On March 12, 2019, the United States Attorney’s Office for the District of Massachusetts announced federal criminal charges in “Operation Varsity Blues,” the largest college admissions case ever prosecuted by the Department of Justice. Fifty people have been charged for their involvement in what prosecutors describe as a nationwide conspiracy to get the children of wealthy parents into elite colleges around the country. As alleged, wealthy parents paid tens of thousands of dollars to facilitate cheating on college entrance exams to increase their children’s test scores. Additionally, many of the parents are accused of paying hundreds of thousands of dollars in bribes to college officials to secure their children’s acceptance into colleges as athletic recruits using fabricated athletic credentials.
The defendants accused of facilitating these schemes, including the university officials, and college entrance exam proctors and examiners, have been charged with racketeering conspiracy under the federal RICO statute. The parents accused of paying the bribes have been charged with conspiracy to commit mail fraud and wire fraud. Other charges levied against various defendants include money laundering and tax fraud.
Potential Vulnerabilities for Colleges and Universities
Beyond the individuals implicated in the criminal investigation, certain allegations made by prosecutors create risk for colleges and universities. For example, prosecutors have alleged that certain bribe payments were used for the benefit of college athletics programs or were wired directly into college accounts.
Within days of the operation being made public, lawsuits were filed against many of the figures involved, including the colleges. A class-action lawsuit filed in the U.S. District Court for the Northern District of California against some of the colleges referenced in the charging documents should be of particular concern to schools around the country. That lawsuit alleges that the colleges at issue fraudulently represented that their admissions processes were neutral and merit-based, when they knew or should have known that some students were admitted through corruption.
Although DOJ has stated that the schools involved in Operation Varsity Blues are not the targets of their current investigation “right now,” plaintiffs’ lawyers throughout the country as well as state Attorneys General, and other state and federal prosecutors, could seek to pursue similar theories against schools throughout the country.
Recommendations In the Wake of Operation Varsity Blues
As the FBI put it when it announced these charges, these allegations “strike at the core of the college admissions process at universities across the country.” Based on the potential risks, colleges should consider a proactive approach. This should begin with having an outside assessment of all aspects of admissions policies and procedures to identify any processes in need of revision, as well as implementation of robust compliance procedures. Admission preferences, particularly related to athletics, should be a focus. Identifying and eliminating weaknesses and vulnerabilities in the admissions process may be critical in protecting colleges from regulatory and private civil action. Having this done strategically by outside legal counsel and within the confidentiality protections of attorney-client privilege is imperative.
In addition to thoroughly vetting their admissions processes, colleges and universities should also examine the controls and level of due diligence that they impose over the application process and consider requiring verification by parents and students of the accuracy of the information in the application and attestation by parents and students that no payments, contributions to third parties, gifts or favors have been made to anyone in connection with the admission process.
Conducting an internal review is particularly important in light of the potential for federal enforcement action. As we have previously commented, recent changes to DOJ’s enforcement policy favor those who self-investigate, make prompt voluntary self-disclosure of violations, fully cooperate with DOJ investigations, remediate swiftly and meaningfully, and implement effective compliance programs.
In view of the unprecedented focus on the integrity of the admission process by federal prosecutors, it should be expected that future related action will follow. Regulators, accrediting agencies, other state or federal prosecutors, alumni and aggrieved private parties may be contemplating whether to address the perceived inequities. Executive management of all educational institutions should take immediate steps to assess their vulnerabilities and implement prudent policies to regulate the admissions processes. Governing boards and the public will likely demand no less.
Finally, educational institutions should assess whether their insurance policies may provide coverage for “Varsity Blues” related investigations or litigation. Many institutions are ensured under the higher education equivalent of directors & officers’ liability policies. These policies go by different names, such as a “higher education non-profit liability policy,” and typically provide coverage for loss incurred on account of a “claim” arising out of a “wrongful act.” Policy definitions of “claim” vary, but may include civil litigation and governmental investigations. Many policies define “wrongful act” broadly to include any actual or alleged act, error, omission, misstatement, misleading statement, neglect or breach of duty, by an insured. Educational institutions may also have other types of insurance policies that may also provide coverage for these types of claims. Institutions should understand what coverage is available and be prepared to give notice promptly if a claim is asserted.