United States Announces $425,000 Settlement with Allentown Beauty School for Allegedly Falsifying Federal Student Financial Aid Claims

PHILADELPHIA – United States Attorney William M. McSwain announced that Metro Beauty Academy, LLC (“MBA”) has agreed to pay $425,000 to resolve allegations that the school falsely sought federal student aid for students ineligible to receive such aid.

MBA is a private, for-profit beauty school with its principal office and campus located in Allentown, PA. Since May 2007, MBA has operated various educational and technical programs, such as cosmetology, esthetics, and massage therapy. MBA offers financial aid to its students through various federal financial aid programs, including Federal Pell Grants, Federal Direct Loans, and Federal Family Education Loans. To receive federal financial aid funds, MBA entered into a program participation agreement with the United States Department of Education. The Department of Education conditions MBA’s receipt of federal financial aid upon compliance with Title IV of the Higher Education Act of 1965 (“Title IV”).

The settlement resolves allegations raised by a whistleblower pursuant to the qui tam provisions of the False Claims Act and resolves the findings of the Department of Education’s program review. An investigation by the United States Attorney’s office focused on allegations that from January 2009 through December 2013, MBA knowingly submitted or caused to be submitted claims for federal student financial aid that were false because the students were ineligible to receive such aid. Specifically, the United States alleges that the students did not have a high school diploma or equivalent at the time they enrolled at MBA, as required by Title IV. In some cases, the United States contends that MBA staff created fake diplomas for students, or encouraged students to obtain false credentials from “diploma mills.”

“When schools agree to participate in the Title IV federal financial aid program, they must comply with regulations designed to ensure that qualified students have access to higher education,” said U.S. Attorney McSwain. “When a school receives financial educational assistance for ineligible students, it is unfair not only to other educational institutions that comply with the regulations, but also to the students attending the non-compliant school who may find themselves unqualified for employment and saddled with debt.”

In accordance with the settlement agreement, MBA will make total payments of $425,000. Included in that amount are payments to the federal government for losses associated with the federal student financial aid program, and to the whistleblower pursuant to the False Claims Act.

This settlement resolved a lawsuit filed under the False Claims Act in the U.S. District Court for the Eastern District of Pennsylvania. Under the qui tam or whistleblower provisions of the False Claims Act, private citizens, called relators, are permitted to bring lawsuits on behalf of the United States and obtain a portion of the government’s recovery. The False Claims Act also permits the government to intervene and take over the lawsuit, which occurred in this case.  The qui tam complaint was filed by Brian J. McCormick of Ross Feller Casey, LLP in Philadelphia.  “We thank the relator and relator’s counsel for their invaluable contribution in this case. Without information from citizens like the relator, detecting fraud and conserving government program funds would be much more difficult,” said U.S. Attorney McSwain.

The government’s resolution of this matter illustrates its emphasis on combating fraud on student financial aid programs and other grant fraud. One of the most powerful tools in this effort is the False Claims Act. This case was investigated by the Department of Education Federal Student Aid Office and the Department of Education Office of Inspector General. It is being handled by Assistant United States Attorney Stacey L. B. Smith, with assistance from Auditor Dawn Wiggins, and Fraud Investigator Jeffrey Braun.

The case is captioned United States of America, ex rel. Tracy L. Donmoyer v. Metro Beauty Academy, LLC., Civ. A. No. 14-4540 (E.D. Pa.). The claims resolved by this settlement are allegations only and there has been no determination of liability.