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Whistleblower Lawsuit Filed Against Art Institute Parent Company

Department of Justice Joins Whistleblower Lawsuit Against Art Institute’s Parent Company

On Monday, June 9th, the federal Department of Justice, along with four states, filed a multibillion-dollar whistleblower lawsuit against the Education Management Corporation, the US’s second-largest for-profit college company that manages the Art Institute in Seattle, among other colleges.

The whistleblower lawsuit states that the college corporation fraudulently collected $11 billion in government aid by recruiting low-income students specifically for the purpose of collecting student financial aid. Whistleblowers claim that the practice, much like mortgage fraud, preyed on those that could not pay off their loans, and the students have now defaulted on those loans and the US tax payers are responsible for paying off the loaning institutions.

“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 whistleblowers 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.”

“The pursuit of this legal action by the federal government and a handful of states is flat-out wrong,” said Bonnie Campbell, a spokeswoman for the company’s legal counsel. “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,” the statement continued. “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 False Claims Act, as the basis for the whistleblower lawsuit against the for-profit institution, allows for triple damages so the prosecution could ask for as much as $33 billion in damages from Education Management. The for-profit institution is based in Pittsburg, enrolls about 150,000 students in 105 schools, and is owned 41% by Goldman Sachs.

The whistleblower complaint alleges that Education Management received $2.2 billion in federal financial aid in 2010 alone, which made up  an astonishing 89.3% of the company’s revenue.

The lawsuit was filed four years ago by two former employees, Lynntoya Washington, an assistant director of admissions at the Art Institute of Pittsburgh Online Division, and Michael T. Mahoney, the director of training for the Online Higher Education Division. Although the federal government has declined to join numerous whistleblower lawsuits against other for-profit colleges, the DOJ announced that it would join this whistleblower lawsuit in May.

The DOJ has settled other for-profit college whistleblower lawsuits in the past. In 2009, the Apollo Group, which owns the University of Phoenix, settled a whistleblower lawsuit for $78 million. Phoenix was accused of “systematically and intentionally” violating federal regulations against paying recruiters to find students. The DOJ believes that Education Management had similar practices.

The Strom Law Firm Can Help Protect Whistleblowers with the False Claims Act

The False Claims Act, also known as the Whistleblower Act or a qui tam lawsuit, is intended to encourage people to come forward with information and assist the government in stopping the waste of Government funds.

Common whistleblower actions include:

  • Medicare fraud,
  • defense contractor fraud, and
  • other kinds of fraud.

If you are personally aware of a fraud that has been committed by your current or former employer, a competitor or otherwise, contact the Qui Tam attorneys at the Strom Law Firm today for a no cost consultation to discuss the facts of your case and whether filing a whistleblower lawsuit may be appropriate. We understand the complexity of the False Claims Act, and can help you with your case. We offer free, confidential consultations so contact us for help today. 803.252.4800.



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