Whistleblower Alleges Fraud by Education Management Corp.

A former student recruiter for Education Management Corp. (EDMC) has filed a qui tam lawsuit alleging that the for-profit college chain has engaged in deceptive recruitment tactics. According to the complaint, EDMC has paid recruiters illegal bonuses to lure students to its schools through fraudulent means. Allegedly, EDMC, the second-largest for-profit college chain in the country, paid recruiters to falsify job placement data to entice students to choose EDMC colleges.

The goal of education fraud is to gain access to millions in federally backed student grants and loans, and for-profit colleges make up to 90 percent of their income from such federal programs. The more students brought in, the more money the schools get from the government. Schools commit fraud against the U.S. government when they deliberately attract students who are unlikely to succeed — and extremely likely to default on their federal student loan payments.

Because education fraud is such a problem, it is illegal for schools to pay recruiters bonuses based on the number of students that they get to enroll because such bonuses give recruiters an incentive to enroll students who are unqualified and unlikely to succeed. When they fail, and default on their student loans, the government and the students suffer.

Jason Sobek, the former recruiter for EDMC’s South University who blew the whistle on the company, has alleged that EDMC deliberately targeted students who were vulnerable and unlikely to succeed in college, including students who were mentally ill or homeless. According to Bloomberg News, Mr. Sobek claims that EDMC trained and encouraged its recruiters to prey on these vulnerable students.

EDMC operates a variety of colleges around the country, including the Art Institutes, Western State University, Brown Mackie College, and Argosy University. EDMC colleges have more than 150,000 students nation-wide.

Mr. Sobek filed this qui tam lawsuit under seal (so that the court records were kept private) in 2010. In effect, he is suing on behalf of the federal government because he knows about the alleged fraud. The Department of Justice (DOJ) will decide whether or not it wants to intervene, or become involved, in the case. Whether or not the DOJ gets involved, as the whistleblower, Mr. Sobek will be entitled to a portion of any recovery in the lawsuit.

Waters & Kraus is a national firm with highly skilled lawyers practicing qui tam litigation in four offices, including Dallas, Los Angeles, San Francisco, and Baltimore. Our attorneys have decades of experience successfully representing whistleblowers in a variety of fraud cases. Contact us  or call our attorneys at 800.226.9880 to learn more about our practice and how we can assist.

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