According to a press release dated January 30, 2012, the Company and certain of its senior executives are charged with issuing a series of materially false and misleading statements in violation of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.
Specifically, on December 12, 2011, The New York Times released an article titled “Profits and Questions at Online Charter Schools” chronicling a myriad of improper practices at the Company’s main virtual charter schools, including (i) high-pressure sales strategies aimed strictly at enrolling students, irrespective of the students’ suitability for online education; (ii) administrative pressure to pass enrolled students, regardless of academic performance; and (iii) overall failure of the Company’s students to maintain grade-level performance in math and reading. On this news, the price of the Company’s stock dropped 34.4%, or $9.89 per share, from a closing price of $28.79 on December 12, 2011, to a closing price of $18.90 per share on December 16, 2011, on unusually heavy trading volume.
The plaintiffs claim that the following facts were known to the defendants but concealed from the investing public during the Class Period: (i) the Company misstated and failed to disclose that it had engaged in improper and deceptive recruiting and sales strategies, aimed strictly at enrolling students regardless of the students’ ability to successfully complete the curriculum; (ii) the Company misstated and failed to disclose the administrative pressure from upper management levels to pass students despite poor (or nonexistent) academic performance, so as to maintain high enrollment levels and in turn continued government payments; and (iii) the Company’s failure to maintain overall math and reading performance levels of its students equal to statewide grade-level performance. As a result, the Complaint alleges that the Company violated provisions of the Exchange Act during the Class Period by issuing false and misleading press releases, financial statements, filings with the Securities and Exchange Commission and statements during investor conference calls.
On May 21, 2012, the Court entered an Order appointing lead plaintiff and approving the selection of lead counsel.
On June 22, 2012, the Plaintiffs filed their Amended Complaint. Defendants responded with a Motion to Dismiss filed July 20, 2012. On September 14, 2012, the Court entered an Order denying Defendants' Motion to Dismiss.
On March 4, 2013, the Lead Plaintiff filed a Stipulation dismissing its Section 10(b) and 20(a) claims against Defendants, with prejudice, to the extent those claims are based on misrepresentations or omissions regarding academic performance and educational quality.
On March 4, 2013, the parties entered into a Stipulation of Settlement. The Court preliminarily approved this Settlement on March 22. On July 25, this Settlement was approved and the Court issued a Final Judgment. On the same date, the Court also issued an Order approving the Plan of Allocation and Orders approving attorneys' fees.