Whistleblower Settlement Results in $78.5 Million Payment

The owners of the University of Phoenix have agreed to pay $78.5 million to settle a whistleblower lawsuit involving allegations that the company illegally paid recruiters on a per-student basis, in violation of a federal ban on the practice.

The whistleblower settlement comes after two former employees filed suit in 2003 against the university’s parent company, Apollo Group Inc., which does not admit to wrongdoing. The lawsuit alleged that the university defrauded the federal government by paying recruiters based on the number of students they enrolled, while at the same time seeking federal student loan and Pell Grant funds.

Apollo Group agreed to pay $67.5 million to the federal government and $11 million to the whistleblower plaintiffs. The settlement comes three months before the case was scheduled to go to trial.

Whistleblowers who report a false claim against the government may be entitled to 15% to 25% of any money that the government recovers from the offenders under the “qui tam” provision of the False Claims Act. In return, the whistleblower must be the first to bring the case to the government’s attention, and must not publicize the claim until the DOJ decides to prosecute the claim.

The federal government declined to intervene in this case, however several briefs were filed by the Department of Justice in support of the plaintiffs.

The case was originally dismissed in 2005, but the Ninth Circuit Court of Appeals reinstated the suit in 2007.

The University’s owners had already paid $9.8 million to settle similar allegations in 2004, which also stemmed from the two whisteblower suits. Schools are banned from paying recruiters on a per student basis while seeking government funding. If the university had lost the case in court, it could have been liable for hundreds of millions of dollars that it had collected over the years in Department of Education funds.