Take a company with a controversial business model, throw in some rosy projections by senior management and top it off with a sudden 40 percent stock drop. It’s a classic recipe for a securities class action, and that’s just what plaintiffs lawyers served up for the online public school company K12 Inc. earlier this year.
This week a federal judge in Virginia dismissed the case, finding that none of K12′s alleged misstatements about its financial prospects were knowingly false or misleading. The judge wasn’t exactly kind to K12: He wrote that “the impact on investors of defendants’ lack of managerial competence can’t be minimized.” But he ruled that K12′s missteps before its stock plummeted in October 2013—including its failure to warn investors that it wasn’t prepared to process an influx of enrollment applications—didn’t add up to securities fraud.
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