For-Profit School Dodges Shareholder Lawsuit

(CN) - A federal judge dismissed a shareholder class action that claims the for-profit college system Education Management Corp. exaggerated the company's growth prospects and failed to disclose illegal recruiting practices.

U.S. District Judge Nora Barry Fischer in Pittsburgh based her decision on the recommendations of U.S. Magistrate Judge Robert Mitchell, who said the lawsuit be dismissed because Education Management was upfront about the risks it could face with changing regulations, including those dealing with recruiting.

Education Management, with headquarters in Pittsburgh, provides post-secondary education to more than 136,000 students. The company grants undergraduate and graduate degrees through its Argosy University, Brown Mackie colleges, Art Institute and South University schools.

In the wake of a Government Accountability Office report that cited misleading practices among secondary education providers, a group of shareholders filed suit against Education Management. They said the company had issued false and misleading information about its operational performance during its initial public offering, and had used manipulative recruiting tactics to overstate its growth prospects.

Though Education Management was not explicitly named in the GAO report, its stock dropped dramatically in the days following the release.

For-profit schools face scrutiny over their compliance with federal guidelines about compensating admissions staff with incentives for boosting enrollment. Schools must comply with these rules to be eligible for federal student aid.

Mitchell's report finds fault with some of the statistics and information that the shareholders cited in their complaint, saying they are inconsistent with what was available at the time of the IPO.

The lawsuit was filed on behalf of a class of purchasers of the stock from Oct. 2, 2009, to Aug. 3, 2010.

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