Businessweek on the Decline of K-12, Inc.

Investigative reporter John Heckinger’s piece in last week’s Bloomberg Businessweek, “What Went Wrong at the Upstart School Milken Backed?” uncovers plenty of reasons for stockholders to avoid this investment:

Plagued by subpar test scores, the largest Bloomoperator of online public schools in the U.S. has lost management contracts or been threatened with school shutdowns in five states this year.

The National Collegiate Athletic Association ruled in April that students can no longer count credits from 24 K12 high schools toward athletic scholarships.

Targeted by short sellers, who benefit from a company’s decline, K12 shares have tumbled by two-thirds since reaching a near-record high in September 2013.

K12 grew too fast and invested too little in instruction, said Houston Tucker. In 2012, he pulled his two sons out of a K12 virtual school in Tennessee and last year quit his job as a marketing director at the company.

Working in call centers, recruiters received bonuses tied to enrollment and were pressured to meet “unrealistic quotas,” with top performers offered lunches, cash and gifts, according to a 2012 shareholder lawsuit by the Arkansas Teacher Retirement System. The company’s philosophy was “enroll, enroll, enroll,” an anonymous former employee said in the class-action complaint in U.S. District Court in Alexandria, Virginia.

The U.S. Securities & Exchange Commission has also taken an interest in K12. In letters, the agency this year asked the company for more public disclosure of student attrition rates and test scores.

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