Our institutions of higher education are supposed to educate our youths on the ever-expanding boundaries of practical knowledge, but sometimes the innovations they help foster are used not for good but for staggering criminal gains. From phishing schemes to loan scandals, America's colleges and universities have played a significant role in some of the most devastating cases of fraud and identity theft in modern history. Here's a look at some of the biggest to ever hit the courts.

Rio Salado College Fleeced for $500,000
If there's a problem with the distance learning programs many colleges offer, it's that the lack of a physical classroom makes it easy for criminals to impersonate legitimate students. As such, it's not uncommon for a college to be tricked into falsely distributing financial aid to an individual using an assumed identity. In 2006, Trenda Lynne Halton of Peoria, Arizona, discovered that she could earn a handsome amount of money by showing would-be criminals how to exploit this weakness. She convinced more than 130 people to pay her between $500 to $1,500 each in exchange for her help in creating fake documents like high school diplomas and tax forms that could then be used to apply for Pell Grants and other loans from Rio Salado College in Tempe, Arizona.

By the time a Rio Salado employee finally caught on to the fact that many of the college's distance learning applications shared the same handwriting and enrolled in the same classes, Halton and her band of "straw students" had defrauded the school for $538,932 in student aid. She and 64 other defendants were indicted in 2009 and charged with a range of offenses that include conspiracy, mail fraud, financial aid fraud and making false statements in connection with financial aid.

University of Missouri Students Run Phishing Scam
In 2001, two brothers attending the University of Missouri, Amir and Osmaan Shah, devised a program to harvest or "phish" e-mail addresses from college students across the country. Using UM's networks as a distribution point, they collected more than 8 million e-mail addresses from students at more than 2,000 colleges and universities. They then used the harvested addresses to launch a massive spam campaign, encouraging students to buy various products and services from their affiliates. Though the e-mails had less than a 1% response rate, the brothers sold enough merchandise between 2001 and 2004 to net them more than $4.1 million in profits.

The University of Missouri eventually caught the pair, along with two accomplices, after the school's entire network became clogged due to the massive output of spam. A federal investigation revealed that over the years, the Shah brothers had illegally harvested more than 100 million e-mail addresses in the U.S. and the U.K. They were convicted of multiple violations of the CAN-SPAM Act in 2010 and are currently serving three years of probation.

Massive Student Loan Scandal
A 2007 investigation by New York DA Andrew Cuomo into the back-room deals cut between colleges and student loan companies uncovered a scandal that encompassed over 100 of the most prestigious universities in the country. Through relentless probes, Cuomo discovered that financial aid officers at institutions such as Johns Hopkins, Columbia University, University of Southern California and Penn accepted bribes, gifts and paid vacations from student loan companies in exchange for placing the companies on their list of "preferred" lenders. Further investigation discovered that some financial aid officials even owned stock in the companies that they recommended to their respective student bodies.

In the wave of firings and resignations that followed, the House passed the Student Loan Sunshine Act. The Act requires all schools that work with student loan companies to adopt a code of conduct banning them from accepting any gifts or giving preferential treatment to loan companies with which their officers are affiliated. Additionally, eight of the Wall Street banks embroiled in the scandal agreed to give $13.7 million to the National Education Fund and a dozen of the guilty schools agreed to reimburse students a total of $3 million.

Government Defrauded for $11 billion
The most recent college fraud scandal to make headlines is also the largest of its kind to date. Last fall, the Department of Justice - along with the states of California, Florida, Illinois and Indiana - filed a lawsuit against the Education Management Corporation, accusing the Pittsburgh-based company of violating the Higher Education Act in order to fraudulently obtain more than $11 billion in student aid.

Specifically, Education Management, which operates the Art Institutes, Argosy University and other schools, is being accused of rewarding admissions officials with commissions and bonuses for bringing in unfit students that could be used to win more federal aid. According to the New York Times, recruiters for the company's stable of schools were even encouraged to enroll students who were illiterate or clearly under the influence of drugs. In one case, a recruiter signed up a new student for an online course even though they made it clear they didn't own a computer. The case is currently making its way through the courts.

The Bottom Line
While these are, without a doubt, some of the most scandalous cases of fraud to ever rankle America's colleges and universities, they certainly won't be the last. This year, national student debt is expected to surpass $1 trillion. With student loans being cited by experts across the country as the next big bubble to burst, it's only a matter of time before another case of mass fraud is discovered in the cradle of higher education.

Related Articles
  1. Savings

    6 Ways to Save Money on College Supplies

    Tuition and room and board are big expenses, yes, but the cost of textbooks and supplies can add up, too, unless you strategize.
  2. Investing Basics

    Toshiba's Accounting Scandal: How It Happened

    Learn how Toshiba's corporate culture and lax internal controls led to an accounting scandal that ended with the resignation of the company's CEO.
  3. Professionals

    Is Your Financial Advisor Looking Out for You?

    Financial advisors sometimes aren't looking out for clients' best interests. Regulators are scrutinizing their practices; investors should too.
  4. Savings

    Using Your 529 Savings to Study Abroad

    With studying abroad no longer cheap, families may find that a 529 plan college-savings account can fund educational travel. Tip: Read the fine print.
  5. Savings

    Which Gets Priority: Retirement or College Fund?

    On a tight budget? Wondering which to contribute to – your retirement or your kid's college fund? Here's expert help on how best to allocate your savings.
  6. Credit & Loans

    Why Fannie Mae And Freddie Mac Might Be In Trouble

    Fannie Mae and Freddie Mac are under increased scrutiny as debates continue about conservatorship, share price, and profit allocations.
  7. Professionals

    Are You Sure You Aren't Ponzi Scheme-Susceptible?

    Anyone can be a victim of a Ponzi scheme — even the most financially literate. Here's how to avoid the next Madoff.
  8. Professionals

    7 Cybersecurity Tips for Advisors

    The digital age has created a new breed of thief who can break into client files at any time, but there are ways to minimize risk exposure.
  9. Professionals

    Tips for Protecting Clients from Scammers

    Predators now have more access to vulnerable clients than ever before; advisors should communicate with clients to better spot potential scams.
  10. Investing News

    Why FIFA Can't Give the 2022 World Cup to Qatar

    Learn about the high price tag for the 2022 World Cup in Qatar, along with allegations of human rights abuses and bribery scandals in the bidding process.
  1. Black Money

    Money earned through any illegal activity controlled by country ...
  2. Good Student Discount

    An auto insurance policy discount available to young drivers ...
  3. Whartonite

    A graduate of the Wharton School of Business at the University ...
  4. Credit Card Dump

    The unauthorized copying of all the information contained in ...
  5. PIN Cashing

    A type of fraud in which a stolen credit card or debit card is ...
  6. Carding Forum

    A website dedicated to the sharing of stolen credit card numbers. ...
  1. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  2. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
  3. What are some high-profile examples of wash trading schemes?

    In 2012, the Royal Bank of Canada (RBC) was accused of a complex wash trading scheme to profit from a Canadian tax provision, ... Read Full Answer >>
  4. What are the best MBA programs for corporate finance?

    Opinions vary based on which publications you consult, but the best MBA programs for a career in corporate finance are at ... Read Full Answer >>
  5. How should a whistleblower report unlawful or unethical behavior?

    Whistleblowing takes many forms. A whistleblower could expose government corruption, expose unethical business behavior or ... Read Full Answer >>
  6. How do insurance companies use a whistleblower?

    Fraudulent claims are among the most prevalent and serious business risks that insurance companies face. Many consumers have ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!