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DOJ intervenes in whistleblower suit against EDMC, P.2

In our previous post, we began discussing the recent Department of Justice filing against Education Management Corp. (EDMC) for allegedly violating the False Claims Act by illegally paying recruiters based on the number of students they enrolled in college programs.

Last week, the Justice Department spelled out its allegations in greater detail for the first time since May. In response, Pittsburgh-based Education Management is denying that it violated government rules. Its attorney says that the company's compensation plan was in accordance with federal law in "both its design and implementation."

The suit was reportedly brought by former assistant director of admission for Education Management Lynntoya Washington in 2007 and joined by Michael Mahoney, director of training for EDMC's online division.

Their suit brought accusations that the company had instructed recruiters to enroll students without regard to their qualifications and then compensated top recruiters with trips to Las Vegas and Mexican resorts.

As we have said, EDMC is the second largest for profit college chain in the United States, and enrolls nearly 140,000 students. At the end of June, the company reported $2.89 billion in revenue for its last fiscal year.

For-profit college companies have been under increasing scrutiny since the 1990s for allegations of violating federal incentive-compensation rules. A least 27 whistleblower cases have been filed against such companies since the early 90s. In nearly all of those cases, the Justice Department chose not to intervene, making its intervention in the EDMC case more unique.

Source: Bloomberg, "Education Management Violated Student-Aid Rules, U.S. Says," John Lauerman, August 8, 2011.

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