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State attorney general joins lawsuit against for-profit colleges

Minnesota Attorney General Lori Swanson said today that her office has joined a lawsuit that cliams two for-profit colleges illegally collect “state taxpayer-financed student financial aid.”

The colleges are Argosy University and Art Institutes International. A statement from Swanson’s office says the two colleges are run by Pennsylvania-based for-profit EMC, which is 80 percent owned by Goldman Sachs Capital Partners and other private equity funds.

The statement said Minnesota has joined the U.S. Department of Justice and five other states in the lawsuit against EMC, filed in federal court in Pennsylvania.

The basis for the suit, according to the statement:

EMC generates the majority of its marketing leads from web-based advertising, according to its 2010 Annual Report. It also purchases leads from aggregators and uses television and print media advertising, radio, local newspaper, telephone campaigns, and direct mail campaigns. Students who express interest in enrolling at an EMC college are contacted by EMC recruiters.

Federal law prohibits for‑profit colleges from paying “any commission, bonus or other incentive payment” to any person engaged in student recruiting, which is based either directly or indirectly on the recruiter’s success in enrolling new students. The lawsuit alleges that the compensation paid by EMC to its student recruiters violated this ban.

The lawsuit alleges that the company used a matrix to compensate their student recruiters, which converted the number of new students a recruiter enrolled into points and used the recruiter’s point total to determine his or her salary, thus making incentive payments to recruiters based upon the number of new students enrolled in violation of federal law.

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