UoP Faces $280M Judgment

Investors sued the Apollo Group (UoP) for not disclosing the USDoE report about its recruiting practices (for which it paid a $9M fine). Stock prices dropped after the report was made public, and investors sued, saying they should have been told about the report sooner. It amounts to restitution up to $5.50 per share.

http://ap.google.com/article/ALeqM5ipFXl9tfSrG9EsRhN0OZVzrNWVcAD8U796C80

 

Well, I'm certainly glad I never took advantage of the employee stock purchase plan.

 

So, the stockholders are suing for $280 million because of a $9 million fine? And what do they think this will do to their stock price?

 

According to the article, investors, not just current stockholders. And they're not suing about the fine. They're suing because Apollo knew about it, that it would have a material impact on stock prices, and that Apollo didn't reveal it, so the investors over-paid for the stock. (The price dropped right after the revelation.)

 

Wrong! The lawyers will get 40% plus expenses (and they'll make sure to run a pretty good tab there). In the end, the stockholders will get tiddly-winks while the lawyers will get the lion's share. Meantime, the stock price will drop again.

 

What's the distinction between "investors" and "stockholders"?

 

Investors include people who used to be stockholders, but no longer are. The article is pretty clear about all of this.

 

You have no way of knowing this, unless you know the terms of the settlement and the agreement with the attorneys. Because the suit was brought by an investment group (The Policeman's Annuity and Benefit Fund of Chicago was the lead plaintiff in the case), they may have retained the attorneys instead of agreeing to a contingency fee.

The bigger issue is that 40% of the settlement is to come from two former officers of the university. Good luck collecting from them. (Assuming their E&O insurance doesn't cover it.)

We don't know if the court will--or has--included attorneys' fees in the settlement.

Finally, the terms of the settlement call for a payment per share, depending on when one bought one's shares. It is estimated that it will all add up to about $280M, but no one knows for sure.

On another note, I was really bugged by Apollo's attorney, Wayne Smith, for this statement: ""There's no benefit to the university for people who can't hack it," Smith told jurors. "They just take one class at a time, and if they drop out, they get a prorata refund."

That's not accurate. Students are committed to tuition for one course at a time. Thus, there is no "pro rata" refund. But what bugs me is the assumption that students dropping out soon after enrollment is a bad thing. The reality is: UoP's break even point for students is 3 classes. If students stay and pay for three classes, UoP is able to recoup all of its variable costs involved in recruiting, admitting, administering, and teaching the student. Just three classes. At that point, the student becomes profitable, helping to cover fixed costs and profits. Amazing, seeing how much UoP spends on advertising, marketing, promotion, and sales. Not so amazing when it is realized that UoP limits its academic expenses (like instructor salaries) to 8% of its revenues. Yup. 8%.

 

Explain the above statement.

For starters, a variable cost is one in which the dollar amount varies because the costs are a percentage of sales. Therefore, variable costs should be covered anyway (assuming one has enough brains to keep varaiable costs below 100% of sales). The issue, then, would be when the contribution margin (gross sales minus variable costs) covers fixed costs and begins to contribute to net profits.

 

Let's compare apples with apples: What percentage do other unis pay out to faculty? I don't know if a system like CSU publishes this sort of data, but it would be a worthwile comparison.

And then, if you really want a direct comparison, strip out the bloated tenure positions at the traditional uni.