Metzler Investment Gmbh v. Corinthian Colleges, Inc.

540 F.3d 1049 (9th Cir. 2008)

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Nature of the Case

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Facts

P alleges that Corinthian's Colleges (D) are pervaded by fraudulent practices designed to maximize the amount of federal Title IV funding. P alleges that D engaged in a variety of false or deceptive schemes: falsifying financial aid applications to obtain federal funds and increase federal award entitlements; encouraging students to falsify federal student aid forms themselves; manipulating student enrollment by counting students not yet enrolled; manipulating or falsifying student grades to maintain federal funding eligibility; exposing the company to bad debt in order to meet regulatory requirements for continued federal funding; delaying notification to federal officials of dropped students and delaying refunds to the federal government after students had dropped; and manipulating job placement data in order to satisfy federal and state regulatory requirements. P alleges that as many as 50% to 60% of the people defendants represented to the U.S. government as being qualified, attending `students' were either `no shows' in class or unqualified for admission and federal funds from the outset.' P alleges that this fraud resulted in an artificial inflation of Corinthian's stock price. P alleges that virtually every Class Period statement discussing Corinthian's financial status was false and misleading as a result of the Company-wide scheme to inflate enrollment figures in order to misappropriate federal financial aid funding. A June 24 Financial Times story revealed that the DOE investigated Corinthian's Bryman campus in December 2003, and as a result, that campus had been placed on reimbursement status. The stock fell $2.55 on June 24, losing 10% of its value and closing at $22.51. The stock rebounded within three trading days, and by June 29, 2004, it rose to $25.11, an amount that exceeded the stock's value before the June 24 Financial Times story. Another incident occurred on August 2, 2004, when D issued a press release announcing that it had cut its revenue and earnings projections for the fourth quarter of 2004 and all of fiscal year 2005. That press release also revealed that the company had participated in a meeting with the California Attorney General regarding D's business practices. The release announced revised earnings per share ('EPS') for fiscal year 2004 of 86 to 87 cents, down from earlier projections of 94 cents EPS. The company lowered guidance for all of fiscal year 2005. D's stock dropped 45% to $10.29. P focuses on a particular passage from the August 2 release: the reference to 'higher than anticipated attrition' at D schools. P contends that this language is a veiled reference alerting the market to D's more extensive fraudulent student enrollment and financial aid practices. P appealed.