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Washington Post Wins Dismissal Of Class Claims Over Kaplan Unit

Friday, March 22, 2013

The U.S. District Court for the District of Columbia March 19 again dismissed a class securities suit against the Washington Post (WPO) and two of its officials over alleged problems at its Kaplan education unit (Plumbers Local #200 Pension Fund v. Washington Post Co., D.D.C., No. 10-01835(BJR), 3/19/13).

Judge Barbara Rothstein found that the lead plaintiff failed to adequately allege scienter, or intent to defraud. The suit was dismissed with prejudice.

The plaintiff sued the Washington Post (WPO), Chairman and Chief Executive Officer Donald Graham, and Senior Vice President and Chief Financial Officer Hal Jones. Graham and Jones were the WPO designees to communicate with the market, the court wrote.

For-Profit College

WPO is the parent company of Kaplan Inc. Among Kaplan’s holdings, the court said, is Kaplan Higher Education Corp., a private, for-profit college with about 70 campuses nationwide. WPO stock allegedly suffered decreases in value “in temporal proximity” to revelations that regulators were investigating admissions and financial aid fraud throughout the for-profit college industry.

The plaintiffs asserted that the defendants oversaw a for-profit education company built and dependent upon defrauding the federal government. More specifically, the court recounted, the plaintiff alleged that the individually named defendants misled the market by failing to disclose that WPO’s “'strong enrollment growth’” was driven almost totally by predatory enrollment practices, illegal compensation, and other alleged violations.

The court said that it granted the defendants’ first motion to dismiss on the grounds that the-then operative complaint failed to plead a strong inference of scienter, a required element of a securities fraud claim. This amended complaint fared no better--it too was dismissed for inadequate scienter pleading.

Scienter Pleading Deficient

Preliminarily, the court said that alleged securities fraud at for-profit education institutions “has been a frequent subject of recent litigation. These cases have been overwhelmingly unsuccessful.”

In other specifics, the court said that, “[t]o be clear, the statements of the twenty-four confidential witnesses contained in the Amended Complaint provide information which, if true, evidences the existence of abusive or unethical admissions and financial aid practices.”

However, the court continued, the witness statements reference only an alleged predatory scheme known to or encouraged by KHE and Kaplan. Apart from innuendo and conjecture, the court said, the amended complaint fails to provide significant allegations attributing these questionable practices to WPO or the individual defendants.

After considering additional factors, the court said that read in its entirety, “any inference of scienter fails when compared with opposing inferences.”

To see the opinion, go to

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