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Judge Refuses to Dismiss $11 Billion Fraud Suit Against Education Management Corp.

U.S. District Judge Terrence F. McVerry, in Western Pennsylvania, refused to dismiss a qui tam suit alleging that Pittsburgh-based Education Management Corp. (NASDAQ: EDMC), defrauded the federal government of $11 billion in federal student aid by violating the terms of the Higher Education Act.  The federal law bars the distribution of incentives to college recruiters based on the number of students they draw.  

The claims were brought by two former recruiters for EDMC, a for-profit education giant that operates more than 100 campuses.  The federal government and more than a dozen states have joined the suit as well. 

The plaintiffs, who are seeking to treble the damages under the federal False Claims Act, contended that the salary structure that EDMC used for its recruiters, called the Admissions Performance Plan, was “nothing more than window-dressing” designed to cover its violations of the ban on incentive compensation.  EDMC contends that its plan was a legitimate scale that fit into the allowances afforded by the safe harbor amendment of 2002. 

Last month, President Obama signed an executive order regarding the recruitment practices of some colleges since veterans were granted tuition assistance in 2008. “Since the Post-9/11 GI Bill became law, there have been reports of aggressive and deceptive targeting of service members, veterans, and their families by some educational institutions,” according to the order. It calls, in part, for an end to “fraudulent and unduly aggressive recruiting techniques on and off military installations, as well as misrepresentation, [and] payment of incentive compensation.” 

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