PHOENIX Apollo Group Inc., the for-profit company that owns the University of Phoenix, fraudulently misled investors in 2004 about its student recruitment policies, a federal jury decided Wednesday. The panel ordered the company to pay shareholders about $280 million.
Jurors said Apollo officials "knowingly and recklessly" made false statements in a press release, a filing with the Securities and Exchange Commission, and four conference calls with market analysts. By doing so, jurors said, Apollo violated federal securities laws.
The verdict, which comes after a two-month trial in U.S. District Court in Phoenix, specified that the company pay certain investors $5.55 a share. Phoenix-based Apollo, which reported $780.7 million in revenue in the first quarter, said it hasn't decided whether to appeal.
"It's a shock, but we'll see where we go," said Apollo's Chief Financial Officer Joe D'Amico.
Shareholders claimed Apollo misled investors four years ago when it kept secret a Department of Education report that criticized the University of Phoenix's recruitment policies.
The report, which was issued on Feb. 5, 2004, concluded that the University of Phoenix paid enrollment counselors "solely based on (the) recruiters' success in securing enrollments," which violated federal regulations. It added that the university systematically keeps its incentive-based recruitment practices hidden from the Department of Education.
The shareholders singled out former CEO Todd S. Nelson and former CFO Kenda B. Gonzales as the Apollo officials who failed to inform investors about the Department of Education's report. Nelson and Gonzales both left the company in 2006.
Investors had demanded $5.55 a share in restitution, an amount company officials estimated would add up to $280 million. The jury agreed after only two days of deliberation.
Jurors said the company should be responsible for 60 percent of the restitution. Nelson should be responsible for 30 percent and Gonzales should be responsible for 10 percent. It was unclear Wednesday whether indemnity agreements would require the company to pay Nelson and Gonzales' share.