The Oregon Department of Justice and the Office of the State Treasurer announced Monday their filing of a securities fraud lawsuit against Apollo Group Inc. of Arizona, the parent company of the University of Phoenix, for allegedly doctoring financial statements and misleading investors.
The University of Phoenix, one of the nation’s largest for-profit colleges serving roughly 4,200 students in Oregon, received flak from Oregon Attorney General John Kroger and State Treasurer Ted Wheeler for purportedly deceiving investors about its revenue stream between 2007 and 2010, a matter serious enough to spawn a 2009 investigation by the Securities and Exchange Commission.
As a result of the financial misrepresentation, the DOJ estimates the net loss to the Oregon Public Employee Retirement Fund to be roughly $10 million, and is thus suing Apollo Group for the return of these funds. Oregon is seeking plaintiff status in a class action lawsuit in an Arizona U.S. District Court.
The Oregon Public Employees Retirement Fund, valued at $51 billion as of Aug. 31, is the retirement and disability fund of the Oregon Public Employees Retirement System, catering to employees of the state, school districts and local government. PERS, which invests in the open market, invested millions in Apollo Group, and the alleged investment fraud represents a blow to health and retirement benefits for 95 percent of Oregon’s public employees.
“This case is about protecting investments made by the Public Employment Retirement System, and the Department of Justice is fully committed to that,” DOJ spokesperson Tony Green said.
The company also was accused of failing to follow proper steps in its dealing with financial aid. The group improperly canceled certain loans that rendered students financially responsible for tuition fees for classes in which they did not remain enrolled in.
By misrepresenting its income, the DOJ said, Apollo Group failed to account for capital losses based on students withdrawing from classes.
State Treasurer Wheeler, a member of the Oregon Investment Council, views the lawsuit as an opportunity to send a message to publicly invested businesses that the state is poised to prosecute investment fraud.
“With this lawsuit, we are taking a clear stand that we will not tolerate business practices like those used by the University of Phoenix to take advantage of their students and their investors,” Wheeler said. “As a responsible investor, the Oregon Treasury takes action against companies that violate the public trust and fail to act in shareholders’ best interests.”
The DOJ has taken a similar stance on the lawsuit, viewing it as another opportunity to protect public investors from the seemingly omnipresent power of large corporations.
“Companies that cook their books will have to answer to Oregon in court,” Kroger said in a DOJ press release Monday.
According to a DOJ press release, market shares of Apollo dropped 17.7 percent in a single day in late-October 2009 from $72.97 per share to $60.06 per share as a result of the SEC investigation, eventually wiping out almost $2 billion in market capitalization. 2010 saw the continued crumbling of Apollo’s stock price, and by Aug. 13, 2010, shares of Apollo were trading on the open market at $38.94.
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