OR Pub. Emp. Ret. Fund v. Apollo Group, No. 12-16624 (9th Cir. 2014)
Annotate this CasePlaintiffs, representatives of a class of investors that purchased stock in Apollo, filed suit alleging, among other things, that defendants violated section 10(b) of the Securities and Exchange Act and SEC Rule 10b-5, 15 U.S.C. 78j and 17 C.F.R. 240.10b-5, by making false and misleading statements of material fact regarding Apollo's enrollment and revenue growth, financial condition, organizational values, and business focus. The district court dismissed the amended complaint under Rule 12(b)(6) for failure to state a claim. The court concluded that the material misrepresentations plaintiffs alleged in Counts I, III, and IV of the Amended Complaint are not objectively false misstatements, but are examples of lawful business puffing; moreover, plaintiff failed to plead scienter or loss causation; Count II contains largely conclusory allegations that Apollo improperly recorded student revenue; plaintiffs' allegations that defendants are guilty of insider trading fail to state a claim because the alleged non-public information to which defendants had access is the same information at issue in Counts I, II, and III, and IV of the Amended Complaint; and plaintiffs cannot establish control person liability. Accordingly, the court affirmed the judgment of the district court.
Court Description: Securities Fraud. The panel affirmed the district court’s dismissal of investors’ class action under § 10(b) of the Securities Exchange Act and SEC Rule 10b-5 against Apollo Group, Inc., a for-profit education company, and Apollo officers and directors. The plaintiffs alleged that the defendants made false and misleading statements of material fact regarding Apollo’s enrollment and revenue growth, financial condition, organizational values, and business focus. They also alleged that, during the class period, certain individual defendants traded on inside information related to the false and misleading statements of material fact. Agreeing with the Fourth Circuit, the panel held that the heightened pleading standards of Fed. R. Civ. P. 9(b) apply to all elements of a securities fraud action, including loss causation. The panel held that the material misrepresentations alleged in Counts I, III, and IV of the amended complaint were not objectively false statements, but rather were examples of lawful “business puffing.” The plaintiffs also failed adequately to plead scienter or loss causation. The panel held that, as to Count II, the plaintiffs did not show how Apollo’s accounting numbers regarding student revenue were incorrect or misstated. The panel held that the plaintiffs failed to state a claim for insider trading because the alleged non-public information to which the defendants had access was the same information at issue in Counts I–IV. The panel held that the plaintiffs also could not establish control person liability.
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