.jpg)
WILMINGTON, Del. (Legal Newsline) – A Florida public pension has hired private lawyers to sue Grand Canyon Education over a drop in stock price.
The city of Hialeah Employees’ Retirement System filed its lawsuit against GCU on May 12 in Delaware federal court through lawyers at Bernstein Litowitz and Klausner Kaufman.
The case seeks to create a class consisting of those who bought stock in GCU in the two years after Jan. 5, 2018, when Grand Canyon spun-off education assets through a sale to nonprofit GCU.
Grand Canyon was supposed to provide education services to GCU and possibly other universities, and GCU was to operate as a nonprofit no longer owned by Grand Canyon, the complaint says.
“Following the spin-off, Grand Canyon consistently reported growth in net income and adjusted earnings before interest, taxes, depreciation, and amortization, and touted the success of its transition into the role of a third-party services provider,” the lawsuit says.
“In reality, GCU functioned 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.
“In addition, GCU was not a proper non-profit organization but rather remained under the control of Grand Canyon through the Master Services Agreement and by virtue of Grand Canyon’s employees serving as the executives who managed GCU.”
After this was disclosed in a Citron Research report in September, Grand Canyon’s stock fell from $109.62 per share to $84.07 per share on Jan. 28. A driving force was the Department of Education denying GCU’s application to function as a nonprofit.
U.S. District Court for the District of Delaware case number 1:20-cv-00639