State joins suit over commissions

South Bend Tribune Staff Report

5:47 a.m. EDT, June 16, 2011
Indiana has joined a federal whistle-blower lawsuit accusing the parent company of Brown Mackie College of illegally paying commissions toward student recruiters, according to the office of Indiana Attorney General Greg Zoeller.

The suit claims Pittsburgh-based Education Management Corp., a publicly traded company, violated federal law by paying commissions and other perks to recruiters based in part on the number of students they signed up.

Education Management Corp. operates 27 Brown Mackie College sites around the country, including campuses in South Bend, Michigan City, Merrillville, Fort Wayne and Indianapolis.

Indiana joins several other states in the suit, which is proceeding in U.S. District Court in Pittsburgh. The suit was initiated by two whistle-blowers who were Education Management employees in Pennsylvania.

Indiana joined the U.S. Justice Department on Monday in a whistleblower lawsuit against Education Management Corp., the parent company of Brown Mackie College and the Art Institute, claiming the schools received more than $12 million in state financial aid based on false claims.

Indiana Attorney General Greg Zoeller joined the attorneys general from California, Illinois, Florida and the federal government in a 122-page complaint that claims $11 billion in government aid has been improperly received by the company since 2003.

Two former employees of Pittsburgh-based Education Management and its for-profit college networks started the suit in 2007 in Pennsylvania, but it became public when the government joined.

In the past two months, instructors at Indiana sites of Education Management have told similar stories of incentive plans to recruit students, even unqualified students, state officials allege.

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

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

Brown Mackie also has plans to open a campus on the fourth floor of Circle Centre mall.

Education Management has defended its pay of recruiters in a filing with the Securities and Exchange Commission.

"The design of the compensation plan was based on advice of counsel that the plan complied" with exceptions in the federal prohibition on paying incentives to teachers and others to recruit students, the company has said.

Students who have consumer issues related to Education Management colleges should contact the Consumer Protection Division at (800) 382-5516 or go online to www.IndianaConsumer.com.

Call Star reporter Bruce C. Smith at (317) 444-6081.

By NEDRA PICKLER Associated Press

5:30 p.m. EDT, August 8, 2011

WASHINGTON -- The Obama administration, Indiana and three other states are accusing a private, for-profit college of illegally paying recruiters to enroll students in an $11 billion fraud.

The Justice Department and the attorneys general of Indiana, California, Illinois and Florida on Monday intervened in a lawsuit against Pittsburgh-based Education Management Corp.

Education Management runs a chain of for-profit colleges, including Brown Mackie College in South Bend and in Michigan City.

A Tribune call to the South Bend campus on Monday afternoon was referred to the campus interim president, who was in Fort Wayne. He could not be immediately reached for comment.

The complaint says the school broke a 1992 law prohibiting for-profit colleges from paying recruiters incentive compensation.

The law was passed in response to reports of overly aggressive sales techniques in the industry. It was the first time the federal government intervened in a suit alleging a violation of the ban.

The complaint says the company repeatedly made false statements to conceal its practices and receive $11 billion in federal and state financial aid -- nearly all of the company's revenue.

Indiana Attorney General Greg Zoeller's office alleges the company and its subsidiaries received more than $12 million in state financial aid after making false claims and misrepresentations to the state.

Education Management also runs Brown Mackie campuses in Fort Wayne, Merrillville and Indianapolis, and a school called The Art Institute of Indianapolis.

Zoeller's office claims a total of 16,814 student financial aid awards were claimed by the company's schools in Indiana.

"Paying recruiters incentives based on the number of students they enroll is a violation both of the 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 held EDMC accountable by making it pay civil penalties," Zoeller said Monday in a written statement.

Indiana's portion of the lawsuit seeks civil penalties of at least $5,000 for each false claim submitted.

South Bend Tribune staff writer Margaret Fosmoe contributed to this report.

INDIANAPOLIS -- A college being sued by the state over millions in questionable financial aid is defending its practices.

The attorney general's office claims Brown Mackie College illegally received financial aid on behalf of students who weren't eligible, adding up to about $12 million since 2003 in Indiana alone.

Indiana is among several states that have filed a federal lawsuit against the school, which has 27 branches in all, including six in Indiana -- Fort Wayne, Indianapolis, Merrillville, Michigan City and South Bend, as well as The Art Institute of Indianapolis.

The lawsuit alleges the college violated a federal law that bans incentive compensation for college admissions employees based on the number of students they enroll.

According to the lawsuit, the college offered recruiters trips to Mexico and Las Vegas for bringing in the most students.

A current employee, who asked to remain anonymous, told 6News' Rafael Sanchez the college's recruitment practices are still questionable.

"The whole idea is to get as many bodies in to start classes as possible so that they can be charged so that the school can reap the benefits of those charges," the employee said. "When you are working under a quota you're doing whatever you can get to get the students into the school. I mean, under any circumstances."

The suit was filed in federal court in Pittsburgh, where Brown Mackie's parent company, the for-profit Education Management Corporation, is based.

In a statement, the company said the basis of the lawsuit is "flat-out wrong."

"Federal regulations issued in 2002 permitted companies to consider enrollments in admission officer compensation, so long as enrollments were not the sole factor considered," the statement read. "To ensure compliance with this regulation, EDMC worked closely with outside experts in both human resources and education law to develop a plan that required consideration of five quality factors, along with enrollment numbers, to determine salaries."

In June 2010, the company reported that it received $2 billion in financial aid for all of its students nationwide, which accounted for 89 percent of its net revenue.

The attorney general's office said the state is relying on inside information from a whistle-blower to make its case against Brown Mackie.

Despite the allegations against Brown Mackie, the state will still issue financial aid to students this year.

Other states involved in the lawsuit are Florida, California and Illinois.