Embattled K12 Inc Under Investigation for Securities Fraud


Online education provider K12, Inc. is currently under investigation for possible violations of securities fraud.

The investigation is focusing on the possibility that statements made by the company concerning its business, prospects, and operations were in fact false at the time they were made.

For the 12 month period ending on June 30, 2015, K12 Inc. reported its total revenue to have increased from $848.22 million to $948.29 million.  At the same time, its net income decreased from $28.11 million to $10.99 million.  Shares of K12 Inc. reached a peak of $36.78 per share in September 2013 and are now trading near $9.

On October 27, 2015 K12 Inc. acknowledged receiving a subpoena on September 24, 2015 from the Attorney General of California pertaining to an industry-wide investigation into for-profit virtual schools.  By November 13, shares for the company had sunk to $9.01 per share, reports Michael Daniels for WallStreetScope.

Casey McCarthy writes for FinancialMagazine that the low stock prices could suggest a high risk for the company, which is currently worth $357.47 million.  The stock currently has a $7.93 target.  If that is reached, the company would be worth $42.9 million less.

At the annual meeting last week, investors voted down a plan for executive pay.  Meanwhile, outside the meeting, protesters from national teachers’ unions gathered outside alongside representatives from a school operated by K12.  They marched and held signs saying that the company had failed the 15,000 students enrolled in one of its largest school networks, California Virtual Academies.

K12, Inc. has been under fire after a report released earlier this year that found students at online schools lost out on a complete year’s worth of learning.  Even groups that stand behind online charter schools and push for their expansion have expressed how unhappy they are with how online schools have served their students, writes Molly Hensley-Clancy for BuzzFeed.

A separate report from a Washington think tank concerning a California virtual charter run by K12 Inc. found students at the school had significantly lower test scores than their public school peers, increasingly high dropout rates, and questionable attendance records, among other issues.

Former education commissioner of Tennessee Kevin Huffman described his experience handling a K12, Inc. virtual charter in his state for the last four years by saying the school had a whole host of operational issues right from the start, and that lobbyists were sent by the company in place of education specialists in order to discuss the poor performance of students.

The company received an “F” rating by Glass Lewis for the money it pays its executives versus their peers.  CEO Nathaniel Davis received a salary of $5.33 million in 2015 while its chief financial officer was paid $3.6 million.

Zacks Investment Research says the company uses technology to educate students across the country and provides curriculum and educational software created for online delivery to students between kindergarten and the 12th grade.  Their goal is to allow students, regardless of location or socio-economic background, to reach their potential by offering access to engaging education.