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Plaintiff, David Stein
("Plaintiff
'), alleges the following based upon Plaintiff's personal
knowledge as to himself and the investigation of Plaintiff's counsel, which included, among
other things, a review of public documents, conference call transcripts and announcements by
Defendant Bridgepoint Education, Inc.
("Bridgepoint," "BPI," or the "Company"), United States
Securities and Exchange Commission
(
"SEC")
filings, wire and press releases published by and
regarding Bridgepoint, and securities analysts' reports and advisories about the Company.
Plaintiff believes that substantial additional evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for discovery.
NATURE
OF
THE
ACTION
1.
This is a federal class action on behalf of purchasers of the common stock of
Bridgepoint who purchased or otherwise acquired Bridgepoint common stock between May 3,
2011 and July 12, 2012, inclusive (the "Class Period"), seeking to pursue remedies under the
Securities Exchange Act of 1934
(the "Exchange Act").
2.
Bridgepoint is afor-profit provider of postsecondary education services with its
headquarters in San Diego, California.
3.
The Company's two regionally accredited academic institutions, Ashford
University ("Ashford") and the University of the Rockies (together, the "BPI Institutions"),
provide education programs both online and at their physical campuses located in Clinton, Iowa
and Colorado Springs, Colorado.
4.
The BPI Institutions, and in turn, Bridgepoint, derive the substantial majority of
their revenue from various federal student financial assistance programs under Title IV of the
Higher Education Act of 1965
("Title IV").
5.
Access to Title IV funds requires that the BPI Institutions be accredited by one of
several Department of Education-approved bodies. Accordingly, continued accreditation is
crucial for BPI and it could not continue to operate without accreditation.
6.
The BPI Institutions are currently accredited by the Higher Learning Commission
of
the North Central Association of Schools and Colleges (the "HLC"), the accrediting body that
COMPLAINT FOR VIOLATION OF THE
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accredits institutions in the central U.S., where the BPI Institutions' physical campuses are ~ located.
7. Due to the enormous growth of Bridgepoint's online education program (based in California), and in light of newly adopted HLC rules requiring HLC-accredited institutions like Bridgepoint to have a "substantial presence" in the central U.S., Bridgepoint decided in 2010 to change its primary accreditor from the HLC to the Accrediting Commission for Senior Colleges and Universities of the Western Association of Schools and Colleges ("WASC"), the accrediting body for California colleges and universities.
8. In January 2010, Ashford submitted its application for the first stage of the WASC accreditation process. In May 2011, WASC deemed Ashford eligible to proceed to the second, much more intensive stage of the accreditation process, and BPI publicly announced that fact on May 3, 2011 on a conference call with investors.
9. Unbeknownst to investors until July 2012, however, WASC also informed Bridgepoint in May 2011 that it had "concerns" about Ashford's ability to satisfy certain accreditation criteria. WASC further informed BPI which criteria would merit special attention in the second phase of the accreditation process, such as student retention and an adequate number of faculty.
10. On July 9, 2012, BPI filed a Form 8-K with the SEC reporting that WASC had provided formal notice on July 5, 2012 that Ashford's application for accreditation had been denied.
11. In addition, BPI disclosed that the HLC had informed Ashford that it would be required to demonstrate that it had a "substantial presence" in the HLC's geographic region not later than December 1, 2012 in order to comply with the HLC's jurisdictional requirements.
12. On news of the WASC accreditation denial, Bridgepoint's stock price dropped $7.25 per share to close at $14.25 per share on July 9, 2012, a decline of nearly 34%.
13. The WASC accreditation denial also triggered further regulatory action by the HLC. On July 13, 2012, the Company disclosed that Ashford had received a letter from the HLC
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requiring Ashford "to provide certain information and evidence of compliance with HLC
accreditation standards" in light of
the recent determination by WASC.
14.
On this news,
Bridgepoint's stock declined an additional $3.20 per share or nearly
25%,
to close at $9.77 per share on July 13, 2012.
15.
As further detailed below, during the Class Period, Defendants made false and
misleading statements and omitted material information concerning the accreditation status of
the BPI Institutions that misled investors concerning the risks to their continued accreditation.
16.
As a result of Defendants' wrongful acts and omissions, Plaintiff and other Class
members have suffered significant damages.
JURISDICTION AND
VENUE
17.
The claims asserted herein arise under and pursuant to §
§
10(b) and 20(a) of the
Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and SEC
Rule lOb-5, 17 C.F.R. §240.1Ob-5.
18.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §
1331 and §27 of
the Exchange Act.
19.
Defendant Bridgepoint's principal executive offices are located at 13500 Evening
Creek Drive North, Suite 600,
San Diego, CA
92128.
20.
Venue is proper in this District pursuant to 28 U.S.C. §1391(b), because the
Company's principal executive offices are located in this District, the Defendants do business in
this District, and many of
the acts and practices complained of
herein occurred in substantial part
in this District.
21.
In connection with the acts alleged in this Complaint, Defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the facilities of the national
securities markets.
PARTIES
22.
Plaintiff purchased Bridgepoint common stock as set forth in the accompanying
certification, and has been damaged thereby.
COMPLAINT FOR VIOLATION OF THE
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23.
Defendant Bridgepoint is a for-profit provider of postsecondary education
services incorporated in Delaware in 1999 and headquartered in San Diego, California.
Bridgepoint owns and operates two academic institutions, Ashford University and the University
of
the Rockies.
24.
Defendant Andrew S. Clark
("Clark")
founded the Company in 2004. He is, and
at all relevant times was, Chief Executive Officer
(
"CEO")
and President. During the Class
Period, Defendant Clark sold 778,286 shares of
Bridgepoint stock for proceeds of
$18,159,852.
25.
Defendant Daniel J. Devine (
"Devine") is, and at all relevant times was,
Bridgepoint's Chief Financial Officer and Executive Vice President. During the Class Period,
Defendant Devine sold 299,100 shares of
Bridgepoint stock for proceeds of
$6,719,284.
26.
Defendant Jane McAuliffe ("McAuliffe") is, and at all relevant times was,
Bridgepoint's Chief Academic Officer and Executive Vice President. During the Class Period,
Defendant McAuliffe sold 240,000 shares of
Bridgepoint stock for proceeds of
$5,056,319.
27.
The defendants described in ¶¶24-26 are referred to herein as the "Individual
Defendants."
28.
By virtue of their positions at Bridgepoint, the Individual Defendants had access
to the adverse and undisclosed information about Bridgepoint's accreditation status. The
Individual Defendants directly participated in the management of Bridgepoint, were directly
involved in the operations of Bridgepoint at the highest levels, were privy to information
concerning Bridgepoint and were involved in the dissemination of the materially false and
misleading statements and information alleged herein.
CLASS
ACTION
ALLEGATIONS
29.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons or entities who acquired
Bridgepoint common stock during the Class Period, and who were damaged thereby (the
"Class"). Excluded from the Class are Defendants, the officers and directors of Bridgepoint,
members of
the Individual Defendants' immediate families and their legal representatives, heirs,
successors or assigns and any entity in which Defendants have or had a controlling interest.
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30.
The members of the Class are so numerous that joinder of all members is
impracticable. During the Class Period, Bridgepoint common stock was actively traded on the
New York Stock Exchange in an efficient market. While the exact number of Class members is
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
Plaintiff believes that there are hundreds if not thousands of members in the proposed Class.
Bridgepoint has more than 52
million shares outstanding.
31.
Plaintiff's claims are typical of the claims of the members of the Class, as all
members of the Class are similarly affected by Defendants' wrongful conduct in violation of
federal law as described herein.
32.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class action securities litigation.
Plaintiff has no interests which conflict with those of
the Class.
33.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of
law and fact common
to the Class are:
(a)
whether the Exchange Act was violated by Defendants' acts as alleged
herein;
(b)
whether public statements made by Defendants to the investing public
misrepresented or omitted material facts;
(c)
whether Defendants' statements omitted material facts necessary to make
the statements made,
in light of
the circumstances under which they were made,
not misleading;
(d)
whether Defendants knew or deliberately disregarded that their statements
were false and misleading;
(e)
whether the price of Bridgepoint common stock was artificially inflated
during the Class Period; and
(~
to what extent the members of the Class have sustained damages and the
proper measure of
damages.
COMPLAINT FOR VIOLATION OF THE - 5 -FEDERAL SECURITIES LAW
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34. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as ~ a class action.
BACKGROUND
35. Bridgepoint is a for-profit provider of postsecondary education services headquartered in San Diego, California.
36. Bridgepoint owns and operates two regionally accredited academic institutions, Ashford University and the University of the Rockies, which offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. The BPI Institutions provide online education programs as well as programs at traditional campuses located in Clinton, Iowa and Colorado Springs, Colorado.
37. The BPI Institutions derive the substantial majority of their revenue from various federal student financial assistance programs under Title IV of the Higher Education Act of 1965. In the years ended December 31, 2011, 2010 and 2009, Ashford University derived 86.8%, 85.0% and 85.5%, respectively, and the University of the Rockies derived 85.0%, 85.9% and 84.6%, respectively, of their respective revenues from Title IV programs administered by the Department.
38. To participate in Title IV programs, a school must obtain and maintain authorization by the state education agency or agencies where it is physically located, be accredited by an accrediting agency recognized by the Department of Education and be certified by the Department of Education as an eligible institution.
39. Accreditation therefore is crucial to the viability of BPI. Bridgepoint stated in its 2011 Form 10-K that "[1]oss of accreditation would denigrate the value of our institutions' educational programs and would cause them to lose their eligibility to participate in Title IV
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programs, which would have a material adverse effect on our enrollment, revenues and results of
operations." 2011 Form 10-K,
at 26.
40.
Ashford University and the University of the Rockies have been institutionally
accredited since 1950 and 2003, respectively, by the HLC, one of six regional accrediting
agencies that accredits colleges and universities in the United States. The HLC
accredits
degree-granting post-secondary educational institutions in the North Central region, which encompasses
Arkansas, Arizona, Colorado, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri,
North Dakota, Nebraska, Ohio, Oklahoma, New Mexico, South Dakota, Wisconsin, West
Virginia and Wyoming.
41.
An accredited institution is subject to periodic review by its accrediting agency to
determine whether it continues to meet the performance, integrity, quality and other standards
required for accreditation. An institution that is determined not to meet the standards of
accreditation may have its accreditation revoked or not renewed.
42.
In November 2009, as a result of Bridgepoint's initial public offering, the BPI
Institutions participated in a "change of control" accreditation visit from the HLC. At that time,
the HLC renewed the BPI Institutions' accreditation status and stated that their next
comprehensive evaluations would take place in 2014-2015.
43.
In June 2010,
the HLC
revised its bylaws to provide that institutions must have a
"substantial presence" in the North Central region. Institutions would be required to satisfy this
jurisdictional requirement as of the time of
their next comprehensive evaluation, "except where
the commission has information to indicate that an institution does not meet this requirement and
initiates, subsequent to July 1, 2012,
an inquiry to review jurisdiction." 2011 Form 10-K at 14.
44.
In its 2011 Form 10-K, Bridgepoint stated that because the BPI Institutions have
business operations, administration and leadership located outside of the North Central region,
BPI was uncertain whether the HLC would determine that the BPI Institutions have a
"substantial presence" in the North Central region under the definition in the adopted new policy.
2011 Form 10-K at 14.
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45.
As such, Bridgepoint sought to change its primary accreditor from HLC to
WASC. WASC
provides accreditation for colleges and universities offering the baccalaureate
degree and above in California, Hawaii, Guam and the Pacific Basin.
46.
WASC's process of accreditation is comprised of two stages. The first stage is
"eligibility," a preliminary screening to determine whether an institution should proceed to the
second stage, the more rigorous and formal process of
"candidacy" for accreditation. WASC,
How to Become Accredited: Procedures Manual for Eligibility, Candidacy, and Initial
Accreditation, at 1 (hereinafter "HTBA").
47.
During the eligibility stage, WASC
screens each institution "to determine whether
it is ready to begin the formal process of data collection and institutional reflection required for
an accreditation review." HTBA,
at 1. The process entails the institution's submission of an
Eligibility Report which addresses each of
the 23 WASC
Eligibility Criterion. HTBA,
at 2.
48.
After WASC staff completes its review of the eligibility application, the "staff
will prepare an action letter (the formal document WASC uses to communicate its actions),
detailing the panel's findings regarding the institution's standing on each of the 23 Criteria.
There are three possible outcomes following a review by the ERC:
approval, deferral, or denial."
HTBA,
at 3.
49.
A determination of eligibility is not an assurance that the institution will be
~ accredited:
A determination of Eligibility is not an official status with the [WASC]
Commission but only the outcome of a preliminary review that enables an
institution to proceed with the planning, data collection, institutional
self-reflection, and evaluation required for Candidacy and Initial Accreditation
reviews. By granting Eligibility, no assurance is made that an institution will
eventually be granted either Candidacy or Initial Accreditation. These judgments
will be made in light of additional institutional presentations and on-site reviews
to assess the institution's alignment with the WASC
Standards of
Accreditation.
~ HTBA,
at 4.
50.
In September 2010, Bridgepoint announced that Ashford had initiated the process
of
seeking accreditation from WASC.
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52.
On or about May 3, 2011, Ashford received formal notice from WASC stating
that Ashford met the eligibility criteria and could proceed to the second stage, assessment of
Ashford's candidacy for accreditation.
53.
Undisclosed to investors until July 9, 2012, however, WASC also "identified
several areas for attention" at the time it granted eligibility, and informed BPI in letters dated
May 23, 2011 and June 3, 2011 that it had "concerns" regarding Ashford's potential
accreditation. It further warned that certain "areas for attention" would need to be addressed in
Ashford's candidacy for accreditation. These areas included: the role of the governing board
and the relationship of Ashford with BPI; the sufficiency of the full-time faculty, and faculty
policies and governance; the adequacy of staffing .and support to promote student success;
detailed data on, and analyses of, student retention and graduation; detailed information on
recruitment and admissions practices; and financial and strategic plans.
54.
As later stated in the WASC
letter denying accreditation, dated July 3, 2012
(the
"WASC
Denial Letter"), WASC gave Ashford "early notice" about concerns WASC had with
Ashford's ability to satisfy certain accreditation criteria:
Notably, Ashford was notified about WASC
concerns in each of these areas by
WASC
and its Eligibility Review Committee in letters to Ashford dated May 23
and June 3, 2011, providing Ashford with early notice about these concerns... .
In granting eligibility to apply for accreditation, the WASC Eligibility Review
Committee and staff identified several areas for attention prior to the site visit
under the WASC Standards and asked that these areas be addressed in the
Ashford self-study report. These areas included the role of the governing board
and the relationship of Ashford and its owner Bridgepoint Education, Inc.; the
sufficiency of the full-time faculty, and faculty policies and governance; the
adequacy of
staffing and support to promote student success; detailed data on, and
analyses of, student retention and graduation; detailed information on recruitment
and admissions practices; and financial and strategic plans. Following Ashford's
eligibility review, and leading up to the site team visit, WASC staff was in
frequent communication with University representatives about the revlew
process.
'~ WASC
Denial Letter, at 2-3
55.
In addition, a report later issued by the WASC
team that performed the on-site
visit at Ashford as part of
the accreditation process
(
"WASC
Team ReporY') noted that WASC's
letter of June 3, 2011 gave Ashford further notice of areas needing "close attention" in order to
demonstrate compliance with accreditation standards:
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In its letter accepting the Ashford University Application for Initial Accreditation,
WASC's
Executive Vice President outlined the specific areas of
focus that would
need close attention during the Spring 2012 accreditation visit in order to
demonstrate substantial compliance with all standards. The visiting team
considered these items in the WASC
letter of
June 3, 2011 as "prior issues raised"
in this Initial Accreditation—Plan B
Report:
•
BPPE:
Documentation of exemption from California's Bureau of Private
Postsecondary Education.
•
Governing Board: Legal documents ensuring conformity with WASC
standards for an independent governing board.
•
Student Services and Administrative Staffing: Ashford must
demonstrate sufficient personnel to provide administrative and staff
support and to ensure that students have effective academic and
co-curricular support for the adult "higher-risk" student population in the
online division. WASC
will expect a high level of
support for these online
students to promote completion and learning.
•
Faculty Sufficiency and Policies
° Sufficiency of
full-time faculty for online division including a staffing
plan with ratios to ensure adequacy of oversight during plans for
growth
° A systematic method for integrating adjunct faculty into faculty roles
beyond teaching
° Policies and processes regarding faculty support and participation
regarding professional development, scholarship, workload,
decision-making and commitment to the University
•
Faculty Governance: Evidence that the faculty has a defined and robust
role in overseeing the quality of programs, assessing student learning,
advising students, and setting academic policy.
•
Library and Information Resources: Student access and use of
information and library resources as well as qualified and sufficient library
staffing to support online students
•
Financial Resources and Accountability: Detailed information for both
Bridgepoint and Ashford related to financial sufficiency, management and
annual independent audits.
•
Strategic Planning: Detailed plans and projections for achievement of
goals and growth.
•
Student Learning and Achievement: Clear demonstration of systems,
processes, methods, tools, plans, results, and findings regarding student
learning outcomes at ali levels.
•
Graduation and Retention Rates: Disaggregated information on
retention, persistence and graduation compared with other institutions to
analyze the adequacy of
the rates.
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•
Admissions and Recruitment: Detailed information regarding personnel,
scripts, compensation plans, training and oversight, and branding for both
on-ground and online divisions.
•
Lawsuits and Investigations: Acomprehensive listing of all legal actions
and investigations by governmental or licensing agencies that have
recently been completed or on-going.
56.
In December 2011, Ashford submitted its application for candidacy for
accreditation, which included an institutional self-study and related materials. WASC
performed
a site visit in March 2012.
57.
On July 9, 2012, Bridgepoint filed a Form 8-K stating that on July 5, 2012,
Ashford received official notice from WASC that its application for initial accreditation was
denied.
58.
According to the WASC Denial Letter, it did so because Ashford had not
"complied with multiple aspects of
the Standards of Accreditation at a substantial level, which is
the requisite degree of
compliance for initial accreditation," particularly in the following areas:
(a)
Student retention and completion, methods of tracking student progress,
and support for student success;
objectives;
(b)
Alignment of resource allocations with educational purposes and
(c)
A sufficient core of full-time faculty members, and a faculty model that
provides for faculty development and oversight of academic policies and ensures the integrity
and continuity of
academic programs;
(d)
An
effective system of
program review;
(e)
An effective system for assessing and monitoring student learning and
assuring academic rigor; and
(~
An empowered and independent governing board and a clear and
acceptable relationship with the parent company.
59.
In its July 9, 2012 Form 8-K,
BPI also disclosed that on June 25, 2012,
the HLC
informed Ashford that the institution must demonstrate, no later than December 1, 2012, that it
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has a "substantial presence," as defined by commission policy, in the North Central region and
accordingly is within the HLC's
jurisdiction.
60.
Upon disclosure of the WASC accreditation denial, Bridgepoint's stock price
dropped $7.25 per share to close at $14.25 per share on July 9, 2012,
a decline of nearly 34%.
61.
Following WASC's denial of accreditation, the HLC acted to review Ashford's
accreditation. On July 13, 2012, the Company disclosed that Ashford had received a letter from
the HLC requiring Ashford "to provide certain information and evidence of compliance with
HLC
accreditation standards" in light of
the recent determination by WASC.
62.
On this news,
Bridgepoint's stock declined an additional $3.20 per share or nearly
25%,
to close at $9.77 per share on July 13, 2012._
DEFENDANTS'
FALSE
AND
MISLEADING
STATEMENTS
ISSUED DURING
THE
CLASS
PERIOD
63.
Ashford, and by extension Bridgepoint, rely heavily on federal Title IV financial
aid programs as a major source of revenue. As a prerequisite for their participation in Title IV
programs, accreditation is crucial to the viability of
Ashford and Bridgepoint.
64.
Bridgepoint confirmed the importance of
its institutions' accreditations in its 2011
Form 10-K, stating that "[1]oss of accreditation would denigrate the value of our institutions'
educational programs and would cause them to lose their eligibility to participate in Title IV
programs, which would have a material adverse effect on our enrollment, revenues and results of
operations." 2011 Form 10-K,
at 26.
65.
In November 2009, as a result of Bridgepoint's initial public offering, the BPI
Institutions participated in a "change of control" accreditation visit from the HLC. At that time,
the HLC renewed the BPI Institutions' accreditation status and stated that their next
comprehensive evaluations would take place in 2014-2015.
66.
On May 3, 201 1, the beginning of
the Class Period, Bridgepoint held a conference
call with analysts to discuss financial results for its first quarter ended March 31, 2011. As part
of that call, Defendant McAuliffe stated that WASC had approved Ashford's eligibility
application:
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WASC accreditation. As you know, Ashford University has applied for eligibility, which is a preliminary review of an institution to determine that an institution is potentially accreditable. WASC has reviewed~the application and determined that Ashford University is eligible to proceed with an application for candidacy for accreditation. This is a preliminary finding that indicates that the University can proceed to the next step, which includes writing aself-study in preparation for a site visit. The team is very excited to be moving forward in the process.
67. On May 13, 2011, Bridgepoint filed a Form 8-K stating that WASC had approved ~ its eligibility application:
On May 12, 2011, Ashford University received a letter from WASC stating that the WASC Eligibility Review Committee has reviewed the application and determined that the university meets all of the WASC eligibility criteria and may proceed with an application for initial accreditation. Additionally, the letter confirmed that Ashford University is authorized to pursue WASC accreditation under Pathway B, the process for institutions that currently hold accreditation with an institutional accreditor recognized by the US Department of Education.
68. Neither the May 3, 2011 conference call nor the Form 8-K filed May 13, 2011 revealed that WASC had notified Ashford of concerns it had about certain accreditation criteria.
69. Specifically, as later disclosed by WASC in its July 3, 2012 Denial Letter, at 2, ~ WASC had "concerns" about which it informed Ashford in May and June 2011:
Notably, Ashford was notified about WASC concerns in each of these areas by WASC and its Eligibility Review Committee in letters to Ashford dated May 23 and June 3, 2011, providing Ashford with early notice about these concerns... . In granting eligibility to apply for accreditation, the WASC Eligibility Review Committee and staff identified several areas for attention prior to the site visit under the WASC Standards and asked that these areas be addressed in the Ashfcsrd self-study report. These areas included the role of the governing board and the relationship of Ashford and its owner Bridgepoint Education, Inc.; the sufficiency of the full-time faculty, and faculty policies and governance; the adequacy of staffing and support to promote student success; detailed data on, and analyses of, student retention and graduation; detailed information on recruitment and admissions practices; and financial and strategic plans. Following Ashford's eligibility review, and leading up to the site team visit, WASC staff was in frequent communication with University representatives about the review process.
70. In a Form 10-Q filed August 2, 2011, Bridgepoint repeated that it had received in May 2011 notification from WASC that Ashford was eligible to proceed with an application for accreditation, without disclosing that WASC had raised concerns about Ashford's ability to satisfy the relevant accreditation criteria:
Recent Developments
WASC determination of eligibility for Ashford University. In September 2010, Ashford University applied for eligibility from the Accrediting Commission for
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Colleges ("WASC"). On May 12, 2011, Ashford University received a letter from WASC stating that the WASC Eligibility Review Committee has reviewed the application and determined that the university meets all of the WASC eligibility criteria and may proceed with an application for initial accreditation. Additionally, the letter confirmed that Ashford University is authorized to pursue WASC accreditation under Pathway B, the process for institutions that currently hold accreditation with an institutional accreditor recognized by the Department. A determination of eligibility is not a formal status with WASC, nor does it ensure eventual accreditation; it is a preliminary finding that Ashford University is potentially accreditable and can proceed within four years of its eligibility determination to be reviewed for initial accreditation status with WASC. Questions about eligibility may be directed to Ashford University or to WASC at wascsr@wascsenior.org or (510) 748-9001.
Ashford University has applied for accreditation by the Western Association of Schools and Colleges ("WASC") with the intention of relinquishing its HLC accreditation and designating WASC as its primary accreditor for Title IV purposes upon the completion of that process.
71. In its 2011 Form 10-K, filed March 7, 2012, Bridgepoint repeated that it had received in May 2011 notification from WASC that Ashford was eligible to proceed with an application for accreditation. Although the disclosure also provided detail that Ashford would be permitted to pursue accreditation using the process for currently accredited institutions, it ~ omitted the fact that WASC had raised concerns about Ashford's ability to satisfy the
accreditation criteria, or what those concerns were:
Ashford University is accredited by the Higher Learning Commission and a member of the North Central Association of Colleges and Schools (www.ncahlc.org) ("Higher Learning Commission"). Ashford University received its most recent 10-year reaccreditation in 2006. In September 2010, Ashford University applied for eligibility from the Accrediting Commission for Senior Colleges and Universities of the Western Association of Schools and Colleges ("WASC"). In May 2011, Ashford University received a letter from WASC stating that the WASC Eligibility Review Committee has reviewed the application and determined that the university meets all of the WASC eligibility criteria and may proceed with an application for initial accreditation. For more information about Ashford University's accreditation, see "Regulation-Accreditation" below. Ashford University maintains a website at www.ashford.edu, the contents of which are not part of this report.
72. The statements referenced in ~¶ 63-71 above were materially false and/or misleading because they misrepresented and failed to disclose that Ashford's prospects for accreditation with WASC were at risk as of May 2011, which was known to or recklessly disregarded by Defendants.
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73.
On July 9, 2012, Bridgepoint filed a Form 8-K with the SEC stating that on July
5, 2012 Ashford received official notice from WASC
that it had been denied accreditation. The
Form 8-K stated that "WASC found that Ashford University had not yet demonstrated
substantial compliance with certain of the WASC
Standards for Accreditation." The Form 8-K
noted Ashford's intention to appeal the WASC
denial.
74.
The July 9, 2012 Form 8-K directed readers to the WASC
website for additional
materials regarding the accreditation denial.
75.
Posted on the WASC
website was the WASC
Denial Letter as well as the WASC
Team Report.
76.
According to the WASC
Denial Letter, WASC
denied Ashford's application for
initial accreditation because Ashford had not "complied with multiple aspects of
the Standards of
Accreditation at a substantial level, which is the requisite degree of compliance for initial
accreditation," particularly in the following areas:
(a)
Student retention and completion, methods of tracking student progress,
and support for student success;
objectives;
(b)
Alignment of resource allocations with educational purposes and
(c)
A sufficient core of full-time faculty members, and a faculty model that
provides for faculty development and oversight of academic policies and ensures the integrity
and continuity of
academic programs;
(d)
An
effective system of
program review;
(e)
An effective system for assessing and monitoring student learning and
assuring academic rigor; and
(f
j
An empowered and independent governing board and a clear and
acceptable relationship with the parent company.
77.
On news of the WASC accreditation denial, Bridgepoint stock price dropped
$7.25 per share to close at $14.25 per share on July 9,
2012,
a decline of
nearly 34%.
COMPLAINT FOR VIOLATION OF THE
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78. On July 13, 2012, Bridgepoint filed a Form 8-K with the SEC stating that on July 12, Ashford received a letter from the HLC requiring Ashford to submit, by no later than August 10, 2012, a report demonstrating compliance with HLC's criteria for accreditation—in the same ~ areas that WASC had deemed lacking days before:
(i) evidence that Ashford University meets the HLC Criteria for Accreditation relating to the role and autonomy of the University's governing board and its relationship with Bridgepoint Education, including the role of faculty in overseeing academic policies and the integrity and continuity of academic programs, (ii) evidence that Ashford University's resource allocations are sufficiently aligned with educational purposes and objectives in the areas of student completion and retention, the sufficiency of full-time faculty and model for faculty development, and plans for increasing enrollments, and (iii) evidence demonstrating that Ashford University has an effective system for assessing and monitoring student learning and assuring academic vigor.
79. On this news, Bridgepoint stock declined an additional $3.20 per share, or nearly ~ 25%, to close at $9.77 per share on July 13, 2012.
LOSS CAUSATION
80. Defendants made widely-disseminated false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of Bridgepoint common stock. Later, when Defendants' prior misrepresentations and fraudulent conduct became apparent to the market on July 9 and July 13, 2012, the price of Bridgepoint common stock fell precipitously.
81. As a result of their purchases of Bridgepoint common stock during the Class Period at artificially inflated prices, Plaintiff and other members of the Class suffered economic loss, i.e., damages, under the federal securities laws.
ADDITIONAL ALLEGATIONS OF SCIENTER
82. As illustrated by the Individual Defendants' positions with the Company, they had, and used their influence and control to further the scheme alleged herein. The Individual Defendants had broad responsibilities which included communicating with the financial markets and providing the markets with information about Bridgepoint's business conditions and financial results. The Individual Defendants were privy to and directed the making of the financial disclosures. By making the misleading statements contained herein the Individual
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Defendants knew that they would artificially inflate the value of
the Company's common stock.
Defendants' actions in doing so resulted in damage to Plaintiff and the Class.
83.
The Individual Defendants were further motivated to artificially inflate the
Company's stock price in order to enhance the value of their substantial personal holdings of
Bridgepoint stock and options, and to sell those holdings for substantial personal profit. During
the Class Period, the Individual Defendants sold more than $29 million of stock while knowing
or recklessly disregarding that a substantial risk existed that Ashford would not be accredited by
WASC
and that its continued accreditation by the HLC
would thereby be placed in jeopardy.
COUNTI
For Violations of
§10(b)
of the Exchange Act and
Rule lOb-5
(Against All Defendants)
84.
Plaintiff incorporates ¶¶1-83 by reference.
85.
Throughout the Class Period, Defendants, individually and in concert, directly or
indirectly made various false statements of material facts and omitted to state material facts to
make the statements made not misleading to Plaintiff and the other members of
the Class.
86.
Defendants violated §
10(b) of
the Exchange Act and Rule l Ob-5 in that they:
(a)
employed devices, schemes and artifices to defraud;
(b)
made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they
were made,
not misleading; or
(c)
engaged in acts, practices and a course of business that operated as a fraud
or deceit upon plaintiff and others similarly situated in connection with their purchases of
Bridgepoint common stock during the Class Period.
87.
Defendants, who are the senior officers of
the Company,
had actual knowledge of
the material omissions and/or the falsity of
the material statements set forth above, and intended
to deceive Plaintiff and the other members of
the Class, or, in the alternative, acted with reckless
disregard for the truth when they failed to ascertain and disclose the true facts in the statements
made by them or other Bridgepoint personnel to members of the investing public, including
Plaintiff and the Class.
COMPLAINT FOR VIOLATION OF THE
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88.
As a result of
the foregoing, the market price of Bridgepoint common stock was
artificially inflated during the Class Period. In ignorance of the falsity of Defendants'
statements, Plaintiff and the other members of
the Class relied on the statements described above
and/or the integrity of the market price of Bridgepoint securities during the Class Period in
purchasing Bridgepoint common stock at prices that were artificially inflated as a result of
Defendants' false and misleading statements.
89.
Had Plaintiff and the other members of
the Class been aware that the market price
of Bridgepoint common stock had been artificially and falsely inflated by Defendants'
misleading statements and by the material adverse information which Defendants did not
disclose, they would not have purchased Bridgepoint common stock at the artificially inflated
prices that they did, or at all.
90.
As
a result of
the wrongful conduct alleged herein, Plaintiff and other members of
the Class have suffered damages in an amount to be established at trial.
91.
By reason of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule l Ob-5 promulgated thereunder and are liable to the plaintiff and the other
members of the Class for substantial damages which they suffered in connection with their
purchase of
Bridgepoint common stock during the Class Period.
COUNT
II
For Violation of
§20(a)
of
the Exchange Act
(Against the Individual Defendants)
92.
Plaintiff incorporates ~¶1-91 by reference.
93.
The Individual Defendants acted as controlling persons of Bridgepoint within the
meaning of §20(a) of
the Exchange Act. By
reason of
their positions of
control and authority as
senior officers, the Individual Defendants were able to, and did, control the contents of the
various reports, press releases and public filings that Bridgepoint disseminated in the
marketplace during the Class Period concerning Ashford's prospects for WASC
accreditation.
94.
Throughout the Class Period, the Individual Defendants exercised their power and
authority to cause Bridgepoint to engage in the wrongful acts complained of herein. By reason
of
such conduct, Defendants are liable pursuant to §20(a)
of
the Exchange Act.
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COMPLAINT FOR VIOLATION OF THE
FEDERAL SECURITIES LAW
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