Education Management Corp. to Settle False Claims for $95.5M; Whistleblowers to Get $11.3M
Education Management Corp. (EDMC), the second-largest for-profit educational company in the United States of America, will pay $95.5 million to settle allegations that EDMC knowingly submitted or caused the submission of false claims by falsely certifying that it was in compliance with Title IV of the Higher Education Act (HEA) and parallel state statutes.
The primary allegation was that EDMC unlawfully recruited students, in contravention of the HEA’s Incentive Compensation Ban (ICB), by running a high pressure boiler room where admissions personnel were paid based purely on the number of students they enrolled. In addition to resolving these and other FCA claims, the global settlement also encompasses an investigation by a consortium of state Attorneys General, of consumer-fraud allegations involving deceptive and misleading recruiting practices.
EDMC, which is headquartered in Pittsburgh, Pennsylvania, operates nationwide under four post-secondary school brands: the Art Institutes, South University, Argosy University and Brown-Mackie College. Student enrollment across EDMC’s school brands exceeds 100,000 students.
The settlement resolves four separate FCA lawsuits filed in federal court in Pittsburgh, Pennsylvania, and Nashville, Tennessee, under the qui tam, or whistleblower, provisions of the act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.
The United States and five states intervened and actively litigated one of those four whistleblower lawsuits, United States ex rel. Washington, in the Western District of Pennsylvania. The United States’ complaint in intervention alleged systemic violations of Title IV of the HEA’s ICB and parallel state provisions, which prohibit schools from paying recruiters based on their success in securing enrollments. Specifically, the United States and the plaintiff states claimed that EDMC falsely certified to the U.S. Department of Education and various state offices of higher education that it was complying with the ICB, in order to be eligible to receive the federal grant and loan dollars that compose the majority of EDMC’s revenue. In reality, according to the United States’ complaint in intervention, EDMC was running a high pressure sales business and paid its recruiters based only on the number of students they enrolled. As a result of these allegedly false certifications, EDMC improperly enriched itself for more than 10 years with federal and state grant and loan dollars. More broadly, EDMC’s alleged conduct resulted in exactly the problems that Congress sought to curtail when it enacted the ICB: the enrollment of students in programs for which they lacked the necessary skills and qualifications, unsustainable student debt and default rates, and schools’ pursuit of profits ahead of a legitimate educational mission.
The global settlement with EDMC also resolves three additional federal FCA lawsuits in which the government did not intervene, all involving various violations of Title IV of the HEA by EDMC.
Finally, the global settlement resolves a consumer fraud investigation by a consortium of 40 state Attorneys General, into EDMC’s deceptive and misleading recruiting practices. The consumer fraud settlement requires EDMC to undertake various compliance obligations, including detailed disclosure obligations to students; prohibitions on deceptive or misleading recruiting practices and oversight by an administrator to ensure compliance.
The global settlement amount of $95.5 million reflects EDMC’s financial condition and current ability to pay. 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.
The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments. We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud. Read more about our expertise in False Claims Act cases and how you can take action.