California to Intervene in False Claims Act Suit Targeting Educational Aid Fraud

In a recently-unsealed filing, California became the second state to join in a False Claims Act whistleblower lawsuit originally brought in 2007 against Education Management Corporation (“EMC”), a for-profit college company that operates 14 campuses in California under the “Argosy University” and “Art Institute” brands.

The suit, which was brought by two former employees, alleges that EMC illegally paid admissions employees based upon the number of students they recruited.  The Higher Education Act prohibits colleges and universities that participate in the federal financial aid program from paying commissions, bonuses or other incentive payments to recruiters based directly or indirectly on their success in securing enrollments.  According to the lawsuit, most of the public funding received by EMC was fraudulently obtained, meaning that a significant amount could be at stake.  The Complaint against EMC alleges that, in 2010 alone, the company received $2.2 billion in federal financial aid alone.

The revelation regarding California’s intention to intervene in the case comes on the heels of the United States Department of Justice’s announcement at the beginning of May that it, too, would be intervening in the case.  The federal government’s Complaint in intervention is due to be filed June 2, 2011.  The state of Illinois had previously intervened in the case.

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