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College Admissions: The Law Behind the Scandal

The following is an installment in our Trends in the Law series.

THE PLAYERS

We know some of the parents involved: famous actresses; fashion designer husbands; wealthy real estate developers; private equity firm executives and even a Napa Valley Vineyard owner. We know the schools involved: University of Southern California is the epicenter of the scandal; Stanford, UCLA; University of San Diego; Yale, Georgetown; Wake Forest and University of Texas at Austin (more schools may come to light). All elite, good schools with rigorous admissions processes.

What we do not know much about is the law—the laws that were violated and the laws that are being used to prosecute not only the parents involved but the coaches, university insiders, and others who carried out the most egregious college admissions scandal in history.

THE SCHEME

Rick Singer, the so-called mastermind of the scheme, set up a non-profit foundation called Key Worldwide Foundation with the ostensible purpose of providing educational opportunities for underprivileged kids. Wealthy parents gave money to the Foundation, and wrote off their donations as tax-deductible charitable contributions. Singer used the money in the Foundation to: bribe university coaches who would designate the children of the wealthy parents as athletic recruits; pay off SAT administrators to correct the tests of the children so their scores qualified them for admission to elite universities; and hire proxy test-takers to just take the SAT/ACT instead of the children in order to get qualifying scores.

Between 2011-2018, Key Worldwide Foundation was paid approximately $25 million dollars. It operated out of Singer’s home, had no paid employees, and listed only one independent contractor: the tennis coach at Georgetown, who by 2016 was being paid $825,000 a year. Normally, these facts on Key’s annual 990 tax returns would have raised red—or at least yellow—flags with the IRS, usually the first line of defense for financial crimes and conspiracies. But the Republican-led Congressional probe into whether the IRS had targeted conservative political groups for enforcement (no evidence was found that it had done so) and a recent gutting of staff and resources at the IRS have resulted in less oversight and enforcement, particularly of charitable foundations and wealthy individuals.

THE LAW

Ultimately, the IRS and the FBI brought a joint criminal case against over 50 people. The investigation, dubbed Operation Varsity Blues, was conducted over many years, many states, and utilized many informants. The IRS charged the parents involved with tax fraud and tax evasion for claiming tax deductions for their payments to Key Worldwide Foundation. The DOJ brought a wide variety of charges, including: bribery; conspiracy to commit racketeering; conspiracy to commit money laundering; conspiracy to commit mail fraud, and wire fraud. In court hearings thus far, attorneys for the government have stated that their evidence against the defendants consists of wiretaps, financial documents, emails, and surveillance photos—i.e. strong evidence comprising strong cases.

One charge that the DOJ has brought against at least 30 people in the scandal is “conspiracy to commit honest services fraud,” 18 U.S.C. 1346. Added to the federal mail and wire fraud statute in 1988, the statute states that the term “scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services.” The scope and vagueness of the statute have been the subject of much criticism, but the parameters established by the Supreme Court in Skilling v. U.S., 561 U.S. 358 (2010) and Black v. U.S., 561 U.S. 465 (2010) seem to apply to Operation Varsity Blues: [the statute criminalizes] “fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who has not been deceived.”

Thus, the money that parents “donated” to Key Worldwide Foundation and sought tax deductions for supports not only tax fraud and tax evasion charges, but conspiracy to commit honest services fraud charges since the money was used for bribery and kickbacks when given to coaches, SAT/ACT administrators and test takers, and other university insiders.

CLOSING THE DOORS

The overarching question in the college admissions scandal is not who, or how, or even what laws were implicated, but why; why did these wealthy, privileged parents break the law just to get their children into elite universities? Did they feel that their children were entitled to education at certain schools because of their wealth and privilege? Did they think their wealth and privilege would shield them from consequences? Some argue that the “side door” created by Singer is in reality no different than the “back door” that has been used by the wealthy for decades: huge donations, endowed faculty chairs, scholarships and new buildings funded by wealthy patrons whose children are then given preferential treatment in the admissions process. In both instances, a lot of money is given to elite universities in exchange for admission of children of wealthy parents. However, the so-called back door is legal while the side door is not. While legality certainly matters, ethically is it a distinction without a difference?

One way to stop this abuse by the wealthy and privileged is for the prosecution of those using the side door, as Operation Varsity Blues is doing. Another way is for universities to close the back door. If the admissions process were completely separate from the development process at universities—aka the donations—then wealth and privilege would have less influence over who gets admitted to the top universities in the country.

CONTACT YOUR ATTORNEY

If you or someone you know has been discriminated against when applying for admission to a school of higher education, contact Dave Thomas at The Thomas Law Firm for a free evaluation of your legal rights.

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