K12 (LRN) Regains Footing After Massive Sell-off

Stephen L Kanaval |

K12 (LRN)), a technology-based education provider, is now involved in multiple class action lawsuits alleging that the company lied about its student success rates, parent satisfaction, class size, graduates’ eligibility for the University of California and California State University, among other modes of data that was used in press releases and advertisements.

The class action lawsuits stem from a San Jose Mercury News investigation from April this year that looked to expose K12 as a fraudulent moneymaking enterprise that fabricated a wide variety of claims (summarized above). The investigation aimed to demonstrate how K12, a Virginia-based company, took advantage of California education law that have no specific rule about for-profit firms running charter schools in the state. Initially, K12 established online schools with individual, separate names so that the school and the corporation seemed unlinked for tax-exempt purposes because Federal Tax Laws prohibit charitable organizations from working to benefit a company. However, the report alleges that K12 employees started online schools posing as a “group of parents.” The company tried later to open a brick and mortar school in Contra Costa County, but was denied on the grounds that the Virginia administrative entity would be running day-today decision making. In addition, the report found that teachers lied about attendance to keep taxpayer dollars coming, very few online students earned diplomas, the company has reaped $312 million in profits over the last twelve years, schools that oversee the online academies get a cut of revenues and are inclined to turn the other way when they see inaccuracies, and many students test well-below state standards in reading and math.

Now, that being said, the company has rallied since April and many analysts were buying the stock to capitalize on the lower cost. In its most recent press release this Tuesday, the company saw earnings per share fall and revenues slumped by 9%. Following that, the stock was sliding but rallied again this morning. During the same press release, the company also said that they have settled with the Attorney General of California and no wrongdoing was admitted. The company logged a $7.1 million settlement for 4Q as a net charge that will go to taxpayers and government expenses accrued in the probe. The volatility of LRN is well documented and many buyers will stay away as more lawsuits are coming, but the truth is that the company is still enrolling students in public school areas and at-home.

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Symbol Name Price Change % Volume
LRN K12 Inc 17.57 -0.10 -0.57 122,190 Trade


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