University of Phoenix Reaches $67.5 Million False Claims Act Settlement
The U.S. Department of Justice reports today that the University of Phoenix reached a $67.5 million settlement in a False Claims Act (“FCA”) qui tam lawsuit in which the plaintiffs claimed the University unlawfully accepted federal funds while in violation laws which prohibit post-secondary institutions from providing their admissions representatives incentive-based compensation tied to the number of students recruited. The two former University of Phoenix employees who initiated the action on behalf of the government will receive $19 million from the settlement.
The FCA creates liability for any person who knowingly attempts to defraud the United States Government. Moore v. Cal. Institute, 275 F.3d 838 (9th Cir. 2002). The risk for employers frequently arises when they contract to provide services to the federal government or, for educational institutions, when they accept government-subsidized student aid, exposing themselves to the potential for FCA liability. One unique feature of the FCA is a mechanism which allows private individuals to bring an action on the government’s behalf and earn some portion of the judgment that is ultimately obtained. Such an action is known as a “qui tam” action, and its effect on employers is clear: private citizens, including employees and former employees, have a financial incentive to discover and reveal alleged deception of the federal government.
Nationwide, recovery under the FCA has increased dramatically in recent years. According to the Department of Justice, there were over $2.4 billion in settlements and judgments under the FCA in fiscal year 2009 alone, $2 billion of which was recovered in qui tam lawsuits.
