by Ben Vernia | May 2nd, 2011
According to a May 2 article published on bloomberg.com, the Department of Justice has intervened in a qui tam suit against the for-profit college company, Education Management Corp. According to the article:
The suit alleges that Pittsburgh-based Education Management, 40 percent owned by Goldman Sachs Group Inc. (GS) funds, illegally paid recruiters based on the number of students they enrolled, the company said in a Securities and Exchange Commission filing today. The government, in most cases, forbids such incentive compensation for colleges accepting federal aid because of concern the practice will encourage companies to enroll unqualified students.
The Justice Department action in federal court in Pittsburgh follows scrutiny by Congress and the U.S. Education Department of sales practices, student-loan defaults and job placement claims at for-profit colleges, which can receive as much as 90 percent of their revenue from federal financial aid. Several states intend to join the Justice Department’s civil action in federal court, Education Management said.
“The design of the compensation plan was based on advice of counsel that the plan complied with” exceptions to federal law banning incentive compensation, the company said in its filing. “The company intends to vigorously defend itself.”
