Costa Mesa nursing school under federal fraud investigation wants $3 million in seized funds returned

Attorneys representing Pacific College, a private nursing school in Costa Mesa, are expected to ask a federal judge to order authorities to return more than $3 million seized in October as part of a financial aid fraud investigation.

Federal prosecutors said in court documents filed in May that the FBI, the U.S. Department of Education and the California Department of Consumer Affairs began investigating the for-profit college at 3160 Red Hill Ave. in November 2012.

“The government’s investigation revealed that Pacific College, among other things, inflated grades, falsified attendance records and passed students through its nursing program in a manner that maintained a false standard of academic progress that kept students enrolled in the program and sustained the flow of incoming [federal student aid] funds,” the U.S. attorney’s office wrote in court documents.

Prosecutors also allege that Pacific College increased students’ tuition to eliminate refunds of financial aid funding to the students and allow the school to keep the money. Federal financial aid is awarded based on student applications, but the funds are disbursed directly to the school where the student is enrolled. Typically, a school applies the funds to the student’s account and any amount above the cost of tuition is given to the student to cover living expenses.

Pacific College received $22.9 million in financial aid funds from 2010 to 2017, according to court documents.

Prosecutors have not filed criminal charges in connection with the investigation. A representative of the U.S. attorney’s office could not be reached for comment Thursday.

Pacific College officials have denied any wrongdoing and said the school, which has been open since 1993, will have to close if the seized funds aren’t returned. The college’s main campus is in Costa Mesa, but the school has satellite locations in Commerce and Ontario.

Attorneys are expected to argue over the seized funds at a June 25 hearing in federal court in Santa Ana.

Attorney James Spertus, who represents Pacific College President William Nelson and his wife, Ila, said Thursday that the couple have been funding the college with their personal savings for months and that funds are running dry.

The college has not received money from the Department of Education since September because of the investigation, Spertus said.

Spertus argued in a May 14 court filing that the FBI investigation did not begin in 2012 but started only after a Pacific College employee threatened to have his friends at the FBI shut down the college unless it paid him and gave him equity in the school. The college refused, Spertus wrote.

“This is wrong. It’s a terrible injustice,” Spertus said. “If nobody is going to allow any meaningful resource, there’s going to be hundreds of students denied an education. They can try to apply to other programs and start over. Faculty will be out of work. The cruelty of this is shocking.”

hannah.fry@latimes.com

Twitter: @HannahFryTCN