SEC ALLEGES BIOPHARMA CO. AND EXECUTIVES DID THE FRAUD THING

The following is an excerpt from the SEC wbsite:

"August 2, 2011
The Securities and Exchange Commission announced that on August 1, 2011, it charged Immunosyn Corporation (“Immunosyn”) and Argyll Biotechnologies, LLC (“Argyll”), both based in San Diego, California, with securities fraud in connection with materially misleading statements during 2006-2010 regarding the status of regulatory approvals for Immunosyn’s sole product, a drug derived from goat blood referred to as “SF-1019.” The Commission also charged Stephen D. Ferrone (“Ferrone”), of Lake Forest, Illinois, who was Immunosyn’s Chief Executive Officer (“CEO”), Douglas McClain Jr. (“McClain Jr.”), of Savannah, Georgia, who was Immunosyn’s Chief Financial Officer, Douglas McClain, Sr. (“McClain Sr.”), of Boerne, Texas, who was Argyll’s Chief Scientific Officer, and James T. Miceli (“Miceli”), of Poway, California, who was Argyll’s CEO, all with securities fraud; and it also charged Argyll, McClain, Jr., McClain, Sr., Miceli, Argyll Equities, LLC (“Argyll Equities”), based in San Diego, California, and Padmore Holdings, Ltd. (“Padmore”), an offshore entity, all with insider trading.
The Commission’s complaint, filed in federal court in Chicago, alleges that Immunosyn misleadingly stated in public filings with the Commission that Argyll, Immunosyn’s controlling shareholder, planned to commence the regulatory approval process for human clinical trials for SF-1019 in the U.S. or that regulatory approval was underway. The complaint alleges that these statements misled investors because the statements omitted to disclose that the U.S. Food and Drug Administration (“FDA”) had already twice issued clinical holds on drug applications for SF-1019, which prohibited clinical trials involving SF-1019 from occurring. The complaint also alleges that Immunosyn misleadingly stated that the regulatory approval process in Europe for human clinical trials for SF-1019 was imminent or underway, when in fact Argyll never submitted an application in Europe to conduct human clinical trials.
The Complaint alleges that McClain Jr., McClain Sr., and Miceli engaged in insider trading by raising approximately $20 million from their sale of Immunosyn shares while knowing that Immunosyn was making misrepresentations about the regulatory status of SF-1019. The Complaint alleges that they sold most of these shares through Argyll and Argyll Equities, which McClain Jr. and Miceli jointly owned, and Padmore, which McClain Jr., McClain Sr., and Miceli jointly owned. The Complaint also alleges that McClain Sr. made misstatements about the status of regulatory approval of SF-1019 in a video on Immunosyn’s public website, and in a 2008 presentation in which he sold Immunosyn stock he owned through Padmore to patients at a Texas holistic clinic, some of whom were terminally ill. The Complaint alleges that McClain Sr. raised approximately $300,000 from these patients but never gave them the shares they bought.
The Commission’s complaint seeks a final judgment permanently enjoining the defendants from future violations of the antifraud provisions of the federal securities laws, ordering each defendant to disgorge all ill-gotten gains, plus prejudgment interest, ordering each defendant to pay civil penalties, and barring Ferrone, McClain Jr., McClain Sr. and Miceli from serving as an officer or director of a public company.
The Commission acknowledges the assistance of the U.S. Food and Drug Administration.”

DOW CHEMICAL TO PAY $2.5 MILLION FOR ENVIRONMENTAL VIOLATIONS AT MIDLAND MICHIGAN PLANT

The following is an excerpt from an EPA e-mail distributed to subscribers:

WASHINGTON – The U.S. Environmental Protection Agency (EPA) and the U.S. Department of Justice today announced that Dow Chemical Company (Dow) has agreed to pay a $2.5 million civil penalty to settle alleged violations of the Clean Air Act, Clean Water Act and the Resource Conservation and Recovery Act (RCRA) at its chemical manufacturing and research complex in Midland, Mich.

“Communities near large industrial facilities depend on EPA to enforce our nation’s environmental laws and protect public health and the environment,” said Cynthia Giles, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance. “Today’s settlement with Dow will reduce the potential for future violations and protect communities from emissions of hazardous air pollutants.”
"This compliance program should serve as a model for industry and will go a long way to assure future violations will not happen again at this facility,”said Ignacia S. Moreno, assistant attorney general for the Environment and Natural Resources Division at the Department of Justice. “Dow worked cooperatively with the government to resolve this matter and in doing so set an example for responsible compliance with our nation’s environmental laws.”
In addition to paying a penalty, Dow will implement a comprehensive program to reduce emissions of volatile organic compounds (VOCs) and hazardous air pollutants (HAPs) from leaking equipment such as valves and pumps. These emissions – known as fugitive emissions because they are not discharged from a stack but rather leak directly from equipment – are generally controlled through work practices, such as monitoring for and repairing leaks. The settlement requires Dow to implement enhanced work practices, including more frequent leak monitoring, better repair practices, and innovative new work practices designed to prevent leaks. In addition, the enhanced program requires Dow to replace valves with new “low emissions” valves or valve packing material, designed to significantly reduce the likelihood of future leaks of VOCs and HAPs.

According to the 24-count complaint, filed simultaneously with the settlement today in the Eastern District of Michigan, Dow allegedly violated Clean Air Act requirements for monitoring and repairing leaking equipment, for demonstrating initial and continuous compliance with regulations applicable to chemical, pharmaceutical and pesticide plants, and for failing to comply with reporting and recordkeeping requirements. The complaint also asserts that Dow violated the Clean Water Act’s prohibition against discharging pollutants without a permit and violated the Resource Conservation and Recovery Act’s requirements for hazardous waste generators.

The consent decree is subject to a 30-day comment period and final approval by the court.”

EPA ORDERS DUPONT TO HALT SALE OF TREE KILLING HERBICIDE

The following is an excerpt from an e-mail sent out by the EPA:

“WASHINGTON — The U.S. Environmental Protection Agency (EPA) today issued an order to E.I. DuPont de Nemours (DuPont) directing the company to immediately halt the sale, use or distribution of Imprelis, an herbicide marketed to control weeds that has been reported to be harming a large number of trees, including Norway spruce and white pine. The order, issued under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), requires DuPont to stop the sale and distribution of Imprelis in the U.S. and outlines specific conditions to ensure that the removal of Imprelis from the market meets legal requirements.
This action follows EPA’s investigation into why a large number of evergreens and other trees have been harmed following the use of the herbicide. In its evaluation, EPA is investigating whether these incidents are the result of product misuse, inadequate warnings and use directions on the product’s label, persistence in soil and plant material, uptake of the product through the root systems and absorbed into the plant tissue, environmental factors, potential runoff issues or other possible causes.

On June 17, 2011, DuPont issued a letter to professional applicators cautioning against the use of Imprelis where Norway spruce or white pine trees are present on, or in close proximity to, the property being treated. On July 27, 2011, DuPont acknowledged to the EPA that there has been damage to trees associated with Imprelis use and the company had developed an internet web page to provide information and updates concerning Imprelis use.
On August 4, 2011, DuPont voluntarily suspended sales of Imprelis and announced that it will soon conduct a product return and refund program.
FIFRA is a federal law that requires the registration of pesticide products and pesticide-production facilities, and the proper labeling of pesticides. This requirement protects public health and the environment by ensuring safe production, handling, and application of pesticides and by preventing false or misleading product claims.”

TRACY RUSSO DISCUSSES NEW GLOBAL TRANSPARENCY ASSOCIATED WITH U.S. COMPANIES

The following is an excerpt from the Department of Justice website:

“August 5th, 2011 Posted by
Around the globe today, criminals are seeking to exploit the lack of transparency associated with U.S. companies to harm our national and economic security. Major drug trafficking cartels, arms traffickers and other criminal organizations have employed shell corporations to further their illegal activities and launder their ill-gotten proceeds.
The Department of Justice joins our partners at the Departments of
Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division noted:
“It is essential to our national and economic security that we close the loophole enabling some of the world’s worst actors in the criminal underworld to use shell companies established in the United States to move and hide their money. The proposed legislation represents an important step toward that goal.”This proposed legislation would facilitate the transparency of the financial system by making it more difficult for criminal organizations to hide behind front companies and shell corporations, an objective referenced in the
Tracy Russo Treasury and Homeland Security in welcoming the introduction of an important bill (PDF) this week in Congress to “combat U.S. corporations with hidden owners” that would require disclosure of beneficial ownership information in the company formation process.President’s Strategy to Combat Transnational Organized Crime announced last week.”

2 CHURCH PASTORS CONVICTED OF STEALING MILLIONS IN MEDICARE FRAUD SCHEME

The following case is an excerpt from the Department of Justice website:
“Wednesday, August 10, 2011
WASHINGTON – Two pastors of a now defunct Los Angeles church and a woman they employed at their fraudulent durable medical equipment (DME) supply companies were convicted late yesterday of conspiracy and health care fraud charges in connection with a $14.2 million Medicare fraud scheme, announced the Departments of Justice and Health and Human Services (HHS).
After a two-week trial in federal court in Los Angeles, a jury found Christopher Iruke, 60; his wife, Connie Ikpoh, 49; and Aura Marroquin, 30, guilty of multiple charges. Iruke was found guilty of one count of conspiracy to commit health care fraud and 17 counts of health care fraud. Ikpoh and Marroquin were each found guilty of one count of conspiracy to commit health care fraud and four counts of health care fraud. Marroquin was found not guilty of one count of health care fraud. According to evidence presented at trial, Iruke, Ikpoh and Marroquin billed Medicare for power wheelchairs, orthotics and other DME that were not medically necessary or never provided.
“Mr. Iruke and his wife were persistent and brazen in their efforts to steal millions from the Medicare program,” said Assistant Attorney General Lanny A. Breuer of the Criminal Division. “They opened four different companies to perpetrate their fraud, recruited parishioners from their church and others to help carry it out, and then used the spoils to buy fancy cars and other luxuries. In short, they treated the Medicare program like a personal till. Yesterday, a jury in Los Angeles struck back, and now Mr. Iruke and his co-conspirators will find out the true cost of their shameful scheme.”
“Pastors Christopher Iruke and Connie Ikpoh abused their positions of trust and persuaded those who blindly trusted in them to steal millions of dollars from taxpayers and Medicare,” said Glenn R. Ferry, the Los Angeles Region’s Special Agent in Charge for the Office of Inspector General (OIG) of HHS. “Yesterday’s verdicts show yet again that Iruke, Ikpoh, and others like them, can count on being aggressively pursued and brought to justice.”
“Yesterday’s convictions will undoubtedly deter others from planning to abuse government programs created to help elderly and disabled Americans,” said Steven Martinez, Assistant Director in Charge of the FBI in Los Angeles. “The FBI is committed to continuing to identify individuals using small business as a front for a criminal enterprise at the expense of our health care system.”
According to evidence introduced at trial, Iruke and Ikpoh were pastors at Arms of Grace Christian Center, a church that operated from 5700 Crenshaw Boulevard in Los Angeles, where Iruke and Ikpoh also operated Pascon Medical Supply, a fraudulent DME supply company. Iruke and Ikpoh hired several of their parishioners at Arms of Grace to assist them in running Pascon and another fraudulent DME supply company, Horizon Medical Equipment and Supply Inc. Horizon was owned by Ikpoh, who also worked as a nurse at two Los Angeles-area hospitals.
According to evidence presented at trial, Iruke, Ikpoh, Marroquin and their co-conspirators used fraudulent prescriptions and documents that Iruke purchased from a number of illicit sources to bill Medicare for expensive, high-end power wheelchairs and orthotics that were medically unnecessary or never provided. These power wheelchairs cost approximately $900 per wheelchair wholesale, but were billed to Medicare at a rate of approximately $6,000 per wheelchair.
Evidence introduced at trial established that when it appeared to Iruke that he would have to close Pascon due to an audit by Medicare, Iruke convinced his sister, Jummal Joy Ibrahim, and a member of Arms of Grace, Asia Fowler, to allow him to use their names and identities to open two new fraudulent DME supply companies. These companies, Contempo Medical Equipment Inc. and Ladera Medical Equipment Inc., also operated from Los Angeles. After Pascon and Horizon closed, Iruke, Ikpoh, Marroquin and their co-conspirators continued to operate the fraud scheme from Contempo and Ladera.
Witnesses who sold fraudulent prescriptions and documents to Iruke testified that they and others paid cash kickbacks to street-level marketers to offer Medicare beneficiaries free power wheelchairs and other DME in exchange for the beneficiaries’ Medicare card numbers and personal information. These witnesses testified that they and their associates used this information to create fraudulent prescriptions and medical documents which they sold to Iruke and the operators of other fraudulent DME supply companies for $1,100 to $1,500 per prescription. One witness testified that Iruke was nicknamed the “Trash Man” because he purchased fraudulent prescriptions in bulk and took prescriptions that other DME supply company operators did not want, including prescriptions for beneficiaries who lived outside of Los Angeles. In some instances, Iruke and his co-conspirators used the Medicare card numbers and identities of beneficiaries who were dead to bill Medicare for DME.
Trial testimony established that Iruke took extensive efforts to conceal the fraud scheme and his involvement with the companies. One witness who worked at the companies testified that Iruke directed her and Marroquin to refer to the fraudulent prescriptions and documents he purchased as “donuts” or “jobs” because Iruke feared law enforcement was listening to their conversations. This witness also testified that Iruke directed her and Marroquin to lie to state and Medicare inspectors about his involvement with Contempo and Ladera when the inspectors visited the companies. Evidence introduced at trial established that during an August 2009 interview with federal law enforcement agents at Ladera, Marroquin lied repeatedly about how Ladera obtained business and Iruke’s involvement with the company.
Witness testimony established that shortly after agents visited Ladera, Iruke called a meeting at a park, and directed Marroquin and Darawn Vasquez, a member of Arms of Grace who worked at the supply companies, not to talk to law enforcement. Iruke provided Marroquin and Vasquez with cellular telephones, and directed them to use the phones in order to prevent law enforcement from intercepting their conversations. After this meeting, Iruke and Vasquez met at Arms of Grace, and shredded evidence of the fraud scheme. When the shredder overheated, Iruke and Vasquez flushed the evidence down the toilet.
Witness testimony and evidence introduced at trial also established that within a few weeks of the agents visiting Ladera, Iruke closed Contempo and Ladera, which prompted agents to serve Iruke and his attorneys with subpoenas for the files of the companies. Instead of producing the files, Iruke directed that the files be brought to an auditorium used by Arms of Grace, where Iruke, Ikpoh, Marroquin and others altered and destroyed documents within the files to remove evidence of the fraud scheme. Law enforcement agents found Marroquin with these files when they arrested her.
Evidence introduced at trial showed that as a result of this fraud scheme, Iruke, Ikpoh, Marroquin and their co-conspirators submitted more than $14.2 million in fraudulent claims to Medicare, and received approximately $6.6 million in reimbursement payments from Medicare. The evidence at trial showed that Iruke and Ikpoh diverted most of this money from the bank accounts of the supply companies to pay for the fraudulent prescriptions and documents which Iruke purchased to further the scheme, and to cover the leases on their Mercedes vehicles, home remodeling expenses and other personal expenses.
Iruke, Ikpoh and Marroquin were originally charged with Ibrahim, Vasquez and Fowler in an October 2009 indictment. Vasquez and Ibrahim pleaded guilty to conspiracy and false statement charges in February 2011 and March 2011, respectively, and are awaiting sentencing. The charges against Fowler were dismissed during trial.
U.S. District Court Judge Terry J. Hatter scheduled sentencing for Iruke, Ikpoh and Marroquin for Nov. 14, 2011. The maximum penalty for each conspiracy count and each fraud count is 10 years in prison.
Yesterday’s guilty verdict was announced by Assistant Attorney General Breuer of the Criminal Division; U.S. Attorney André Birotte Jr. for the Central District of California; Tony Sidley, Assistant Chief of the California Department of Justice, Bureau of Medi-Cal Fraud and Elder Abuse; Special Agent-in-Charge Ferry of the Los Angeles Region HHS-OIG; and Assistant Director Martinez in Charge of the FBI’s Los Angeles Field Office.
The case was prosecuted by Trial Attorney Jonathan Baum of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David Kirman of the Central District of California. The case was investigated by HHS-OIG with assistance from the California Department of Justice. The case was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Central District of California.”

NORTH CAROLINA COUPLE AND COMPANIES ACCUSED OF PONZI CURRENCY SCHEME

The following press release excerpt is from the CFTC website:

"For Release: August 7, 2009
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it charged Sidney S. Hanson, Charlotte M. Hanson and their companies Queen Shoals, LLC; Queen Shoals II, LLC; and Select Fund, LLC (collectively, the defendants), all of Charlotte, North Carolina, with operating a Ponzi scheme involving more than $22 million in connection with off-exchange foreign currency futures (forex) trading.
Six Relief Defendants Named in CFTC Lawsuit
The CFTC’s complaint, filed on August 4, 2009, also names the following entities, all operating out of Charlotte, as relief defendants because they allegedly received funds as a result of the defendants’ fraudulent conduct and have no legitimate entitlement to the funds: Secure Wealth Fund, LLC; Heritage Growth Fund, LLC; Dominion Growth Fund, LLC; Two Oaks Fund, LLC; Dynasty Growth Fund, LLC; and Queen Shoals Group, LLC.
On August 7, 2009, the U.S. District Court for the Western District of North Carolina entered an order that freezes the assets of defendants and relief defendants and allows the CFTC to seize and preserve all relevant records. The defendants and relief defendants agreed to the entry of a consent order of permanent injunction that imposes permanent injunctions against further trading and violations of federal commodities laws. The order also requires the defendants to pay restitution to customers, disgorge all ill-gotten gains and to pay civil monetary penalties -- all in amounts to be determined by the court at a later date.
According to the CFTC’s complaint, the defendants, from at least June 18, 2008 to the present, fraudulently solicited at least $22.5 million from individuals and entities to trade forex, among other things, on their behalf. The defendants allegedly operated a Ponzi scheme and misappropriated millions of dollars.
In both their personal and website solicitations, the defendants falsely claimed success in trading forex, guaranteed customers profits through the use of silver and gold bullion-backed “non-depletion accounts,” and represented that there would be no risk to customers’ principal investment, the complaint alleges. The defendants allegedly falsely represented that a non-depletion account guarantees that the customer will receive the return of invested principal and the promised “interest.”
The complaint also alleges that the defendants lured prospective customers with promises of returns of 8 percent to 24 percent through customers investing via promissory notes for terms of one to five years; customers who committed to the longest monthly terms were promised the greatest “profits.” The defendants claimed to pool customers’ funds and use the profits purportedly generated by trading forex, along with gold and silver bullion, to guarantee payments to customers at the end of the five-year promissory note period.
In reality, the complaint alleges, the defendants deposited little or no customer funds into forex trading accounts. Rather, the defendants misappropriated customer funds to finance the Hansons’ personal expenses, including the purchase of an 88-acre farm, private plane rentals and luxury vacations. Defendants also allegedly used customer funds for purported profit payments or the return of principal to existing customers, similar to a Ponzi scheme.
The CFTC appreciates the assistance of the State of North Carolina Department of the Secretary of State, Securities Division; the Federal Bureau of Investigation; and the Office of the United States Attorney, Western District of North Carolina."

WORKING VEHICLES TARGETED BY WHITE HOUSE FOR FUEL EFFICIENCY AND POLUTION STANDARDS

  The following is an excerpt from an e-mail sent out by the EPA: 

"Saving $50 billion in fuel costs and over 500 million barrels of oil

WASHINGTON – Today, President Obama will meet with industry officials to discuss the first-of-their-kind fuel efficiency and greenhouse gas pollution standards for work trucks, buses, and other heavy duty vehicles and to thank them for their leadership in finalizing a successful national program for these vehicles.  This meeting marks the administration’s announcement of the standards, which will save American businesses that operate and own these commercial vehicles approximately $50 billion in fuel costs over the life of the program.  The U.S. Department of Transportation (DOT) and the U.S. Environmental Protection Agency (EPA) developed the standards in close coordination with the companies that met with the president today as well as other stakeholders, following requests from companies to develop this program.  The cost savings for American businesses are on top of the $1.7 trillion that American families will save at the pump from the historic fuel-efficiency standards announced by the Obama Administration for cars and light duty trucks, including the model year 2017-2025 agreement announced by the president last month.

“While we were working to improve the efficiency of cars and light-duty trucks, something interesting happened,” said President Obama.  “We started getting letters asking that we do the same for medium and heavy-duty trucks.  They were from the people who build, buy, and drive these trucks.  And today, I’m proud to have the support of these companies as we announce the first-ever national policy to increase fuel efficiency and decrease greenhouse gas pollution from medium-and heavy-duty trucks.”

“Thanks to the Obama Administration, for the first time in our history we have a common goal for increasing the fuel efficiency of the trucks that deliver our products, the vehicles we use at work, and the buses our children ride to school,” said DOT Secretary LaHood.   “These new standards will reduce fuel costs for businesses, encourage innovation in the manufacturing sector, and promote energy independence for America.”

“This administration is committed to protecting the air we breathe and cutting carbon pollution – and programs like these ensure that we can serve those priorities while also reducing our dependence on imported oil and saving money for drivers,” said EPA Administrator Lisa P. Jackson. “More efficient trucks on our highways and less pollution from the buses in our neighborhoods will allow us to breathe cleaner air and use less oil, providing a wide range of benefits to our health, our environment and our economy.”

Under the comprehensive new national program, trucks and buses built in 2014 through 2018 will reduce oil consumption by a projected 530 million barrels and greenhouse gas (GHG) pollution by approximately 270 million metric tons. Like the administration’s historic car standards, this program – which relies heavily on off-the-shelf technologies – was developed in coordination with truck and engine manufacturers, fleet owners, the State of California, environmental groups and other stakeholders.

The joint DOT/EPA program will include a range of targets which are specific to the diverse vehicle types and purposes.  Vehicles are divided into three major categories: combination tractors (semi-trucks), heavy-duty pickup trucks and vans, and vocational vehicles (like transit buses and refuse trucks).  Within each of those categories, even more specific targets are laid out based on the design and purpose of the vehicle. This flexible structure allows serious but achievable fuel efficiency improvement goals charted for each year and for each vehicle category and type.

The standards are expected to yield an estimated $50 billion in net benefits over the life of model year 2014 to 2018 vehicles, and to result in significant long-terms savings for vehicle owners and operators.  A semi-truck operator could pay for the technology upgrades in under a year and realize net savings of $73,000 through reduced fuel costs over the truck’s useful life.  These cost saving standards will also reduce emissions of harmful air pollutants like particulate matter, which can lead to asthma, heart attacks and premature death.

By the 2018 model year, the program is expected to achieve significant savings relative to current levels, across vehicle types.  Certain combination tractors – commonly known as big-rigs or semi-trucks – will be required to achieve up to approximately 20 percent reduction in fuel consumption and greenhouse gas emissions by model year 2018, saving up to 4 gallons of fuel for every 100 miles traveled.

For heavy-duty pickup trucks and vans, separate standards are required for gasoline-powered and diesel trucks. These vehicles will be required to achieve up to approximately 15 percent reduction in fuel consumption and greenhouse gas emissions by model year 2018. Under the finalized standards a typical gasoline or diesel powered heavy-duty pickup truck or van could save one gallon of fuel for every 100 miles traveled.

Vocational vehicles – including delivery trucks, buses, and garbage trucks – will be required to reduce fuel consumption and greenhouse gas emissions  by approximately 10 percent by model year 2018.  These trucks could save an average of one gallon of fuel for every 100 miles traveled.

Beyond the direct benefits to businesses that own and operate these vehicles, the program will also benefit consumers and businesses by reducing costs for transporting goods, and spur growth in the clean energy sector by fostering innovative technologies and providing regulatory certainty for manufacturers. "

 

DOJ ALLEGES FIRM FALSELY CERTIFIED UNIVERSITIES COMPLIED WITH RECRUITMENT LAW

The following is an excerpt from the Department of Justice website:
Department of Justice
Office of Public Affairs
Monday, August 8, 2011
U.S. Files Complaint Against Education Management Corp. Alleging False Claims Act Violations

WASHINGTON – The United States has intervened and filed a complaint in a whistleblower suit pending under the False Claims Act against Education Management Corp. (EDMC) and several affiliated entities, the Justice Department announced today. In its complaint, the government alleges that EDMC falsely certified compliance with provisions of federal law that prohibit a university from paying incentive-based compensation to its admissions recruiters that is tied to the number of students they recruit. Congress enacted the incentive compensation prohibition to curtail the practice of paying bonuses and commissions to recruiters, which resulted in the enrollment of unqualified students, high student loan default rates and the waste of program funds.

“Colleges should not misuse federal education funds by paying improper incentives to admissions recruiters,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “Working with the Department of Education, we will protect both students and taxpayers from arrangements that emphasize profits over education.”
“Federal tax dollars must be protected from abuse,” said David J. Hickton, U.S. Attorney for the Western District of Pennsylvania. “This action against EDMC seeks to recover a portion of the $11 billion in federal student aid which EDMC allegedly obtained through false statements and which enriched the company, its shareholders and executives at the expense of innocent individuals seeking a quality education.”
The False Claims Act allows for private citizens to file whistleblower suits to provide the government information about wrongdoing. The government then has a period of time to investigate and decide whether to take over the prosecution of the allegations or decline to pursue them and allow the whistleblower to proceed. If the United States proves that a defendant has knowingly submitted false claims, it is entitled to recover three times the damage that resulted and a penalty of $5,500 to $11,000 per claim. When the government intervenes, the whistleblower can collect a share of 15 to 25 percent of the United States’ recovery.
The suit was originally filed by Lynntoya Washington, a former EDMC admissions recruiter, who later filed an amended complaint, jointly with Michael T. Mahoney, a former director of training for EDMC’s Online Higher Education Division. The states of California, Florida, Illinois and Indiana have also intervened as plaintiffs.
The suit is United States ex rel. Washington et al. v. Education Management Corp. et al., Civil No. 07-461 (W.D. Pa.).
This matter was investigated by the Commercial Litigation Branch of the Justice Department’s Civil Division; the U.S. Attorney’s Office for the Western District of Pennsylvania; and the Department of Education, Office of Inspector General.”