Goldman Sachs' Education Management Corporation Accused of Widespread Fraud

For-Profit College Group Sued as U.S. Lays Out Wide Fraud
By TAMAR LEWIN

The Department of Justice and four states 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.

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.”

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 four names: Art Institute, Argosy University, Brown Mackie College and South University.

In a statement Monday, the company denied any wrongdoing.

“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.”


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http://www.nytimes.com/2011/08/09/education/09forprofit.html?_r=3&a...

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