For-Profit College Group Sued by U.S. and Four States!

Dear Commons Community,

The NY Times reported on page one today that The Department of Justice and four states (California, Florida, Illinois, and Indiana) on Monday filed a multibillion-dollar fraud suit against the Education Management Corporation, the nation’s second-largest for-profit college company, charging that it was not eligible for the $11 billion in state and federal financial aid it had received from July 2003 through June 2011.   The $11 billion accounts for nearly all the revenues the company has realized since 2003.

Education Management, which is based in Pittsburgh and is 41 percent owned by Goldman Sachs, enrolls about 150,000 students in 105 schools operating under several names including Art Institute, Argosy University, Brown Mackie College and South University.   The Time article quotes a former federal prosecutor:

“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…”

The suit also names Todd Nelson, the chief executive of Education Management, who previously headed the University of Phoenix. At Phoenix, he signed a $9.8 million settlement with the Department of Education, which had found that Phoenix had “systematically and intentionally” violated federal rules against paying recruiters for students. Phoenix never admitted any wrongdoing in either that settlement or the larger whistle-blower settlement two years ago.

The article also mentions that  in 2003, Education Management’s chief executive was Jock McKernan, a former governor of Maine who now serves as chairman of its board. Mr. McKernan is married to Senator Olympia J. Snowe, a Maine Republican whose 2010 financial disclosure form lists Education Management stock and options worth $2 million to $10 million.

The American Educational-Industrial Complex just keeps on giving.



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