A Fraud Case Against the Academy of Art University in San Francisco Can Go to Trial, Judge Rules

Former recruiters are accusing the school of defrauding the government of millions of dollars in student loan subsidies.

San Francisco. Photo by Justin Sullivan/Getty Images.

A suit accusing the Academy of Art University in San Francisco of defrauding the US government out of millions of dollars in student loans and grants will go to trial after a federal appeals court judge ruled that there was enough evidence to move forward.

The case centers around allegations of illegal recruitment practices after whistleblowers accused the school of offering staff “tremendous bonuses” and other incentives, including trips to Hawaii, if they met enrollment targets between 2006 and 2010.

According to a review by the school’s accreditor, the WASC Senior College and University Commission, the Academy of Art has 13,000 enrolled students, 38 percent of which exclusively take online courses. School tuition and fees cost almost $24,000. Since 2006, the Academy of Art made over $1.5 billion in federal student loans, and $171 million in federal grants.

Academy of Art University logo. Screengrab via school website.

Incentivizing enrollment is illegal under federal law. The law is intended to prevent colleges and universities from accepting large numbers of under-qualified candidates that may be unlikely to graduate and pay back their government-subsidized tuition loans.

According to the San Francisco Chronicle, the for-profit art school, which owns a substantial San Francisco property portfolio, could incur as much as a half-billion dollars in damages if the court rules against it, potentially threatening its viability.

“We are gratified by the result,” Stephen Jaffe the attorney representing the four plaintiffs told artnet News in an emailed comment on behalf of his clients. 

The accusers, Scott Rose, Mary Aquino, Mitchell Nelson, and Lucy Stearns, all former recruiters at the school, sued in 2009 under the federal False Claims Act, which encourages people to step forward by awarding triple damages if they suspect the government is being defrauded.

Reached by email, the attorney for the Academy of Art remained optimistic. “We are confident the University will prevail on further appellate review or at trial,” he insisted, even though the latest ruling marks the fourth time the school has unsuccessfully sought to have the case dismissed since 2009.

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