Securities class action basics
The lawsuit, originally filed by the Oklahoma Firefighters Pension & Retirement System in January, was brought forth to represent individuals and organizations that bought the company's common stock between March 11, 2013, and Oct. 9, 2013. These dates are inclusive, and represent the class period.
According to the legal action, which was filed in the U.S. District Court for the Eastern District of Virginia, the company and some of its senior executives breached federal securities laws by making both omissions and statements that were materially misleading. The securities class action specifically alleged that the aforementioned omissions and misleading statements pertained to the company's revenue growth, student enrollment and prospects for fiscal year 2014, including its ability to comply with state regulations affecting enrollment.
During the class period, the online education provider emphasized that it was on "track to have one of the best business development years" in the firm's history, which should help the company enjoy even more robust growth in fiscal year 2014 than it did in fiscal year 2013. In addition, K12 publicly approved the figures analysts provided for the company's annual fiscal guidance.
After the close of trading on Oct. 8, 2013, the company informed investors that the organization's inability to focus on promotional efforts to obtain new students during fiscal year 2014 was hindering and limiting opportunities for growth. K12 indicated that in spite of the representations the defendants made during the class period, this was the case.
The online education provider indicated that its inability to consider and follow legal compliance requirements governing student enrollment in fiscal year 2014 adversely affected K12's growth prospects. The company also revealed that its "own promotional program started later than it should have, and drove more applications later in the summer" when there was not enough time to turn these applications into enrollments.
The online education provider further indicated that for fiscal 2014, revenue guidance was between $905 million and $925 million, instead of the $986.8 million figure endorsed previously. When markets responded to the company's latest disclosures, company shares fell more than 38 percent, from a closing price of $28.59 on Oct. 8, 2013, to finish at $17.60 on the following day.
Federal court strikes down suit
When deciding to dismiss the securities class action, the federal court stated that the statements that plaintiff had claimed were fraudulent were not false or misleading. U.S. District Court Judge Anthony Trenga reviewed the various allegations in a 25-page opinion released on Nov. 5, 2014, indicating that they were merely predictions and assertions provided by the company and its officers.
Trenga stated in his opinion that due to their subjective nature, these statements could not be considered false or misleading under federal securities laws. In addition, the plaintiffs failed to file an appeal by the deadline of Dec. 5.
After these developments, K12 announced the outcome of the securities class action and lauded the court for both trying the case and giving the allegations made in the lawsuit a comprehensive review. In addition, Nate Davis, K12's Chairman and CEO, voiced his gratitude for the court's thorough consideration of the claims and reiterated the company's commitment to holding the greatest possible integrity.