The U.S. Department of Justice and attorneys general in four states, including California, filed a complaint last week against for-profit college giant Education Management Corp., which operates 14 campuses in the state under the Argosy University and Art Institute brands.
The 122-page complaint contends the Pittsburgh-based for-profit college company illegally paid admissions employees based on the number of students they recruited, regardless of the students' qualifications. The Higher Education Act prohibits colleges and universities that participate in the federal financial aid program from paying commissions, bonuses or other incentive payments to recruiters based on how many students they enroll.
The exact amount of California's claim is still unclear, but state Attorney General Kamala Harris is suing Education Management for all the state financial aid the colleges have received since 2003, mainly in the form of Cal Grants. The state is also seeking $10,000 per false claim.
From 1999 to 2010, the colleges have received about $93 million in Cal Grants program funds from the California Student Aid Commission, according to the complaint.
Aside from the federal government and California, attorneys general in Florida, Indiana and Illinois filed the Aug. 8 False Claims Act lawsuit, which stemmed from whistleblower complaints by two former employees of the for-profit company. On the same day, the state of Kentucky also requested to join the lawsuit.
Although more than two dozen whistleblower lawsuits have been filed against for-profit colleges under the False Claims Act, this is the first such case in which the Department of Justice has intervened.
In a statement on the company's website, Bonnie Campbell, spokeswoman for Education Management's legal counsel, called the lawsuit "flat-out wrong."
"EDMC’s 2003 compensation plan followed the law in both its design and implementation, as EDMC’s response to the governments’ complaint will show," Campbell wrote. "The complaint is wrong in its claim that EDMC disregarded the quality factors in the compensation plan."
The lawsuit says the company created a "boiler room"-style sales culture in which recruitment of students was the sole focus. A guide for assistant directors of admissions includes a points-based salary chart, described internally as "the matrix." The chart rewards a set number of points for each type of student recruited in one year.
The company relentlessly monitors each recruiter's enrollment statistics, the complaint states. Admissions personnel who recruited the most students in a year won all-expenses-paid "President's Club" trips to Puerto Vallarta and Cancun in Mexico and Las Vegas.
Education Management also instructs its sales force to enroll applicants regardless of whether they can write coherently and even if they appear to be under the influence of drugs, the complaint says.
The lawsuit details a recruitment tactic called “finding the pain," which means figuring out a prospective student’s vulnerabilities and exploiting them to persuade the student to enroll, even after the student has expressed a desire not to.
Education Management is one of the country's largest for-profit college companies, enrolling more than 158,300 students in about 101 campuses in 31 states and Canada as well as nationwide online programs.
The complaint comes as attorneys general in several states are working on probes of for-profit college companies. Earlier this month, Career Education Corp. acknowledged in a filing with the Securities and Exchange Commission that it discovered inaccuracies in its job placement rate calculations while gathering information to respond to a New York attorney general's subpoena filed in May.
Here's an updated look at other ongoing investigations by state attorneys general:
|State attorneys general investigate for-profit college companies|
|Delaware||University of Phoenix||2006 to present|
|Florida||Education Management Corp.'s Argosy University||Determine whether colleges have violated Florida law prohibiting deceptive or unfair business practices|
|Corinthian Colleges' Everest College|
|University of Phoenix|
|Concorde Career College|
|Career Education Corp.'s Sanford-Brown College|
|Iowa||Bridgepoint Education's Ashford University||Possible violations of Iowa's Consumer Fraud Act|
|Kentucky||Education Management Corp.'s Brown Mackie College||Student loan default rates, recruitment practices and job placements|
|Sullivan University's Spencerian College|
|Four other unnamed universities|
|Massachusetts||University of Phoenix||Recruitment and student loan practices|
|Corinthian Colleges' Everest College|
|Kaplan University's Kaplan Career Institute|
|New York||Career Education Corp.||Possible violations of New York's securities, finance and other laws|
|Lincoln Educational Services|
|Trump Entrepreneur Initiative|