April 9, 2019

Fraud Case to Proceed Against San Francisco's Academy of Art University

SAN FRANCISCO, CALIFORNIA—For more than a decade, San Francisco’s Academy of Art University, one of the nation’s largest for-profit art schools, has attempted to halt a lawsuit accusing the institution of defrauding the government millions of dollars between 2006 and 2010. This week, the US Supreme Court rejected the university’s bid to dismiss the case, citing evidence that the school used illegal enrollment tactics to recruit underqualified students who were unlikely to pay back their government-subsidized loans, the San Francisco Chronicle reports. The suit will move forward in Oakland’s US District Court.

Former university employees Scott Rose, Mary Aquino, Mitchell Nelson, and Lucy Stearns initiated the suit under the federal False Claims Act, which awards triple damages to whistleblowers who bring forward cases in which the government may have been cheated. The four former recruiters claim the school offered “incentive compensation” schemes, which promised raises of up to $30,000 and vacations to Hawaii based on recruitment numbers.

The university has maintained that it did nothing illegal and that the incentives were allowed under a federal “safe harbor” provision created by the Bush administration in 2002 and repealed by the Obama administration in 2010. Steve Gombos, the school’s attorney, declined to comment on the ruling.

The school has a 100 percent acceptance rate, according to the website College Factual. However, less than a third of students graduate—in 2016, only seven percent graduated on time. This is the fifth time since 2009 that the for-profit academy has unsuccessfully moved to dismiss the allegations; it will now have to settle or go to trial. According to the San Francisco Chronicle, the case could cost the university as much as $450 million, with 70 percent going to the government and the rest to the plaintiffs and lawyers.

The university has profited over $1.5 billion in federal student loans and $171 million in federal grants since 2006, reports Hyperallergic. Yearly tuition costs $25,000 and is expected to rise another $1,000 by fall. Currently, over thirteen thousand students are enrolled at the school.

The academy owns forty buildings in San Francisco and is one of the city’s largest property owners. In 2016, attorneys successfully prosecuted the school and its corporate entities for acquiring city properties for student housing and for violating state and local laws for nearly a decade; the school agreed to pay a landmark $60 million settlement for contributing to San Francisco’s affordable housing crisis.

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