According to a press release dated August 12, 2010, the Complaint alleges that despite extensive positive statements by defendants in press releases and SEC filings during the Class Period regarding the Company's operational performance and future growth projections, these statements were false because: (1) defendants had propped up the Company's results by fraudulently inducing students to enroll in Education Management's scholastic and educational programs and engaged in other manipulative recruiting tactics; (2) defendants had materially overstated the Company's growth prospects by failing to properly disclose that defendants had engaged in illicit and improper recruiting activities, which also had the effect of artificially inflating the Company's reported results and future growth prospects; and (3) Education Management did not maintain adequate systems of internal operational or financial controls, which would have permitted Education Management's reported operational statements and foreseeable growth prospects to be true, accurate or reliable.
It was only on August 3, 2010 when a report by the United States General Accounting Office ("GAO") was leaked that investors finally began to learn the truth about Education Management. The August 4, 2010 GAO report concluded that for-profit educational institutions like Education Management had engaged in an illegal and fraudulent course of action designed to recruit students and over-charge the federal government for the cost of such education. Following these disclosures, Education Management’s common stock fell 18% in several trading days as this news reached the market.
On November 10, 2010, an Opinion and Order was issued by the Court appointing Lead Plaintiff and Lead Counsel.
On January 10, 2011, an amended class action complaint was filed by the lead plaintiff against the defendants. The defendants responded by filing two motions to dismiss on March 28, 2011.