Goodwin Securities Litigators Secure Class Action Win for Private Education Provider
07.13.12
In a case closely watched by the private education industry, Goodwin litigators secured a major victory for Apollo Group, Inc. – owner of the University of Phoenix – when an Arizona federal judge dismissed with prejudice a securities class action complaint alleging that Apollo misled investors about the sources of its impressive growth over a nearly four-year class period.
Apollo is one of the world’s largest private education providers and has been in the education business for more than 35 years, offering innovative educational programs and services online and on local campuses in more than 40 states, Washington, D.C., Puerto Rico, Latin America, and Europe.
The plaintiffs alleged that Apollo misled the market by citing the quality of its education and diversity of its program offerings as the principal reasons for its growth, and claimed that the primary source of Apollo’s growth was actually “improper” recruiting and marketing practices. In addition, the plaintiffs contended that Apollo misstated its financials in violation of Generally Accepted Accounting Principles (“GAAP”) by deliberately understating bad debt reserves.
Judge James Teilborg of the U.S. District Court for the District of Arizona, adopted our clients’ principal arguments in finding that the statements regarding growth were so inherently subjective that they could not be the basis for securities fraud and instead constituted legally nonactionable “puffery” upon which no reasonable shareholder would rely. The court also found that the plaintiffs’ GAAP allegations were not adequately pled, noting among other things the lack of any financial restatement by Apollo during the lengthy class period.
Finally, the court found that the plaintiffs failed to adequately plead scienter – i.e., how the defendants actually knew that their statements were false when made, and made with an intent to deceive – and to adequately plead loss causation, or how the revelation of a market fraud – as opposed to ordinary business reverses – caused their alleged financial loss.
The litigation team was led by Goodwin partner
Dan Tyukody.