Education Management Faces Fewer Claims in Lawsuit

Education Management Corp. (EDMC) will face fewer claims in a former recruiter’s lawsuit alleging the company falsified job-placement data.

U.S. District Judge Terrence McVerry in Pittsburgh today upheld the dismissal of three of six claims in the lawsuit brought by Jason Sobek, a former recruiter for the company’s South University. Sobek accused the company of making false statements to participate in federal financial assistance programs.

Education Management’s arguments for dismissal of the entire suit are premature at this stage in the litigation, McVerry said in a written opinion.

Sobek, a former project associate director of admissions, sued in January 2010 claiming the Pittsburgh-based company used “boiler-room” tactics to receive millions in federally backed student loans and grants.

In an amended complaint filed last year, Sobek said Education Management made false statements in regard to its accreditation of nursing programs, job placement statistics, cost of educational programs, satisfactory academic progress statistic and incentive compensation ban. He also sued the company under the Reverse False Claims Act for allegedly failing to report students who should have been dropped from school rolls, according to McVerry’s opinion.

Program Costs

In October, a magistrate judge recommended dismissing claims over the cost of education programs, the reverse false claims and the incentive compensation ban while allowing the others to proceed. McVerry adopted those recommendations over Education Management’s objections. He gave the company until June 14 to respond to the complaint.

“We are encouraged by the court’s ruling,” Christopher Casper, an attorney for Sobek, said in an e-mail. “It sends a message that companies cannot rake in hundreds of millions of dollars in taxpayer money while blatantly violating federal law.”

“We continue to believe the entire case is without merit and intend to vigorously defend ourselves in this regard,” said Jacquelyn Muller, a spokeswoman for Education Management, in an e-mailed statement. “Education Management maintains a deep commitment to doing things right.”

Congress and state and federal prosecutors are scrutinizing the sales practices and student-loan default rates of for-profit colleges, which received $32 billion in federal grants and loans in the 2009-2010 school year.

U.S. officials have intervened in a related case on behalf of two Education Management whistle-blowers who accused the company of wrongfully securing more than $11 billion in student aid. The government decided not to intervene in Sobek’s case.

The case is U.S., ex. rel. Jason Sobek v. Education Management, 10-cv-00131, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

To contact the reporter on this story: Sophia Pearson in Philadelphia at spearson3@bloomberg.net

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

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