Making headlines recently was the decision of the U.S. District Court for the District of Arizona vacating a $277 million jury verdict in favor of a class of shareholders of Apollo Group Inc. on the grounds that plaintiff had failed to prove loss causation as required under Dura Pharmaceuticals Inc. v. Broudo . How did it happen and what can others learn from the case?
According to papers it filed in the district court, Apollo is the largest provider of proprietary education in the United States and the parent company of the University of Phoenix, or UOP. As recipients of federal student aid funds, Apollo and its subsidiaries are subject to Title IV of the Higher Education Act of 1965, as amended, and oversight by the Department of Education. In August 2003, the department began a program review of UOP to examine its regulatory compliance. In particular, although UOP did not know it, it appears the department was examining UOP’s compliance with restrictions on incentive compensation in light of a qui tam action filed in March 2003 by two UOP employees in the Eastern District of California alleging that UOP improperly was compensating employees based on their enrollment rates. In February 2004, a department employee issued a report concluding that UOP had violated a 1992 amendment to the act and regulations thereunder governing incentive compensation. Thereafter, although Apollo publicly disclosed the existence of both the program review and the February 2004 report, it did not disclose the report in full. On Sept. 7, 2004, prior to a final determination by the department, Apollo paid $9.8 million to settle the program review. It announced the settlement the same day, after market close.
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