Leader of the Education Management Corporation Investigated

Todd Nelson, former chief executive of the University of Phoenix, the largest for-profit college in the nation, signed a $9.8 million settlement with the Department of Education in 2004, after the department found that the school had "systematically and intentionally" broken federal rules. Nelson, who is now chief executive of Education Management Corporation, or EDMC, which is the nation’s second largest for-profit college company, is now involved in another lawsuit. This one, a whistle-blowing lawsuit being intervened by the Justice Department and two state attorneys general, is about the EDMC violating the ban on what is known as incentive compensation, according to an article posted in The New York Times.

This practice encourages aggressive recruitment of unqualified students for their federal student aid and given that Nelson, along with other former Phoenix executives are now at EDMC, the complaint states that they knew the system they were using violated the compensation ban. The University of Phoenix never admitted any wrongdoing on their part and the EDMC, which enrolls about 150,000 students at Argosy University, Brown Mackie College, South University and in its Arts Institutes, have also stated no wrongdoing and are planning a vigorous defense. EDMC’s senior vice president, Anthony J. Guida, feels confident that they did not violate the law and feel comfortable based on advice they have received from their attorneys, as they have been reviewed twice in the past and have continued to be reviewed periodically since 2003.

The complaints against the EDMC allege that the compensation plan is very similar to the one at Phoenix, which was found to "provide substantial incentives to staff to recruit unqualified students" and operated in a "duplicitous manner" to evade detection. According to the complaint, EDMC’s pay plan is entirely based on enrollment numbers, which is okay for telemarketers, but not in education, according to Harry Litman, the Pittsburgh attorney representing the whistle-blowers. While Guida said he could not comment on the specifics of the complaint, he did say that the plan was designed around what is known as a "safe harbor", which says that a recruiter’s pay can be partially determined by how many students are brought in, as long as that is not the sole basis of his or her pay.

Apart from the financial payouts associated with the schools, the lawsuit could also prove to be the basis for political fallouts as well. The former governor of Maine, who was also former chief executive before Nelson and still serves as chairman of the board, is married to Senator Olympia Snowe, whose 2010 financial disclosure form lists EDMC stock and options worth $2 million to $10 million, the article further states. Scott D’Amboise, who is challenging Snowe in the 2012 Republican primary is calling on her to resign because she benefited from her husband’s earnings, which D’Amboise claims were "millions of our hard-earned tax dollars." Senator Snowe declined to comment on the matter.

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