WASHINGTON – The Washington Post pumped up its share price by using “abusive and fraudulent recruiting and financial aid lending practices” to boost income at its Kaplan education subsidiaries, and the Post’s share price dropped by 8 percent the day after the news came out, shareholders say in a federal class action.
The class, led by a plumbers union pension fund, also sued CEO Donald Graham and COO Hal Jones.
(The class action is one in a string of such complaints filed after the Government Accountability Office released a report on its investigation of for-profit chain colleges. The loosely regulated institutions, most of them with Internet branches, are accused of a welter of improprieties, including lying about the quality of their programs and instructors and encouraging applicants to lie on financial aid applications. The chain colleges are accused, in essence, of fleecing the students, and the government, for the federal loans, then hanging the students out to dry.)
“The GAO’s report cited many instances of abuse in the sector, finding that many of the companies in the industry – such as Washington Post – employed fraudulent and deceptive practices in their student recruitment, targeting students who used federal financial aid to pay for their schooling,” according to the complaint.
The class claims the Post “issued materially false and misleading statements regarding the company’s business and financial results. Specifically, defendant dialed to disclose that the company had been engaging in abusive and fraudulent recruiting and financial aid lending practices, thereby increasing Washington Post’s student enrollment and revenues. As a result of defendants’ false statements, Washington Post’s common stock traded at artificially inflated prices during the Class Period, reaching a high of $541.38 per share on April 15, 2010.”
After the stock market closed on Aug. 13, the U.S. Department of Education released data on federal student loan repayments. “The data showed that repayment rated were 54% at public colleges and 56% at private nonprofit institutions, compared to just 36% at for-profit colleges,” according to the complaint. “Specifically, the data showed that the repayment rates at Washington Post’s Kaplan University were a mere 27%.
“On this new, the price of Washington Post stock dropped 8.10% – or $27.83 per share – from a closing price of $343.48 on Aug. 13, 2010 to a closing price of $315.65 per share on Aug. 16, 2010, the following trading day, on a 422% increase in trading volume.”
The class claims the Post failed to disclose:
“that it had engaged in improper and deceptive recruiting and financial aid lending practices and, due to the government’s scrutiny into the for-profit sector, the company would be unable to continue these practices in the future; …
[and that] many of the company’s programs were in jeopardy of losing their eligibility for federal financial aid.”
The complaint adds: “As news continued to come out concerning the details of the government’s investigation and the anticipated repercussions from the investigation on Washington Post’s business and prospects, Washington Post Stock continued to decline.”
With the newspaper business in a shambles, the Post has come to rely increasingly upon profits from its Kaplan subsidiaries, which include Kaplan Higher Education, Kaplan Test Preparation, Kaplan International and Kaplan Ventures. Kaplan Higher Education includes Kaplan University, which includes actual campuses and Internet classes.
The class seeks damages for securities violations. Its lead counsel is Roger Adelman.