Bloomberg News

Education Management Seeks to Dismiss U.S. Lawsuit

October 05, 2011

(Updates with Education Management’s comment in third paragraph.)

Oct. 5 (Bloomberg) -- Education Management Corp., the second-largest U.S. for-profit college chain, asked a judge to dismiss a U.S. lawsuit over its recruitment policies, saying the complaint is flawed and the company complied with federal regulations.

The Justice Department alleged in a complaint in August that the company used improper recruitment practices to secure more than $11 billion in student aid. The civil suit accused the company, which is 41 percent owned by Goldman Sachs Group Inc. funds, of illegally paying recruiters based on the number of students signed up.

“The narrow legal issue in this case is whether the sole basis for EDMC’s compensation of admissions officers was enrollment numbers,” Bonnie Campbell, a former Iowa attorney general who is advising Education Management, said in an e-mailed statement. “The company’s compensation plan complied with the law by requiring the consideration of five quality factors along with enrollments to determine salaries.”

For-profit colleges have been under scrutiny by Congress, state lawmakers, and attorneys general who are investigating sales practices and students’ debt loads. Eleven states and the District of Columbia are plaintiffs in the case along with the government.

Meets Regulations

Prosecutors have failed to state a claim to support its complaint and don’t present any facts showing a company-wide sham to defraud the government, Education Management said in papers filed today in federal court in Pittsburgh.

The company said its compensation plan “falls squarely” within the 2002 U.S. Department of Education Safe Harbor regulation. The law allows schools to compensate admissions staff based on student enrollments as long as that isn’t the sole consideration, Education Management said in the filing.

“The government attempts to distract from insurmountable deficiencies in its case with overblown criticism of lawful recruiting actions by EDMC that are irrelevant to this case,” Campbell said in the statement. “Federal law allowed EDMC to recruit students and to encourage its admissions officers to recruit.”

Education Management rose 19 cents, or 1.3 percent, to $15.44 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have dropped 15 percent this year.

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

--Editors: Andrew Dunn, Mary Romano

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

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


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