PHOENIX — A federal jury decided Wednesday that Phoenix-based Apollo Group Inc., the for-profit company that owns the University of Phoenix, fraudulently misled investors about its recruitment policies and ordered it to pay shareholders about $280 million.
The jury's verdict comes after a two-month trial in U.S. District Court in Phoenix. The verdict specified that the company pay investors $5.55 a share.
Apollo, which reported $780.7 million in revenue in the first quarter, said it hasn't decided whether to appeal.
"It's a shock, but we'll see where we go," said Apollo's Chief Financial Officer Joe D'Amico said as he left the courtroom.
Apollo stock closed down $1.36, or 1.7 percent, at $78.57 in trading today on the Nasdaq Stock Market.
Shareholders claimed Apollo misled investors four years ago when it kept secret a Department of Education report that criticized the University of Phoenix's recruitment policies.
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The report, which was issued on Feb. 5, 2004, concluded that the University of Phoenix paid enrollment counselors "solely based on (the) recruiters' success in securing enrollments," which violated federal regulations. It added that the university systematically keeps its incentive-based recruitment practices hidden from the Department of Education.
"Any reasonable investor, I assure you, would have wanted to know the existence of this report," Stephen R. Basser, an attorney representing shareholders with the policemen's annuity and benefit fund of Chicago, told jurors last week in closing arguments.
The shareholders singled out former CEO Todd S. Nelson and former chief financial officer Kenda B. Gonzales as the Apollo officials who failed to inform investors about the Department of Education's report.
Nelson and Gonzales both left the company in 2006.
Investors had demanded $5.55 a share in restitution, an amount that company officials said would amount to $280 million, and the jury agreed after only two days of deliberation.
The lawsuit covers Apollo investors who owned stock between Feb. 27, 2004, the date of the company's first misleading press release, and Sept. 14, 2004, when news broke of the Department of Education report.
Basser said investors will be repaid up to $5.55 per share depending on how long they held the stock after Sept. 14, 2004. Apollo investors have been notified of the lawsuit, and the plaintiffs will appoint an administrator to supervise individual claims, he said.
Apollo argued that the report was largely false and based on anecdotal evidence. Therefore, the company said, its failure to disclose its existence to investors was not misleading.
Nevertheless, the University of Phoenix agreed in September 2004 to pay the Department of Education $9.8 million to settle the matter. When news of the report was made public later that month, Apollo's stock dropped significantly.
Wayne W. Smith, a lawyer for Apollo, told jurors in closing arguments that the report was "seriously flawed" and made the university look like a diploma mill.
Last week, Smith showed jurors company documents that suggested the university's recruiters were not paid directly in relation to the number of students they signed up. The company says a number of factors determine recruiter salaries, including how well recruited students do in school, the retention rate of their students and how well the recruiter works with other school advisers.
Smith also disputed claims by shareholders that the university was turning to unqualified students to keep their enrollment numbers high.
"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."