People walk past the Art Institute of Philadelphia operated by the Education Management Corporation on Monday, Nov. 16, 2015, in Philadelphia. The Obama administration has reached a $95.5 million settlement with a Pittsburgh firm that runs for-profit trade schools and colleges. The Justice Department settlement resolves allegations that Education Management Corporation used enrollment incentives to pay its recruiters and exaggerated its career-placement ability. (AP Photo/Matt Rourke)
People walk past the Art Institute of Philadelphia operated by the Education Management Corporation.
AP Photo/Matt Rourke
Education Management Corporation (EDMC) is paying $95.5 million to settle a case alleging it falsely obtained federal and state education funds.

The lawsuit was first raised by two whistleblowers who worked for EDMC: Lynntoya Washington, an assistant director of admissions at the Art Institute of Pittsburgh Online Division, and Michael T. Mahoney, director of training for Education Management’s online higher education division.

The former employees complained that EDMC created a culture that valued aggressive recruiting of prospective students.

Employees' salaries were linked to enrollment numbers, and they were pressured into a "relentless and exclusive focus on the number of new students," according to the suit.

The lawsuit contends their recruiting tactics violated a federal ban on incentive compensation at colleges.

Further, the suit alleges that Mahoney's prior experience in sales in the automotive industry was attractive to EDMC, which wanted him to "train sales people in car dealers' high-pressure 'closing' techniques."

The company also allegedly had a "President's Club," that rewarded the top-performing employees with an all-expense paid trip to places like Puerto Vallarta and Cancun, Mexico and Las Vegas, Nevada.

There were allegedly short-term rewards, too. Incentive gifts that were handed out based on daily, weekly, or monthly achievements, the lawsuit claims.

EDMC Lawsuit
An email the lawsuit claims was sent to the salesforce to show how recruiting students leads to cash compensation.
EDMC Lawsuit
Posters and charts depicted the competition between employees for top prizes, but they were removed from the office whenever auditors would stop by, according to the suit.

EDMC settled the lawsuit on Monday while claiming the allegations were unmerited.

“We are pleased to have resolved the civil claims raised by the Department of Justice and state attorneys general," EDMC wrote in a press release.

"Though we continue to believe the allegations in the cases were without merit, putting these matters behind us returns our focus to educating students.”

The settlement is the largest false claims settlement with a for-profit educational institute in US history, and was a sweeping condemnation on allegedly common practices in the industry.

"This settlement should be a very clear warning for other career colleges out there," Secretary of Education Arne Duncan said at a press conference. "We will not stand by when you profit illegally off of students and taxpayers."