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Friday, May 24, 2024 | Back issues
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WaPo Ducks Liability in For-Profit College Gripes

(CN) - Shareholders failed to link the Washington Post Co. with predatory enrollment practices that allegedly drove enrollment at its for-profit Kaplan colleges, a federal judge ruled.

Their grievances came from the dip in Washington Post Co. stock that followed a Government Accountability Office report on widespread fraud and predatory financial aid lending in the for-profit college industry.

Washington Post is the parent of Kaplan Inc., which owns Kaplan Higher Education Corp., a private, for-profit college with approximately 70 campuses nationwide.

U.S. District Judge Barbara Rothstein had dismissed the original complaint from lead plaintiff Plumbers Local #200 Pension Fund in 2011, but she found Tuesday that the amended action also failed to pass muster.

The complaint alleged that Washington Post, its CEO Donald Graham and its CFO Hal Jones "oversaw a for-profit education company built and dependent upon defrauding students and the federal government."

Shareholders claimed that "misled the market by 'failing to disclose that WPO's 'strong enrollment growth' was driven not by affirmative efforts to operate within the law, but almost exclusively by predatory enrollment practices, illegal compensation policies, and [other] violations."

Before delving into the deficiencies with the action, Rothstein noted "that alleged securities fraud at for-profit education institutions has been a frequent subject of recent litigation. These cases have been overwhelmingly unsuccessful."

The 9th Circuit led the tide in 2008 with its decision Metzler Inv. GMBH v. Corinthian Colleges Inc., according to the ruling.

Courts across the country then cut through similar allegations surrounding the for-profit college industry.

"The above case law is persuasive and represents a compelling hurdle for plaintiff to overcome," Rothstein wrote.

Though "strikingly similar" to what was pled in those cases, the claims against Washington Post are even weaker because they target a parent company and executives who had never worked at the allegedly fraudulent entity, according to the ruling.

Noting "the lack of suspicious stock sales attributed to the individual defendants," Rothstein said this compounded the need for investors to present strong pro-scienter allegations. Scienter is a legal term that involves a showing of intent to deceive or an extreme departure from the standard of ordinary care.

Such evidence could involve whistle-blower lawsuits, attendance by Graham and Jones at Kaplan executive meetings, and Washington Post data-monitoring activities, as well a public statements and lobby activities.

The investors simply failed to bring this evidence to the table, the court found.

"Read in its totality, the Amended Complaint does not sufficiently allege that the individual Defendants knowingly or recklessly misled the market," Rothstein wrote.

"Given that this is plaintiff's second unsuccessful attempt to survive a motion to dismiss, the court finds that dismissal with prejudice is appropriate," she added in a footnote.

"Here, the court notes that the amended complaint at issue is plaintiff's third pleading and is comprised of 150 pages and more than 375 paragraphs, much of which was derived from the testimony of at least 24 witnesses. Given the shortcomings of this voluminous and detailed pleading, the court is convinced that plaintiff 'could not possibly cure the deficiency' as it relates to scienter."

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