Risk & Compliance

CFO Points Finger at Ex-Employer

In a rare securities class action, Apollo Group is accused of covering up a government report that its compensation policy violated federal law.
Stephen TaubDecember 7, 2007

A former finance chief for Apollo Group testified that the company kept secret a seemingly damaging report about its pay policy, Bloomberg reported.

Kenda Gonzales, who in November 2006 resigned as CFO of the company best known for owning the for-profit University of Phoenix, told a jury in a securities class-action trial that Apollo intentionally withheld a U.S. Education Department report that charged Apollo violated federal bans on paying staff based on the numbers of students they enrolled, according to the wire service.

“When we received the program-review report, we felt very strongly we did not want it basically tried in the press,” Gonzales reportedly told jurors.

Apollo did not disclose the February 2004 report in regulatory filings even though it previously disclosed audits and investigations by the Education Department going back to the 1990s, according to Bloomberg.

In November 2006, Gonzales, who also served as treasurer, resigned for personal reasons, according to a company announcement at the time. In the same press release, the company announced that an internal investigation had “discovered various deficiencies” in granting and documenting stock options and that it would restate financials to record additional compensation expenses.

The lead plaintiff in the class-actoin case, which went to trial on Nov. 14, is the Policemen’s Annuity and Benefit Fund of Chicago. It reportedly seeks as much as $300 million in damages on behalf of those who bought the company’s shares from Feb. 27, 2004, to Sept. 14, 2004.

This is only the 19th securities class action to go to trial since 1996, according to Bloomberg, citing data from RiskMetrics Group.

Last week, former Apollo CEO Todd Nelson told jurors company officials disagreed with the report’s allegations and that lawyers advised the company not to disclose the report, Bloomberg reported. Nelson also said he thought disclosing the report would cause the company’s stock price to drop.

The wire service noted that since 1992, schools whose students receive federally guaranteed tuition loans cannot pay enrollment counselors a commission or other incentive payment based on the number of students they enroll.

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