Last year Apollo Group, convinced it had a watertight case, became one of only a handful of companies in the past decade to go to trial rather than settle a securities class action.
On Jan. 16, as The American Lawyer reported in its April issue, Apollo lost that bet big-time. Represented by lead trial counsel Wayne Smith at Gibson, Dunn & Crutcher, the company was slapped with a $277 million compensatory damages verdict after jurors ruled that Apollo had misled investors. The decision was the largest investors' win since the Private Securities Litigation Reform Act was enacted in 1995.
The story didn't end there. On Monday, Apollo -- which owns the for-profit University of Phoenix -- was vindicated when a district court overturned the jury's verdict.
An ultimate win in the case should come as a huge relief for Apollo: Its D&O insurance policy was already tapped out, and the company was on the hook for all but $25 million in legal bills. That represents a tenth of its $2.7 billion in revenue last year, as the magazine's April report noted.
Investors, represented by Stephen Basser of Philadelphia's Barrack Rodos & Bacine, accused the company of misleading them when it failed to disclose a 2004 U.S. Department of Education program review that found the company had violated federal law in the way it compensated its college recruiters. The infractions ultimately cost Apollo $9.8 million.
Phoenix federal district court Judge James Teilborg found that investors did not prove that the original disclosure of the Education Department review triggered the stock drop (pdf). When news of that review surfaced in The Wall Street Journal, The Chicago Tribune and other major papers in mid-September 2004, the share price didn't drop; it was only a week later, when an analyst downgraded the company, that a statistically significant decline occurred. Investors argued that the analyst's downgrade constituted a corrective disclosure, but the judge disagreed. "The court's decision validates the arguments made by Apollo Group since the beginning of the case," says Smith, co-chair of the firm's securities litigation practice group. "There was nothing in that analyst's report that corrected anything."