The Los Angeles Film School paid $1 million to resolve a federal audit in 2020, but avoided the stiffer penalties that have befallen other for-profit colleges accused of fraud.
The results of the Department of Education audit were not publicly disclosed at the time, but are included in a settlement agreement obtained by Variety.
LAFS is facing a federal whistleblower lawsuit that alleges a massive scheme to hire thousands of graduates for fake, two-day jobs. According to the complaint, the scheme was intended to inflate the school’s “job placement” figures — that is, the number of graduates who were able to find work — in order to continue receiving millions of dollars in federal student aid.
The Department of Education auditors reviewed the school’s job placement data, but the whistleblowers allege in the lawsuit that the school withheld critical evidence of the extent of the wide-ranging fraud. As part of the settlement with the government, the school agreed that it would not pay industry professionals to hire its graduates in the future.
The audit came as the federal government was investigating job placement rates at several other for-profit colleges and issuing severe penalties to those who falsified their numbers.
The two whistleblowers — Dave Phillips, a former VP of job placement, and Ben Chaib, a former VP of admissions — allege in the lawsuit that school leaders feared a significant loss of revenue if the auditors uncovered the fraud.
According to an email quoted in the lawsuit, the school denied the existence of a “pay for placement” scheme in May 2017.
“LAFS does not have any agreements with employers or potential employers that involve payments related to the placement of graduates,” wrote Jason Cupp, a former VP of financial aid, in an email to the auditors.
“This was entirely untrue,” the lawsuit states.
The school later provided some information about its “pay for placement” vendors, but the largest deal was kept hidden from the auditors, the suit alleges.
In a February 2018 report, the federal auditors stated that the job placement review was “ongoing,” but found that the school was out of compliance with several other regulations. The reported concluded that the school was failing to track students’ academic progress, which meant that students who were falling behind and should have lost eligibility for aid were instead kept in the program.
The audit also found that LAFS was not accurately recording the dates that students dropped out, which in some cases led to the school receiving aid for students who were no longer attending. The auditors also discovered that LAFS was allowing students to use borrowed funds to pay the school’s $75 application fee, which is not an allowable expense.
The 2018 report did not address LAFS’ job placement policies. It also did not include any allegations — since raised in the whistleblower suit — that admissions staff were given improper compensation incentives to enroll more students.
The school settled with the department in October 2020. According to the agreement, LAFS had “cooperated fully” with the auditors’ requests for information and had resolved many of the tracking and accounting issues identified in the 2018 report.
The settlement also states that the department had reviewed the school’s job placement data for the years 2015-19. The settlement did not include any findings on that issue. The school admitted to no wrongdoing.
The school did accept a series of conditions, however, including that it “will not pay industry practitioners or other third parties to directly or indirectly provide or arrange for jobs or gigs that LA Film uses to substantiate that graduates are placed for purposes of any placement or employment rate they are required to calculate.”
The school agreed to pay $705,000 to resolve the audit issues, plus a $294,000 fine to close the review of its job placement data.
A spokesperson for LAFS denied any misconduct in a statement to Variety.
“The Los Angeles Film School believes it did nothing improper and institutional representatives were fully transparent with the U.S. Department of Education during the three-year program review,” the spokesperson said. “The Los Angeles Film School helps our students build successful careers in the entertainment industry and the adjacent professions supporting it, and the track record of success is lengthy. Employers hire our graduates because of the specialized skills they bring — expertise that very few higher education institutions in the country focus on developing, and the accolades alumni receive confirm their successes.”
The settlement closed the audit, but did not waive potential claims of civil fraud against the U.S. government, nor did it absolve any potential criminal violations.
The whistleblower lawsuit, first reported by Variety on Sept. 23, alleges that while LAFS made “cosmetic” changes to its operations, it still had at least one “pay for placement” relationship as late as 2024.
The school is owned by James “Bill” Heavener and three partners, who also own Full Sail University in Winter Park, Fla.
At a hearing in federal court in Los Angeles on Sept. 26, an attorney for the schools, Mazda Antia, argued that the lawsuit should be thrown out in part because it rehashes old claims.
“The government knew about these allegations,” he said. “The government investigated these allegations. The government entered into a settlement agreement with the Los Angeles Film School regarding these allegations.”
Mark Kleiman, the attorney for the two whistleblowers, disputed that characterization.
“What is in the report does not bear any reflection on the allegations in this case,” Kleiman said.
Phillips alleges in the suit that Heavener directed him not to reveal to the auditors that the school had a “pay for placement” relationship with Ivar Music Group.
The suit alleges that the school paid the company to employ nearly a third of its graduates from 2010-2017. According to the complaint, school leaders “knew that if this contract was exposed, it would most certainly terminate” access to federal student loans and to veterans’ education benefits.
According to the lawsuit, shortly after the auditors visited the school in May 2017, Heavener forced Phillips out of his job. The complaint quotes an LAFS executive stating that the owners “needed Dave to be the guy they blamed their schemes on.” Phillips was kept on as a consultant at the same salary, and left the school five years later. He later reached a settlement with the school.
In its statement, LAFS disputed the whistleblowers’ claims.
“The allegations by two former employees are baseless and speculative, and they do not reflect the reality of our school or the real-life success stories of our graduates,” the school’s spokesperson said. “We are immensely proud of the success of our graduates — who have helped shape the entertainment industry at the highest levels — and we look forward to responding to these allegations based on the deadlines established by the court.”
Under the Obama administration, the federal government tightened regulations and pursued a series of investigations against for-profit colleges.
In 2016, the Federal Trade Commission reached a $100 million settlement with DeVry University over the school’s claims that 90% of its graduates were able to find jobs in their field. The Department of Education fined Heald College — a subsidiary of Corinthian Colleges — $29.7 million for misstating its job placement rates in 2015. Career Education Corp. reached a $10.25 million settlement with the New York attorney general’s office in 2013 over bogus job placement data, with $9.25 million in the form of restitution to students.
The Trump administration has sought to dismantle the Department of Education, laying off hundreds of staffers earlier this year who oversee student aid programs. The department’s public relations office did not respond to Variety’s request for information about the LAFS settlement.
In preparing for a trial in whistleblower lawsuit, attorneys on both sides said in court that it has been difficult to get information out of the Department of Education. Judge Stanley Blumenfeld agreed to extend the trial date, originally contemplated for next August, to October 2026.