The Wall Street Journal-20080117-Jury Finds Against Apollo Group
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Jury Finds Against Apollo Group
In a rare instance of a securities-fraud class-action lawsuit being tried to a verdict, a jury yesterday found that education company Apollo Group Inc. defrauded investors and ordered it to pay shareholders about $280 million.
Shareholders sued Apollo in October 2004, accusing the company and two of its executives of withholding a Department of Education report that criticized the recruitment policies at the University of Phoenix, one of Apollo's for-profit schools. The report accused the school of paying enrollment counselors based solely on the recruiters' success in enrolling students, a violation of federal regulations.
In September 2004, the school agreed to pay the Department of Education $9.8 million to settle the matter, and the report was released to the public.
After a two-month trial in federal court in Phoenix, the jury awarded shareholders $5.55 a share, which amounts to about $280 million.
"The jury's verdict is contrary to the evidence and the law," said Wayne Smith of Gibson Dunn & Crutcher LLP, which represented Apollo. "Not only is it horribly disappointing, it's also flat wrong."
Stephen Basser, a lawyer for the plaintiffs, said that from the start his clients were prepared to take the case to trial. "This is truly a great victory for shareholder rights in America and a great victory for maintaining the integrity of our financial markets," said Mr. Basser.
Phoenix-based Apollo said it is deciding whether to appeal. In 4 p.m. Nasdaq Stock Market composite trading, Apollo shares were down $1.36 at $78.57.
The vast majority of securities-fraud class-action cases are settled before reaching trial, as many companies don't want to risk large jury verdicts such as this one.
But sometimes taking a case to trial can pay off. In November, a jury ruled that JDS Uniphase Corp. and four former executives weren't liable in a class-action shareholder lawsuit in federal court in Oakland, Calif.
Besides the Apollo and JDS Uniphase lawsuits, only four other lawsuits have been tried to a verdict since 1995, the year Congress passed significant securities-litigation overhaul legislation, according to RiskMetrics Group Inc. Juries have been evenly split in these six cases, ruling three times for the plaintiffs and three times for the defendants. (Late last year, a federal appeals court overturned one of those verdicts in favor of the defense; that case now awaits retrial.)
