Bridgepoint Education Investors Defeat Motion to Dismiss

September 13, 2013

On September 13, 2013, United States District Judge Jeffrey T. Miller upheld claims pursuant to §§10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 against Bridgepoint Education, Inc. and certain Bridgepoint executives, including Andrew S. Clark, Bridgepoint’s Chief Executive Officer, for allegedly false and misleading statements regarding Bridgepoint’s Ashford University. In July 2012, shareholders filed a securities class action against Bridgepoint, in the wake of the Western Association of Schools and Colleges’ (“WASC”) decision to deny Ashford University’s application for initial accreditation. The City of Atlanta General Employees Pension Fund and Teamsters Local 677 Health Services & Insurance Plan are serving as lead plaintiffs.

Based in San Diego, California, Bridgepoint owns and operates Ashford University and University of the Rockies. Despite each brand’s physical campus, 99% of Bridgepoint’s students attend class exclusively online. In 2011, Bridgepoint announced its intention to switch accreditors for Ashford University from the Higher Learning Commission (“HLC”) to WASC. Given the historically poor persistence and graduation rates of students attending for-profit universities, Ashford’s persistence and graduation levels “were crucial to obtaining accreditation.” Furthermore, “Bridgepoint claim[ed] that it implemented persistence programs at Ashford to remedy . . . problems starting as early as 2010. Throughout the Class Period, Bridgepoint emphasized that student persistence programs were improving student retention.” Plaintiffs allege that defendants’ statements (e.g., “We did a lot back in 2010 and through 2011 around quality initiatives for our students . . . . That has impacted our persistence in a very positive way.”) were false and misleading.

In upholding plaintiffs’ claims as they relate to student persistence, Judge Miller found that “WASC, a third party, confirmed that Defendants’ statements regarding persistence were unsubstantiated.” Given the “crucial” nature of persistence levels to WASC’s analysis, “any statements about persistence [were] potentially material.” Further, the court recognized that WASC found “persistence could not yet be measured and that a systematic approach to managing persistence was not yet in place,” and that if “Defendants were aware that persistence could not be adequately measured and yet made representations indicating that persistence was improving, then scienter could be reasonably inferred.”

In addition, the court granted plaintiffs leave to amend dismissed claims and left open the possibility of repleading as evidence develops. Plaintiffs have the option to move toward discovery on the claims upheld.

The Robbins Geller attorneys litigating the case are David C. Walton and Jonah H. Goldstein.

In re Bridgepoint Educ., Inc. Sec. Litig., No. 3:12-CV-1737 JM (WMC), 2013 U.S. Dist. LEXIS 131423 (S.D. Cal. Sept. 13, 2013).

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