New York is taking a lead in tackling university fraud

On 21 December 2016 the United States Attorney for the Southern District of New York, Preet Bharara, announced charges against Umair Hamid, one of the alleged co-conspirators and masterminds behind a worldwide web of many dozens or even hundreds of online diploma mills linked to Axact, a Pakistani IT company.

The company allegedly defrauded tens of thousands of unsuspecting consumers out of over US$140 million. Hamid was arrested in the US on 19 December 2016 on charges of wire fraud, conspiracy to commit wire fraud and aggravated identity theft.

According to Bharara’s statement, “As alleged, while promising the rewards of a higher education, Umair Hamid was actually just peddling diplomas and certifications from fake schools. Hamid allegedly took hefty upfront fees from young men and women seeking an education, leaving them with little more than useless pieces of paper.”

The US Postal Inspection Service Inspector-in-Charge Philip R Bartlett said that, “Mr Hamid took advantage of the aspirations and dreams of thousands wanting a college education by devising a scheme to issue college coursework, degrees and certifications not worth the paper they were printed on,” calling the perpetrators “scammers”.

FBI Assistant Director-in-Charge William F Sweeney Jr pointed out that “thousands of people’s hopes were crushed as this alleged diploma mill scheme came crashing down. Victims took at face value the lies Hamid and his co-conspirators are alleged to have sold them”.

In order to attract customers, the organisers labelled most of their ‘universities’ with names evoking the appearance of American institutions and many were discovered with the help of investigative journalism reported in The New York Times. In fact, one such ‘higher education institution’ is Brooklyn Park University. No wonder, New Yorkers are among the alleged victims.

Victims or perpetrators

Before arriving at some definitive or even preliminary conclusions, one has to wonder who these allegedly defrauded people really are. Are these the same individuals who believe they just inherited a fortune from a Nigerian princess? Or maybe they are individuals who wanted to acquire a college degree from anywhere as quickly as possible in order to show their educational credentials or use them for their own career progression?

Should these people be regarded as victims or as perpetrators? And what employer – government or private – would accept a diploma at face value in New York or anywhere else in the United States? Some see most clients of diploma mills as victims of their own naivety, while others think they are perpetrators aiming to abuse the system.

All of this has yet to emerge. The US has a controversial history of fighting diploma mills and there have been several ups and downs over the decades. Prosecuting online diploma mills with a hub located overseas is no doubt even more challenging. One thing is certain: Preet Bharara is on the right track and fraud in higher education should be exposed and prosecuted.

The State of New York has a record of prosecuting fraud in higher education. The election of Donald Trump to the US presidency came as a shock to many in the academic community. Nevertheless, one person this unexpected electoral result did not derail is the New York State Attorney General, Eric Schneiderman. The US$25 million settlement agreement reached in the Trump University case covers the suit filed by Schneiderman and two class action lawsuits filed in California.

Around 6,000 former students are covered by the settlement, with US$21 million going to plaintiffs in California and US$4 million to victims in New York. Schneiderman sued Trump on behalf of the state for “swindling thousands of innocent Americans out of millions of dollars through a scheme known as Trump University”, also referring to it as “phony university” and “fraudulent university”.

Apparently, the instructors were not “hand-picked” by the billionaire, who is now the US president, and the opportunities for the graduates were not as rosy as promised. It is expected that Trump will pay up to US$1 million to the state for violating state education laws.

Four million dollars secured by the attorney general as a result of the settlement with Trump University is by no means the largest award for the state and the customers and taxpayers it represents and protects.

In October 2016, the president of the State University of New York Polytechnic Institute, Alain Kaloyeros, resigned after New York prosecutors accused him of engaging in fraudulent schemes to rig bids for three multimillion dollar state-funded contracts. In one such case, Kaloyeros awarded the contract to a contractor who agreed to provide a US$50 million loan to a non-profit organisation connected to SUNY Polytechnic and controlled by the university president.

Just a few months earlier, in July 2016, Preet Bharara reached a US$9.5 million settlement of a civil fraud lawsuit against Columbia University for claiming and receiving excessive cost recoveries in connection with 423 research grants funded by the National Institutes of Health from 2003 to 2015.

In February 2008, dozens of public, private and private for-profit colleges and about a dozen private student loan providers agreed to pay a total of around US$14 million to settle allegations of consumer fraud and deception as applied to a preferred student loan providers' list.

University financial aid officers suggested a particular private bank lender to students, sometimes in exchange for alleged kickbacks. The investigation initiated by the then New York State Attorney General, Andrew Cuomo, was followed by another 27 states throughout the country. Unfortunately, not all states joined the campaign, stating that they already had a commission or department of higher education to provide general oversight.

As a result of the massive legal campaign launched by Cuomo, colleges and student loan providers agreed to comply with the ethics code of conduct offered by the attorney general and contribute to his newly created National Education Fund. Cuomo-led investigations of educational loans and later of study abroad programmes were based on the deceptive acts and practices provision of the Consumer and Borrower Protection Act.

A city that doesn’t sleep

While some states are still asleep – and the reaction to the student loans fraud is a good indicator of this hibernation – New York may be at the forefront of fighting university fraud in many of its manifestations. The state’s struggle against fraud in higher education takes it far beyond filing and pursuing legal actions against universities and private student loan providers.

In July 2015, Richard Kassel, an immigration lawyer who conspired to obtain immigration visas for his clients based on fraudulent advanced-degree diplomas and transcripts produced by his co-conspirators, was sentenced in a Manhattan federal court to 27 months in prison, a US$6,000 fine and US$187,000 in forfeiture.

In times of uncertainty, both related to the higher education sector and the economy in general, participants in the higher education market, including the student loans industry, face unprecedented challenges. This may be especially true for relatively recent and yet very large players in the higher education market, such as for-profits.

In fact, one such player already went belly up. In May 2015, Corinthian Colleges Incorporated, which included 91 campuses, filed for bankruptcy due to lawsuits filed by several states and the Consumer Financial Protection Bureau alleging the company misled its prospective students and the government regarding its exceptionally high job-placement rates.

The apparent lack of control and coordination on the side of state and federal law enforcement agencies and education watchdogs put both student loan recovery and student welfare at risk, jeopardising future prospects for students and graduates of failed universities.

Given that the number of bankrupt higher education institutions may grow, courts should be prepared to handle more claims from defrauded students and from state authorities.

New York is a hub for higher education which hosts world-class universities and, in addition to students from the local region and the rest of the USA, also accommodates 115,000 international students who bring US$4 billion in revenue to the state. Their rights have to be protected from all kinds of possible scams and misrepresentation. And it is a good thing to get the message out that New York does not tolerate but prosecutes university fraud.

Ararat L Osipian holds a PhD in education and human development from Peabody College of Education and Human Development at Vanderbilt University, USA. He is a Pontica Magna Fellow at New Europe Foundation, Bucharest, and the author of "Grey Areas in the Higher Education Sector: Legality versus corruptibility" (Brigham Young University Education and Law Journal, 2012).