Domestic, Ethics, For-Profit, Required, Student Loans, University & College - Written by Elbert Chu on Tuesday, August 9, 2011 10:35 - 0 Comments
Education Management Corp. Slammed with Multi-Billion Dollar Dept of Justice Lawsuit
by Elbert Chu
For-profit education is having a rough year. As though the for-profit space weren’t bloodied enough with increasing scrutiny and new regulations, dismal earnings, and being first to get sold into the post-U.S. S&P downgrade. Now, an $11-billion lawsuit against Education Management Corp. (NASDAQ: EDMC), second in size only to University of Phoenix, owned by Apollo Group Inc. (NASDAQ: APOL).
The DOJ hopped on board a law suit started in 2007 by two whistle blowers that allege Education Management Corp. falsely received billions of dollars in financial aid.
This law suit was reported in June, but the details of the allegations are damning. New York Times Tamar Lewin reports:
According to the 122-page complaint, Education Management got $2.2 billion of federal financial aid in fiscal 2010, making up 89.3 percent of its net revenues.
The states joining in the suit are California, Florida, Illinois and Indiana.
The complaint said the company had a “boiler-room style sales culture” in which recruiters were instructed to use high-pressure sales techniques and inflated claims about career placement to increase student enrollment, regardless of applicants’ qualifications. Recruiters were encouraged to enroll even applicants who were unable to write coherently, who appeared to be under the influence of drugs or who sought to enroll in an online program but had no computer.
Apollo Group itself settled a similar suit against the University of Phoenix in 2009, admitting no wrongdoing but paid $78-million. The common link is Education Management Corp. CEO, Todd Nelson, former head of University of Phoenix. Lewin reports:
“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. “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.”
Education Management, which is based in Pittsburgh and is 41 percent owned by Goldman Sachs, enrolls about 150,000 students in 105 schools operating under four names: Art Institute, Argosy University, Brown Mackie College and South University.
In a statement Monday, the company denied any wrongdoing.
“The pursuit of this legal action by the federal government and a handful of states is flat-out wrong,” said Bonnie Campbell, a spokeswoman for the company’s legal counsel. “EDMC’s 2003 compensation plan followed the law in both its design and implementation, as EDMC’s response to the governments’ complaint will show.”
Full article at the New York Times.
- Justice Dept. accuses college of breaking law (sfgate.com)
- Justice Department Sues Education Management (online.wsj.com)
- Justice Department, Four States Say For-Profit College Corporation Violated Federal Law (huffingtonpost.com)
- PRESS RELEASE: U.S. Files Complaint Against Education Management Corp. Alleging False Claims Act Violations (fredericacade.wordpress.com)
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