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Phoenix in Flames Again: Apollo Group Settles Another Suit

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By Tanya Roth, Esq. on December 15, 2009 1:05 PM

They settled for $9.8 million in 2004. But the lesson must not have sunk in at this for-profit higher education company. This time around, the University of Phoenix and its parent, Apollo Group Inc., should have to write on 78.5 million dollar bills, "I will not illegally recruit students, I will not illegally recruit students." 

In 2004, Apollo Group settled with the Department of Education for nearly $10 million after a disparaging report from the Department that, among many other things, found a corporate culture overly focused on boosting enrollment. The Department said the University of Phoenix, "systematically and intentionally operates in a duplicitous manner so as to violate the department's prohibition against incentive compensation while evading detection."

The University's parent company, Apollo Group, disagreed. The Arizona Republic reported at the time that Todd Nelson, chairman and CEO at Apollo, had this to say, "If we were guilty of everything being said in that report, there's no way they'd [the Dept. of Education] be willing to reach a settlement." It should be noted that at that time, the settlement was the the largest of its kind.

In the current case, Apollo Group was sued under the federal False Claims Act by whistle-blowers who were employed as enrollment counselors at the University of Phoenix and who alleged that the defendants defrauded the government because it paid recruiters based on the number of students they enrolled (in violation of the law). The False Claims Act allows plaintiffs to sue on behalf of the government when they have knowledge of fraud against it.

So has Apollo cleaned up its act? "Today I think they work very, very hard to operate" within the rules, partly to avoid more lawsuits, said Signal Hill analyst Trace Urdan. While the administration may "go after schools that are in clear violation of the spirit if not the letter of the law, I don't believe that the University of Phoenix is on their list," he said. Potential students may not find this attitude particularly reassuring.

Under this settlement, as in the '04, case the company admits to no wrongdoing.

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