Apollo Group Loses Bid to Cancel $277.5M Verdict
(CN) - The Supreme Court rejected an appeal over a decision that found the Apollo Group, which owns the for-profit University of Phoenix, owed its shareholders $277.5 million for committing securities fraud.
The 9th Circuit had reinstated the jury verdict on March 3, 2010, after an Arizona federal judge granted Apollo judgment as a matter of law and vacated the award in 2008. With the high court's appeal rejection on Monday, Apollo has no recourse left to avoid paying the verdict.
In January 2008, a jury had found that Apollo and two of its officers misled investors about a Department of Education program review at the University of Phoenix. About six months after beginning the review in August 2003, the Education Department informed Apollo that it had preliminarily found that the University of Phoenix violated federal regulations.
Apollo never disclosed the report, and instead painted a different picture for investors over the subsequent six months. Before the department published its findings in September 2004, Apollo made six separate statements that were at odds the Education Department's findings and misrepresented the state of affairs.
Five days after the department published its report, two financial analysts at UBS downgraded Apollo's stock and the company's shares dropped by $5.55.
The class that sued Apollo the following month represented investors who bought Apollo stock between Feb. 27, 2004 and Sept. 14, 2004.
Apollo almost got a pass on the verdict in August 2008 when U.S. District Judge James Teilborg concluded that the class, led by the Policemen's Annuity and Benefit Fund of Chicago, had failed to present sufficient evidence of fraud at trial.
Teilborg wrote that Apollo misled the market about the government's review, but the class failed to prove that those misrepresentations caused investors to suffer any harm.
The 9th Circuit overturned that decision in an unpublished ruling, finding that the misrepresentations were in fact harmful to investors.
"The jury could have reasonably found that the UBS reports following various newspaper articles were 'corrective disclosures' providing additional or more authoritative fraud-related information that deflated the stock price," the unsigned decision states.
The court also refused to grant Apollo a new trial or decrease the damages award of $5.55 for every share bought by the class during the six months that Apollo misled investors about the Education Department's review.
Apollo is one of more than a dozen chains of colleges being scrutinized by Congress. The Government Accountability Office reported last year that it investigated 15 profit-making colleges and found that all 15 "made deceptive or otherwise questionable statements to GAO's undercover applicants."
The profit-making colleges - many of them chain schools, such as Corinthian Colleges and the Apollo Group, and trade schools with a large Internet presence - have been sued more than 100 times in recent years. At least a dozen of those suits are class actions by students who claimed that the colleges lied about their accreditation, the transferability of credits, the qualification of their professors, their job-placement programs, the cost of tuition, the job-placement records and salaries of their graduates, tuition refunds, and the availability of classes. The students also accuse the schools of pressuring them to take out more money in student loans than necessary. After the colleges get that money, and then allegedly cancel the classes the students sought, those students and taxpayer-funded loan programs are on the hook for loan payments.
The release of the GAO report was followed by a slew of shareholder lawsuits from investors who claimed the for-profit colleges had propped up their share prices by concealing their questionable practices.
The Department of Education adopted new rules in October 2010, to reduce shenanigans in the colleges' recruitment of students. A trade group representing the schools, the Coalition for Educational Success, claims that the regulations were illegally adopted and are unconstitutionally broad.