‘Informal Inquiry’ on Apollo Widened

Federal regulators are widening an "informal inquiry" into University of Phoenix parent Apollo Group Inc. and have asked the company to provide information about several issues, including the company’s insider-trading policies.

The Phoenix-based Apollo is the country’s largest education company. University of Phoenix has 470,800 students.

The Phoenix-based education company disclosed more details about the inquiry in a document filed with the U.S. Securities and Exchange Commission on Tuesday.

The news barely caused a ripple in the company’s stock price during Tuesday trading, and at least one analyst called Apollo an "attractive" long-term investment.

The shares closed Tuesday at $36.94, up 50 cents, or almost 1.4 percent.

The SEC wants to know when Apollo processed information about the U.S. Department of Education’s program review and how it made that information available.

The SEC also wants to know more about some of the company’s revenue sources and about its insider-trading rules.

The SEC began an informal inquiry into Apollo’s revenue-recognition practices in 2009. That refers to how and when a company books sales; in this case, tuition and related revenue.

Apollo Group continues to cooperate fully with the inquiry, the company said in Tuesday’s filing.

The query about insider-trading rules echoes complaints in shareholder lawsuits that have been filed in federal court in Arizona.

A group of investors, including some government pension funds, accuses Apollo of concealing "improper marketing, admissions and enrollment practices" that, it says, drove down the company’s stock price.

The plaintiffs include investors who owned stock from June 2007 to August 2010. The lawsuit alleges that, during that time, company board members and executives, who knew about the misconduct before it was made public, liquidated about $46 million in Apollo shares.

Apollo Group is probably not involved in intentional fraud, and it’s still a good long-term investment, wrote Gary Bisbee, a Barclays Capital analyst who follows the company.

The company’s current leaders helped lead a review of accounting practices in 2007, and they don’t have an incentive to "fudge" the numbers, the analyst said in a report published Tuesday. Also, Apollo’s revenue per student closely tracks with tuition prices, which seems to show it’s unlikely that the company attempted to significantly overstate revenue, the report added.

"While the inquiry remains a source of uncertainty and risk for the company, we continue to believe the likelihood of a significant liability in this matter remains small," Bisbee wrote.

News about the probe caps a month of bad news for the education company.

Last week, Oregon’s treasurer and attorney general announced that the state plans to take a leadership role in the shareholders’ securities-fraud lawsuit. The Oregon Public Employee Retirement Fund argues that Apollo’s misleading statements cost the group $10 million.

Florida’s attorney general confirmed that the state has launched an investigation into several for-profit colleges, including University of Phoenix involving trade practices.

Apollo is evaluating Florida’s notice and subpoena, the company said in a SEC filing. The Phoenix-based education company plans to defend itself against the securities case, a spokesman said in a statement earlier this month.

"Apollo Group takes its disclosure obligations very seriously and intends to defend this lawsuit vigorously," the statement said.

Apollo announced during its earnings report on Oct. 13 that it will end a controversial compensation program for admissions workers.

Although the company’s fourth-quarter revenue was up, those steps led to a 10 percent dip in new-student enrollment that quarter. That figure could fall 40 percent or more during the first quarter of 2011 compared with the same period a year earlier, the company has said.

THE ARIZONA REPUBLIC

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