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U.S. joins suit to recover funds from for-profit education firm

By Terry Frieden, CNN Justice Producer
  • NEW: Company says lawsuit is "flat-out wrong"
  • Federal government says company paid recruiters bonuses for students
  • Education Management Corp. misused student aid, government says
  • Company does business as The Art Institute, Argosy University

Washington (CNN) -- Education Management Corp. rejected Tuesday the federal government's action in joining a lawsuit against the for-profit educational firm.

"The pursuit of this legal action by the federal government and a handful of states is flat-out wrong," declared Bonnie Campbell, an adviser and representative for the firm's legal counsel.

The Justice Department joined a whistle-blower and several state governments Monday in filing suit against Education Management Corp. (EDMC), which has received more than $11 billion in federal student aid.

EDMC has enrolled thousands of students in dozens of educational programs across the U.S. The government alleges the company paid admissions recruiters bonuses tied to the number of students they recruited, in violation of federal law.

Assistant Attorney General Tony West at the Justice Department said the company had misused federal education funds by paying improper incentives to admissions recruiters.

"We will protect both students and taxpayers from arrangements that emphasized profits over education," West said.

The lawsuit alleges the company falsely certified compliance with federal laws that prohibit a university from paying incentives to admissions recruiters.

The suit, filed in federal court in Pittsburgh, was originally brought by whistle-blower Lynntoya Washington, a former admissions recruiter.

"This action against EDMC seeks to recover a portion of the $11 billion in federal student aid which EDMC allegedly obtained through false statements and which enriched the company, its shareholders and executives at the expense of innocent individuals seeking a quality education," said David Hickton, U.S. attorney for western Pennsylvania.

California, Florida, Illinois and Indiana are also seeking to recover funds.

The government says the $11 billion was given to the EDMC schools between 2003 and the present. If the governments and the whistle-blower prevail, the company could have to pay up to three times the amount it received through the false claims filed with the Education Department and the states.

Many of the educational programs or "colleges" carried the name of The Art Institute of the city or state in which it was located. Several other schools carried the name Argosy University.