After a recent New York Times article implied that online learning giant K12 Inc. focuses more on its bottom line than student performance, the company now faces a class-action lawsuit alleging that it violated securities laws by issuing false and misleading statements regarding its business prospects.
On Dec. 12, 2011, the Times published an article describing numerous alleged improper practices at K12’s main virtual charter schools. After the article appeared, the price of K12 stock plunged from a high of $28.79 per share on Dec. 9, 2011, to a low of $18.46 per share on Dec. 16, 2011. The stock was trading at $21. 56 as of press time.
The lawsuit, aimed at the country’s largest operator of full-time public virtual schools, targets Harry T. Hawks, the company’s chief financial officer, and Ronald J. Packard, K12’s chief executive. It alleges that:
- K12 engaged in improper and deceptive recruiting and sales strategies, aimed at enrolling students regardless of their ability to successfully complete the curriculum;
- K12 failed to disclose administrative pressure from upper management to pass students, despite poor or nonexistent academic performance, so as to maintain high enrollment levels and continued government funding; and
- According to various academic benchmarks, K12 students chronically underperformed their peers at traditional schools.
The complaint alleges that, as a result of these actions, K12’s statements regarding its academic performance, financial performance, and business and financial prospects were “materially false and misleading.”
The lawsuit was filed in the U.S. District Court for the Eastern District of Virginia by the Shuman Law Firm on behalf of purchasers of the common stock of K12 Inc. between Sept. 9, 2009, and Dec. 16, 2011.
“K12 disputes the allegations and intends to vigorously defend itself,” said Jeff Kwitowski, vice president of public affairs for K12, in an interview with eSchool News. “The company won’t comment on the pending litigation; however, it appears to repeat allegations made in a recent New York Times article.”
The Times article does make the same allegations, quoting numbers and anonymous teacher and administrative sources from K12 schools that caused a national stir in December.