WASHINGTON (CN) - The Washington Post and its CEO Donald Graham did not conceal the corrupt business practices within the paper's for-profit Kaplan college to deceive stockholders, a federal judge ruled.
Kaplan and a host of other for-profit schools have come under fire in the wake of a Government Accountability Office report that accuses the industry of widespread fraud and predatory financial aid lending. The schools have allegedly lied about the quality of their programs and instructors, while beefing up enrollment statistics to score more federal funds.
A local plumbers union led Washington Post shareholders in a federal class action that accused the paper of committing securities fraud by masking the predatory practices of its syndicate of for-profit colleges operating under the Kaplan name. The complaint also named Post CEO Donald Graham and COO Hal Jones as defendants.
"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 class action complaint.
U.S. District Judge Barbara Rothstein dismissed the complaint last week. "Read in its totality, the complaint does not sufficiently allege that defendants knowingly or recklessly misled the market," Rothstein wrote. "Therefore, the court concludes that plaintiff has failed to allege sufficient facts to hold defendants culpable."
The Washington Post persuaded the judge that Kaplan executives largely control the school and operate independently from the parent company. Rothstein also agreed that Graham and Jones weren't necessarily the designees to communicate with the market.
"Defendants argue that the statements made by Defendant Graham touting KHE's educational programs are unrefuted in the complaint and amount to mere puffery, as opposed to material misstatements or omissions," she wrote, abbreviating the name of Kaplan Higher Education.
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