BUZZFEED: Whistleblower Suit Alleges For-Profit College Tricked Veterans Into Debt

Career College Central Summary:

  • Unsealed documents from a 2011 whistleblower lawsuit lay out a system of alleged financial aid fraud by EDMC, a financially troubled for-profit college operator that owns the massive Art Institutes chain, which includes falsifying federal financial aid documents and tricking veterans into taking out excess loans.
  • The allegations add a new dimension to the case against EDMC, which includes two other whistleblower suits. The Justice Department and four states joined a separate suit filed in 2007 alleging that the company violated federal law by paying recruiters based on how many students they enroll. The DOJ has not yet said whether it will join this suit, said a lawyer on the case, Alan Perer.
  • “We believe the lawsuit is without merit and we will vigorously defend ourselves,” said Chris Hardman, a spokesman for EDMC.
  • The suit, which was unsealed by a federal judge last week, alleges EDMC recruiters were directed to falsify information on students’ financial aid documents to maximize the money flowing to the school, in what one former admissions representative described as a “pervasive” practice. EDMC derives more than 90% of its revenue from the federal government, including GI Bill funds that pay for the education of veterans.
  • Unlike when the suits were filed, EDMC is now in dire financial straits. It voluntarily delisted from the New York Stock Exchange in October, with its stock trading for pennies. Instead of paying off their debts, the company has given their lenders a stake in the company, converting their more than $1 billion in debt to equity and heavily diluting the ownership stake of their previous shareholders to about 4%. Bought out by Goldman Sachs and other private equity investors in 2006 for $3.6 billion, EDMC is now worth about $35 million. The company plans to stop being publicly traded, it said.

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