Securities class action claim filed against Education Management Corporation, certain officers

A securities class action claim was recently brought forth against Education Management Corporation, as well as certain officers.

EDMC, based in Pittsburgh, Pennsylvania, provides private and post-secondary education in the U.S. and Canada. The company strives to provide its students with the tools, skills and self-confidence they need to succeed.

Securities class action claim details
Pomerantz LLP announced on Oct. 24, 2014, that it had filed a shareholder class action lawsuit against EDMC, as well as some of its officers. The legal claim was brought forth in an effort to represent all organizations and individuals who bought EDMC securities between Aug. 8, 2012 and Sept. 16, 2014. These dates are inclusive, and represent the class period.

The law firm filed the suit in United States District Court, Western District of Pennsylvania, giving it the docket number 14-cv-01287, in an attempt to recover damages against the defendants for alleged violations of securities laws contained under the Securities Exchange Act of 1934.

The suit involves allegations that defendants made materially false and misleading statements – involving the for-profit educator's operational, business and compliance policies – during the class period.

Separate lawsuit filed
A separate securities class action claim was announced on Oct. 10, 2014, by The Rosen Law Firm, alleging the company overstated key matters. More specifically, the suit claimed that in order to give the appearance it was complying with new federal regulations enacted in June 2011, the company manipulated programs for grants and federal student loans.

The legal action also alleged the for-profit educator breached federal regulations with its misleading and predatory enrollment and recruitment practices. Finally, the suit claimed the company overstated its revenue and goodwill. When the markets discovered the true nature of the company, its shares dropped, the legal action alleged.

The Rosen Law Firm's suit made the aforementioned allegations, but when claiming the company overstated its revenue, the legal action explained this by alleging EDMC failed to follow proper methods to increase its bad debt reserve when students withdrew. In addition, the lawsuit claimed that as a result of the aforementioned allegations, the company's public statements were materially false and misleading at all relevant times.

Harkin Report
Sen. Tom Harkin, chairman of the Health, Education, Labor and Pensions Committee, released a report on July 30, 2012, detailing the results of a two-year investigation into the for-profit college industry.

The document, called the Harkin Report, contained a wide range of disconcerting information about the for-profit college industry, and in particular EDMC. After the report was released, company shares declined $0.32, or nearly 8 percent, to close at $3.77 each on July 30, 2012.

Departure of school president
On June 20, 2013, after trading had finished, the company announced the termination of The Art Institutes president John Mazzoni, and on the following day, company shares dropped more than 10 percent to close at $6.22 each. On June 24, 2013, they declined another $0.75, finishing the session at $5.47.

The company announced on Nov. 1, 2013, that it had terminated chairman Todd Nelson. Company shares declined after this announcement, falling $0.80 to close at $13.78 on Nov. 4, 2013. A few months later, on Jan. 24, 2014, EDMC filed a Form 8-K with the SEC, indicating that 12 states had sent it inquiries. Shares dropped $0.97, closing at $8.70 on Jan. 27, 2013.

Later on in 2014, on Sept. 16, the company filed a Form 12b-25 with the SEC, informing the government agency it would be pushing back the filing of its annual report for the period through June 30, 2014. According to The Rosen Law Firm's securities class action claim, company shares dropped $0.12 to finish Sept. 17, 2014 at $1.10 each.