PHOENIX — A federal appeals court ruled Tuesday that statements made by Apollo Group promising future student growth were not illegal lies to shareholders but mere “business puffery.”
A unanimous three-judge panel of the 9th U.S. Circuit Court of Appeals also rejected other claims by pension funds that the parent company of the University of Phoenix misstated its revenues.
And the court said there is no basis for a claim of “insider trading” by Apollo executives because the information they had was the same information they had put out in what the court determined was “puffery.”
There was no immediate response from the attorney for the pension funds.
The lawsuit involves investors who bought Apollo stock between May 21, 2007, and Oct. 13, 2010.
They contend that the Phoenix-based company and its officers made false and misleading statements about enrollment, revenue growth, its business model and recruitment of students.
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They also allege that Apollo’s growth was fueled largely by unethical recruitment of unqualified students, something not disclosed in public filings or statements to investors.
Subsequent disclosures of investigations into recruiting practices led to a sharp drop in the price of the stock.
In a 2010 news release by the Oregon Department of Justice, which sued on behalf of the state’s public employee retirement fund, state officials pegged their losses at $10 million. Also filing suit was the Mineworkers’ Pension Scheme.
But Judge Milan Smith Jr., writing for the appellate court, said the “material misstatements” at issue are not objectively false but instead “expressions of opinion” that “would not induce the reliance of a reasonable investor.”
For example, the judge said, in filings to the Securities and Exchange Commission, “Apollo’s use of general terms like ‘educational content’ and ‘teaching resources’ provided nothing concrete upon which the plaintiffs could rely.”
Smith found no more merit to the claims that Apollo failed to disclose to investors that it recruited “flawed” students who were ultimately unable to pay tuition, nor that Apollo hid the incentive system it had for recruiters to get students.
Investors knew through public filings that the “business model relied on recruiting students for profit,” Smith wrote.
“Apollo’s public filings made clear that it targeted individuals unable to attend traditional colleges and universities,” the judge continued. “Apollo also disclosed its enrollment numbers and withdrawal rates.”
Follow Howard Fischer on Twitter at @azcapmedia.