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Beauty School Settles Whistleblower Case Involving Education Fraud

June 16, 2020

Last week, the Department of Justice announced that a private, for-profit beauty school has agreed to pay $425,000 to resolve education fraud allegations. The defendant is Metro Beauty Academy, LLC (“MBA”), located in Allentown, PA. A whistleblower originally brought the case, which alleged that the school fraudulently sought federal  aid for students who were ineligible for such aid.

Federal Financial Aid Program Requirements

According to DOJ’s press release, MBA operates various educational and technical programs, such as cosmetology, esthetics, and massage therapy. MBA offers financial aid to its students through various federal financial aid programs, such as Federal Pell Grants, Federal Direct Loans, and Federal Family Education Loans.

In order to participate in these programs, the U.S. Department of Education requires schools to enter enter into program participation agreements. Among the conditions for receiving federal financial aid is  compliance with Title IV of the Higher Education Act of 1965 (“Title IV”). Title IV requirements include that aid recipients have high school diplomas or the equivalent.

The Education Fraud Scheme

The Government’s investigation uncovered evidence that, from January 2009 through December 2013, MBA knowingly submitted or caused to be submitted false claims for federal student financial aid. The claims were false because the students didn’t have a high school diploma or equivalent when they enrolled at MBA. The Government contended that, to further the scheme, MBA staff sometimes created fake diplomas for students or encouraged students to obtain false credentials from “diploma mills.”

This sort of scheme costs taxpayers money. Moreover, as explained by U.S. Attorney William M. McSwain, it also is unfair to other institutions and to students:

“When schools agree to participate in the Title IV federal financial aid program, they must comply with regulations designed to ensure that qualified students have access to higher education. When a school receives financial educational assistance for ineligible students, it is unfair not only to other educational institutions that comply with the regulations, but also to the students attending the non-compliant school who may find themselves unqualified for employment and saddled with debt.”

Whistleblower Was Key to Success

This case began when a whistleblower filed an action pursuant to the qui tam provisions of the False Claims Act. The Government then took over investigation of the case and later intervened in the case. The U.S. Attorney’s Office for the Eastern District of Pennsylvania, the Department of Education Federal Student Aid Office, and the Department of Education Office of Inspector General conducted the investigation.

In announcing the settlement, U.S. Attorney McSwain noted the importance of the whistleblower and her attorneys:

“We thank the relator and relator’s counsel for their invaluable contribution in this case. Without information from citizens like the relator, detecting fraud and conserving government program funds would be much more difficult.”

False Claims Act is Effective Tool to Fight Education Benefit Fraud

We’ve written before about a for-profit trade school defrauding a federal educational benefit program. In that case, the defendant was Florida Academy, which taught students in the beauty-and-wellness and skilled trades industries. Florida Academy paid $512,000 to settle allegations that it had defrauded an education program for veterans. In addition, we represented a whistleblower in a successful qui tam case against Merrimack College. In that case, the college was alleged to have defrauded the Department of Education’s Perkins loan program.

The law requires schools that receive federal educational benefits to play by the rules. When they don’t, taxpayers foot the bill for education fraud. In addition, as U.S. Attorney McSwain noted, honest institutions and students suffer. Whistleblowers and the False Claims Act are powerful weapons to fight education fraud.

Client's False Claims Act case settles for $12.9 Million
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