Apollo Rises Most in Two Months on Phoenix Approval

Apollo Group Inc. rose the most in almost two months in Nasdaq composite trading after the education company said its University of Phoenix subsidiary was recertified by the U.S. Department of Education to participate in student financial aid programs.

Apollo rose $3.14, or 5.8 percent, to $57 at 4:29 p.m. in New York. The gain was the biggest since Sept. 21. The shares fell 18 percent on Oct. 28 after the company announced that the Securities and Exchange Commission’s enforcement division had begun an informal probe of how it books revenue.

The recertification means Phoenix students will continue to receive federal grants and loans that account for the majority of the university’s funding. Phoenix, the nation’s largest for- profit university with 443,000 students, derived 86 percent of its revenue in the fiscal year ending Aug. 31 from federal financial aid, up from 48 percent in 2001, company filings show. Apollo got 95 percent of its $3.97 billion in revenue in fiscal 2009 from the University of Phoenix.

“The greatest fear among investors was that the SEC inquiry would have repercussions for financial aid recertification,” said Nicholas Rodelli, head of the legal risk business at Riskmetrics Inc. in Rockville, Maryland, which advises institutional investors. “Beyond being a significant positive development, this news makes that fear more remote.”

Apollo has said that its revenue recognition practices are appropriate and that it doesn’t know the focus of the SEC’s inquiry.

The Education Department may have looked favorably on Phoenix’s disclosure Oct. 27 that it expected to pay $80.5 million to settle a lawsuit related to its recruitment practices, said Ariel Sokol, an analyst for Wedbush Morgan Securities in New York.

Lawsuit
The 2003 lawsuit, filed by two former employees in a federal court in California, alleged that Phoenix violated a federal ban on paying recruiters based on how many students they enroll. Apollo paid $9.8 million to the Education Department in 2004 to settle alleged violations of the same 1992 law.

The Education Department’s previous certification of the University of Phoenix for financial aid expired in 2007, Apollo said. Since then, the university has continued to participate in the programs on a month-to-month basis as approved by the Education Department.

“The department believed that the level of risk presented by the University of Phoenix did not preclude the institution from being recertified for a period of three years,” Education Department spokeswoman Stephanie Babyak said in a statement.

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