The original complaint charges CEC and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that career education publicly touted its business and financial performance, the performance of its stock price and its industry leading position as reasons for why investors should purchase its stock. These, and other statements particularized in the complaint, were materially false and misleading because they failed to disclose that CEC had been regularly falsifying student records in order to increase graduation rates and enrollment, conceal problems that could have threatened the accreditation of its schools, and generally, to allow it to increase its profitability. On December 3, 2003, the market learned that the former registrar of CEC’s Brooks Institute of Photography in Santa Barbara, California alleged, in a complaint filed with an accreditation agency, that the school falsified student records to ensure that the school passed inspections by accreditation auditors and to increase enrollment. In reaction to this announcement, CEC’s stock price plummeted, falling from $54.76 per share on December 2, 2003 to $39.48 on December 3, 2003, a one-day drop of 28%, on trading volume of 18.2 million shares -- more than nine times the Company’s three-month daily average. Throughout the Class Period, Career Education insiders, including the individual defendants, sold a total of 1.7 million (split-adjusted) shares of Career Education common stock at artificially inflated prices, reaping gross proceeds in excess of $69 million.
Beginning on December 9, 2003, six class actions alleging violations of federal securities laws, Taubenfeld v. Career Ed. Corp., et al., 03-CV-08884; Stellato v. Career Ed. Corp., et al., 03-CV-08939; Katz v. Career Ed. Corp., et al., 03-CV-09157; Morris, et al v. Career Ed. Corp., et al., 04-CV-00305; Woo v. Career Ed. Corp., et al., 04-CV-00339; Schild v. Career Ed. Corp., et al., 04-CV-00906, were filed in the Court and were subsequently consolidated by Order dated March 19, 2004 under the caption above.
On March 19, 2004, by Order, the Court appointed Thomas Schroder as Lead Plaintiff and approved Lead Plaintiff’s choice of counsel, the firm now known as Labaton Sucharow LLP, as Lead Counsel. The Consolidated Amended Complaint was filed on June 17, 2004. The Court dismissed the June 17, 2004 complaint on February 11, 2005 with leave to replead.
The Second Consolidated Amended Complaint dated April 1, 2005 was dismissed by Order of the Court on March 28, 2006 with leave to replead. On May 1, 2006, Plaintiffs filed the Third Consolidated Amended Complaint (the “Complaint”) which generally alleged, among other things, that Defendants issued materially false and misleading statements regarding CEC’s bad debt, student enrollment and job placement statistics during the Class Period — April 22, 2002 through and including February 15, 2005 — in a scheme to artificially inflate the value of CEC securities.
The Complaint was dismissed with prejudice by Order of the Court on March 29, 2007. Plaintiffs filed and served a timely notice of appeal to the United States Court of Appeals for the Seventh Circuit on April 24, 2007. While the notice of appeal was pending, the Parties engaged in settlement discussions with the assistance of retired United States District Judge Nicholas H. Politan, acting as a mediator. On September 25, 2007, the Settling Parties, through their respective attorneys, and with the approval of their respective clients, agreed in principle to the Settlement of the Action.
On June 26, 2008, the Honorable Joan H. Lefkow preliminarily approved the settlement in the amount of $4,900,000 in cash. On September 18, 2008, the Settlement Fairness hearing was held and Judge Lefkow approved the settlement, the plan of allocation and attorney’s fees and expense. The complaint was dismissed with prejudice.