University of Phoenix Fraud
(False Claims Act) Lawsuit
Background on the University of Phoenix Lawsuit
Lieff Cabraser serves as Lead Plaintiffs' Counsel for two former University of Phoenix enrollment counselors in a lawsuit filed under the False Claims Act. The complaint alleged the Internet-based school knowingly misled the U.S. Department of Education to become eligible for its students to collect financial aid. In December 2009, the case settled for a record amount for this type of action.
Summary of Allegations
The University of Phoenix is the nation's largest, private, for-profit higher education institution providing educational programs for working adult students.
The lawsuit was filed in 2003 by two enrollment counselors of the university under the False Claims Act, a statute that permits whistleblowers to sue on behalf of the government for fraud committed against the government and share in the recovery if the suit is successful.
About 80% of its students receive federal financial aid, according to government records. The University of Phoenix collects approximately $2 billion a year in taxpayer-funded federal financial aid on behalf of its students, crediting students for tuition paid.
Many students who enroll at the University of Phoenix never complete their education, and many are unable to even finish the classes they signed up for. First time freshmen have a 7% program completion rate, according to a June 2005 report of the National Consumer Law Center. Hundreds of thousands of former University of Phoenix students without degrees are obligated to pay back high interest loans for decades.
The complaint alleged that the school urges counselors to enroll students without determining their academic qualifications to attend university.
The complaint further charged that the university paid its enrollment counselors "based directly or indirectly on enrollment activities," even as it told the government otherwise. Under Title IV of the Higher Education Act, universities that qualify for aid are barred from giving recruiters incentives, like commissions and bonuses, to boost enrollment. The suit seeks damages for federal loans and grants obtained by thousands of students.
The University of Phoenix, which denied the whistleblowers’ allegations, previously paid $9.8 million to the Department of Education in 2004 to resolve administrative claims that it was paying improper incentive compensation to its recruiters. Those administrative proceedings were triggered by the allegations of the whistleblowers in this case.
Settlement Reached
On December 14, 2009, attorneys for the plaintiffs announced a $78.5 million settlement of the lawsuit.
“The settlement is a huge victory for taxpayers and the federal government,” according to Robert J. Nelson, lead attorney for the whistleblower plaintiffs. “This settlement sends a clear message to the for-profit education industry compliance with the Higher Education Act’s incentive compensation ban must be achieved,” said Nelson.
The settlement constitutes the second-largest settlement ever in a False Claims Act case in which the federal government declined to intervene. The $78.5 million settlement also makes the top 100 biggest federal False Claim Act settlements of any kind.
With Lieff Cabraser, the legal team for the whistle blowers includes attorneys Nancy Krop and Daniel Bartley, with additional plaintiffs' attorneys from Altshuler Berzon LLP and McGuinn, Hillsman & Palefsky, LLP.
About Lieff Cabraser
Lieff Cabraser Heimann & Bernstein, LLP is a sixty-plus attorney law firm that has represented plaintiffs nationwide since 1972. We have offices in San Francisco, New York and Nashville. We represent plaintiffs in class and group actions and in individual lawsuits in cases involving substantial losses. For the last seven years, The National Law Journal has selected Lieff Cabraser as one of the top plaintiffs' law firms in the nation.
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