A Pennsylvania company that operates more than 100 for-profit college campuses nationwide and has ties to former Maine Gov. John McKernan has agreed to pay more than $80 million to settle a lawsuit alleging improper recruitment tactics.

The payout by Pittsburgh-based Education Management Corp., also called EDMC, is the largest-ever settlement involving the U.S. Department of Education under the False Claims Act, according to the Justice Department, which partnered with 39 states on the suit.

McKernan is a former chief executive officer and was chairman of the company’s board of directors when the suit was filed, although he later left the board.

The lawsuit alleged that the company illegally paid recruiters, including with incentives such as all-expenses-paid vacations, to lure students. Recruiters allegedly used aggressive tactics to inflate enrollment numbers, and in some cases to enroll unqualified students, in order to receive more government subsidies.

As part of the deal, the company did not have to admit wrongdoing. In a statement, its president said the company worked with federal authorities and ultimately helped improve recruiting and disclosure standards for the entire industry going forward.

“EDMC is proud to have worked closely with the state attorneys general to produce a new, one-page, easy-to-read disclosure that provides important information for students as they consider their higher education options at one of our schools,” Mark McEachen said in a statement.

Whistle-blowers first brought to light allegations in 2007 that the company made false claims to shield its practices and receive roughly $11 billion in federal and state aid. That total accounted for nearly all of EDMC’s revenue.

The Justice Department joined the lawsuit in 2011 and several other states, including Maine, have since signed on.

“We’re very pleased that EDMC has been called to account for some pretty sordid conduct that cost taxpayers billions of dollars while victimizing untold numbers of students,” Harry Litman, an attorney for the whistle-blowers, said in a statement.

The settlement money will be distributed to various states and stakeholders. Among those who will receive some of the settlement money are 244 former students from Maine, who will share $230,000.

In 2012, one year after the Justice Department intervened in the lawsuit, a U.S. Senate investigation was highly critical of Education Management’s operation, especially the high rate of withdrawal by students at its brick-and-mortar campuses and those enrolled in one of its online colleges. Some of the company’s brands include: Art Institute, Argosy, Brown Mackie and South.

That 2012 report did acknowledge that Education Management invested more money in instruction and employed more full-time instructors than most for-profit schools. But it raised concerns about whether taxpayers were getting enough return on investment of federal funds flowing to the company’s campuses.

McKernan, a Republican who served as Maine’s governor from 1987 to 1995, joined the company in 1999 as vice chairman. He was president from March to September 2003 and CEO from September 2003 to February 2007. He was chairman of the board of directors from 2007 to 2012, but he no longer sits on the board. He left in early 2015.

McKernan, who also is married to former U.S. Sen. Olympia Snowe, declined to comment on the settlement but instead referred a reporter to the company’s statement.

The lawsuit has caused problems for Education Management, which is partially owned by the investment firm Goldman Sachs. The company’s stock closed at 8 cents per share on Friday, down from a high of $22. Filings with the Securities and Exchange Commission reveal that the company lost $2.3 billion over the three-year period from 2012 to 2014.

Litman, the attorney for the whistle-blowers, acknowledged that the company’s financial troubles likely contributed to a smaller settlement. The Justice Department’s penalty of $80 million was computed on an “ability-to-pay” model.

Education Management is not the only for-profit college operator that has come under fire. Corinthian Colleges, which once enrolled more than 100,000 students, has closed nearly all of its colleges in the wake of a $30 million fine by the U.S. Department of Education in April over allegations that it lied about the success of students.

The University of Phoenix is also is under investigation by the SEC for claims of deceptive and unfair practices.

Eric Russell can be contacted at 791-6344 or at:

[email protected]

Twitter: PPHEricRussell


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