Education Management Loses Bid to End Whistle-Blower Case

Education Management Corp., the for-profit college operator partly owned by Goldman Sachs Group Inc., must face a 7-year-old lawsuit alleging it engaged in a fraud to wrongfully obtain more than $11 billion in student aid.

U.S. District Judge Terrence McVerry in Pittsburgh today said that it would be premature to grant the company’s request to end the lawsuit before the plaintiffs were allowed to gather evidence. The U.S. has intervened in the suit along with 11 states and the District of Columbia.

“The court appreciates EDMC’s efforts to seek an end to this massive, complex and expensive litigation,” McVerry said in his ruling. “Discovery must proceed. The parties may then seek summary judgment, if appropriate.”

Enrollment at for-profit colleges has been hurt by years of federal and state investigations into their aggressive marketing, high tuition, poor outcomes and recruitment practices.

Education Management, based in Pittsburgh, is among the companies saying this year that they received demands for information from state attorneys general. The company’s total enrollment declined 22 percent in the past three years to 122,990 students. Shares are down 76 percent this year.

Enrollment Strategy

The whistle-blower case claims Education Management concealed prohibited compensation practices such as tying recruitment bonuses directly to the number of students enrolled. The plaintiffs say the company pursued an “enrollment-maximization strategy” with the goal of increasing attendance from 4,500 students in 2006 to 50,000 in 2011, McVerry said in his ruling.

“We believe the case is without merit, and we will continue to defend ourselves,” Education Management spokesman Chris Hardman said in a phone interview.

Education Management says it complied with U.S. regulations. It cited in court documents salary worksheets for its assistant admissions directors as evidence of compliance. The company may settle related claims brought by a former recruiter alleging falsified job-placement data, according to court records. The government didn’t intervene in that case.

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

(Corrects length of case in first paragraph of story published on May 6.)
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