The Hialeah (Fla.) Employees' Retirement System filed a securities class-action lawsuit alleging education provider Grand Canyon Education Inc. inflated its financial results.
The lawsuit, filed by the $700 million pension fund in U.S. District Court in Wilmington, Del., alleges that Grand Canyon used its Grand Canyon University spinoff as an "off-balance-sheet entity to which Grand Canyon was able to funnel expenses and costs in exchange for a disproportionate amount of revenue, thereby inflating Grand Canyon's financial results."
The May 12 complaint was brought on behalf of purchasers of Grand Canyon's publicly traded common stock between Jan. 5, 2018 and Jan. 27, 2020.
The class period's beginning is connected to Grand Canyon's announcement that it had applied to the Higher Learning Commission for recognition of the university as a non-profit institution.
The suit cites a September 2019 report by Citron Research that claims Grand Canyon was "stuffing GCU with expenses to inflate its own profitability and as a result bankrupting GCU." In November 2019, GCU was denied recognition as a non-profit, which the complaint states led to falls in Grand Canyon stock prices until the stock fell to a low of $84.07 per share on Jan. 29 from a close of $109.62 a share on Sept. 10, 2019.
Dan Bachus, chief financial officer of Grand Canyon Education, said in an email the company would “vigorously defend itself against this unfounded suit.”
Hannah Ross and Gregory V. Varallo, partners at Bernstein Litowitz Berger & Grossman, attorneys for the plaintiff.