A shareholder in Virginia-based K12 Inc. has filed a lawsuit against the virtual-schools operator in federal court, alleging that the firm violated securities law by making false statements to investors about students’ poor performance on standardized tests.
The class-action complaint, filed Monday in U.S. District Court in Alexandria, also accuses K12 of boosting its enrollment and revenues through “deceptive recruiting” practices.
Herndon-based K12 is the country’s largest operator of full-time public virtual schools, a growing sector in which students as young as five learn at home via computer.
The lawsuit comes after a spate of national news stories — including in The Washington Post — raised questions about the effectiveness of virtual schools, K12’s in particular. The firm’s stock has since plummeted.
Key among those stories was a New York Times investigation published Dec. 12 that found a mismatch between K12 student achievement and statements made by chief executive Ronald J. Packard.
During one investment conference call, the Times reported, Packard said that test results at one of the company’s largest online schools — Agora Cyber Charter — were “significantly higher than a typical school on state administered tests for growth.”
In fact, the article said: “Weeks earlier, data had been released showing that 42 percent of Agora students tested on grade level or better in math, compared with 75 percent of students statewide. And 52 percent of Agora students had hit the mark in reading, compared with 72 percent statewide. The school was losing ground, not gaining it.”
K12 issued a press release in response to the article, calling it “unfair and one-sided.”
In the week after the Times article was published, according to the lawsuit, K12 stock dropped 34 percent, from $28.79 to $18.90 per share. (It has since recovered somewhat and was trading at $22.50 per share at midday Tuesday.)
On Dec. 16, New York law firm Faruqi and Faruqi LLP — which specializes in class-action suits and securities — announced that it was seeking to speak with K12 shareholders about their legal claims. The firm is representing shareholders in the lawsuit.
The plaintiff, David Hoppaugh of Cado Parish, La., purchased shares of K12 between December 2010 and July 2011.
Hoppaugh, who wants a jury trial, is seeking compensatory damages and legal costs for himself and the class of shareholders who purchased stock between Sept. 9, 2009 and Dec. 16, 2011. The number of people who might be included in that class isn’t yet known, according to the complaint.
Besides K12 Inc, defendants include Packard and Harry T. Hawks, the company’s chief financial officer.
Lawyers at Faruqi and Faruqi did not immediately return a request for comment. Neither did a spokesman for K12.
Read the complaint in its entirety: