(CN) - Shareholders claim in a class action that Bridgepoint Education Inc.'s stock price took a massive tumble when one of its for-profit post-secondary institutions lost accreditation for flagging student retention and completion rates, lack of full-time faculty members and "insufficient" tracking of student progress.
Lead plaintiff Donald Franke claims Bridgepoint's Ashford University was not meeting accreditation requirements.
Shareholders say the company's omissions resulted in its stock trading artificially high, reaching $30.50 on July 22, 2011. In prior months, the eligibility review committee of the Western Association of Schools and Colleges (WASC) identified several concerns at Ashford, including "(a) inadequate student retention and completion, (b) insufficient student progress tracking, (c) an insufficient core of full-time faculty members and (d) lack of an empowered and independent governing board," the complaint states. "Thus, by spring of 2011, at the latest, the company had been advised that Ashford's future accreditation was at risk."
An SEC filing from July 9, 2012 revealed that it was denied accreditation by WASC, according to the complaint and the company issued a press release the same day, indicating it would appeal the commission's decision and re-apply for accreditation, but the news caused stocks to drop by $7.25, or 34 percent, to $14.25 per share on closing.
The complaint contains a laundry list of alleged failings at Ashford:
"(a) the company had failed to implement plans, procedures and practices to sufficiently assist students in staying with the programs they enrolled in and complete the courses; (b) the company failed to align resources with educational requirements such that students were not benefitting from the resources available and were therefore not progressing to an acceptable level; (c) Ashford failed to maintain a sufficient core of faculty and programs to develop faculty, leading to poor teaching and poor completion rates by students and also leading to a less rigorous curriculum, causing even students who completed the programs to be ill-prepared in their respective disciplines; (d) Bridgepoint had inadequate review procedures such that shortfalls were not quickly identified and remedied."
The firm's stock price, meanwhile, tumbled 53 percent from the class period high and company officers allegedly dumped their shares and made millions while they were trading at artificially high prices. The complaint alleges Bridgepoint's "fraudulent scheme" allowed co-founder Andrew Clark to sell over 778,000 shares for $8.2 million while Chief Financial Officer and Executive Vice President Daniel Devine sold almost 300,000 shares for $6.7 million. Chief Academic officer Jane McAuliffe sold 280,000 shares for $6.2 million, according to the complaint.
The suit was filed by Darren Robbins and David Walton of Robbins Geller Rudman & Dowd and Frank Johnson and Brett Weaver of Johnson & Weaver.