions recruiter, who later filed an amended complaint, jointly with Michael T. Mahoney, a former director of training for EDMC’s Online Higher Education Division.   The states of California, Florida, Illinois and Indiana have also intervened as plaintiffs.