Government Files Complaint Against For-profit Chain of Schools for False Claims Act Violations

On August 30, the United States Department of Justice (“DOJ”) intervened in a whistleblower complaint originally filed in federal court in Texas under the False Claims Act (“FCA”) against ATI Enterprises Inc. (“ATI”).  ATI is a Texas-based company that operates private-sector colleges in Texas, Florida, Oklahoma and New Mexico.  The government alleges that from 2007 until 2010, ATI knowingly misrepresented its job placement statistics in order to preserve its state licensure and eligibility for federal financial aid.  According to DOJ, because only accredited state schools are eligible for federal financial aid funding, the alleged misrepresentations to the State of Texas constitute false claims to federal education programs in violation of the FCA.

The government also claims in its complaint that ATI employees (1) knowingly enrolled students who were ineligible because they did not have high school diplomas or recognized equivalents; (2) falsified high school diplomas; (3) fraudulently kept students enrolled even though they had poor grades or attendance; and (4) made knowing misrepresentations to students about their future employment prospects.  These misrepresentations included advising prospective students that criminal records would not prevent them from obtaining jobs in their desired disciplines.  It is the government’s contention that ATI engaged in these practices in order to induce more students to enroll and thereby increase its take of federal dollars at the expense of its students, who incurred significant debt to attend the school, and taxpayers.

The suit against ATI is the most recent in a series of high profile FCA lawsuits in which the federal government has intervened to confront what it perceives as growing problems in the higher education arena, including US ex rel. Oberg v. Kentucky Higher Educ., Civ. No. 10-2320 (4th Cir. Jun. 18, 2012) (considering whether corporate entities created by states to provide higher education financing, accused of making false claims to DOE, were “persons” subject to FCA liability) and Cuccinelli v. University of Va., Record No. 102359 (Va. Sup. Ct. Mar. 4, 2012) (holding that the University of Virginia was not a “person” or “corporation” under the Virginia state-equivalent FCA).  Under the FCA, if the United States successfully proves that ATI knowingly submitted false claims, it will be entitled to recover three times the damages that resulted, in addition to penalties ranging from $5,500 to $11,000 per claim.  The six whistleblowers who originally filed the suit stand to recover between 15% and 30% of any final judgment or settlement.

DOJ’s press release regarding this lawsuit is available at: http://www.justice.gov/opa/pr/2012/August/12-civ-1068.html.

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