NEW YORK--(BUSINESS WIRE)-- Faruqi & Faruqi, LLP, a leading national securities law firm, is investigating potential securities fraud at K12, Inc. (“K12” or the “Company”) (NYSE: LRN - News).
The investigation focuses on whether the Company and its executives violated federal securities laws by failing to disclose that: (1) according to various academic benchmarks, K12 students were chronically underperforming their peers at traditional schools; (2) K12 has aggressively recruited students to their schools, regardless of how well-suited they might be for the Company’s curriculum; (3) as a result of K12’s haphazard recruiting process, the Company experiences student retention problems resulting in high rates of withdrawal; (4) K12 schools often have far larger student-to-teacher ratios than the Company advertises; and (5) K12 teachers have been pressured to allow students to pass regardless of academic performance, in order to receive federal funds.
On December 12, 2011, after several months of research, the New York Times published an article entitled “Profits and Questions at Online Charter Schools.” The article raised serious concerns about K12’s business practices, alleging that Company schools inflate their student rosters, are underperforming academically, have detrimental student-to-teacher ratios and gain wrongful access to public funds. On this devastating news, K12 shares collapsed almost 24%, closing at $22 per share on December 13.
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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.
Agora is one of the largest in a portfolio of similar public schools across the country run by K12. Eight other for-profit companies also run online public elementary and high schools, enrolling a large chunk of the more than 200,000 full-time cyberpupils in the United States...
Kids mean money. Agora is expecting income of $72 million this school year, accounting for more than 10 percent of the total anticipated revenues of K12, the biggest player in the online-school business. The second-largest, Connections Education, with revenues estimated at $190 million, was bought this year by the education and publishing giant Pearson for $400 million...
The New York Times has spent several months examining this idea, focusing on K12 Inc. A look at the company’s operations, based on interviews and a review of school finances and performance records, raises serious questions about whether K12 schools — and full-time online schools in general — benefit children or taxpayers, particularly as state education budgets are being slashed.
Instead, a portrait emerges of a company that tries to squeeze profits from public school dollars by raising enrollment, increasing teacher workload and lowering standards.
Current and former staff members of K12 Inc. schools say problems begin with intense recruitment efforts that fail to filter out students who are not suited for the program, which requires strong parental commitment and self-motivated students. Online schools typically are characterized by high rates of withdrawal...