Manhattan U.S. Attorney Announces Settlements Totaling $4.29 Million With For-Profit School And Its Former Chief Operating Officer

Preet Bharara, the United States Attorney for the Southern District of New York, and Brian Hickey, Special Agent in Charge of the U.S. Department of Education (“USDOE”), Office of Inspector General’s Northeast Region (“OIG”), announced today that the United States has settled civil claims under the False Claims Act against the Allen School of Health Sciences (“Allen School”), a for-profit educational institution based in Brooklyn and Queens, New York, that offers certificate and degree programs in medical services fields, and Christopher Wargo (“Wargo”), the former chief operating officer of the Allen School.  The settlements resolve claims that the Allen School and Wargo violated the USDOE rule prohibiting the payment of incentive compensation to enrollment personnel at for-profit schools based on their success in securing student enrollments (“incentive compensation rule”).  This rule is meant to curb the risk that recruiters will seek to enroll poorly qualified students who will derive little or no benefit from the schooling and may be unable or unwilling to repay the debt they incur in connection with their enrollment.  The settlement with the ALLEN SCHOOL also resolves claims that the Allen School violated a separate USDOE rule prohibiting schools from providing inaccurate job placement rates to prospective students (“job placement rates rule”).  

In the settlements, approved today by United States District Judge Paul A. Engelmayer, the ALLEN SCHOOL agreed to pay $4.25 million, and WARGO agreed to pay $40,000 to resolve the claims.  The Allen School and Wargo also made admissions regarding their respective conduct.

Manhattan U.S. Attorney Preet Bharara said:  “The incentive compensation and job placement rates rules are designed to protect prospective students and to ensure that federal education grant and loan funds are spent appropriately.  With today’s settlements, the Allen School and Wargo have taken responsibility for their conduct and agreed to pay significant financial penalties.” 

USDOE OIG Special Agent in Charge Brian Hickey said:  “I am proud of the work of OIG Special Agents and our law enforcement partners for their work in this case and their dedication to protecting the integrity of federal student aid funds and students that rely on those funds to make their dreams of higher education a reality.  We will continue to pursue those who misappropriate federal student aid or game the system for their own self interests.  America’s students and taxpayers deserve nothing less.”

As alleged in the Complaint-in-Intervention filed in Manhattan federal court:

To receive federal funds, a for-profit school like the Allen School must enter into a Program Participation Agreement (“PPA”) with the USDOE.  The PPA conditions the eligibility of a school to receive federal funds on compliance with various rules and requirements, including the incentive compensation and job placement rates rules.  A school that enters into a PPA certifies that, for the duration of the PPA, it will comply with those rules and requirements.  Throughout the 2011-2012, 2012-2013, and 2013-2014 academic years (“Covered Period”), the incentive compensation rule precluded schools from providing any incentive payments, including salary increases, based directly or indirectly on success in securing student enrollments.  The job placement rates rule prohibited schools from advertising placement rates that were false or misleading. 

The Allen School entered into PPAs with the USDOE in 2007 and 2013, and based on the certifications it made in those PPAs, received federal funding from the USDOE throughout the Covered Period.  Yet during that time, the Allen School systematically violated the incentive compensation and job placement rates rules.

With respect to the incentive compensation rule, the Allen School provided enrollment personnel with daily, weekly, and monthly expectations for various enrollment metrics – including the number of students enrolled – and it linked enrollment personnel’s obtaining promotions and corresponding salary increases with their success in meeting those metrics.  The ALLEN SCHOOL carefully tracked the performance of enrollment personnel as to the enrollment metrics, and counseled employees for missing even one day’s goals.  Moreover, during conversations with Allen School personnel, WARGO and others made it clear that a primary factor in determining whether enrollment personnel would be eligible for promotions and corresponding pay increases would be whether they had met or exceeded their numeric expectations.  For example, Wargo instructed a campus director at the Allen School to tell his subordinate enrollment personnel that the only way they could increase their pay was to meet or exceed their numeric enrollment quotas.  Consistent with such statements, a primary factor in the Allen School’s and WARGO’s decisions regarding promotions and salary increases for enrollment personnel was success in securing enrollments.

As to the job placement rates rule, throughout the Covered Period, enrollment personnel at the Allen School consistently represented to prospective students that the Allen School had a job placement rate of 86 percent, even though it did not.  The 86 percent figure was used to describe the ALLEN SCHOOL’s job placement rate at all times during the Covered Period, for all of the ALLEN SCHOOL’s programs, and for all of its campuses.  In fact, however, the ALLEN SCHOOL’s job placement rate varied from year to year, program to program, and campus to campus.

As part of the settlements, both the Allen School and Wargo admitted, acknowledged, and accepted responsibility for the following conduct, all of which occurred throughout the Covered Period: 

• The ALLEN SCHOOL gave its enrollment advisers and other enrollment personnel daily, weekly, and monthly expectations for various enrollment metrics, such as number of phone calls to prospective students, number of interviews with prospective students, and number of students enrolled.

• WARGO, and other individuals employed by the Allen School with managerial responsibility over enrollment personnel, told enrollment personnel that a primary factor in determining whether they would be eligible for promotions to higher level positions with increased salaries would be whether they had met or exceeded their numeric expectations.

• As a result of the above-referenced statements by and others, many enrollment personnel believed that the only way they could receive promotions with corresponding salary increases was to meet or exceed their numeric expectations.Certain Allen School enrollment personnel who received promotions with corresponding salary increases believed that they had received the promotions and salary increases because they had met or exceeded their numeric expectations, and they further believed that they would not have received the promotions and salary increases if they had not.

• Certain enrollment personnel represented to prospective students that the had a job placement rate of 86 percent.The job placement rates that the reported to its institutional accrediting body in fact varied from campus to campus, program to program, and year to year.

In connection with the filing of the lawsuit and settlements, the Government joined a private whistleblower lawsuit that had previously been filed under seal pursuant to the False Claims Act.

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Mr. Bharara thanked USDOE’s Office of the Inspector General for its investigative efforts and assistance with the case.

This case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorneys Christopher B. Harwood and Andrew E. Krause are in charge of the case.