Ind. AG joins whistleblower lawsuit

Jessica M. Karmasek Aug. 9, 2011, 11:20am


INDIANAPOLIS (Legal Newsline) - Indiana Attorney General Greg Zoeller filed Monday a joint complaint in a whistleblower lawsuit against a for-profit college company.

Zoeller's office alleges that Education Management Corp. and two of its subsidiaries received more than $12 million in state financial aid after making false claims and misrepresentations to the state.

Indiana joins three other states and the federal government in seeking redress.

The states and federal government allege that EDMC violated a federal law that bans incentive compensation for college admissions employees based on the numbers of students they enroll.

By using a system where college recruiters' compensation was tied to enrollment numbers, EDMC and two of its subsidiaries operating in Indiana violated Title IV of the Higher Education Act of 1965, the lawsuit alleges.

Named as defendants in Indiana's portion of the complaint are EDMC and six EDMC-owned schools in Indiana: the Brown Mackie College campuses in Fort Wayne, Indianapolis, Merrillville, Michigan City and South Bend, as well as The Art Institute of Indianapolis.

The complaint alleges a total of 16,814 student financial aid awards were claimed by the six EDMC schools that falsely represented their compliance and eligibility to the state.

By claiming more than $12 million in student financial aid for which it was not eligible since 2003, EDMC defrauded the state, the lawsuit alleges.

"Paying recruiters incentives based on the number of students they enroll is a violation both of federal aid regulations as well as the responsibility to the students that the school serves.

"This violation renders the company ineligible to receive funds under the Indiana financial aid programs, and using the False Claims Act we will seek to hold EDMC accountable by making it pay civil penalties," Zoeller said in a statement.

Zoeller said he will closely monitor the situation to ensure that students' interests are protected. He emphasized that the state's intervention is in its initial stages and that the lawsuit's allegations are not directed at students, but at the colleges and EDMC.

The Higher Education Act specifically forbids colleges from paying recruiters incentive compensation based on the numbers of students recruited.

The whistleblower lawsuit alleges EDMC violated the act by improperly compensating its college recruiters with bonuses such as expensive vacations to Puerto Vallarta, Cancun, Las Vegas or other destinations.

The lawsuit originally was filed by private plaintiffs in the U.S. District Court for the Western District of Pennsylvania.

In June, Indiana filed its notice of intervention in the lawsuit against the Pittsburgh-based company. Also intervening are California, Florida and Illinois and the United States.

Indiana's portion of the lawsuit seeks civil penalties of at least $5,000 for each false claim submitted, treble damages, attorneys' fees, litigation costs and interest.

This is the first time Zoeller's office has used a whistleblower lawsuit to seek civil penalties due to false claims paid out of state financial aid, rather than out of Medicaid.

From Legal Newsline: Reach Jessica Karmasek by email at

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