Milberg Weiss Announces the Filing of a Class Action Suit against Apollo Group, Inc. and Certain of Its Officers and Directors on Behalf of Investors

Business Wire, Oct 29, 2004

NEW YORK -- The law firm of Milberg Weiss Bershad & Schulman LLP announces that a class action lawsuit was filed today on behalf of all persons who purchased or otherwise acquired the securities of Apollo Group, Inc. ("Apollo") (Nasdaq: APOL) between February 27, 2004 and September 14, 2004, inclusive (the "Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). A copy of the complaint filed in this action is available from the Court, or can be viewed on Milberg Weiss' website at: http://www.milbergweiss.com

The action, Case No. CV 04-2334 PHX LOA, is pending in the United States District Court for the District of Arizona, against defendants Apollo, Todd S. Nelson (CEO, President, and Chairman), Kenda B. Gonzales (CFO), and Daniel E. Bachus (Chief Accounting Officer and Controller). According to the complaint, defendants violated sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5, by issuing a series of material misrepresentations to the market during the Class Period.

The complaint alleges that Apollo, a provider of adult higher education through its subsidiaries, The University of Phoenix, Inc., Institute for Professional Development ("IPD"), The College for Financial Planning Institutes Corporation, and Western International University, Inc., reported positive financial results in publicly disseminated press releases and filings with the SEC throughout the Class Period. Apollo attributed these results to strong growth in tuition and other net revenues primarily from an increase in average full-time equivalent degree student enrollments. According to the complaint, a material portion of Apollo's revenues was derived from federal financial aid programs in which Apollo's students participated to receive tuition assistance. In connection with its students' receipt of federal financial aid, the Company was subject to extensive regulation by governmental agencies and licensing and accrediting bodies. Most importantly, Title IV of the Higher Education Act of 1965 (the "HEA"), and certain of the regulations issued thereunder by the Department of Education ("DOE"), prohibits institutions which participate in the federal financial aid programs from paying commissions, bonuses, or other incentives on the basis of the success of student recruitment, admission, or financial aid awards. The Company acknowledged in its second-quarter 2004 report that its success depended upon its compliance with Title IV. On February 27, 2004, the first day of the Class Period, the Company announced the dismissal of a whistleblower lawsuit which alleged that the Company improperly compensated its student recruiters, and suggested that there was no merit to the allegations. In the Company's second- and third-quarter 2004 reports, Apollo revealed that the DOE's Office of the Inspector General ("OIG"), in its audit of IPD and certain client institutions for which IPD provides management, program development, and student recruitment services, found evidence of incentive-based compensation of student recruiters by IPD and the client institutions. Defendants assured investors that the audit "will be resolved without any material effect on its financial position, results of operations, or cash flows, and without any material change in IPD's business strategy."

On September 7, 2004, the truth began to emerge when the Company issued a press release stating, without disclosing further details, that it had resolved the DOE's audit of IPD and The University of Phoenix. On the same day, after the market closed, Bloomberg published an article entitled "Apollo Group Settles Department of Education Audit," which revealed that the Company had reached a settlement with the DOE for $4.4 million in connection with allegations that IPD had tied the compensation of its student recruiters to enrollment figures. Moreover, the article stated that the Company had agreed to pay $9.8 million in connection with a regulatory investigation into the same issues at The University of Phoenix. In reaction to this news, the price of Apollo common stock dropped $0.65 per share from its previous day's closing price of $82.72 to close at $82.07 on September 8, 2004. On September 15, 2004, The Wall Street Journal published an article reporting the findings of the DOE's probe into The University of Phoenix, stating that its supervisors "improperly lavished money on employees for signing up scores of new students, including those unable to cut it." Moreover, the Journal reported that the Company promised its student recruiters who started at salaries of $26,000 an increase "to as much as $120,000 if they logged enough enrollments," and rewarded top performers with all-expense paid trips, gift certificates, and spa packages. According to the Journal, the DOE investigators also found "'a culture of duplicity,' with some counselors even forging student signatures on loan documents." In reaction to this news, the price of Apollo common stock declined, falling $1.41, or 1.7%, from its previous trading day's closing price to close at $78.68 on September 15, 2004.