Education Management Corp. Improperly Paid Recruiters, Prosecutors Say

The U.S. Justice Department and four states accused the Education Management Corporation in a complaint filed in an existing lawsuit Monday of improperly paying recruiters and fraudulently securing more than $11-billion in federal student aid.

Prosecutors said Education Management pays its recruiters solely based on how many students they enroll, which would violate the Higher Education Act’s ban on incentive compensation. The government allegations were filed as part of a whistle-blower lawsuit by two former employees that the Justice Department joined in May.

“In practice, the sole factor that determines changes to the compensation of admissions personnel is the number of students the admissions employee recruited during the previous 12 months,” the complaint says.

Prosecutors said that Education Management, the second-largest for-profit college company by enrollment, had illegally received more than $11-billion in student aid since it adopted its compensation policies in 2003. California, Florida, Illinois, and Indiana joined the complaint. The company owns Argosy University, the Art Institutes, Brown Mackie College, South University, and Western State University.

The claims are “flat-out wrong,” a legal adviser to Education Management, Bonnie Campbell, said in a written statement. The company’s compensation plan complies with federal regulations by paying recruiters based on five “quality factors” in addition to how many students they enroll, Ms. Campbell said.

“The complaint is wrong in its claim that EDMC disregarded the quality factors in the compensation plan,” Ms. Campbell said. “EDMC worked rigorously to ensure that the plan was properly implemented companywide.”

The largest for-profit college, the University of Phoenix, paid $78.5-million in 2009 to settle a whistle-blower lawsuit that accused the college of improperly compensating recruiters. Other for-profit colleges have faced similar complaints.