A federal judge has recommended that a fraud case against a for-profit university corporation once led by former Maine Gov. John McKernan can go forward.

Pittsburgh-based Education Management Corp. has been accused by a whistleblower of engaging in “a multi-faceted, corporate-wide scheme to enroll as many students as possible, and to keep them on the rolls for as long as possible, without regard to (their) qualifications or … likelihood of graduation or career placement, in order to maximize financial aid” from the federal government, according to court filings.

U.S. Magistrate Judge Cynthia Reed Eddy recommended that four of six allegations by a former admissions officer, Jason Sobek, have sufficient evidence to go forward, including claims that Education Management deceived students about its accreditation and job placement statistics, and that it violated a ban on using sales-based incentives to compensate admissions recruiters.

McKernan is married to U.S. Sen. Olympia Snowe of Maine, who is not seeking re-election this year.

Education Management has a nonprofit based in Portland — The Education Foundation — that gives scholarships to students attending Education Management schools. Until earlier this year, the foundation was led by Ruth Summers, wife of Snowe’s former longtime aide Charlie Summers, who is running for Snowe’s seat.

From 2003 to 2007, McKernan was CEO of Education Management, which owns the Art Institutes, Argosy University, South University and Brown Mackie College. He is now chairman of the board.

According to The New York Times, the company received $2.2 billion in federal student aid in the fiscal year ending in June 2010, nearly 90 percent of its net revenue.

In March, Education Management asked the court to dismiss the lawsuit. It argued that the claims are without merit and “rely exclusively on speculation.”

Magistrate Eddy recommended in Monday’s ruling that two of the allegations be dismissed for lack of sufficient evidence: that Education Management misrepresented the cost of its programs, and that it failed to let the federal Pell Grant program know when students receiving aid had dropped out.

One of the four counts in the suit — the one involving sales-based incentives — should proceed as part of a second whistleblower case that has precedent because it was filed earlier, the judge’s recommendation said.

Education Management is also the subject of a second whistleblower suit being pursued by 11 states and the U.S. Department of Justice.

The magistrate judge’s recommendations, released Monday, are subject to approval by U.S. District Judge Terrance McVerry. Both judges are assigned to the Western District of Pennsylvania, where Education Management is based.

Sobek’s lead attorney, Jesse Hoyer of Tampa, Fla., said, “This is good news from our perspective, because it shows the magistrate, who’s been handling the case, believes there is enough evidence on our primary counts to move forward.”

In a written statement, Education Management said it is reviewing the judge’s recommendation but “continues to believe the complaint, in its entirety, is without merit and will be filing objections with the court.”

 

Staff Writer Colin Woodard can be contacted at 791-6317 or at:

cwoodard@pressherald.com