Class action suit filed against online learning company

A putative class action securities lawsuit has been filed against an online learning company that allegedly attempted to take advantage of the COVID-19 epidemic but was unprepared.

The complaint in the lawsuit, Yun Chau Lee v. K12 Inc., Nathaniel A. Davis and Timothy Medina, which was filed in U.S. District Court in Alexandria, Virginia, on Friday, charges that the Herndon, Virginia-based firm’s stock price dropped to $27.21 on Sept. 18 from around $43 on July 15 following reports of its failure to handle its increased workload. The lawsuit was first reported by the D&O Diary.

According to the complaint, K12, which had a history of reporting disappointing financial results during the 10-month period prior to school closures in March, saw a “unique opportunity” to revamp itself in the rapidly growing market for online education following the pandemic.

It accordingly launched an intensive campaign to convince the stock market it was “well positioned and technologically capable” of accommodating the “massive surge” of students, parents and teachers who were turning to online education.

The lawsuit charges the company then disseminated “dozens of false and misleading statements” on its technological ability. It charges, however, that K12 did not have the adequate infrastructure to enable thousands of students to log on to their systems, and that its cybersecurity measure and protocols were so weak that at one point a 16-year-old high school junior successfully breached its network and crippled its online platform for several days.

The lawsuit charges the company and its officers with violating securities law and seeks class action certification, damages and attorney fees.
Mr. Davis and Mr. Medina are the firm’s CEO and chief financial officer, respectively.

The company said in a statement,“We do not comment on allegations or ongoing litigation.”