Path 2

Monday, Aug 8 2011

Company Headed By Sen. Olympia Snowe's (R-ME) Husband Targeted By Dept. Of Justice

Aug 08, 2011

Sen. Snowe’s husband, former Maine Governor John “Jock” McKernan, has been a corporate officer in Education Management Corporation since 1999.  Today, the Justice Department filed a whistle-blower lawsuit against EDMC over their payment scheme.  This is in addition to an earlier report from the GAO, which detailed abusive practices at for-profit colleges.  For years, the for-profit college industry has lured in unprepared students, most of whom do not graduate despite accumulating enormous debts. Companies like EDMC achieve this largely by incentivizing their employees to accept any student no matter what, the allegation at the heart of today’s filing. When Congress tried to crack down on the practice, EDMC lobbied them hard—spending over a million dollars on lobbying in the last two years, and sending McKernan himself to meet with White House officials.

McKernan is central to the alleged illegal payment scheme, and Sen. Snowe has directly benefited from her husband’s employment through their joint income.


Former Employees Filed A Whistle Blower Lawsuit Against Education Management Corporation; Claim Was Joined By Department Of Justice.  In April 2011, “the Department of Justice joined a False Claims Act action against EDMC filed in Western Pennsylvania, the first time the federal government had joined one of the dozens of false claims cases filed in recent years against for-profit schools. The plaintiffs, like those against Apollo, are former EDMC recruiters who allege illegal compensation practices. In addition to the federal government, several states and the District of Columbia have joined the suit filed by Lynntoya Washington and Michael Mahoney.”  [Pittsburgh Post-Gazette, 6/12/11]

Lawsuit Filed Against EDMC By Two Former Employees, Department of Justice, 12 State Attorneys General.  On May 2, 2011, the U.S. Justice Department, along with the Attorneys General of California, Florida, Illinois, Indiana, Massachusetts, Minnesota, Montana, New Jersey, New Mexico, New York, Tennessee, and the District of Columbus, joined a civil action in the Western District of Pennsylvania filed against Education Management Corporation and its holdings.  The lawsuit was originally brought by former employees Lynntoya Washington and Michael T. Mahoney.  The lawsuit “is an action to recover damages and civil penalties on behalf of the governmental entities named in the caption (the ‘Governments’) arising from false statements and claims made or caused to be made by the Defendants, Education Management Corporation.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

Lawsuit Claimed Damages Relating To False Claims Causing Payment under Title IV Of Higher Education Act Of 1965.  The lawsuit seeks “to recover on behalf of the United States…damages and civil penalties arising from false and improper claims for payments that the Defendants submitted, or caused to be submitted, to the Governments and in connection with student loan and grant applications under Title IV of the Higher Education Act of 1965.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

Whistleblowers In Lawsuit Were Former EDMC Employees.  The two whistleblowers who originally filed the lawsuit against EDMC were former employees.  Lynntoya Washington “was employed by DEMC as an Assistant Director of Admissions (‘ADA’) at its Art Institute of Pittsburgh Online Division (‘AiO’) campus.”  She was employed from June 2004 through May 2007.  Michael T. Mahoney “was employed by EDMC as its Director of Training for EMDC’s Online Higher Education Division from October 2, 2006 through June 22, 2007.  During this time, Mr. Mahoney oversaw the training of all of the Defendants’ Online Higher Education admissions trainers, ADAs, and their admissions management personnel and trainers.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

Complaint Alleged That Assistant Directors Of Admissions (ADAs) Were Paid And Promoted Base On New Enrollments.  According to the complaint, “ADAs’ salaries, other compensation and advancement in the company are all a result of EDMC’s relentless and exclusive focus on the number of new students an ADA is able to recruit.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

In 2004, University Of Phoenix Paid $9.8 Million Settlement Fee To Department Of Education; Complaint Alleged EDMC Had a Similar Compensation Plan.  In 2004, University of Phoenix “signed a $9.8 million settlement with the Department of Education, which found that Phoenix had ‘systematically and intentionally’ broken the federal rules against paying recruiters for students.”  The whistle-blower lawsuit against EDMC, joined by the Justice Department as well as the Attorneys General of California and Illinois, “charges that its compensation plan is very much like the one at the University of Phoenix.”   [New York Times, 5/27/11]

Complaint Alleged That EDMC System Was Not Materially Different Than University Of Phoenix System That Led To Previous Settlement.  According to court filings, “EDMC’s compensation system is not materially different from the University of Phoenix’s system with respect to violation of Title IV of the HEA’s prohibition on incentive compensation. … Consequently, EDMC could not reasonably believe that the Department of Education would conclude that EDMC’s conduct comported with the Incentive Compensation Ban and Regulatory Safe Harbor.”  [U.S. et al v. EDMC et al., 8/8/11]

Complaint Alleged That EDMC Did Not Qualify For Safe Harbor Provisions.  According to court filings, “EDMC’s compensation system bases changes in admissions personnel compensation upon the number of students recruited by each admissions employee…EDMC’s compensation system is not eligible for Title IV of the HEA’s regulatory safe harbor, because the compensation awarded under EDMC’s system does not constitute ‘fixed compensation’ within the meaning of the regulatory safe harbor. Instead, the compensation EDMC awards constitutes a form of incentive payments.”  [U.S. et al v. EDMC et al., 8/8/11]

Safe Harbor Provisions EDMC Claimed It Followed Will Be Phased Out In July 2011.  In response to the whistle-blower lawsuit, EDMC claimed it fell into a “safe harbor” provision where compensation is not completely based on enrollment numbers.  However, “under Education Department regulations that take effect in July, recruiters can no longer be compensated for each student they enroll, even if their enrollment numbers are not the sole basis for the pay.”  [New York Times, 5/27/11]

Kentucky AG Jack Conway Announced Creation Of Working Group To Investigate For Profit Colleges.  In May 2011, “Kentucky’s attorney general, Jack Conway, announced that he and his counterparts in 10 other states had formed a working group to investigate the for-profit colleges’ possible violations of consumer protection laws.”  [New York Times, 5/27/11]


Former EDMC Employee Testified At Senate Hearing That Supervisors Encouraged Her To Manipulate Data.  According to Politico, Senator Tom Harkin “Chairman of the Health, Education, Labor and Pensions Committee, began an investigation into for-profit colleges last year, and has held several oversight hearings questioning whether federal funds should flow to the industry as freely as they do. At one hearing, a former EDMC career counselor testified against the company, saying her supervisors encouraged her to manipulate graduates’ job placement data to make it more favorable.”  [Politico, 5/6/11]

Complaint Alleged That EDMC Hid Practices From Auditors.  According to the complaint, “the walls and cubicle partitions of EDMC’s offices are festooned with posters and charts graphing the progress of each ADA toward her sales goals…When an audit or accreditation is scheduled, however, EDMC’s management makes sure that these materials are taken down and hidden away.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

Complaint Alleged That EDMC Accepted Every Student To Complete Application.  According to the complaint, “to boost enrollment numbers, EDMC urges ADAs to enroll students before thoroughly reviewing their transcripts to determine their academic qualifications…although EDMC publishes academic requirements for incoming students, EDMC accepts all potential students who complete an application and submit a 150-word essay.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

Complaint Alleged That Salary Structure Led To High Dropout Rate.  According to the complaint, “after a student confirms enrollment, whether the student succeeds or fails in the class is of no concern to the ADA because at that point, the ADA has earned the New Student Points towards his or her salary increase.  This leads to the enrollment of unqualified and uninformed students resulting in a 40 percent ‘persistence” (turnover or drop-out) rate at EDMC institutions.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]


Following Lawsuit Filing, McKernan Said Company Complied With Regulations.  In May 2011, EDMC Chairman John McKernan responded to a lawsuit alleging improper compensation practices by saying that it was “entirely unfounded to suggest that this company did not comply with the regulation.”  McKernan “has been with the company since 1999, when he joined as vice chairman. He was president from March to September 2003 and CEO from September 2003 to February 2007.”  [Kennebec Journal, 5/12/11]

EDMC Submitted Program Participation Agreements Staying It Would Obey “Incentive Compensation Ban.”  According to the lawsuit, “each of the Defendant institutions entered into Program Participation Agreements (‘PPAs’) with the Department in which it falsely stated that it was obeying and would obey Title IV’s incentive compensation ban.”  These certifications were updated every year.  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

McKernan Signed All PPAs For All EDMC Institutions in 2006.  According to the filing against EMDC, “in December 2006, EDMC Chairman and CEO, John R. McKernan, Jr., signed all PPAs for EDMC institutions certifying that EDMC is complying with Title IV’s incentive compensation ban.”  [United States, et al v. Education Management Corporation, et al., Western District of Pennsylvania, 5/2/11]

McKernan Served as an Executive of Education Management Corporation (1999-Present). Since June 1999, McKernan has served in various executive capacities of Education Management Corporation, a for-profit company that operates post-secondary education institutions throughout the United States.  McKernan is currently the Chairman of the Board of Directors of the company.  In 1962, Education Management was registered as corporation with the Pennsylvania Secretary of State.   [EDMC, “About EDMC – History,”; EDMC, “About EDMC – Board of Directors Bios,”; EDMC, “About EDMC – Officers – John R. McKernan, Jr,”]

McKernan’s Positions within Education Management Corporation are detailed below:

Chairman of the Board of Directors (December 2008 – Present)
Executive Chairman (February 2007 – December 2008)
Chief Executive Officer (September 2003 – February 2007)
President (March 2003 – September 2003)
Vice Chairman and Board of Directors Member (June 1999 – March 2003)

[Form 424B4, Securities and Exchange Commission, Education Management Corporation, Filed 10/2/09]


McKernan Pushed Administration For Less Strict Regulations On For-Profit Colleges.  In May 2011, for-profit college lobbying groups met with the Office of Management and Budget 17 times; “high-profile proprietary college executives at the OMB meetings included Donald Graham… and former Maine governor and Congressman John ‘Jock’ McKernan, the chairman of Education Management Corp. and husband of Sen. Olympia Snowe (R-Maine).”  McKernan pushed for “the elimination of the Department’s previous proposal to restrict the growth of enrollment at programs that had particularly poor student outcomes.”  [Huffington Post, 6/16/11]

Education Management Spent Between $1,355,000 and $1,364,998 for Lobbying the Federal Government (2009-Present). Since 2009, Education Management spent between $1,355,000 and $1,364,998 for lobbying the federal government.  Through their two corporate entities, Education Management Corporation and Education Management LLC, the private school company lobbied on issues of education and real estate/land use/conservation.  The six lobbyist firms that Education Management hired lobbied the United States House of Representatives, the United States Senate, the Department of Education, and the Office of Management & Budget. [Lobbying Disclosure Act Database, “Education Management Corporation,”]

EDMC Sent Internal Email Urging Employees To Oppose Gainful Employment Regulations.  According to court filings, EDMC CEO Todd Nelson send an internal email to approximately 20,000 EDMC employees, stating “employees throughout EDMC and our schools will be receiving phone calls during business hours from our partners, the DCI Group, to assist you in crafting personalized letters to U.S. Secretary of Education Arne Duncan detailing for him your own views on Gainful Employment. You will be asked a series of short questions that will help DCI Group create a unique letter. These personalized letters will then be delivered to you for a signature, along with a preaddressed stamp envelope.”  [Gaer v. Education Management Corp, et al., 1/10/11]

For Profit Trade Group Sued Federal Government To Stop Enforcement Of Gainful Employment Rules.  In July 2011, after the Department of Education promulgated new rules requiring higher gainful employment standards, the Association of Private-Sector Colleges and Universities filed suit against the department.  The “for-profit colleges lobbied against the rules, which were eased before being issued in their final form.” [New York Times, 7/23/11]

EDMC Spend At Least $1,420,000 In Lobbying Over 18 Months.  According to the Pittsburgh Post-Gazette, “from the middle of 2009 to the end of 2010, EDMC itself spent at least $850,000 on federal lobbying—after not spending a dime in the previous decade. In addition the EDMC-backed Coalition for Education Success, which formed in September [2010], spent $570,000 by year’s end. The company also formed a political action committee in 2009 that raised $118,000, mostly from EDMC executives, and made $56,000 in political contributions during the 2010 election cycle.  [Pittsburgh Post-Gazette, 1/23/11]

U.S. Chamber Of Commerce Opposed Gainful Employment Rules, Lobbied Against Them.  According to the Chronicle Of Higher Education, “For-profit colleges have also gotten some support from the U.S. Chamber of Commerce, which sent a letter to the Education Department in mid-August warning that the proposed gainful-employment rule would ‘limit education and economic opportunities for many Americans.’ Rolf Lundberg Jr., the chamber’s chief lobbyist, said four or five of its employees are ‘very focused’ on the rule and have attended a ‘couple dozen’ meetings with Congressional aides in recent months.”  [The Chronicle of Higher Education, 9/5/10]


Since 2003, EDMC Has Taken Over $11 Billion In Federal Student Loans.  According to court filings, “From July 1, 2003, to the present, EDMC and/or students enrolled in its institutions received over eleven billion dollars ($11,000,000,000.00) in federal funds through Title IV, HEA programs.”  [U.S. et al v. EDMC et al., 8/8/11]

Education Management Corporation Took Over $237 Million in Financial Assistance from Federal Government (2001-Present). Since 2001, Education Management has taken $237,096,539 in financial assistance from the federal government.  The top contracting federal agencies include the Department of Education, the Employment and Training Administration, the Department of Army, the Department of Veterans Affairs, the Department of the Navy, and the Department of Energy.  [, “Education Mgt,”;, “Education Management Corporation,”]

Education Management Corporation Grew To Second Largest For-Profit College Group In Country.  In June 2011, the Pittsburgh Post-Gazette reported that “fueled by online students, EDMC has exploded into the second biggest for-profit college company in the country, behind only University of Phoenix parent Apollo Group, the godfather of the genre.”  In 2007, “the company reported $1.36 billion in revenue and a $32.2 million profit. EDMC reported yearly revenue at $2.51 billion in June 2010, with a $169 million profit.”  [Pittsburgh Post-Gazette, 6/12/11]

Education Management Corporation Received Billions In Federal Student Aid, Accounted For Nearly 90 Percent Of Revenue.  EDMC “received more than $855 million in federal student aid in 2003-4, and more than $1 billion in 2005-6. According to the complaint, in the fiscal year ending June 30, 2010, it received more than $2.2 billion in federal student aid, representing 89.3 percent of its net revenue.”  [New York Times, 5/27/11]

EDMC Increased Foreign Recruitment To Help Avoid Violation Of 90/10 Rule.  In April 2011, the Chronicle of Higher Education reported that Education Management Corporation “ parent company of the Art Institutes, South University, and Brown Mackie College, announced it would increase its recruiting of foreign students.”  The recruitment was in an effort to remain in compliance with the 90/10 rule, which was “enacted decades ago to ensure that institutions were not relying solely on federal student aid, but also generating revenues from other sources, such as employer-sponsored tuition plans. If the colleges exceed the 90-percent level for two consecutive years, they lose access to federal student aid.”  [Chronicle of Higher Education, 4/2/11]

Following The Financial Meltdown, EDMC Began Loan Program For Students.  Previous to the financial crisis in 2008, “many for-profit education companies struck deals with private lenders such as loan giant Sallie Mae to carry some of the risk in providing the subprime loans, which typically had interest rates far higher than federally backed loans.  Sallie Mae dissolved all those deals in 2008 and tightened its underwriting standards as the financial crisis hit, and its loans to for-profit institutions plummeted.  Many companies, including EDMC, responded by initiating or increasing programs in which they back the loans themselves. Education Management’s program bought loans made by private lenders such as PNC.”  [Pittsburgh Post-Gazette, 3/20/11]

Loans Offered By EDMC Had High Rates, High Defaults.  According to the Pittsburgh Post-Gazette, “in June 2010, EDMC held $85 million in loans but estimated that it would lose 41.2 percent of its investment to defaults.”  The loans, according toa report by the National Consumer Law Center…often had predatory terms and astronomical interest rates.”  [Pittsburgh Post-Gazette, 3/20/11]

Loans Were Attempt To Secure More Government Funding.  According to a National Consumer Law Center study, the loans offered privately by EDMC were mainly an effort to reduce the percentage of Federally guaranteed loans (Title IV loans) in order to comply with the 90/10 rule.  According to the report, “the schools often didn’t seek out delinquent student borrowers, figuring that the payments they would be able to retrieve weren’t worth the expense. The real valuefor the loans was to help get more students in the door. Schools can receive no more than 90 percent of their total funds from federal loans and grants, though there are a couple of exceptions including federal support for active-duty military and veterans.”  [Pittsburgh Post-Gazette, 3/20/11]

EDMC Was One Of Largest Recipients Of Department Of Defense Money.  According to the Pittsburgh Post-Gazette EDMC “is one of the largest recipients of funds from the departments of Defense and Veterans Affairs among for-profit schools. According to a December report by Mr. Harkin’s Senate education committee, the company took in $60.5 million from those two sources from August 2009 to July 2010.”  [Pittsburgh Post-Gazette, 3/3/11]


For-Profit Colleges Educated 10% Of Students In 2008; Accounted For 25% Of Student Loans; Half Of Defaults.  According to “the U.S. Department of Education, for-profit colleges educated around 1 in 10 students in 2008, but these students took out nearly a fourth of all federal student financial aid dollars, about $24 billion of taxpayer money. They also account for almost half of loan defaulters.”  [Chicago Tribune, 6/21/11]

95 Percent Of Students At For-Profit Colleges Borrow Money To Pay For Education.  According to a report by Education Trust, “an advocacy group for low-income and minority students, found that 95 percent of for-profit students took out federal loans and 42 percent had private loans at two-year schools in 2008. At private nonprofit two-year schools, 18 percent had private loans, while at public schools, just 5 percent had private loans.”  [Pittsburgh Post-Gazette, 3/20/11]

Former EDMC Student Paid $150,000 For “Useless” Degree.  According to the Chicago Tribune, Taryn Zychal attended the Art Institute of Philadelphia, a school run by Education Management Corporation.  Zychal “said she has around $150,000 in loans from attending the private, for-profit university, but Zychal said she couldn’t get a job in her chosen field, and not one of her credits would transfer when she tried to switch to another school.  With what she says is a useless degree, she can’t make her $1,500-a-month loan payments.  ‘I don’t think I learned anything at the Art Institute, other than how to get scammed by somebody. I don’t think I learned anything to go into an entry-level job in my field,’ Zychal said.”  EDMC declined to comment for the story.  [Chicago Tribune, 6/21/11]

Student Claimed EDMC School Misled Him About Transferring Credits.  According to the Independent Weekly, North Carolina resident Bernard Akenabor attended the Art Institute of Raleigh-Durham; “Akenabor says he intended to eventually transfer to another university and wanted to earn credits in classes such as English and math that would count toward a degree when he applied to a state school.  ‘I never really planned on staying in the art field,’ says Akenabor, now 22, who visited the Durham campus with his father. ‘We were assured multiple times by multiple people that the credits would transfer.’”  After spending over $20,000 at the Art Institute, Akenabor learned the credits would not transfer to any school he inquired.  Akenabor was one of 5 students to file a complaint with the North Carolina Attorney General. [The Independent Weekly (Durham, NC), 6/15/11]

Report Showed That 57% Of Students Enrolled In For-Profit College Left Without Degree.  According to a report from the Senate HELP committee, “57 percent of students who enrolled between July 2008 and June 2009 left without a degree. These students, mostly low-income, would stay a median of about 20 weeks and amass as much as $11,000 in student debt.”  [South Florida Sun-Sentinel, 10/1/11]

Only 22 Percent Of Full Time Students Earn Bachelor’s Degrees.  According to the National Center for Educational Statistics, “Only 22 percent of first-time, full-time candidates at for profit-colleges get bachelors’ degrees, compared with 55 percent at public institutions and 65 percent at nonprofit schools.”  [Boston Globe, 9/26/10]

For-Profit College Front Group Sued Government Over GAO Report.  In February 2011, “a front group representing for-profit colleges owned by Education Management Corp. and others has sued the federal government for ‘negligence and malpractice’ following the release of a highly critical report by the General Accounting Office.”  The lawsuit alleged that the GAO report was improperly conducted, and that it harmed the group’s financial standing.  [WalletPop, 2/7/11]

GAO Revised Report In November 2010; Was Subject Of FOIA Lawsuit.  In November 2010, “the GAO reissued its 27-page report ‘to clarify and add more precise wording.’ The revisions generally made the colleges look better. But the GAO said it stands by its findings. … Suspecting that errors and biases still permeate the revised report, the coalition sued the DOE in U.S. District Court in Washington, accusing the department of ‘wrongfully withholding records by failing to respond to a Freedom of Information Act request.’ The original FOIA request, filed Oct. 15, sought documents, including tapes, videos and notes related to the GAO report, according to the lawsuit.”  [Chicago Tribune, 1/10/11]


2010: Snowe Listed As 20th Most Weathy Member Of Congress; Wealth “Primarily Linked” To EDMC.  According to Roll Call, Snowe was the 20th wealthiest Member of Congress in 2010.  Snowe, worth at least $12.54 million, “increased her worth by a minimum of $690,000, or roughly 6 percent, last year. Snowe’s wealth is primarily linked to Education Management Corp., a Pittsburgh-based company where her spouse, former Maine Gov. John McKernan (R), serves as chairman of the board of directors.”   [Roll Call, 9/20/10]

McKernan Has Taken Over $9 Million in Compensation as an Executive of Education Management Corporation (1999-2010). From 1999 to 2010, McKernan has taken $9,436,443 in compensation as an executive of Education Management Corporation.  This includes $3,652,552 in salary, $3,383,382 in bonuses, $2,062,512 in non-equity incentive plan payments, and $337,997 in other compensation.  McKernan’s exact compensation for 2010 has not been disclosed in SEC filings yet.

McKernan’s income from Education Management Corporation is detailed in the table below:




Non-Equity Incentive Plan Payments

Other Compensation



Over $1,000




Over $1,000









































































[Form DEF 14A, Securities and Exchange Commission, Education Management Corporation, Filed 11/4/99, 11/2/00, 11/2/01, 11/14/02, 11/20/03, 11/23/04, 11/10/05; Form S-4, Securities and Exchange Commission, Education Management Corporation, Filed 9/27/06; Form 424B4, Securities and Exchange Commission, Education Management Corporation, Filed 10/2/09; Personal Financial Disclosure, “Part II. Earned and Non-Investment Income,” Secretary of the Senate, Olympia Snowe, 1999-2010]

Snowe Claimed “No Involvement” In EDMC.  In May 2011, Snowe claimed she had no involvement in EDMC, saying “Education Management is ‘a public company and so I have no involvement, literally no involvement. My husband is busy doing his job and I am busy doing mine.’”  Snowe’s office also said she “has taken pains to avoid the appearance of conflict on issues involving for-profit colleges that come before the Senate.”  [Kennebec Journal, 5/12/11]

Published: Aug 8, 2011

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