College operator guilty of fraud

Apollo Group Inc., operator of the for-profit University of Phoenix, fraudulently misled investors in 2004 about its student recruitment policies, a federal jury decided Wednesday. The panel ordered the company to pay shareholders $280 million.

After a two-month trial in federal court in Phoenix, jurors said Apollo officials “knowingly and recklessly” made false statements in a news release, a filing with the Securities and Exchange Commission and four conference calls with market analysts. By doing so, jurors said, Apollo violated federal securities laws.

The jury said the company had to pay certain investors $5.55 a share.

Apollo, which reported $780.7 million in revenue in the first quarter, said it hadn’t decided whether to appeal.

The company’s shares dropped $1.36, or 1.7%, to $78.57 on Wednesday.

Shareholders claimed that Apollo misled investors four years ago when it kept secret a Department of Education report that concluded the university violated federal regulations by paying enrollment counselors based on how many students they enrolled.

Apollo contended that the report was largely false and based on anecdotal evidence. Therefore, the company said, its failure to disclose the report’s existence to investors was not misleading.

Nevertheless, the University of Phoenix agreed in September 2004 to pay the Department of Education $9.8 million to settle the matter. When news of the report was made public later that month, Apollo’s stock dropped significantly.