A multibillion-dollar federal lawsuit against Downtown-based Education Management Corp. can continue, a judge ruled today, as he denied the for-profit educator's bid to have the case dismissed.
The lawsuit in U.S. District Court, filed in 2007 by former EDMC employees and joined in 2011 by the Department of Justice, claims that recruiters were given raises solely on the basis of the numbers of students enrolled, which would be illegal. EDMC has countered that its statistical analysis of 15,000 pay decisions proves that it paid its recruiters based on a variety of factors.
"To put it starkly, plaintiffs allege a coordinated, multibillion-dollar corporate-wide fraud," U.S. District Judge Terrence F. McVerry wrote in his 11-page order. "The fact that EDMC’s paperwork and salary database appear to be compliant [with federal law], on its face, is entirely consistent with Plaintiffs’ theory of the case."
"What EDMC portrays as 'getting behind the numbers' may really be only manipulation of its numbers," the judge wrote.
Judge McVerry summarized the allegations of the former employees and the government, saying they claim that EDMC pursued "an enrollment-maximization strategy, with a goal to dramatically increase student enrollment from 4,500 in 2006 to 50,000 in 2011." Because the students were federally funded, the plaintiffs claim, federal payments to EDMC soared from around $650 million in 2003-04 to $2.6 billion in 2010-11.
Judge McVerry's ruling could open the door to further efforts by the former EDMC employees and the government to get at the communications among the educator's top brass.
“We believe this case is without merit, and we will continue to defend ourselves," said EDMC spokesman Chris Hardman.
First Published: May 6, 2014, 8:19 p.m.
Updated: May 6, 2014, 8:41 p.m.
