Kentucky Asks to Join Justice Department Suit Against Education Management

Kentucky asked to join a U.S. lawsuit claiming that Education Management Corp. (EDMC), the nation’s second- largest for-profit college chain, used improper recruitment practices to secure more than $11 billion in student aid.

Attorney General Jack Conway filed to intervene in federal court in Pittsburgh, where the Justice Department and four states filed a complaint yesterday claiming Education Management illegally paid recruiters based on the number of students signed up, a violation of rules for colleges that get U.S. student grants and loans.

“Overaggressive recruiters increase the likelihood that unqualified students are unable to complete their education and unable to repay their loans, which leaves taxpayers footing the bill,” Conway said in a statement.

Prosecutors yesterday spelled out their case against the company for the first time since May, when the Justice Department joined an employee whistle-blower suit against Education Management, which is 41 percent-owned by Goldman Sachs Group Inc. (GS) funds. Education Management owns Brown Mackie College, which has three Kentucky campuses, according to the Conway statement.

A spokeswoman for Pittsburgh-based Education Management, Jacquelyn Muller, didn’t immediately return a call seeking comment. The company has denied violating federal rules.

The Kentucky Higher Education Assistance Authority has paid more than $6 million in need-based and merit-based financial aid grants to Brown Mackie Colleges since 2004, according to the statement.

‘Fraudulently Induced’

Education Management “fraudulently induced” the Education Department to make the company eligible for more than $11 billion in federal grants and loans since 2003, according to the complaint filed yesterday.

The industry has been under scrutiny by Congress, state lawmakers and attorneys general who are investigating sales practices and students’ debt loads. Illinois, Florida, California and Indiana filed yesterday’s suit along with the Justice Department.

The case was filed under the False Claims Act, which lets private citizens sue on behalf of the government and share in any recovery.

The case is U.S. v. Education Management, 07-cv-00461, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

To contact the reporter on this story: David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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