Lawsuit charges university with fraud

American InterContinental University, a for-profit college with campuses in Atlanta, has defrauded federal grant and loan programs and the agency that approved its accreditation, a whistle-blower lawsuit contends.

The lawsuit alleges that AIU enrolled students who couldn’t read and some who had no high school diploma. The college also rewarded its recruiters with bonuses based solely on the numbers of students they enrolled, a violation of the Higher Education Act, the suit said.

“We have evidence that AIU fraudulently attained its accreditation, meaning it sold a substandard education to its students,” said Atlanta attorney Joseph Wargo, who represents the former employees who brought the suit. “This resulted in the government not getting what it bargained for.”

Wargo estimated that the alleged fraud amounts to more than $100 million in grant money, plus a sizable amount of federal college loans.

AIU was acquired in 2001 by Career Education Corp., which is also named as a defendant. It is the company’s policy not to comment on pending litigation, said Jeff Leshay, senior vice president of corporate communications.

“We believe the case is without merit, and we intend to vigorously defend against it,” Leshay said.

As is the case with federal whistle-blower suits, it was filed under seal in July 2008 by four former AIU employees: Melissa Simms Powell, academic adviser at AIU’s Dunwoody campus; Angela Hitchens, who worked in the registrar’s office; Joseph Plumley Jr., vice president for academic affairs and acting president of the Dunwoody campus; and Glenn Dobson, the campus’s director of human resources.

Last month, a federal judge in Atlanta unsealed the case after the U.S. Attorney’s Office allowed the parties to proceed on behalf of the U.S. government.

AIU was founded in 1970 and has campuses across the country and an online program. AIU Atlanta offers degrees in business, design, criminal justice, health care management and information technology, according to the college’s Web site.

For-profit universities, such as AIU and the University of Phoenix, represent a small but fast-growing segment of higher education. Many cater to non-traditional and working students. The colleges tend to offer many online courses and rely more on part-time professors.

AIU receives its accreditation from the Southern Association of Colleges and Schools. In 2006 and 2007, SACS put the university on probation, citing two chief areas of concern: the ban on awarding incentives to recruiters and the need for all enrolled students to have high school diplomas or equivalent, the suit said.

Even so, the suit said, the college continued to violate SACS policies, setting quotas that counselors had to meet for enrolled students.

A college must have accreditation from an organization recognized by the U.S. Department of Education to participate in the administration of federal student aid programs.

The week before SACS visited AIU’s campus in 2007, the university set out to deceive the agency, the suit said.

This includes directing Dobson, then a human resources director, to remove documents from counselors’ files that had any mention of quotas or that said counselors could be fired if they failed to meet them, the lawsuit said. Dobson placed the documents “in a locked file cabinet, which would be off-limits to SACS,” the suit said.

After AIU’s probation was lifted, the university began using “the same or a substantially similar quota system” that was used before, the suit said. Also, in January 2008, AIU sent its top-performing enrollment counselors from its Buckhead and Dunwoody campuses on an all-expenses-paid trip to Miami, the suit said.

University leaders instructed AIU counselors that the “number one priority is the quantity — not the quality — of the student they are able to attract to AIU,” the suit said.