The New York Times reports that the Department of Justice and several states plan on joining in a qui tam suit against Education Management Corporation (EDMC), in which the for profit college company has been accused of fraudulent practices with respect to how it compensates its recruiters.
In a Securities and Exchange Commission filing submitted on Monday, EDMC was accused of paying its recruiters based on the number of students they enrolled in college programs. The suit, which is the first one in which federal prosecutors have joined, is the most recent in a number of cases in recent years accusing EDMC of acting fraudulently in order to increase federal student aid revenue.
As the New York Times notes, federal whistleblower suits, which are filed under the False Claims Act, allow private citizens to file complaints of fraud in place of the federal government and receive a portion of public money recovered through the suit. Because such suits are filed under seal, the government has the time to investigate and decide whether to join the suit.
EDMC, which currently enrolls almost 150,000 students and operates a handful of career-college chains, is one of the nation's largest for-profit college companies. For-profit schools have, in recent years, come under increased scrutiny for leaving students with too much debt and little to offer in the job marketplace.
EDMC reportedly denies that its compensation practices violate federal law, and it plans to defend itself vigorously against the allegations of fraud.
Source: New York Times, "U.S. to Join Suit Against For-Profit College Chain," Tamar Lewin, 2 May 2011.