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Four whistleblowers collect $11 million in for-profit college ‘recruitment mill’ settlement

Four whistleblowers who filed separate False Claims Act lawsuits against the operator of for-profit colleges that alleged recruiting fraud will split more than $11 million after the suits were settled Monday.

Education Management Corp. (EDMC), the second-largest for-profit education company in the country, agreed to pay $95.5 million to resolve the qui tam lawsuits.

Federal law prohibits schools from paying recruiters based on their success in securing enrollments.

The lawsuits alleged that since 2003, EDMC was running a high pressure sales business and paid its recruiters based only on the number of students they enrolled.

The qui tam or whistleblower provisions of the False Claims Act permit private individuals to sue on behalf of the government for false claims and to share in any recovery.   

Monday’s settlement resolved separate FCA lawsuits filed in federal court in Pittsburgh, Pennsylvania and Nashville, Tennessee.

EDMC, headquartered in Pittsburgh, operates four post-secondary schools: the Art Institutes, South University, Argosy University, and Brown-Mackie College. 

The four schools have a total enrollment of more than 1100,000 students.

The lawsuits alleged that EDMC pursued profits ahead of a legitimate educational mission. It enrolled unqualified students and caused some to take on heavy debt that ended in high default rates, the DOJ said.

Monday’s settlement also resolved a consumer fraud investigation by a consortium of 40 states into EDMC’s recruiting practices. 

In its deal with the states, EDMC will forgive loans of $102.8 million to about 80,000 former students. Students who were enrolled for 45 days or less and who had transferred fewer than 24 credit hours from another university will have their loans from EDMC automatically forgiven. The average eligible student will receive about $1,370 in loan forgiveness.

EDMC’s $95.5 million False Claims Act settlement reflects its financial condition and current ability to pay, the DOJ said.

The settlement proceeds will be shared among the United States, the co-plaintiff states and the whistleblowers and their counsel in the four FCA cases, and includes funds allocated for the compliance expenses of the state consumer fraud settlement, including the costs of the administrator and the acquisition and use of a sophisticated voice analytics system to record and analyze recruiters’ calls with students. 

The United States will receive $52.62 million from the settlement and will pay $11.3 million collectively to the relators in the four qui tam cases.

U.S. Attorney General Loretta E. Lynch said: “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.”

Education Management Corporation trades over the counter under the symbol EDMC.

The cases were United States ex rel. Washington et al. v. Education Management Corp., et al., Civ. No. 07-461 (WDPA); United States ex rel. Sobek v. Education Management Corp., et al., Civ. No. 10-0131 (WDPA); United States ex rel. Laukaitis et al. v. Education Management Corp., et al., Civ. No. 11-601 (WDPA); and United States ex rel. Rainwater v. Education Management Corp., et al., Case No. 3:12-CV-01008 (MDTN). 

Monday’s settlement resolved allegations only and didn’t determine liability, the DOJ said.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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2 Comments

  1. Good news. Certainly this company and its shareholders have lost significant money. However am curious to know if there were sanctions against individuals? Costing the perpetrators money is the only way to alter this kind of unlawful behaviour.

  2. Unless I missed recent changes to the FCA, actions can be brought either by the US, or by qui tam relators, but not both. On what basis are those interests conjoined here? It seems particularly curious that the federal government pays to to the relators from recoveries it obtained.

    Could this be an indication that the government recruited inside cooperation in its aggressive pursuit of for-profit schools?


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