Education Management Corp. (EDMC), the second-largest U.S. for-profit college chain, used improper recruitment practices to secure more than $11 billion in U.S. student aid, prosecutors said in a civil lawsuit.
U.S. v. Education Management, 07-cv-00461, U.S. District Court, Western District of Pennsylvania (Pittsburgh)
Education Management, 41 percent owned by Goldman Sachs Group Inc. (GS) funds, illegally paid recruiters based on the number of students signed up, a violation of rules for colleges that get U.S. student grants and loans, the Justice Department said today in a complaint filed in federal court in Pittsburgh.
Prosecutors spelled out their case against the company for the first time since May, when the Justice Department joined an employee whistleblower suit. Colleges that receive federal aid are barred from paying recruiters incentives tied to enrollment because it may encourage companies to register unqualified students. The government claimed Education Management enrolled students who appeared to be under the influence of drugs.
Education Management “fraudulently induced” the Education Department to make the company eligible for more than $11 billion in federal grants and loans since 2003, according to the complaint. “Each and every one of the claims it submitted or caused a student to submit violated” the U.S. False Claims Act, the government said.
“The depth and breadth of the fraud laid out in the complaint are astonishing,” said Harry Litman, a lawyer in Pittsburgh and former federal prosecutor who is one of those representing the two whistle-blowers whose 2007 complaints spurred the suit. “It spans the entire company — from the ground level in over 100 separate institutions up to the most senior management — and accounts for nearly all the revenues the company has realized since 2003.”[1]The industry has been under scrutiny by Congress, state lawmakers and attorneys general who are investigating sales practices and students’ debt loads. Illinois, Florida, California and Indiana have also intervened in the case, and filed today’s suit along with the Justice Department.
Education Management, based in Pittsburgh, denied violating government rules.
“The pursuit of this legal action by the federal government and a handful of states is flat-out wrong,” Bonnie Campbell, a former Iowa attorney general who is advising Education Management, said in an e-mailed statement. The company’s compensation plan “followed the law in both its design and implementation,” she said.
Charles Miller, a spokesman for the Justice Department, declined to comment.
States Join Suit
The industry has been under scrutiny by Congress, state lawmakers and attorneys general who are investigating sales practices and students’ debt loads. Illinois, Florida, CaliforniaIndiana have also intervened in the case, and filed today’s suit along with the Justice Department. and Education Management, based in Pittsburgh, denied violating government rules. “The pursuit of this legal action by the federal government and a handful of states is flat-out wrong,” Bonnie Campbell, a former Iowa attorney general who is advising Education Management, said in an e-mailed statement. The company’s compensation plan “followed the law in both its design and implementation,” she said.
Charles Miller, a spokesman for the Justice Department, declined to comment.
Lynntoya Washington, a former assistant director of admissions for Education Management, filed her whistleblower complaint under seal in 2007. Michael Mahoney, director of training for the company’s online division and a former car salesman, joined her.
Whistleblower lawsuits let private citizens file complaints that may be joined by the government. The citizens collect a share of any recovery.
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