Bloomberg News

Kentucky Can’t Join U.S. Case Against Education Management

October 24, 2011

(Updates with excerpt from judge’s ruling in third paragraph.)

Oct. 24 (Bloomberg) -- Kentucky can’t join a U.S. lawsuit claiming Education Management Corp., the nation’s second-largest for-profit college chain, used improper recruitment practices to secure more than $11 billion in student aid, a judge said.

Kentucky filed in August to intervene in the case in federal court in Pittsburgh after the Justice Department and four states filed a 16-count complaint alleging the company violated rules for colleges that get U.S. student grants and loans. Kentucky sought to file a three-count complaint alleging among its claims violation of the state’s consumer protection law. U.S. District Judge Terrence McVerry denied the request.

“This case is already over four years old and the addition of ‘consumer protection’ claims would cause further delay and prejudice to the existing parties,” McVerry said today in a written opinion.

Education Management, which is 41 percent owned by Goldman Sachs Group Inc. funds, is accused in the government’s civil suit of illegally paying recruiters based on the number of students signed up. The government joined the employee whistle- blower suit earlier this year. The case was filed under the False Claims Act, which lets private citizens sue on behalf of the government and share in any recovery.

Allison Gardner Martin, a spokeswoman for Conway, had no immediate comment on the ruling.

Federal False Claims

Kentucky doesn’t have a state law equivalent to the federal false claims act and intervention by the state “is not warranted under the circumstances of this matter,” McVerry said in the ruling.

Education Management owns Brown Mackie College, which has three Kentucky campuses, Kentucky Attorney General Jack Conway said in August. The state’s Higher Education Assistance Authority has paid more than $6 million in need-based and merit- based financial aid grants to the colleges since 2004, according to Conway.

The Pittsburgh-based company has maintained that its compensation plan complies with the 2002 U.S. Department of Education Safe Harbor regulation. The measure allows schools to compensate admissions staff based on student enrollments as long as that isn’t the sole consideration, Education Management said in court papers.

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

--With assistance from David Voreacos in Newark. Editors: Fred Strasser, Mary Romano

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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