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OREGON WINS $10 MILLION LAWSUIT AGAINST UNIVERSITY OF PHOENIX

Editor’s Pick: J. Williams
In: Uncategorized
Tuesday October 19, 2010
0 Comments      


Oregon sues to recover $10 million connected to misleading filings by University
of Phoenix
— Oregon students and investors suffered because of the company’s alleged
practices
By Oregon State Treasurer,

SALEM – Oregon Treasurer Ted Wheeler and Attorney General John Kroger today
announced a securities fraud lawsuit against Apollo Group Inc. of Arizona, the
parent company of University of Phoenix, and several executives, for misleading
investors in the company’s financial statements.

The for-profit college allegedly deceived investors about its revenue between
2007 and 2010, a practice that sparked an investigation by the U.S. Securities
and Exchange Commission. The loss to the Oregon Public Employee Retirement Fund
as a result of the misrepresentation is estimated at roughly $10 million.

The company’s financial practices also hurt Oregonians who were pursuing higher
education. The company allegedly did not follow proper steps when dealing with
federal student loans, and improperly canceled loans and left students on the
hook financially for classes they did not take.

“With this lawsuit, we are taking a clear stand that we will not tolerate
businesses practices like those used by the University of Phoenix to take
advantage of their students and their investors,” said Treasurer Wheeler, who
sits on the Oregon Investment Council. “As a responsible investor, the Oregon
Treasury takes action against companies that violate the public trust and fail
to act in shareholders’ best interests.”

“Companies that cook their books will have to answer to Oregon in court,” said
Attorney General Kroger.

Apollo Group allegedly misrepresented its income by failing to account for
losses that were the result of student withdrawals from classes. The practice
was disclosed in an October 2009 filing, at which time Apollo disclosed the SEC
investigation.
In reaction to the disclosure, shares of Apollo plummeted, losing 17.7 percent
in value in a single day, on Oct. 28, 2009. The pre-disclosure price dropped
from $72.97 per share to $60.06 per share, wiping out nearly $2 billion in
market capitalization. The Company’s stock price continued to trade lower over
the next several months and remained deflated with an average closing price of
$58 per share in the 90 days subsequent to the disclosures.

In 2010, Apollo’s stock price continued to crumble in reaction to, among other
things, political calls for more oversight of the for-profit college industry,
and Congressional hearings that exposed certain of Apollo’s unsavory and
improper business practices.  By Aug. 2, 2010, Apollo’s stock was trading in the
$46 range, but it was again rocked when it was revealed during a Senate
investigation and in a report submitted and presented to Senate investigators by
the Government Accountability Office that Apollo was committing widespread fraud
in marketing its services to prospective students.  By Aug. 13, 2010, shares of
Apollo were trading at $38.94.

In the lawsuit, filed in U.S. District Court in Arizona, Oregon is joining a
class action suit and seeking lead plaintiff status.

The suit accuses Apollo Group Inc. and its executives of violating securities
law by making statements to investors that were materially false and misleading
because they misrepresented and/or failed to disclose information crucial to
investors’ ability to accurately assess the risks of their investments.

The Oregon Public Employees Retirement Fund, which had a value of $51 billion as
of Aug. 31, is diversified and invested around the world. Oregon invests in
several passive strategies, including variants of the S&P and Russell index
series.  Apollo Group, Inc. (APOL) is a part of those indices and, therefore, is
a holding.

Apollo Group is one of the largest private education providers in the nation and
has been in the education business for more than 35 years. There are four
locations of University of Phoenix in Oregon.

The company derives a majority of its revenue from federal student loans, and is
the largest single recipient of student loan funds in the United States.
Institutions receiving loans are required to follow federal regulations,
including limits on the percentage of defaulted loans extended to students.
Institutions that violate these requirements risk losing their federal loan
accreditation.


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