UPDATE 1-Grand Canyon settles False Claims Act case for $5.2 mln

* Says settlement releases it from similar claims in future

* Lawsuit had alleged improper compensation

* Shares rise 10 pct

Aug 18 (Reuters) - Grand Canyon Education Inc (LOPE.O) said it will pay a total of $5.2 million to the U.S. government and a former employee to settle claims of improper compensation to some of its enrollment counselors.

By settling the three-year-old lawsuit, it will be released from all similar claims in the future, the provider of online postsecondary education services said in a statement.

The settlement allows the company to avoid the cost and distraction of a potentially protracted trial, it said.

Grand Canyon and some other for-profit colleges are being hit by the proposed gainful employment regulation, which calls for colleges to prove they prepare students for jobs before they can receive federal aid. [ID:nSGE67G0IH]

Colleges are also being probed into their enrollment and recruitment practices. All of this has battered the sector for the last few months.

On Sept. 11, 2008, Grand Canyon was served with a qui tam lawsuit that had been filed against it in August 2007 by a then-current employee.

A qui tam case is a civil lawsuit brought by one or more individuals on behalf of the federal government for an alleged submission to the government of a false claim for payment.

Shares of Phoenix-based company were trading up 8 percent at $16.86 Wednesday morning on Nasdaq. They touched a high of $17.19 in early trade.

The shares had lost 45 percent of their value since their year high of $28.46 in April due to the uncertainty surrounding the gainful employment regulation. (Reporting by Megha Mandavia in Bangalore; Editing by Gopakumar Warrier)