by Ben Vernia | August 11th, 2011
On August 8, the Department of Justice announced that it was filing a complaint in intervention against Pittsburgh-based Education Management Corporation, a for-profit college with over 150,000 students. According to DOJ’s press release:
The United States has intervened and filed a complaint in a whistleblower suit pending under the False Claims Act against Education Management Corp. (EDMC) and several affiliated entities, the Justice Department announced today. In its complaint, the government alleges that EDMC falsely certified compliance with provisions of federal law that prohibit a university from paying incentive-based compensation to its admissions recruiters that is tied to the number of students they recruit. Congress enacted the incentive compensation prohibition to curtail the practice of paying bonuses and commissions to recruiters, which resulted in the enrollment of unqualified students, high student loan default rates and the waste of program funds.
The case was originally brought as a whistleblower, or qui tam suit by a student recruiter. When she filed an amended complaint, it was jointly with a former director of training for the company’s online division.
The company issued the following statement in the wake of the government’s intervention:
August 8, 2011 PITTSBURGH, PA — “The pursuit of this legal action by the federal government and a handful of states is 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.
“Federal regulations issued in 2002 permitted companies to consider enrollments in admission officer compensation, so long as enrollments were not the sole factor considered. To ensure compliance with this regulation, EDMC worked closely with outside experts in both human resources and education law to develop a plan that required consideration of five quality factors along with enrollment numbers to determine salaries.
“The complaint is wrong in its claim that EDMC disregarded the quality factors in the compensation plan. EDMC worked rigorously to ensure that the plan was properly implemented company-wide.
“EDMC is justifiably proud of its 40-year history and the quality education and good results it provides its students. EDMC’s colleges are accredited institutions offering career-focused academic degrees to it students, many of whom would not otherwise attend college, and EDMC’s combined graduation rate is better than other schools serving similar student populations, whether those schools are public, private or proprietary.”
