Beauty school must pay $11 million in federal fraud case

Marinello Schools of Beauty will pay the government and six whistleblowers

August 15, 2016

A now shuttered for-profit beauty school chain will pay the government and six whistleblowers $11 million over claims the school defrauded the feds out of federal financial aid funds.

Marinello Schools of Beauty settled with the former employees, who settled a suit filed under the false claims act — a law that allows whistleblowers to file a suit on behalf of the government if they believe their company is misusing taxpayer money — earlier this year. The terms of the settlement weren’t previously reported.

The former employees — whose jobs included financial aid officers, instructors, career services managers and campus director — accused the company officials of using a variety of tactics to maximize the amount of financial aid funding the school received from the government.

The whistleblowers claimed that school officials falsified the high school diplomas of at least 23 students so they could enroll them. The whistleblowers also alleged that the school manipulated attendance records so that it appeared students who were no longer attending the Marinello were still there so the school could continue to receive federal financial aid funds for the students. In addition, the former employees accused the school of pushing students to falsify their income information on their applications for federal financial aid so that the students could receive more funding.

The settlement comes several months after Marinello closed its doors, leaving 4,300 students in limbo. The government cut off financial aid funding to 23 of the Marinello’s campuses over claims that echoed some of those of the whistleblowers, including that the school falsified high school diplomas. The Department of Education also accused the school of not providing students with the necessary equipment to train, despite charging them between $2,500 and $2,750 for books and supplies.

Marinello officials claimed the government’s decision to choke off the funds, pushed the school into a cash crunch. “Given the circumstances, this $11 million settlement is tremendous,” said Justin Berger, a lawyer at Cotchett, Pitre & McCarthy one of the attorneys for the whistleblowers. The school shutting down during the case, “made it more difficult to recover money for taxpayers,” he said.

The feds’ share of the settlement is still a fraction of the taxpayer dollars received by Marinello over the years. The chain collected more than $51 million in federal financial funds during the 2014 to 2015 academic year alone... (To read the entire article, please click HERE)