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K12 Inc. Reaches Tentative Settlement in Investor Lawsuit

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The for-profit education provider K12 Inc. has reached a tentative settlement in a class-action securities lawsuit brought by investors who said they were misled by the company's business practices and academic performance.

The online schools provider has agreed to pay $6.75 million to plaintiffs who have brought the suit, while company officials said they also continue to deny any claims of wrongdoing.

The agreement will settle allegations related to K12's disclosure of student retention and enrollment information, while other claims, focused on academic performance and school quality, will be voluntarily dismissed, according to a statement by the company. The agreement between the two sides still must be approved by a judge overseeing the case, which is being heard in a federal court in Alexandria, Va.

A lawyer representing the lead plaintiff in the lawsuit, Jonathan Gardner, declined to comment in detail on the settlement, except to confirm the basic parameters of the agreement.

The plaintiffs "are happy with the resolution of this action," Gardner told Education Week in an e-mail.

Nate Davis, the executive chairman of the Herndon, Va.-based company, said K12 was pleased with the outcome, calling it a "pragmatic resolution" for the organization.

"The plaintiff is representing before a court of law what K12 has always maintained," Davis said in a statement, "that the claims in this lawsuit regarding our academic standards, student-teacher ratios, grading and attendance policies—allegations unfairly echoed in the media and other forums—could not be supported on the merits."

The lawsuit filed against K12 alleged that the company misled shareholders by overstating its academic performance, and by not providing accurate information about student-to-teacher ratios and how students are recruited. The lead plaintiff currently listed in court documents is the Arkansas Teacher Retirement System. As a publicly traded company, K12 is required to answer to shareholders, as well as to the U.S. Securities and Exchange Commission.

Since it was founded in 2000, K12 has become a major presence in states and school districts around the country. The company says that it serves 120,000 students in K12-managed online and blended public schools in 32 states and the District of Columbia. But K12 has drawn scrutiny and criticism from detractors of online education, who say the company has failed to produce adequate academic results in various states, and contend that its model siphons students and taxpayer funding from traditional brick-and-mortar public schools.

Davis said that if K12 had not come to an agreement with the plaintiffs, it would have been forced to cope with rising court courts that would ultimately have "significantly exceeded the settlement amount."

We'll provide more details on the settlement as they come in. A proposed preliminary order connected to the agreement can be found here.

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