Indiana joins suit against Brown Mackie, Art Institute parent company

Zoeller: For-profit colleges wrongly received more than $12 million in student aid

INDIANAPOLIS – Today the State of Indiana filed a joint complaint in a whistleblower lawsuit against Education Management Corporation, alleging the for-profit college company and two of its subsidiaries received more than $12 million in state financial aid after making false claims and misrepresentations to the state.

Indiana Attorney General Greg Zoeller’s Office joins three other states and the federal government in seeking redress from Education Management Corporation (EDMC) by filing a complaint in intervention in the whistleblower lawsuit. The states and federal government allege the EDMC defendants 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 of Indiana, 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 his separate role enforcing the state’s consumer protection laws, 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. Students who wish to report issues relating to transactions with the college can do so by contacting the Consumer Protection Division at 1-800-382-5516 or at www.IndianaConsumer.com

The State Student Assistance Commission of Indiana (SSACI) is in charge of awarding student grants and has already announced student aid awards for this year. Students can confirm their award amounts by checking eStudent, SSACI’s online grant status web application, available at www.in.gov/ssaci/ At this time, SSACI does not anticipate the pending litigation will impact student award offers. For-profit colleges in Indiana are regulated by the Commission on Proprietary Education (COPE), which has the ability to investigate student complaints. Students with questions about their financial aid can also contact their school’s financial aid staff.

To prevent abuses by college recruiters who sign up students without regard to their likelihood of success or ability to repay loans, Congress passed the Higher Education Act (HEA) that specifically forbids colleges from paying recruiters incentive compensation based on the numbers of students recruited. The whistleblower lawsuit alleges EDMC violated Title IV of the HEA by improperly compensating its college recruiters with bonuses such as expensive vacations to Puerto Vallarta, Cancun, Las Vegas or other destinations based on the number of students they recruited to enroll.

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 Pittsburgh-based EDMC. Also intervening are the states of 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.

Under the Indiana False Claims and Whistleblower Protection Act, a company insider who knows of fraud against the state can become a whistleblower and file a private lawsuit on behalf of the state. After investigating the allegations, the state then can intervene and join the case as plaintiff. If at the end of the case the defendant pays a judgment or settlement, then the whistleblower – also known as a “relator” – is eligible for a percentage of the recovery, usually between 10 percent and 30 percent.

Zoeller’s office has participated in a number of whistleblower lawsuits, called qui tam (pronounced “key tam”) cases, filed against pharmaceutical companies that submitted false claims to the State for reimbursement of illegal drug-marketing schemes. Settlements of those cases have resulted in nearly $24 million in payments to the Indiana Medicaid program since January 2009. Zoeller and his staff have given presentations around the state to health care workers about their legal right to bring whistleblower lawsuits under the False Claims Act.

The EDMC case 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.

Zoeller noted the cooperation between Indiana, the United States and the three other states in bringing legal resources to bear to seek repayment and halt EDMC’s improper compensation scheme for recruiters.