Tucson CitizenTucson Citizen

Judge tosses $280 million verdict against Apollo Group

Jurors had found faulted school’s recruitment policies after pension companies sued for company

PHOENIX — A federal judge has overturned a $280 million verdict against Apollo Group Inc., the for-profit company that owns the University of Phoenix, deciding there wasn’t enough evidence to prove it committed securities fraud.

In an 11-page ruling filed Monday, U.S. District Judge James Teilborg broke with jurors in the class action lawsuit brought by the Policemen’s Annuity and Benefit Fund of Chicago.

Jurors had decided in January that Apollo officials lied about their student recruitment policies and ordered the company to repay investors for the subsequent loss of share value once those policies were revealed.

In his ruling, Teilborg agreed that “Apollo misled the market in various ways.” But the judge decided that lawyers for the benefit fund “failed to prove that Apollo’s actions caused investors to suffer any harm.”

Jeffrey A. Barrack, a lawyer for the policemen’s benefit fund, said he planned to appeal. “We feel it was an error for the judge to take the verdict away from the jury,” Barrack said.

Apollo’s shareholders had claimed that officials covered up a 2004 Department of Education report that criticized the University of Phoenix’s recruitment policies. The report concluded that the school paid enrollment counselors “solely based on (the) recruiters’ success in securing enrollments,” which violated federal regulations.

Shareholders specifically blamed Todd S. Nelson, the former CEO, and Kenda B. Gonzales, the former chief financial officer, for keeping the report secret. Once it was discovered and discussed by analysts, Apollo’s shares fell dramatically.

However, Teilborg suggested in his ruling that news of the DOE report might not have been the only factor in the drop in Apollo’s share value. He noted that the market didn’t react when three newspapers broke the news about the report in September 2004.

Apollo shares dropped significantly only when analysts downgraded Apollo’s stock five days later, Teilborg said.

P. Robert Moya, a senior vice president and general counsel for Apollo Group, said the ruling was a vindication for the company, its students and shareholders.

“It has always been Apollo Group’s position that the plaintiffs in the case did not suffer any damages arising from the disclosure of the initial government report and its unsubstantiated allegations, and we are pleased that the Court has agreed,” Moya said in a statement.

Apollo shares dropped 40 cents, or less than 1 percent, to $62.44 in Tuesday trading.

Citizen Online Archive, 2006-2009

This archive contains all the stories that appeared on the Tucson Citizen's website from mid-2006 to June 1, 2009.

In 2010, a power surge fried a server that contained all of videos linked to dozens of stories in this archive. Also, a server that contained all of the databases for dozens of stories was accidentally erased, so all of those links are broken as well. However, all of the text and photos that accompanied some stories have been preserved.

For all of the stories that were archived by the Tucson Citizen newspaper's library in a digital archive between 1993 and 2009, go to Morgue Part 2

Search site | Terms of service