Education Management Corporation Settles Significant FCA Claims

Education Management Corporation (EDMC), a Pittsburgh-based company that operates for-profit educational institutions, has agreed to pay $96 million in what attorneys involved in the case claim to be the largest settlement ever in a False Claims Act case involving the Department of Education. The settlement was announced on November 16, 2015, and it resolved four cases spanning a period of eight years.

The cases were qui tam actions brought by EDMC’s former admissions officers, who accused the company of using improper incentives to recruit students. EDMC certified that it was in compliance with Title IV of the Higher Education Act of 1965, which prohibits schools from paying recruiters commissions, bonuses, or any other incentive payments based on the number of students enrolled. This “Incentive Compensation Ban,” see 20 U.S.C. § 1094(a)(20), was passed by Congress in 1992 in order to target the for-profit education industry’s aggressive recruiting practices.

According to the relators, EDMC violated the Incentive Compensation Ban by adjusting salaries based on the number of students enrolled by recruiters. The relators further claimed that this practice existed for several years, and students were recruited with little to no regard for their qualifications. EDMC repeatedly made false claims to the Department of Education and to the states, assuring state authorities that they were in compliance with the Incentive Compensation Ban. The false assurances enabled the company to receive over $11 billion in financial aid funds.

In 2011, the federal government intervened in the case along with various state governments, including Minnesota, California, New York, and others; the first time any government intervened in a case regarding the Incentive Compensation Ban against a for-profit college. Upon settlement, Attorney General Loretta Lynch explained that EDMC had been “[o]perating essentially as a recruitment mill,” and through its actions, it not only violated the Incentive Compensation Ban, but betrayed the trust of its students.

The settlement called for over $80 million in monetary penalties. EDMC is also responsible for appointing an administrator to ensure its compliance moving forward, a cost of about $8.75 million. With the goal of fostering transparency, EDMC and the attorneys general involved in the case have developed a one-page disclosure statement for students. This disclosure statement provides information about higher education options at EDMC’s schools and is meant to address government concerns about EDMC’s recruitment practices.