Whistle-blower lawsuit against Corinthian Colleges restored

An appeals court has restored a whistle-blower lawsuit that accuses Santa Ana-based Corinthian Colleges of violating federal law by paying bonuses to recruiters based on the number of students they enrolled at the company’s for-profit vocational colleges.

Federal law prohibits colleges from paying commissions based on the number of students a recruiter enrolls. The requirement is intended to prevent recruiters from signing up poorly qualified students who would eventually drop out and be unwilling or unable to repay federally guaranteed loans.

In 2007, former Corinthian employees Nyoka Lee and Talala Mshuja filed a whistle-blower lawsuit under the False Claims Act, accusing Corinthian Colleges of defrauding the government by paying illegal bonuses to recruiters.

The lawsuit alleges that Corinthian, a public company, receives billions of dollars in federal subsidies. It accuses the company of paying recruiters bonuses of 2.5% to 10% of their salaries, based on the number of students they recruited.

Corinthian contended that its recruiter compensation program did not violate federal law. A federal judge in Los Angeles dismissed the lawsuit at Corinthian’s request, concluding that even if the allegations in the lawsuit were true, the alleged practices did not violate federal law.

The 9th U.S. Circuit Court of Appeals restored the lawsuit this week, concluding that the former employees’ allegations, if true, would point to violations of federal law.

Corinthian spokesman Kent Jenkins said in a statement that the company’s compensation practices are proper. “We continue to believe that there is no basis for this case and we will contest it vigorously,” he said.

Scott Levy, the Texas lawyer representing the former employees, said he agreed with the appeals court ruling and would begin taking steps to bring the case to trial in Los Angeles.

stuart.pfeifer@latimes.com