St. Paul, MN, United States (AHN) – Minnesota has joined the federal government and other states in suing Education Management Corp., the nation’s second-largest for-profit college.

According to the lawsuit, two EDMC colleges, Argosy University and the Art Institutes International, collected government financial aid despite the company having given incentives to recruiters based on new student enrollments.

EDMC allegedly used a compensation matrix that involved giving admissions workers points depending on the number of recruited students. The points were then used to calculate the recruiter’s salary.

“Incentive payments by for-profit colleges to their recruiters are illegal because they can lead to a hard-sell atmosphere where students are sometimes hustled to enroll in expensive programs paid for by taxpayer-backed student loans, hurting both students who are trying to better themselves and taxpayers who must pick up the tab if the loans default,” state Atty. Gen. Lori Swanson said in a statement.

Minnesota is the sixth state to file a lawsuit against EDMC for obtaining student aid despite illegally giving bonuses to admissions workers.

The U.S. Justice Department also filed a complaint against the company last month, accusing it of providing commissions to recruiters and falsely certifying compliance with the law that prohibits such incentive compensation. EDMC allegedly obtained $11 billion in federal aid despite its practices.

The False Claims Act bans post-secondary schools from compensating admissions employees based on the number of students recruited, which results in the enrollment of unqualified students, and the pay out of federal grants and student loans.

Pittsburgh-based EDMC, which has about 148,000 students enrolled in more than 100 branches nationwide and in Canada, has denied the allegations.

Former Iowa state Atty. Gen. Bonnie Campbell, who serves as adviser and spokesperson for the company’s legal counsel, said last month the legal action from the “handful of states” is “flat-out wrong.”

“Federal regulations issued in 2002 permitted companies to consider enrollments in admission officer compensation, so long as enrollments were not the sole factor considered,” Campbell said.

“To ensure compliance… EDMC worked closely with outside experts in both human resources and education law to develop a plan that required consideration of five quality factors along with enrollment numbers to determine salaries,” she added.

Early this year, EDMC said it adopted its compensation system in 2003 “based on the advice of and good faith reliance on the opinion of outside counsel that [it] was lawful.”

The company added that it “has long maintained an uncompromising commitment to sound business principles with an emphasis on compliance with laws and regulations.”

The allegations against the company were made by Lynntoya Washington, who worked as a recruiter, and Michael Mahoney, a former training director for the company’s online education division.

The Justice Department decided to intervene in the case along with the states of California, Florida, Illinois and Indiana after investigating the whistleblowers’ claims.

The agency filed friend-of-the-court briefs and did not intervene in the whistleblower case against the University of Phoenix, the nation’s largest for-profit college, which agreed to pay $67.5 million to settle allegations of incentive compensation.

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