$11M Settlement of FCA Lawsuit Against Marinello Schools of Beauty

For-profit beauty school chain Marinello Schools of Beauty was sued for allegedly defrauding the federal government through embellished and often falsified claims of enrollment, post-graduate employment, and entitlement to federal funding. Marinello officials stated they “strongly and categorically” deny the allegations made in the suit, calling them “utterly false” and adding that the settlement did not constitute an admission of wrongdoing. However, the U.S. Department of Education’s decision to bar the schools from accessing taxpayer money in the form of federal financial aid funds crippled Marinello’s financial position and forced the closure of all 56 U.S. campuses earlier this year. The whistleblowers’ settlement of $11 million represents a success for taxpayers and the students with outstanding federal loans who otherwise would not have been able to seek compensation from the schools post-closure.

The Marinello School of Beauty was founded in 1905 and later accredited by the National Accrediting Commission of Career Arts. Over time Marinello grew to an operation of 56 schools throughout several states including California, Connecticut, Kansas, Massachusetts, Nevada, and Utah. Following the U.S. Department of Education’s recent decision to rescind Marinello’s access to federal funding all campuses were forced to close on February 4, 2016. The government’s funding proved critical to Marinello campuses; without federal aid, Marinello was short on cash, enough to halt operations altogether and create difficulty for taxpayers to recover any part of the $51 million in federal financial funds Marinello collected in the 2014-2015 school year alone. Not only did federal aid enable the schools to enroll and train thousands of students, it also incentivized Marinello to lure more students into the school to claim government funds by any means necessary. According to the whistleblowers, the scope of the school’s alleged transgressions ranged from the falsification of high school diplomas of new entrants to encouraging false reports of income on students’ federal financial aid applications. The U.S. Department of Education also alleged that despite charging several thousand dollars for books and supplies, Marinello failed to provide students with requisite training equipment.

In a press statement regarding the settlement Marinello Beauty Schools claimed that “[d]espite all the false accusations and baseless litigation, which were also maliciously made against Marinello’s shareholders and former management, what little resources that were left had to fight these claims were exhausted and there was no choice other than to settle.” As part of the recovery for this False Claims Act lawsuit, the six former employees who brought the case to the government’s attention will receive a larger share of the $11 million settlement (25%-30%) while the rest returns to the U.S. government. Although only a small proportion of the total amount of money Marinello received under fraudulent pretenses, the $11 million settlement represents whistleblowers’ success in recovering money from the schools themselves rather than from taxpayers.