For-Profit Education Company Reportedly Set To Pay $90M For Defrauding Feds

A long-running lawsuit accusing the second largest for-profit education company, Education Management Corporation, of defrauding the federal government is expected to be resolved today, with the operator of schools like Art Institutes, Argosy University, Brown Mackie Colleges and South University reportedly set to pay $90 million. 

The settlement would resolve a complaint first filed in August 2011 that accused Education Management – which is partially owned by Goldman Sachs – of violating a federal law against paying recruiters based on the number of students they manage to enroll.

In all, the deal, which would represent the largest ever involving false claims made to the Department of Education, would resolve accusations against the company under the consumer protection laws in 39 states and the District of Columbia, The New York Times reports.

The case against the company was initiated in 2007 after two whistle-blowers, former Education Management employees, made complaints about the company. One of the employees filed charges against the company in federal court under the False Claims Act, which permits private citizens who know of fraud against the government to sue in the government’s name.

In 2011, the Department of Justice and four states joined the case, along with a second whistle-blower.

According to the complaint, the company violated a federal ban on per capita incentive compensation at institutions that participate in federal student financial aid programs.

The suit alleges that nearly 90% of the tuition funds collected by the company between July 2003 and June 2011 – about $11 million – were the result of the fraudulent practices.

In addition to paying employees based on the number of students they enrolled, the suit alleges that company also implemented a system of bonus incentives, including the so-called President’s Club trips: all-expenses-paid vacations to destinations including Cancun and Puerto Vallarta, both in Mexico, and Las Vegas, and were permitted to take a loved one at no cost, according to the complaint.

The Times reports that had the case gone to trail it could have resulted in a billion-dollar verdict. However, it’s likely the government agreed to a smaller settlement given Education Managements current financial difficulties.

For-Profit College System Expected to Pay Millions [The New York Times]