Justice Department sues for-profit college company

The Department of Justice and several states have filed a fraud lawsuit against the Education Management Corporation, the second-largest for-profit college company in the United States.

The lawsuit charges that the company enrolled poor applicants who were not qualified for its programs – signing up students without computers for online education programs, for example – in order to collect state and federal financial aid payments for the students. The company received $11 billion worth of financial aid payments from July 2003 through June 2011.

The complaint against Education Management was originally filed four years ago by two former employees who’d worked in admissions and training for the company.

The New York Times explains why this suit is significant:

While the civil lawsuit is one of many raising similar charges against the expanding for-profit college industry, the case is the first in which the government intervened to back whistle-blowers’ claims that a company consistently violated federal law by paying recruiters based on how many students it enrolled. The suit said that each year, Education Management falsely certified that it was complying with the law, making it eligible to receive student financial aid.

“The depth and breadth of the fraud laid out in the complaint are astonishing,” said Harry Litman, a lawyer in Pittsburgh and former federal prosecutor who is one of those representing the two whistle-blowers whose 2007 complaints spurred the suit. “It spans the entire company — from the ground level in over 100 separate institutions up to the most senior management — and accounts for nearly all the revenues the company has realized since 2003.

Pittsburgh-based Education Management enrolls about 150,000 students in 105 schools that are part of four chains: Art Institute, Argosy University, Brown Mackie College and South University. Goldman Sachs owns 41 percent of the highly-profitable company.

Illinois, Florida, California and Indiana filed the lawsuit along with the Justice Department on Monday, and on Tuesday, Kentucky requested to join the group, Bloomberg reports. The Kentucky Higher Education Assistance Authority has paid more than $6 million in need-based and merit-based financial aid grants to Brown Mackie Colleges in the state since 2004.

Education Management denies any wrongdoing, the Associated Press reports. "The pursuit of this legal action by the federal government and a handful of states is flat-out wrong," Bonnie Campbell, a former Iowa attorney general and member of the state Board of Regents who is an adviser to the college's legal counsel, said in a statement.