‘Whistleblowers’ Claim fraud at SF Academy of Art

Four former recruiters at the Academy of Art University in San Francisco are accusing school officials of using an illegal compensation plan to cheat the federal government out of millions of dollars in financial aid, the San Francisco Chronicle reports.

In a so-called “whistleblower” lawsuit filed in federal court, the former employees claim the school adjusted their pay up or down, depending on how many students they registered. The suit also claims the school offered bonus trips to Hawaii as an incentive, then lied to the government about the incentives, the newspaper reported.

The former recruiters – Scott Rose, Mary Aquino, Mitchell Nelson and Lucy Stearns – are suing under the False Claims Act, a federal law that allows individuals to sue on behalf of the government, and receive 15 to 30 percent of any settlement or money recovered, said their attorney, Stephen Jaffe.

The government outlaws so-called ‘incentive compensation” so that schools won’t try to entice unqualified applicants or those who can’t afford their student loans.

But offering incentives can be tempting for schools because of federal financial aid payments, which are paid directly to the college. And once a student is enrolled for 60 percent of the term, the school can keep the payment.

“It’s just gravy,” said Jaffe. “Schools have a tremendous incentive to enroll as many students as possible.”

In legal papers filed Thursday, school officials denied any wrongdoing, while saying the compensation plan was legal.

“At all times, the Academy of Art complied with the regulations regarding compensation of admissions representatives, said Steve Gombos, a Virginia attorney representing the art school, told the Chronicle.

The school has tried to have the suit thrown out ever since it was filed in 2009, arguing that the compensation plan was legal because of a loophole at the time that permitted incentives under some circumstances.

Known as “safe harbor,” the loophole let colleges pay recruiters based on the number of students they enrolled as long as the recruiters also were judged on other performance criteria, and if their pay was not adjusted more than twice a year.

Though federal prosecutors have declined to intervene, instead allowing private attorneys to litigate the case, last month U.S. District Court Judge Phyllis Hamilton ruled that the case could go forward.