Education Management Corp. (EDMC), the second-largest U.S. for-profit college chain, defrauded U.S. taxpayers, paying illegal bonuses to recruiters who used falsified job-placement data to lure students, a former employee claimed in a lawsuit.
The company used “boiler-room” tactics to receive millions of dollars in federally backed student loans and grants, Jason Sobek, a former recruiter for the company’s South University, said in a complaint unsealed yesterday in Pittsburgh federal court. Goldman Sachs Group Inc. (GS) funds own 43 percent of Education Management.
The Justice Department and several states joined a separate whistle-blower case last year against Education Management that makes similar allegations. For-profit colleges, which can receive as much as 90 percent of their revenue from federal financial-aid programs, are under scrutiny by Congress, state attorneys general and federal prosecutors for their sales practices and student-loan default rates.
Education Management “had a corps of recruiters, all well- trained in sales and closing techniques, who perfected the art of preying on the hopes and dreams of vulnerable students desperately seeking better lives,” Sobek said in his complaint, which was filed in 2010.
Jacquelyn Muller, a spokeswoman for Pittsburgh-based Education Management, didn’t immediately return phone messages seeking comment.
Education Management rose 0.8 percent to $16.02 at 12:49 p.m. in New York.
The case is U.S., ex. rel. Jason Sobek v. Education Management, 10-cv-0131, U.S. District Court, Western District of Pennsylvania (Pittsburgh).