Virtual charter school company with NC intentions slapped with class-action lawsuit

A NYC-based law firm has filed a class-action lawsuit in a federal court in Virginia against K12, Inc., the for-profit virtual school company, claiming that its top officials intentionally misled the public and investors about its quality of the education.

The lawsuit was filed Jan. 30, as reported here by the Washington Post.

The claims of fraud at the top levels of the company should be of particular interest here in North Carolina after the company, K12, Inc., (NYSE:LRN) edged its way  into a partnership with the Cabarrus County school system to try and tap into state education dollars.

Stock for the virtual school company had been steadily rising (a high of $39.74 was reached last April) since its 2007 emergence on the market, but plummeted after a critical New York Times article late last year, “Online schools fare better on Wall Street than in classrooms.” The Times investigation found that the company pushed to bring in more profits while students were failing and falling far behind their traditional school peers.

K12 stock was trading at $21.63 a share mid-day today.

Here’s a snippet from the lawsuit, showing the difference between what top K12 officials were saying to investors, and what was found to be the case by reporters. (A copy of initial pleadings are here)

On October 10, 2011, [CEO Ronald] Packard and several other members of K12’s management team held a conference call with members of the investment community to disclose the fourth quarter and full year 2011 earning.  Once again, Packard took the opportunity to tout K12’s academic performance relative to brick and mortar school. Packard stated:

“Our norm-based tests show that on average our students are progressing more than one year for every year they’re in the program. For example, the scores for the Aurora Virtual Charter School we manage in Pennsylvania were significantly higher than the typical school on state administered test for growth. We anticipate that as states move to measure academic efficiently with the gains approach, the benefits to be achieved from K12 learning system will become more visible.

But, the New York Times article that was published just two months after the investors call made by Packard, who had a $5 million compensation package last year, found a different reality at another virtual Pennsylvania school run by the company.

From that piece:

By almost every educational measure, the Agora Cyber Charter School is failing.

Nearly 60 percent of its students are behind grade level in math. Nearly 50 percent trail in reading. A third do not graduate on time. And hundreds of children, from kindergartners to seniors, withdraw within months after they enroll.

By Wall Street standards, though, Agora is a remarkable success that has helped enrich K12 Inc., the publicly traded company that manages the school. And the entire enterprise is paid for by taxpayers.

 

Any deal to open a public charter school in North Carolina under K12 management (the pitch to Cabarrus school board members was that it would serve students statewide, and survive off of state, federal and local taxpayer money)  would have to approved by the N.C. State Board of Education. That’s not an immediate possibility, with no application filed yet at the state education department.

But records at the N.C. Secretary of State show the company is serious about doing business with North Carolina taxpayers –  the company hired several lobbyists from one of the state’s most prestigious law firms last fall.

 

6 Comments

  1. Frances Jenkins

    February 10, 2012 at 3:48 pm

    My goodness, this company should be run out of North Carolina for such activites and such practices by which they operate schools. No wait, they have not lost the lawsuit, My fault, no, just unfair reporting as usual by Sarah.

  2. gregflynn

    February 10, 2012 at 8:49 pm

    Innocence until proven guilty is not your strongest suit Frances. You seem to have a ready supply of innuendo that you serve regularly without factual dressing. Everything that Sarah wrote above is factual reporting. I challenge you to point out one thing that is unfair.

  3. Frances Jenkins

    February 10, 2012 at 10:02 pm

    1. Is it true that every point of argument you(Greg) made in the Redistricting case was thrown out by the courts?

    2. Are the any points Sarah could have presenedt to reflect a postive view of the charter system?

    3. Sarah stakes out a position and spends her time searching for facts to prove her position and the facts be damned.

  4. Sarah Ovaska

    February 13, 2012 at 9:17 am

    @Frances, your continuing personal attacks on me are puzzling.

    If you feel that there’s a factual error, please feel free to point it out, either in this forum or by contacting me at sarah@ncpolicywatch.com.

    It’s unclear what you’re taking issue with — the lawsuit itself being filed, or my reporting about the filing.
    A class-action investor lawsuit being filed against a company that is trying to do business with the N.C education system is significant, and worth noting to the taxpayers of this state who could end up doing business with this company down the road. .

  5. GayleH

    February 13, 2012 at 12:20 pm

    @Frances and to all who post with passion – those of us who read articles online, and who have a smidgen of intelligence, know that we need to read from multiple sources just in case the article, author, or forum has any leanings or hidden agendas (e.g., Fox news vs. MSNBC). We also know that readers submitting comments who are already biased in one direction or another are unlikely to be swayed by reading something that does not agree with their point of view. Thus, people who post blatantly negative, personal comments about topics, writers, etc. simply create chaos and bad feelings that serve no purpose whatsoever. As a fellow reader, I would be much more inclined to hear the viewpoint of someone who disagrees with a posted article if that viewpoint were delivered with clearly-worded logic rather than sarcasm and insult. When the latter is the case, I have to assume that the person doesn’t have a logical leg on which to stand and must, therefore, resort to namecalling.
    @Sarah – thanks for reporting that there is a lawsuit pending. It is interesting to know that it is in the works, and it will also be interesting to hear what is decided.

  6. gregflynn

    February 13, 2012 at 4:18 pm

    Frances, this post is about charter schools, not redistricting. You have failed to point out one thing that is unfair in Sarah’s report about K12, Inc.

    You go to an unrelated subject, redistricting, in a sad attempt to take a swipe at me personally, revealing your willful ignorance and petty indignation.

    Everything I said about redistricting last July is just as true today as it was back then. The lawsuits have not changed that one iota. For the record, of the 37 claims presented to the court 15 were rejected and 22 remain.