Damning Times Article Exposed K12 Fraud, Derivative Action Says
Damning Times Article Exposed K12 Fraud, Derivative Action Says
(CN) - K12 Inc. faces a shareholder derivative complaint accusing the company of deceptive recruiting and sales strategies and violating federal securities laws by issuing false and misleading statements.
K12 Inc. is a technology based education company which specializes in proprietary curriculum, software systems and educational services. The company provides services to school districts for online programs, hybrid schools, virtual public schools, public charter schools and private schools.
K12 claimed students enrolled in their online curriculum performed as well as students in traditional schools.
Plaintiffs claim that thanks to a piece of investigative journalism by the New York Times, these and other questionable practices were brought to light.
K12 is accused of engaging in "improper practices . . . aimed strictly at enrolling students; administrative pressure from upper management levels to pass students despite poor (or nonexistent) academic performance; overall failure of K12 students to maintain grade level performance in math and reading . . ." the complaint reads.
After the article was published, K12's market capitalization fell by approximately $393 million or 62 percent.
According to the complaint, the company derived 85% of its revenue from virtual public schools and hybrid schools which it managed. These are funded by the state and/or local governments on a per student basis.
"As described in the New York Times article K12 receives and average of $5,500 to $6,000 per student from the state and local governments," the complaint states. To receive this funding the schools must comply with state rules and regulations.
Alleged violations include high pressure sales recruiting procedures and employee bonuse programs based on enrollment numbers which frequently led to students being enrolled who were clearly not right the program, leading to high enrollment and near immediate withdrawal. The company, however, continued to benefit from the process receiving payments for fees, books and initial tuition from the various governments.
Since the article appeared, the company has had to reimburse funds to state authorities, pay fees and fines to state and local governments, pay the ongoing costs of a parallel securities class action suit and an internal review and investigation into "the improprieties engaged in by the individual defendants."
Lead plaintiff Jared Staal named chairman of the board Andrew Tisch; CEO Ronald Packard former advisor to the Department of Defense Educational Advisory Committee; director Craig Barrett who is also chair of the United Nations Global Alliance for Information and Communication Technologies and Development; director Steven Fink who is also chairman of the board of Leapfrog Enterprises Inc.; director Mary Futrell who is a professor at George Washington University where she is co-director of the Center for Curriculum, Standards and Technology; director Jon Reynolds Jr.; director Guillermo Bron; and director Nathaniel Davis.
Stall is represented by Joseph J. Farnan III of Farnan LLP of Wilmington, Del. and Nicholas Porritt of Levi & Korsinsky LLP of Washington.
K12 Inc. is a technology based education company which specializes in proprietary curriculum, software systems and educational services. The company provides services to school districts for online programs, hybrid schools, virtual public schools, public charter schools and private schools.
K12 claimed students enrolled in their online curriculum performed as well as students in traditional schools.
Plaintiffs claim that thanks to a piece of investigative journalism by the New York Times, these and other questionable practices were brought to light.
K12 is accused of engaging in "improper practices . . . aimed strictly at enrolling students; administrative pressure from upper management levels to pass students despite poor (or nonexistent) academic performance; overall failure of K12 students to maintain grade level performance in math and reading . . ." the complaint reads.
After the article was published, K12's market capitalization fell by approximately $393 million or 62 percent.
According to the complaint, the company derived 85% of its revenue from virtual public schools and hybrid schools which it managed. These are funded by the state and/or local governments on a per student basis.
"As described in the New York Times article K12 receives and average of $5,500 to $6,000 per student from the state and local governments," the complaint states. To receive this funding the schools must comply with state rules and regulations.
Alleged violations include high pressure sales recruiting procedures and employee bonuse programs based on enrollment numbers which frequently led to students being enrolled who were clearly not right the program, leading to high enrollment and near immediate withdrawal. The company, however, continued to benefit from the process receiving payments for fees, books and initial tuition from the various governments.
Since the article appeared, the company has had to reimburse funds to state authorities, pay fees and fines to state and local governments, pay the ongoing costs of a parallel securities class action suit and an internal review and investigation into "the improprieties engaged in by the individual defendants."
Lead plaintiff Jared Staal named chairman of the board Andrew Tisch; CEO Ronald Packard former advisor to the Department of Defense Educational Advisory Committee; director Craig Barrett who is also chair of the United Nations Global Alliance for Information and Communication Technologies and Development; director Steven Fink who is also chairman of the board of Leapfrog Enterprises Inc.; director Mary Futrell who is a professor at George Washington University where she is co-director of the Center for Curriculum, Standards and Technology; director Jon Reynolds Jr.; director Guillermo Bron; and director Nathaniel Davis.
Stall is represented by Joseph J. Farnan III of Farnan LLP of Wilmington, Del. and Nicholas Porritt of Levi & Korsinsky LLP of Washington.
Copyright Courthouse News Service 2012
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