For-Profit Education Giant Wins in 9th Circuit

(CN) - Claims that the for-profit education company Apollo Group inflated its worth with lies and sketchy recruitment tactics failed to impress the 9th Circuit on Tuesday.

The ruling comes more than four years after the U.S. General Accountability Office embarrassed 15 for-profit colleges with a report detailing how they encouraged undercover investigators posing as potential students to falsify financial aid information, or supplied inaccurate information about tuition costs and accreditation.

Investors in Arizona-based Apollo, which owns the ubiquitous University of Phoenix, brought a deluge of class actions that false financial reports and inflated student-recruitment numbers were to blame for the $46 million in stock sold between May 2007 and October 2010.

U.S. District Judge James Teilborg consolidated the actions in Phoenix but ultimately dismissed them after finding that the investors had failed state a valid claim for securities fraud.

In affirming Tuesday, the 9th Circuit found that the statements and misrepresentations in question were mere "business puffing."

The investors' complaint lacked sufficient detail to meet the relatively high bar for pleadings in such securities actions, the court found, also citing the failure to show that Apollo acted with an evil mind, misstated financial numbers, or used deceptive recruiting tactics as a general, companywide rule.

"'Puffing' concerns expressions of opinion, as opposed to knowingly false statements of fact," Judge Milan Smith wrote for a three-judge panel. "The statements the plaintiffs allege Apollo made are inherently subjective 'puffing' and would not induce the reliance of a reasonable investor."

The evidence of wrongdoing that the plaintiffs offered meanwhile did not show "widespread deception" on the part of the company, the court found.

"The plaintiffs rely on statements by various anonymous employees and executives who suggest that they personally witnessed faulty recruiting or attended meetings where Apollo representatives discussed marketing to unfit students," Smith wrote. "The plaintiffs do not provide specificity about these meetings and do not discuss what made students unfit. Instead, the plaintiffs rely on generalizations about groups of people, such as the homeless or veterans, who were supposedly unreliable students. At best, the plaintiffs' allegations reveal isolated instances of faulty recruitment, rather than widespread deception, which would be necessary to establish fraudulent intent or reckless ignorance based on a holistic analysis."

Stuart Grant, of Grant & Eisenhofer in Wilmington, Del., argued the case in the 9th Circuit for the plaintiff-investors. He did not immediately return a request for comment on Tuesday.

A spokesperson for the Apollo Group was preparing a response at press time.

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