Due to the global COVID-19 pandemic, school districts nationwide were forced to cancel or limit in-person classes and shift to online and virtual learning. K12 Inc. (NYSE: LRN), as a technology-based education company, appeared primed to benefit from this shift and embarked on a campaign to portray itself as capable and ready to take advantage of the shift to virtual instruction. In reality, K12 was neither ready nor capable. As this became clear to the market, the stock price plunged over 50% from its 2020 peak price of over $50.00 per share.
A lawsuit has been filed against K12 and certain of its executives in the U.S. District Court for the Eastern District of Virginia. The lawsuit is captioned Lee v. K12 Inc., et al., No. 1:20-cv-01419 (E.D. Va.). The suit alleges that K12 issued false and misleading statements concerning, among other things, K12’s technological capabilities, infrastructure, and expertise to support the increased demand for virtual and blended education necessitated by the COVID-19 pandemic. The suit further asserts that K12 lacked adequate cybersecurity protocols and protections to prevent the disabling of its computer systems, yet misrepresented its data security strength.
On August 26, 2020, reports emerged that K12’straining for teachers in Miami-Dade County Public Schools, one of the nation’s largest school districts, had been ineffective. On this news, K12’s stock fell by 7% over two days. Then on August 31, 2020, K12’s platform experienced major technical issues, disruptions, and a series of cyberattacks. The Miami-Dade superintendent revealed that the district had never signed its $15.3 million contract with K12, and shares fell another 10.5% over the next two trading days. In mid-September, Miami-Dade County and the Beaufort County School Board both voted to terminate their contracts with K12. The stock price further plummeted on this news.