U.S. Settles suit against Corus Bank for Student Loan Fraud Chicago, IL, April 7, 2000

Published by the Department of Education, Office of Inspector General on 2000-04-07.

Below is a raw (and likely hideous) rendition of the original report.

OIG Investigative Reports, U.S. Settles Suit Against Corus Bank for Student Loan Fraud
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U.S. Settles Suit Against Corus Bank for Student Loan Fraud
CHICAGO -The United States today entered into  a final settlement agreement regarding charges raised in a civil lawsuit filed  last April against Chicago-based Corus Bankshares, Inc., and its subsidiary,  Corus Bank, Inc.. The suit alleged that Corus systematically violated the  federal False Claims Act by submitting fraudulent insurance claims for defaulted  student loans, announced Scott R. Lassar, United States Attorney for the  Northern District of Illinois. The value of the settlement is approximately  $11.5 million.
The suit, which followed a lengthy investigation by the Chicago  regional office of the Education Department's Office of the Inspector General  ("DOE-OIG"), alleged that the defendants submitted insurance claims on thousands  of defaulted student loans that were not serviced in accordance with federal  regulations, More specifically, Corus was allegedly submitted and received  payment on thousands of default claims in which they chronicled and certified  the performance of due diligence that the defendants' own loan files indicate  were false.
The student loan program, known as the Federal Family Education  Loan (FFEL) Program and formerly known as the Guaranteed Student Loan (GSL)  Program, makes low-interest loans available to students to pay for costs  associated with post-secondary school education. Under the program, banks lend  their own funds to eligible students. During the term of a loan, the federal  government pays to the bank a subsidy called a special allowance that  compensates the banks for the difference between the rate of interest specified  in the loan and the market interest rate. In the event of default, the loans are  insured against loss by designated non-profit guaranty agencies, and reinsured  by the federal government. In order to maintain a loan's eligibility for the  federal interest subsidy and guaranty, banks service the loans, in part, through  the execution of a regulatory framework known as due diligence. For delinquent  loans, due diligence is comprised, in part, of a graduated series of telephone  communications or attempted communications with the delinquent borrower. A  student loan goes into default when the period of delinquency reaches 180 days,  at which point an insurance claim for the outstanding principal and accrued  interest may be submitted by a bank to a guaranty agency, provided that the bank  has serviced the loan in accordance with federal regulations.
The DOE-OIG investigation was prompted by Corus'  self-disclosure of procedural irregularities and possible fraud in the  performance of due diligence on certain defaulted student loans. The  investigation concluded that the nature and scope of the fraud was far greater  than that initially disclosed by Corus. The substantial difference of opinion  between the government and Corus regarding the nature and scope of the fraud,  including the number of loans affected by the fraud, necessitated the filing of  the suit by the government in April 1999. The filing of the suit resulted in  lengthy negotiations resulting in the settlement Announce today.
The settlement has two components. The first is a monetary settlement in  which Corus has agreed to pay the Department of Education $7.775 million in  resolution of fraudulent guarantee claims previously  submitted by Corus for payment. The second component of the settlement addresses  the administrative status of defaulted student loans with an aggregate value Of  approximately $16 million on which Corus withheld the submission of guaranty  claims while the investigation and lawsuit were pending. Today's settlement,  which sets forth specific eligibility conditions for the submission of claims on  those loans, is expected to result in Corus forgoing the submission of claims on  loans with an estimated aggregate value of approximately $3.5 million. The  monetary and administrative terms of the settlement reflect the broader nature  and scope of the fraud as viewed and alleged by the government, but take into  account Corus' self-disclosure and cooperation in the resulting  investigation.
The settlement generally releases Corus and its employees of  criminal, civil and administrative liability concerning the processing of the  loans that were the subjects of the complaint. Excepted from that release is a  mid-level bank manager who supervised the student loan processing department of  the bank during the period at issue. That manager, William Kroeplin, pled guilty  to a misdemeanor fraud count in federal district court in Chicago on March 20,  2000. His sentencing is scheduled for June 26, 2000.
The government was represented by Assistant U.S. Attorney  Joseph M. Ferguson.
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Last Modified: 02/28/2005
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