OIG: Office of Inspector General
   Current Section

Investigative Reports

AUSA Joseph M. Ferguson (312) 353-1414
Exec. AUSA Nancy Needles (312) 353-5331

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.

Print this page Printable view Send this page Share this page