Texas for-profit school settles whistleblowers' False Claims Act allegations, will pay up to $2.5 million

by Ben Vernia | June 3rd, 2013

On May 31, the Department of Justice announced an unusual settlement with the Texas-based for-profit school American Commercial Colleges, Inc., which will pay the government $1 million over five years, but could be obligated to pay up to $2.5 million more if certain contingencies are met (DOJ did not disclose these in its press release and has not released the settlement agreement).

According to DOJ’s press release:

American Commercial Colleges Inc. (ACC) has agreed to pay the United States up to $2.5 million, plus interest, to resolve allegations that it violated the civil False Claims Act by falsely certifying that it complied with certain eligibility requirements of the federal student aid programs, the Justice Department announced today.

To maintain eligibility to participate in federal student aid programs authorized by Title IV of the Higher Education Act of 1965, for-profit colleges such as ACC must obtain no more than ninety percent of their annual revenues from Title IV student aid programs. At least ten percent of their revenues must come from other sources, such as payments from students using their own funds or private loans independent of Title IV. Congress enacted this “90/10 Rule” based on the belief that quality schools should be able to attract at least a portion of their funding from private sources, and not rely solely upon the Federal Government. The civil settlement resolves allegations that ACC violated the False Claims Act when it orchestrated certain short-term private student loans that ACC repaid with federal Title IV funds to artificially inflate the amount of private funding ACC counted for purposes of the 90/10 Rule. The short-term loans at issue in this case were not sought or obtained by students on their own; rather, the United States contends ACC orchestrated the loans for the sole purpose of manipulating its 90/10 Rule calculations.

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Under the False Claims Act settlement, ACC, a privately-owned college operating several campuses in Texas, will pay the United States $1 million, plus interest, over five years, and could be obligated to pay an additional $1.5 million under the terms of the agreement.

The whistleblowers, former directors of two of the company’s campuses, will receive $170,000 of the base $1 million in payments (a relator’s share of 17%), and would receive $255,000 if the company must pay the additional $1.5 million.

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