Pension Trust Fund For Operating Engineers v. DeVry Education Group, Inc. et al

Northern District of Illinois, ilnd-1:2016-cv-05198

MEMORANDUM by Utah Retirement Systems in Opposition to motion to dismiss 91 (LEAD PLAINTIFFS MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS MOTION TO DISMISS)

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Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 1 of 43 PageID #:1768 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION PENSION TRUST FUND FOR OPERATING ENGINEERS, Individually and on Behalf of All Case No. 1:16-CV-05198 Others Similarly Situated, Hon. Jorge L. Alonso Plaintiff, v. JURY TRIAL DEMANDED DEVRY EDUCATION GROUP, INC., DANIEL ECF CASE HAMBURGER, RICHARD M. GUNST, PATRICK J. UNZICKER, AND TIMOTHY J. WIGGINS, Defendants. LEAD PLAINTIFF'S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS LABATON SUCHAROW LLP WEXLER WALLACE LLP Jonathan Gardner (admitted pro hac vice) Kenneth A. Wexler Carol C. Villegas (admitted pro hac vice) Mark R. Miller Theodore J. Hawkins (admitted pro hac vice) 55 West Monroe St. 140 Broadway Suite 3300 New York, New York 10005 Chicago, IL 60603 Telephone: (212) 907-0700 Telephone: (312) 346-2222 jgardner@labaton.com kaw@wexlerwallace.com cvillegas@labaton.com mrm@wexlerwallace.com thawkins@labaton.com Liaison Counsel Mark S. Willis (admitted pro hac vice) 1050 Connecticut Avenue, NW, Suite 500 Washington, D.C. 20036 Telephone: 202-772-1880 mwillis@labaton.com Counsel for Lead Plaintiff Utah Retirement Systems and the Proposed Class Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 2 of 43 PageID #:1769 TABLE OF CONTENTS TABLE OF AUTHORITIES .......................................................................................................... ii I. INTRODUCTION .................................................................................................................. 1 II. BACKGROUND .................................................................................................................... 3 A. Defendants' Scheme ............................................................................................... 3 B. The FTC and DoE Revealed Defendants' Fraudulent Conduct.............................. 6 C. Internal Documents Show that Defendants Acted Knowingly or Recklessly ............................................................................................................... 7 D. Whistleblower Allegations...................................................................................... 9 E. Confidential Witnesses Accounts Detailing Internal Meetings .............................. 9 F. Additional Confidential Witness Accounts .......................................................... 10 III. ARGUMENT........................................................................................................................ 10 A. Applicable Legal Standard for a Motion to Dismiss ............................................ 10 B. Collectively, the New Allegations in the Amended Complaint Combined with Those Previously Pled Present a Strong Inference of Scienter..................... 12 1. The Government Investigations Support Scienter .................................... 12 2. Confidential Witness Allegations Support Scienter ................................. 18 3. Defendants' Proposed Inference Finds No Support.................................. 28 C. Collateral Estoppel Precludes An Argument that Scienter was not Properly Pled with Respect to Defendant Hamburger......................................................... 30 D. This Court Already Found that Plaintiff Pleaded Falsity...................................... 32 E. Loss Causation is Properly Alleged...................................................................... 34 IV. CONCLUSION..................................................................................................................... 35 i Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 3 of 43 PageID #:1770 TABLE OF AUTHORITIES Cases Page(s) 380544 Canada, Inc. v. Aspen Tech., Inc., 544 F. Supp. 2d 199 (S.D.N.Y. 2008)......................................................................................13 In re Ambac Fin. Grp., Inc. Sec. Litig., 693 F. Supp. 2d 241 (S.D.N.Y. 2010)......................................................................................14 In re Akorn, Inc. Sec. Litig., 240 F. Supp. 3d 802 (N.D. Ill. 2017) ..................................................................... 15-16, 17, 30 Avnet, Inc. v. Motio, Inc., No. 12-cv-2100, 2015 WL 5307515 (N.D. Ill. Sept. 9, 2015).................................................32 In re Bally Total Fitness Sec. Litig., No. 04-cv-3530, 2007 WL 551574 (N.D. Ill. Feb. 20, 2007) ..................................................23 Boca Raton Firefighters & Police Pension Fund v. DeVry Inc., No. 10-cv-7031, 2012 WL 1030474 (N.D. Ill. Mar. 27, 2012) ................................... 18-19, 23 In re Cabletron Sys., Inc., 311 F.3d 11 (1st Cir. 2002)......................................................................................................33 In re Cadence Design Sys., Inc. Sec. Litig., 692 F. Supp. 2d 1181 (N.D. Cal. 2010) ...................................................................................20 City of Hialeah Emps. Ret. Sys. v. Begley, No. 2017-0463, 2018 WL 1912840 (Del. Ch. Apr. 20, 2018).................................................31 City of Livonia Emps.' Ret. Sys. & Local 295/Local 851 v. Boeing Co., 711 F.3d 754 (7th Cir. 2013) .................................................................................19, 20, 26, 27 City of Sterling Heights Gen. Emps.' Ret. Sys. v. Hospira, Inc., No. 11-cv-8332, 2013 WL 566805 (N.D. Ill. Feb. 13, 2013) .................................................19 Cosek v. Chinn Enters., Inc., No. 94-cv-6660, 1996 WL 377056 (N.D. Ill. July 1, 1996) ....................................................31 Erickson v. Corinthian Colls., Inc., No. 13-cv-7466, 2015 WL 12732435 (C.D. Cal. Apr. 22, 2015) ......................................12, 26 Garden City Emps.' Ret. Sys. v. Anixter Int'l, Inc., No. 09-cv-5641, 2012 WL 1068761 (N.D. Ill. Mar. 29, 2012) ...............................................18 Gargiulo v. Isolagen, Inc., 527 F. Supp. 2d 384 (E.D. Pa. 2007) .......................................................................................13 ii Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 4 of 43 PageID #:1771 In re Gentiva Sec. Litig., 932 F. Supp. 2d 352 (E.D.N.Y. 2013) ....................................................................................35 Gilldorn Sav. Ass'n v. Commerce Sav. Ass'n, 804 F.2d 390 (7th Cir. 1986) .............................................................................................31, 32 Greater Pa. Carpenters Pension Fund v. Whitehall Jewellers, Inc., No. 04-cv-1107, 2005 WL 61480 (N.D. Ill. Jan. 10, 2005).....................................................35 Higginbotham v. Baxter Int'l Inc., 495 F.3d 753 (7th Cir. 2007) .................................................................................18, 19, 26, 27 Institutional Inv'rs Grp. v. Avaya, Inc., 564 F.3d 242 (3d Cir. 2009).....................................................................................................12 In re ITT Educ. Servs., Inc. Sec. Litig., 34 F. Supp. 3d 298 (S.D.N.Y. 2014)..................................................................................22, 25 Jones v. Corus Bankshares, Inc., 701 F. Supp. 2d 1014 (N.D. Ill. 2010) .....................................................................................10 Lewy v. Skypeople Fruit Juice, Inc., No. 11-cv-2700, 2012 WL 3957916 (S.D.N.Y. Sept. 10, 2012) .............................................18 Lloyd v. CVB Fin. Corp., 811 F.3d 1200 (9th Cir. 2016) .................................................................................................20 Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588 (7th Cir. 2006) ("Tellabs I") .............................................................................19 Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702 (7th Cir. 2008) ...................................................................................................19 In re Merck & Co., Inc. Sec. Litig., 432 F.3d 261 (3d Cir. 2005).....................................................................................................15 Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049 (9th Cir. 2008) ................................................................................................34 Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) ...............................................................................................35 Ong ex rel. Ong v. Sears, Roebuck & Co., No. 03-cv-4142, 2005 WL 2284285 (N.D. Ill. Sept. 14, 2005)...............................................22 Ong ex rel. Ong v. Sears, Roebuck & Co., 459 F. Supp. 2d 729 (N.D. Ill. 2006) ......................................................................................34 iii Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 5 of 43 PageID #:1772 Pension Tr. Fund for Operating Eng'rs v. DeVry Educ. Grp., Inc., No. 16-cv-5198, 2017 WL 6039926 (N.D. Ill. Dec. 6, 2017).......................................... passim Plumbers & Pipefitters Local Union No. 630 Pension-Annuity Tr. Fund v. Allscripts-Misys Healthcare Sols., Inc., 778 F. Supp. 2d 858 (N.D. Ill. 2011) .......................................................................................22 Plumbers Local No. 200 Pension Fund v. Wash. Post Co., 930 F. Supp. 2d 222 (D.D.C. 2013) .........................................................................................24 Pugh v. Tribune Co., 521 F.3d 686 (7th Cir. 2008) ...................................................................................................11 Rehm v. Eagle Fin. Corp., 954 F. Supp. 1246 (N.D. Ill. 1997) ..........................................................................................17 Ross v. Career Educ. Corp., No. 12-cv-276, 2012 WL 5363431 (N.D. Ill. Oct. 30, 2012) .......................................... passim Special Situations Fund III, L.P. v. Am. Dental Partners, Inc., 775 F. Supp. 2d 227 (D. Mass. 2011) ......................................................................................13 Tamayo v. Blagojevich, 526 F.3d 1074 (7th Cir. 2008) .................................................................................................11 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007)......................................................................................................... passim Terry v. Talmontas, No. 11-cv-6083, 2013 WL 707907 (N.D. Ill. Feb. 26, 2013) ..................................................19 United States ex rel. John v. Hastert, 82 F. Supp. 3d 750 (N.D. Ill. 2015) ...........................................................................................3 United Union Roofers, Waterproofers & Allied Workers Local Union No. 8 v. Great Lakes Dredge & Dock Corp., No. 13-cv-2115, 2014 WL 12780549 (N.D. Ill. Oct. 21, 2014) ........................................14, 15 Van Noppen v. InnerWorkings, Inc., 136 F. Supp. 3d 922 (N.D. Ill. 2015) .................................................................................18, 19 In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694 (9th Cir. 2012) ...................................................................................................26 Washtenaw Cty. Emps. Ret. Sys. v. Avid Tech., Inc., 28 F. Supp. 3d 93 (D. Mass. 2014) ..........................................................................................16 iv Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 6 of 43 PageID #:1773 Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) ...................................................................................................20 Other Authorities Molly Hensley-Clancy, Troubled DeVry University Gets Sold Off For A Pittance, Buzzfeed (Dec. 5, 2017), https://www.buzzfeed.com/mollyhensleyclancy/devry-university-will-be-sold- to-a-tiny-college-company?utm_term=.agVKo82y2#.aaMbl4929............................................3 Susan Hanley Duncan, The New Accreditation Standards Are Coming To A Law School Near You-What You Need To Know About Learning Outcomes & Assessment, 16 LEGAL WRITING: J. LEGAL WRITING INST. 605 (2010) ....................................9 v Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 7 of 43 PageID #:1774 Utah Retirement Systems ("Plaintiff") respectfully submits this opposition to the motion of Defendants Adtalem Global Education Inc. f/k/a DeVry Education Group Inc. ("DeVry" or "the Company"), Daniel Hamburger, Richard M. Gunst, Patrick J. Unzicker, and Timothy J. Wiggins (the "Individual Defendants," and together with DeVry, "Defendants") to dismiss Plaintiff's Third Amended Class Action Complaint (the "Amended Complaint").1 I. INTRODUCTION Beginning in August 2011 and for five years thereafter,2 Defendants repeatedly touted that 90% of graduates from DeVry University were getting jobs in their chosen fields of study within only six months of graduation, and that they were making salaries of at least $40,000 (the "90% Representation").3 But that wasn't true. Four separate government agencies concluded that these employment outcomes were materially misleading because DeVry maintained a corporate policy of artificially excluding (or "waiving") students from the statistic who should have been counted, and artificially including others who should not have been counted. And each government agency—the Federal Trade Commission ("FTC"); Department of Education ("DoE"); New York Attorney General's Office ("NY AG"); and the Massachusetts Attorney General's Office ("Massachusetts AG")—conducted discovery, and based on DeVry's own internal documents, arrived at the same conclusion: DeVry misled the public about its employment outcomes. In fact, the Massachusetts AG publicly disclosed after the Class Period that certain DeVry programs had job placement rates as low as 52%. ¶ 293. All four government agencies that investigated DeVry settled legal actions against the Company for selling this lie. 1 References to "¶_" are to paragraphs in the Third Amended Class Action Complaint, ECF No. 84. 2 The Class Period runs for five years—from August 26, 2011 to January 27, 2016. 3 The Court previously defined the 90% Representation, as the statement that "90% of [DeVry] graduates obtain employment in their field of study within six months of graduation at average yearly salaries of approximately $40,000 or more. . . ."Pension Tr. Fund for Operating Eng'rs v. DeVry Educ. Grp., Inc., No. 16-cv-5198, 2017 WL 6039926, at *1, 9, 10, 15 (N.D. Ill. Dec. 6, 2017). Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 8 of 43 PageID #:1775 This Court already determined that Plaintiff sufficiently pled that Defendants made false statements about the 90% Representation during the Class Period. See DeVry, 2017 WL 6039926, at *9, 10, 15. Nevertheless, because the Court found that there was only a "plausible" inference that Defendants acted knowingly or recklessly, the Court granted Defendants' motion to dismiss while allowing Plaintiff to amend the Complaint.4 See id. at *15. Guided by the Court's Order, the Amended Complaint now includes particularized allegations and newly uncovered documents showing a strong inference that the Individual Defendants made false statements about DeVry's employment statistics to investors either knowingly or recklessly. First, new allegations in show Defendants knew the 90% Representation was false. The Amended Complaint includes both internal and third party documents—obtained through FOIA requests—showing that Defendants: (1) continued making the 90% Representation after a DeVry executive, staff, and DeVry's own advertising agency raised questions about DeVry's ability to substantiate the claim; (2) lied to federal investigators when they claimed to have ceased making the 90% Representation, and (3) were targeted as document custodians by the FTC. These allegations are reinforced by several high-level Confidential Witness ("CW") accounts showing, among other things, that a whistleblower alerted an in-house DeVry lawyer that the 90% Representation was false (his report was communicated to Hamburger), and that the Defendants discussed the 90% Representation during internal meetings. Second, twenty separate Confidential Witness accounts—including 13 completely new witness accounts taken from a cross-section of DeVry's former employees—show that the misclassification practice was so pervasive, and such a high volume of graduates were being misclassified, that Defendants—as corporate executives—must have known of at least a 4 Plaintiff's Third Amended Class Action Complaint was filed on January 29, 2018 by newly retained counsel following an additional comprehensive investigation. ECF No. 84. 2 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 9 of 43 PageID #:1776 "substantial risk that the 90% Statement was false or misleading." DeVry, 2017 WL 6039926, at *14. Witness allegations strongly indicate that DeVry's widespread waiver and misclassification scheme was directed by the Company's corporate office and that DeVry's fraudulent methodology infected every campus where the CWs in the Amended Complaint worked (constituting a robust sampling of DeVry's campuses nationally). When the evidence and witness accounts in the Amended Complaint are considered together, they strongly support the inference that Defendants knowingly (or at least recklessly) made false statements to investors. II. BACKGROUND Before the Company renamed itself "Adtalem" and sold its troubled namesake school, 5 DeVry provided educational services through DeVry University and several subsidiaries. ¶ 75. DeVry was one of the largest postsecondary educational institutions in the United States and there is no question that DeVry University was a core asset of the Company during the Class Period, accounting for more than half of the Company's revenue through fiscal year 2013. ¶ 4. A. Defendants' Scheme Defendants employed a corporate-wide methodology to inflate DeVry's job placement statistics by excluding (or waiving) graduates who should have been included, and including others who should have been excluded. The mechanics of this deceptive practice are carefully detailed through a combination of Confidential Witness allegations and internal company documents. After graduation, the Career Services Offices sent graduates "canned" weekly emails containing onerous "assignments" to complete. ¶ 296. If a student did not respond to these emails, he or she would be deemed to be "non-job seeking" and excluded from DeVry's 5 See Molly Hensley-Clancy, Troubled DeVry University Gets Sold Off For A Pittance, Buzzfeed (Dec. 5, 2017), https://www.buzzfeed.com/mollyhensleyclancy/devry-university-will-be-sold-to-a-tiny-college- company?utm_term=.agVKo82y2#.aaMbl4929. The Court can take judicial notice of the fact that DeVry University was sold in December 2017. See United States ex rel. John v. Hastert, 82 F. Supp. 3d 750, 764 (N.D. Ill. 2015). 3 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 10 of 43 PageID #:1777 employment statistics. ¶¶ 295-97. An Internal document produced by the DoE also shows that graduates were required to contact DeVry's Career Services Office at least every two weeks, and "make a personal visit or phone call to an average of three companies each working day" to be considered in DeVry's employment statistics. ¶ 272. Because the list of responsibilities and requirements placed on graduates was extremely onerous, numerous graduates would either "opt- out" from Career Services help, or stop responding. ¶ 297. In this way, Defendants selectively excluded from DeVry's reported job placement statistics those students who were still searching for jobs. This artful selection process allowed DeVry to heavily skew the results and artificially inflate the number of job placements by counting only: (1) the students who agreed to jump through DeVry's onerous hoops, or (2) the students who actually found jobs. Without these waivers, which excluded many students still looking for jobs from the statistics, CW3 estimated that the true job placement rate at his campuses in Fresno and Bakersfield, California was at most 60% to 70%. ¶ 301. The Massachusetts AG similarly reported that some DeVry programs had placement rates as low as 52% during the Class Period, while the FTC and NY AG both reported that the actual rate was "significantly smaller than 90%." See ¶¶ 245; 291(a). DeVry's manipulative methodology was such a fundamental part of the Company's mechanics that it was documented in a national career services manual issued by DeVry's Corporate Career Services Office. ¶ 354. The Office also issued target employment statistics that were unattainable without the Defendants' sanctioned manipulation techniques. ¶¶ 301-02. CW3 explained that his campus had to meet a target placement rate of 95-100%; that the target rate came from DeVry's corporate office; and was discussed at regular meetings with Corporate Office representatives, which included DeVry's Director of Career Services. ¶ 48. DeVry also included graduates in the 90% Representation who should have been 4 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 11 of 43 PageID #:1778 excluded. According to the FTC, Defendants misleadingly counted graduates who did not get jobs as a result of obtaining a degree from DeVry; included a substantial percentage of DeVry graduates who, after graduation, continued with the same job they had when they enrolled in DeVry; and counted graduates who did not obtain jobs "in their field of study." ¶ 242. CW allegations corroborate the FTC's findings. For example, CW12 explained that before the FTC investigation, the Company was very loose in how it calculated and tracked post-graduation metrics. ¶342. CW12 said, for example, that a student who graduated with a medical assistant degree would have been considered to be employed in his field if he found a job as a babysitter, or any kind of caregiver. ¶ 59. The FTC similarly discovered that, "graduates with degrees in technical management [ ] were working as: a rural mail carrier (human resources specialization); and a yard salesman at a nursery (business information systems specialization)." ¶ 243. And the NY AG found, following an independent investigation, that "DeVry counted graduates of DeVry's Technical Management program as 'employed in field' where the graduates were employed as retail salespersons, receptionists, bank tellers, and data entry workers." ¶ 291(b). The 90% Representation also included the false claim that graduates were making an average salary above $40,000. ¶ 84. But, as revealed by the FTC, and corroborated by the NY AG and several Confidential Witnesses, DeVry's income claims were based on a flawed third- party report that was directly contradicted by DeVry's internal data. ¶¶ 246-47. The FTC found that "statistics that [DeVry] had directly collected from thousands of its graduates each year about their incomes differed significantly from the third-party's statistics, which consisted of information from only several hundred individuals per graduation year." Id. Similarly, the NY AG found that DeVry's claims about student outcomes "contained inadequately substantiated claims about graduates' salary success." ¶ 290. 5 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 12 of 43 PageID #:1779 B. The FTC and DoE Revealed Defendants' Fraudulent Conduct Four separate government regulators investigated Defendants' deceptive practices during the Class Period. The FTC, undertook a two-year investigation that yielded more than 2.3 million pages of documents and responses to 64 comprehensive interrogatories from DeVry, as well as a trove of documents and information from third parties. ¶ 12. The DoE, NY AG, and Massachusetts AG also collectively obtained millions documents from DeVry. See ¶ 424. On January 27, 2016, both the FTC and DoE took action. The FTC filed a lawsuit against DeVry and the DoE issued a "Notice of Intent to Limit" pursuant to Title IV of the Higher Education Act of 1965. ¶¶ 15, 236, 257. Based on documents produced by the Company, both agencies concluded that DeVry used deceptive advertising falsely touting inflated graduate job-placement rates and income levels. ¶¶ 238-73. According to the FTC, it did not stumble across a near miss in the job placement rates, but rather, discovered that the "actual percentage of [DeVry] graduates who, at or near the time they graduated, found jobs that could reasonably be considered 'in their field' is significantly smaller than 90%." ¶ 386. The FTC further revealed that DeVry used a flawed third-party report—contradicted by DeVry's internal data—to justify its salary claims. ¶ 390. When the market learned that the Company's long-touted graduate employment and salary statistics were false and unsubstantiated, DeVry's common stock price plummeted 15%, from $23.74 per share on January 26 to $20.09 per share at closing on January 27, 2016—wiping out over $230 million in market capitalization. ¶ 274. Regulators dismantled Defendants' fraudulent scheme. The FTC's action settled for a staggering $100 million and DeVry was "permanently. . . enjoined" from using deceptive job placement rates and salary information. ¶¶ 57, 282, 426. The DoE similarly required the 6 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 13 of 43 PageID #:1780 Company to post a web notice explaining that its job-placement were unsubstantiated.6 ¶ 266. The Company settled two more cases after the Class Period with state attorney generals as a result of the exact same conduct. ¶ 289. On January 31, 2017—only a month after settling with the FTC—the NY AG announced a settlement to resolve an investigation into DeVry's inflated employment statistics. ¶ 290. The NY AG explained in a press release that its investigation "revealed that DeVry lured students with ads that exaggerated graduates' success in finding employment at graduation and contained inadequately substantiated claims about graduates' salary success." Id. Similarly, the Massachusetts AG reached a settlement with DeVry on July 5, 2017 to resolve allegations that it "used deceptive job placement rates." ¶ 293. In its press release announcing the settlement, the Massachusetts AG stated that "DeVry prominently advertised that 90 percent of graduates who sought employment landed jobs in their field of study within six months of graduating," but in fact, "the AG's investigation found that certain DeVry programs had job placement rates as low as 52 percent." Id. C. Internal Documents Show that Defendants Acted Knowingly or Recklessly Documents obtained from the DoE through FOIA requests confirm the agency's conclusion—supported by evidence—that DeVry acted in bad faith with respect to the 90% Representation. After reviewing thousands of DeVry's files, the DoE concluded that "this was not an isolated instance, but part of a pattern whereby DeVry either intentionally or through wanton negligence avoided clear statutory and regulatory requirements." ¶ 271. The DoE relied on, for example, an email showing that "in February 2009, DeVry President David 6 Only four months after DeVry settled with the FTC, the Company announced that it would change the name of its parent company to Adtalem Global Education in May 2017. Although the Company's stated purpose for the name change was to highlight its broadened, "education offerings and geographic reach," media outlets remained skeptical of the stated purpose given its proximity in time to DeVry's settlement with the FTC regarding allegations that the Company misled tens of thousands of students about their post-graduation job and income prospects.¶ 288. CW10 suspected that DeVry changed its name to "Adtalem" to distance itself from DeVry's "tainted brand." ¶ 331. 7 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 14 of 43 PageID #:1781 Pauldine posited. . . whether DeVry should 'be looking at alternative messaging such that it brings the ultimate credibility to our employment claims.'" ¶¶ 34, 271, 393. And, in another email from November 2009, staff at DeVry's own advertising agency, Leo Burnett USA, "questioned certain details of the [90%] representation." ¶ 393. In response, "DeVry's 'Senior Consumer Insights Specialist' dismissed the concerns by affirming a response that DeVry had 'dug into these numbers 8 ways to Sunday, and there is no other clear, compelling, and compliant story.'" Id. The DoE also found that DeVry acted in "bad faith" during the investigation when it "claimed to have ceased making the [90%] Representation no later than January 2014." Id. This was a lie, according to the DoE. Id. Thus, the evidence establishes that—by 2011—Defendants knew they were misrepresenting the facts, were reckless in not knowing they were touting false employment outcomes.7 In addition, discovery materials exchanged with the FTC shows that several Individual Defendants were put on notice no later than January 2014 that they lying about the 90% Representation. Specifically, charts produced by the FTC to Plaintiff through a FOIA request show that the "executive officers" of DeVry—defined to include DeVry's "Chief Executive Officer," (Defendant Hamburger) "Chairman," and "Chief Financial Officer," (Defendant Wiggins) among others—were designated as custodians who agreed to produce documents to the FTC on a range of topics including: "emails. . . which relate to completion rates, job placement rates, [and] students['] pre-graduation or post-graduation income amounts"; documents concerning "minimum placement rates" reported to government agencies; and "issues raised by consumer complaints." ¶ 396. These records, coupled with the FTC's allegations, and subsequent settlement, create an inference that Individual Defendants were specifically put on 7 See ¶¶ 25-30, 34-62 (summarizing the evidence and witness accounts). 8 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 15 of 43 PageID #:1782 notice that the statements they were making were false. D. Whistleblower Allegations Plaintiff's investigation also revealed that a high level witness (CW8) reported to an in- house DeVry lawyer that the 90% Representation was false. ¶ 310. CW8 discovered that "the numbers DeVry was producing and generating for the SEC reports were just not accurate." ¶¶ 309, 314. He then reported this to an in-house attorney working in DeVry's corporate compliance department, telling him in April 2014 that "you don't have the data to calculate this." ¶ 310. Instead of addressing his concerns, however, DeVry promptly fired him as a direct result of reporting the fraud. ¶ 311. CW8 also revealed that his boss, who reported to CEO Hamburger, told him she discussed CW8's findings with Hamburger. Id. E. Confidential Witnesses Accounts Detailing Internal Meetings Three separate CWs reported that they attended internal meetings with the Individual Defendants during which DeVry's employment statistics were discussed. See ¶¶ 368-72. For example, CW20—a Vice President and Chief Academic Officer between July 2011 and June 2017—attended meetings with Defendant Hamburger in which Hamburger discussed the FTC and DoE investigations. ¶¶ 370-72. He also recalled that DeVry had an ongoing issue related to job placement and accreditation, and that Hamburger discussed problems with the aggregation of data supporting DeVry's institutional effectiveness8 at meetings in 2012, 2013, and 2014. ¶ 370. CW19 similarly recalled discussing "graduate employment metrics" with all three Individual Defendants at Quarterly Leadership Meetings and said that Madeline Slutsky—DeVry's head of Career Services who was repeatedly named as the custodian of relevant internal documents by 8 Allegations in the Amended Complaint show that job placement rates were a critical metric that DeVry University used to measure institutional effectiveness. See Susan Hanley Duncan, The New Accreditation Standards Are Coming To A Law School Near You-What You Need To Know About Learning Outcomes & Assessment, 16 LEGAL WRITING: J. LEGAL WRITING INST. 605, 627 (2010) (discussing institutional effectiveness in the law school context). 9 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 16 of 43 PageID #:1783 the FTC—attended Quarterly Leadership Meetings. ¶¶ 368-69. CW19 was only one reporting level below Defendant Hamburger. ¶ 368. And CW18, reported participating in meetings with CEO Daniel Hamburger during which the 90% Representation was discussed. Id. F. Additional Confidential Witness Accounts Witness accounts also show that DeVry's scheme to inflate its job placement statistics was uniform across the organization and was directed by the Company's corporate career services department. Allegations from twenty witnesses across the country show DeVry's use of waivers and opt-outs was so pervasive that the Defendants, at the very least, had knowledge of the substantial risk that the 90% Representation was false. See Confidential Witness Map (Attached hereto as Exhibit A). CW3 reported that DeVry's policy of using opt-outs and waivers to remove graduates from inclusion in its employment statistics "was the same for every school." ¶ 299. CW14 described how DeVry's "career services manual" directed all Career Services Offices on how they could code to achieve, or rather manipulate, their employment statistics. ¶ 354. CW10 reported that, in response to regulatory scrutiny in 2010, he was assigned to a project contacting graduates "to discover which students were actually finding work in their chosen fields." ¶ 330. CW11 discussed how his colleagues were terminated for not reciting the 90% statistic on sales calls. ¶¶ 334-39. And CW16 was instructed by the corporate head of Career Services—Madeline Slutsky who frequently met with Hamburger—to "find every marketing document that quoted the 90% rate," and reported that the corporate office received "reports on job placement statistics on a regular basis." ¶ 362. III. ARGUMENT A. Applicable Legal Standard for a Motion to Dismiss "A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the complaint, not its merits." Jones v. Corus Bankshares, Inc., 701 F. Supp. 2d 1014, 1016 (N.D. Ill. 2010), citing 10 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 17 of 43 PageID #:1784 Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). The Court must consider the complaint in its entirety, "accept all factual allegations … as true," and construe them in the light most favorable to the plaintiff. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322- 23 (2007). The complaint must satisfy '"two easy-to-clear hurdles"': (1) "[it] must describe the claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds upon which it rests"; and (2) "its allegations must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level[.]'" Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir. 2008). The Private Securities Litigation Reform Act ("PSLRA") further requires that a plaintiff (1) specify each statement alleged to have been misleading and the reason or reasons why the statement is misleading; and (2) state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. Tellabs, 551 U.S. at 320. The required state of mind, or scienter, means "knowledge of the statement's falsity or reckless disregard of a substantial risk that the statement is false." Pugh v. Tribune Co., 521 F.3d 686, 693 (7th Cir. 2008). To determine whether a strong inference of scienter exists, a court must: (1) "accept all factual allegations in the complaint as true"; (2) "consider the complaint in its entirety"; and (3) "take into account plausible opposing inferences" that arise from the complaint's allegations. Tellabs, 551 U.S. at 322-23. However, "[t]he inference that the defendant acted with scienter need not be irrefutable … or even the 'most plausible of competing inferences,"' id. at 324; it need only be "at least as likely as any plausible opposing inference," id. at 328 (emphasis in original). In other words, the "conclusion that a strong inference of scienter exists will "ultimately rest not on the presence or absence of certain types of allegations[,] but on the practical judgment about whether, accepting the whole factual picture painted by the [c]omplaint, it is at least as likely as not that defendants acted with 11 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 18 of 43 PageID #:1785 scienter." Institutional Inv'rs Grp. v. Avaya, Inc., 564 F.3d 242, 269 (3d Cir. 2009). B. Collectively, the New Allegations in the Amended Complaint Combined with Those Previously Pled Present a Strong Inference of Scienter Defendants' objections to the Amended Complaint all ignore the fact that, in determining whether a plaintiff has pleaded a strong inference of scienter, the allegations in the complaint must be considered collectively. See Erickson v. Corinthian Colls., Inc., No. 13-cv-7466, 2015 WL 12732435, at *9 (C.D. Cal. Apr. 22, 2015) ("evaluating Plaintiff's scienter allegations holistically" and "conclud[ing] they raise[d] a strong inference that [the CFO], was either aware or deliberately reckless in not being aware of the alleged problems with the asserted [ ] placement rate."); Ross v. Career Educ. Corp., No. 12-cv-276, 2012 WL 5363431, at *4 (N.D. Ill. Oct. 30, 2012). Following an independent investigation, the Amended Complaint now includes: (1) descriptions of internal documents produced to Plaintiff through FOIA requests showing the Company was put on notice that its employment outcomes were false, and (2) allegations from twenty separate Confidential Witnesses, some of whom interacted directly with the Individual Defendants and actually discussed the 90% Representation and government investigations with them during high-level meetings. Notably, allegations from 13 new Confidential Witnesses were added following a separate investigation by newly appointed counsel. Considered collectively, these statements show Defendants knew or were reckless in not knowing that DeVry's publicly touted employment outcomes were false. 1. The Government Investigations Support Scienter (a) DoE Documents Show Defendants Made False Statements to Investors Knowingly, or Recklessly The Amended Complaint now relies on internal documents obtained from the DoE that directly show Defendants either knew the statements they made to investors were false, or acted recklessly. Defendants claim that the Court should completely disregard this evidence simply 12 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 19 of 43 PageID #:1786 because they characterize it as "lawsuit arguments." Defs.' Br. at 24. But Defendants cite no law supporting their position because none exists. In fact, courts routinely consider evidence uncovered in separate proceedings to determine whether the PSLRA's heightened pleading standard has been satisfied. See, e.g., Special Situations Fund III, L.P. v. Am. Dental Partners, Inc., 775 F. Supp. 2d 227, 238-39, 243 (D. Mass. 2011) (relying upon "testimony and documents" from another lawsuit and concluding that the "inference that [d]efendants acted with intent to mislead investors, or that they were reckless. . . is at least as compelling as any other inference that can be drawn from the facts alleged."); Gargiulo v. Isolagen, Inc., 527 F. Supp. 2d 384, 390 (E.D. Pa. 2007) ("Plaintiffs alleged with particularity, through court documents filed in a [separate] lawsuit. . . that while the [d]efendants were making public statements about the progress and development of [their] system, in fact there was not even a preliminary design contract in place. . ."); 380544 Canada, Inc. v. Aspen Tech., Inc., 544 F. Supp. 2d 199, 224 (S.D.N.Y. 2008) ("The Court must accept Plaintiff['s] allegations in the Complaint as true, regardless of whether the allegations are taken from a complaint in another case"). Similarly here, evidence from Defendants' files cannot be ignored merely because it was uncovered in a separate lawsuit. Importantly, these documents show that high-level DeVry executives—including the President of DeVry, David Pauldine—knew, as early as 2009, that the 90% Representation was false. The DoE also unearthed an "internal presentation in 2008 on the efficacy of the Careers campaign [that] posed questions about the sources of the [90%] Representation in seeking to establish the 'truth behind' the claim and whether it could 'substantiate' the 90 percent figure" ¶ 271. The DoE further uncovered an internal email from February 2009 in which DeVry's President David Pauldine actually asked "whether DeVry should 'be looking at alternative messaging such that it brings the ultimate credibility to our 13 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 20 of 43 PageID #:1787 employment claims.'" ¶¶ 34, 271, 393. David Pauldine was not some low level employee of the Company, but the President of DeVry and the Executive Vice President of DeVry from 2006 to 2014. ¶ 34. The fact that he questioned the credibility of DeVry's job placement statistics in writing is compelling evidence of recklessness when considered with the balance of allegations. See In re Ambac Fin. Grp., Inc. Sec. Litig., 693 F. Supp. 2d 241, 268 (S.D.N.Y. 2010). In another email from November 2009, DeVry's advertisement agency, Leo Burnett USA, raised concerns about "the 90% employment rate claims," and a DeVry Senior Consumer Insights Specialist, Drew Swinger, admitted in response that the 90% Representation did not even tell you the "percent of graduates" who were employed. ¶ 272. Defendants take the position that this last email communication somehow supports the non-fraudulent inference that "[DeVry] employees thoroughly investigated whatever questions were raised regarding the 90% statements." Defs.' Br. at 24. But this Court has already held that Plaintiff adequately pleaded falsity, DeVry, 2017 WL 6039926, at *9, and there can be no dispute that this email evidences that the Company was put on notice—at a high level—that the 90% Representation was untrue. Moreover, what—if anything—Defendants did to investigate the 90% Representation is surely a question that must be answered through discovery. 9 See United Union Roofers, Waterproofers & Allied Workers Local Union No. 8 v. Great Lakes Dredge & Dock Corp., No. 13-cv-2115, 2014 WL 12780549, at *2 (N.D. Ill. Oct. 21, 2014) ("Scienter means 'knowledge of the statement's falsity or reckless disregard of a substantial risk that the statement is false.'"). Defendants' assertion that the Court should ignore the evidence Plaintiff gathered from the DoE because it pre-dates the Class Period is also wrong. Defs.' Br. at 24. Evidence that 9 Defendants' unsupported argument that the documents at issue are not described with sufficient particularity also fails. Lead Plaintiff's descriptions of these documents are quoted verbatim from a brief filed by the DoE. Thus any argument that the documents do not actually say what Lead Plaintiff claims merely amounts to an attack on the credibility of the DoE, an inappropriate inquiry at this stage. See Tellabs, 551 U.S. at 322-24 (courts must "accept all factual allegations in the complaint as true".) 14 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 21 of 43 PageID #:1788 Defendants recklessly disregarded fraudulent practices before the Class Period must be considered. United Union, 2014 WL 12780549, at *2 (CW allegations from witnesses who left a company "prior to the alleged fraud [were] . . . relevant in determining whether the facts alleged in the complaint support a strong inference of scienter."); Ross, 2012 WL 5363431, at *4 (CW allegations showed defendants "artificially inflated placement numbers on a regular basis both before and during the class period."); In re Merck & Co., Inc. Sec. Litig., 432 F.3d 261, 272 (3d Cir. 2005) ("[B]oth post-class-period data and pre-class data could be used to confirm what a defendant should have known during the class period"). The start of the Class Period does not "reset" what Defendants knew. Thus, it cannot be disputed that the documents Plaintiff obtained from the DoE add to the strong inference that the Individual Defendants acted with scienter. (b) DeVry's Correspondence with the FTC Adds to a Strong Inference of Scienter The Amended Complaint incorporates internal correspondence and charts exchanged by DeVry's attorneys and the FTC during the course of the FTC's investigation. ¶¶ 31-33. This correspondence from 2014 shows that the "executive officers" of DeVry—defined to include DeVry's "Chief Executive Officer," "Chairman," and "Chief Financial Officer" were designated as custodians who agreed to produce documents on a range of topics including: "emails. . . which relate to completion rates, job placement rates, [and] students['] pre-graduation or post- graduation income amounts"; and documents concerning "minimum placement rates" reported to government agencies. ¶ 250. These documents show that Defendants were not only put on notice of the FTC's investigation, which began on January 28, 2014, but were specifically targeted by it. Thus, the documents and the investigation add to an inference of knowledge or recklessness because Defendants continued making false statements while they were embroiled in an investigation examining the falsity of those very statements. See In re Akorn, Inc. Sec. 15 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 22 of 43 PageID #:1789 Litig., 240 F. Supp. 3d 802, 820 (N.D. Ill. 2017) ("That the SEC and DOJ initiated investigations provides additional support for the finding that scienter has been adequately pleaded."); Washtenaw Cty. Emps. Ret. Sys. v. Avid Tech., Inc., 28 F. Supp. 3d 93, 115 (D. Mass. 2014). Defendants claim that this internal correspondence adds nothing because the FTC decided to bring a false advertising case, and did not include a claim for intentional fraud. Defs.' Br. at 23. But this argument misses the point. As detailed in the FTC's 26(f) report, there can be no dispute that the FTC unearthed a mountain of evidence showing that the 90% Representation was baseless. See ¶ 249. Now there is proof that the Individual Defendants also were specifically targeted by the FTC's investigation and agreed to produce documents to the FTC regarding the 90% Representation. The most logical inference from these facts is that the Individual Defendants possessed and produced documents showing that the 90% Representation was false. The fact that the FTC brought a false advertising case against DeVry, not one for intentional fraud, does not diminish or weaken this conclusion. Pure speculation about the FTC's legal strategy cannot whitewash damning documentary evidence directly showing that the Individual Defendants, at the very least, hid their heads in the sand while they were targeted by a government investigation examining their role in fraudulent practices. (c) Information Uncovered by the Massachusetts Attorney General Adds to the Inference of Scienter In 2017, DeVry agreed to settle claims brought by the Massachusetts AG's Office that the Company "used deceptive job placement rates" and "tricked students. . . with false promises of high earning and job opportunities." Defs.' Ex. K ¶ 4. In its press release announcing the settlement, the Massachusetts AG stated that "DeVry prominently advertised that 90 percent of graduates who sought employment landed jobs in their field of study within six months of graduating[, but] in fact the AG's investigation found that certain DeVry programs had job 16 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 23 of 43 PageID #:1790 placement rates as a low as 52 percent." ¶ 293. This is strong evidence both that DeVry's actual job placement statistics were significantly different than what they claimed; and that Defendants were reckless, at a minimum, in touting the 90% Representation. Defendants try to dismiss the Massachusetts AG's finding because the Company's settlement with Massachusetts was consummated after the Class Period. Defs.' Br. at 25. But that argument is simply wrong on the law. See, e.g., Akorn, 240 F. Supp. 3d at 820 (finding government investigations initiated post-class period about activity during the class period "provide[] additional support for finding that scienter has been adequately pleaded"). Here, it is abundantly clear that the Massachusetts AG was investigating conduct that took place during the Class Period, between 2011 and 2015. See Defs.' Ex. K ¶ 4. Defendants also attempt to discredit the results of the Massachusetts AG's investigation, maintaining that the investigation only related to DeVry's "unclear and inadequate" advertising regarding the 90% Representation, not the Company's alleged systematic "misclassification" of students to generate the statistics. Defs.' Br. at 25. This argument just presents a distinction without a difference. And the Massachusetts AG's Assurance of Discontinuance—which Defendants point to—plainly contradicts the notion that the investigation was unrelated to the conduct at issue here. The Assurance of Discontinuance lists four reasons for the investigation of the fraudulent 90% claim, not just the one Defendants cite. Defs.' Ex. K ¶ 6. Three relate to the classification of graduates in determining the employment statistics at issue. Id. Thus, the Massachusetts AG's findings that (1) DeVry was lying to students about the 90% Representation, and (2) some DeVry programs had employment rates as low as 52% is directly relevant to the scienter analysis in this case. See Rehm v. Eagle Fin. Corp., 954 F. Supp. 1246, 1256 (N.D. Ill. 1997) ("the magnitude of reporting errors may lend weight to allegations of 17 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 24 of 43 PageID #:1791 recklessness where defendants were in a position to detect the errors."). 2. Confidential Witness Allegations Support Scienter (a) Whistleblower Allegations Show Defendants Hid the Truth Defendants attempt to erase allegations from a former employee—CW8—who described in detail how he reported to an in-house lawyer that the 90% Representation was false, and was promptly fired as a result. In an effort to diminish these startling revelations of corporate malfeasance, Defendants improperly attack CW8's credibility, claiming without any factual support whatsoever that he "may have an ax to grind," and his allegation should be "heavily discounted" because of his position as a Senior Director of Academic Effectiveness at DeVry's College of Nursing. Both arguments lack merit. Relying heavily on dicta from Higginbotham v. Baxter International Inc., 495 F.3d 753, 756 (7th Cir. 2007), Defendants claim without proof that CW8's factual allegations should be ignored because he "may 'have axes to grind.'" Defs.' Br. at 18. This is an improper attack on CW8's creditability. Nothing in the four corners of the Amended Complaint suggests CW8 had "an axe to grind" or that his accounts are anything but truthful. Garden City Emps.' Ret. Sys. v. Anixter Int'l, Inc., No. 09-cv-5641, 2012 WL 1068761, at *2 (N.D. Ill. Mar. 29, 2012) ("[i]n considering a Rule 12(b)(6) motion in securities fraud actions, courts must, 'as with any motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual allegations in the complaint as true.'") (quoting Tellabs, 551 U.S. at 32). Moreover, it is black letter law that the "Court's role at the motion to dismiss stage is not to make [credibility] determinations." See Van Noppen v. InnerWorkings, Inc., 136 F. Supp. 3d 922, 946 (N.D. Ill. 2015); Lewy v. Skypeople Fruit Juice, Inc., No. 11-cv-2700, 2012 WL 3957916 (S.D.N.Y. Sept. 10, 2012). In the CW context, the Court need only determine whether the CW was in a position to know the information alleged to determine whether his allegations are reliable. See Boca 18 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 25 of 43 PageID #:1792 Raton Firefighters & Police Pension Fund v. DeVry Inc., No. 10-cv-7031, 2012 WL 1030474, at *3 (N.D. Ill. Mar. 27, 2012) (a securities fraud plaintiff must "'describe [its confidential] sources with sufficient detail to support the probability that a person in the position occupied by the source would possess the information alleged'"), quoting Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 596 (7th Cir. 2006) ("Tellabs I"); Ross, 2012 WL 5363431, at *4.10 In addition, Defendants' reliance on Higginbotham is misplaced because that case has been repeatedly distinguished and limited to its facts within the Seventh Circuit. See, e.g., Van Noppen, 136 F. Supp. 3d at 934 (collecting cases; "[t]here is no categorical discount of confidential witness allegations where. . . Plaintiff. . . described the witnesses with enough detail that this Court can determine that the confidential witnesses have a foundation for their allegations"); City of Sterling Heights Gen. Emps.' Ret. Sys. v. Hospira, Inc., No. 11-cv-8332, 2013 WL 566805, at *17 (N.D. Ill. Feb. 13, 2013) ("the Seventh Circuit clarified that a particularly troubling use of the confidential sources prompted the holding in Higginbotham."). Tellabs recognized that "confidential sources referred to in [a] complaint are important sources for the allegations not only of falsity but also of scienter" and that "the absence of proper names does not invalidate the drawing of a strong inference from informants' assertions." Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 711-12 (7th Cir. 2008) (internal quotations omitted) (contrasting Higginbotham-type allegations to allegations where "[t]he confidential sources… are numerous and consist of persons who from the description. . . [and t]he information that the confidential informants are reported to have obtained is set forth in convincing detail"). Citing City of Livonia Employees' Retirement System & Local 295/Local 851 v. Boeing Co., 711 F.3d 754,760 (7th Cir. 2013) Defendant also argue that CW8 was never "employed at 10 Dismissal on credibility grounds is improper even where witnesses give inconsistent accounts. Terry v. Talmontas, No. 11-cv-6083, 2013 WL 707907, at *8 (N.D. Ill. Feb. 26, 2013). 19 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 26 of 43 PageID #:1793 the company" and could not know anything about the 90% Representation. Defs. Br. at 15-16. But Boeing is inapposite. First, CW8 did work for a school under the DeVry umbrella, and in fact worked on a project examining several of DeVry's subsidiary schools. ¶¶ 308-09. Conversely, in Boeing, the entire case hinged on allegations from a single Confidential Witness who was described as a "Boeing. . . Engineer," but in fact worked for a different company and had no way of accessing the information he spoke about. 711 F.3d at 759-60. The situation here could not be more different—Plaintiffs pled twenty CWs in the Amended Complaint, all of whom are described with particularity, and their allegations are corroborated by documents uncovered by the DoE. Most importantly, Defendants present no evidence that any CW does not hold the position attributed to him. In particular, CW8's role at DeVry is described clearly (¶ 308), as is his basis for discovering the information he reported to management (¶¶ 309-19). Cf. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (discounting CW allegations, inter alia, because complaint did not adequately describe the basis for factual allegations). Critically, there can be no dispute that CW8's description of his meeting with a DeVry in-house-attorney during which he informed the Company that it was reporting false employment statistics—is based on his personal knowledge, as are the circumstances leading to his termination as a result of his effort to bring Defendants' fraud to light. ¶¶ 308-312. In addition, "Groenwald[, CW8's boss,] told him in a meeting that she discussed CW8's findings with Hamburger". ¶ 311. These allegations should also be considered in the scienter analysis because they are "sufficiently reliable, plausible, or coherent." Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1208 (9th Cir. 2016); see In re Cadence Design Sys., Inc. Sec. Litig., 692 F. Supp. 2d 1181, 1188 (N.D. Cal. 2010) (taking hearsay allegations into account when considering the complaint as a whole). CW8 reported directly to Groenwald and she reported to Hamburger. 20 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 27 of 43 PageID #:1794 There is no reason to doubt that Groenwald told Harmburger of CW8's report to the Company's in house attorney. Defendants also attack CW8's basis of knowledge because he worked in the Nursing School, a school under the DeVry Corporate umbrella. Defs.' Br. at 15-16. However, a close reading of the statements attributed to CW8 show that: (1) he is described with particularity, (2) the basis for his knowledge of DeVry's employment statistics is clear, and (3) he was in a position to know exactly what he reported to DeVry's in-house attorney and the circumstances leading to his termination at the Company. The basis for CW8's determination that the 90% Representation is false is clearly alleged in the Amended Complaint. ¶¶ 308-19. CW8 was a 45 year veteran in the business of analyzing collegiate academic effectiveness. Between September 2013 and March 2014, he was the Senior Director of Academic Effectiveness at DeVry's Chamberlain College of Nursing; a position only two reporting levels below CEO Hamburger. ¶ 308. During that time, CW8 worked on a survey project for DeVry "with the goal of collecting statistical data, including placement information, for schools within DeVry. . ." ¶ 309. Through his work on that project, he discovered that DeVry did not have the data to back up the 90% claim. And he reported that his counterpart at DeVry University, who he described as a "statistician who understood the numbers" specifically "confirmed there was insufficient data to substantiate DeVry University's job placement claims in [the Company's] SEC filings."11 Id. (b) Defendants Discussed DeVry's Employment Metrics and the Governments' Investigations at Internal Meetings Contrary to Defendants' myopic view of the case law, it is well established that allegations showing defendants attended meetings during which they discussed the very 11 Defendants' assertion that the Amended Complaint uses a "sleight of hand" to obfuscate CW8's position at the Company is ridiculous. Defs.' Br. at 16 n.7. The Amended Complaint states the CW8 worked for "DeVry" which the pleading defines as "DeVry Education Group, Inc." Moreover, it is perfectly clear that CW8 worked for the head of DeVry's Chamberlain College of Nursing. ¶ 308. 21 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 28 of 43 PageID #:1795 information they misrepresented contributes to an inference of scienter. Moreover, because falsity has already been determined here, the fact that witnesses placed the Individual Defendants in a room discussing these false metrics (and the government investigations examining them) makes that inference quite compelling. In re ITT Educational Services, Inc. Securities Litigation, 34 F. Supp. 3d 298, 308 (S.D.N.Y. 2014) is directly on point. There, the plaintiffs alleged that a for-profit college and its officers misrepresented the true state of the schools' student loan program. The court held that plaintiffs' complaint presented a strong inference of scienter when the individual defendants (1) attended meetings with a "default management group" during which they were likely informed of the deceptive practices, and (2) there were multiple government entities investigating the company's practices. Id. at 308-09; see also Ross, 2012 WL 5363431, at *9 (finding that scienter was alleged when placement rates were "discussed on weekly conference calls for [ ] career services directors and [ ] the improper practices were encouraged and condoned.") (internal quotations omitted); Plumbers & Pipefitters Local Union No. 630 Pension- Annuity Tr. Fund v. Allscripts-Misys Healthcare Sols., Inc., 778 F. Supp. 2d 858, 885 (N.D. Ill. 2011) (plaintiffs pleaded scienter where a defendant participated in "monthly meetings where [he] received information about implementation difficulties throughout the Class Period"); Ong ex rel. Ong v. Sears, Roebuck & Co., No. 03-cv-4142, 2005 WL 2284285, at *20 (N.D. Ill. Sept. 14, 2005) (defendants who "attended monthly meetings at Sears headquarters to discuss problems in Sears' credit business" were alleged to have made false statements with scienter.) Similarly here, DeVry's former Chief Academic Officer (CW20), who was one level below CEO Hamburger, attended meetings during his tenure—from July 2011 to June 2017—– during which Hamburger discussed the FTC and DoE investigations, job placement statistics, 22 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 29 of 43 PageID #:1796 and DeVry's accreditation. ¶¶ 370-72. CW20 also recalled that DeVry had an ongoing issue related to job placement and accreditation, and that Hamburger talked about DeVry's problem aggregating data supporting the Company's institutional effectiveness12 at meetings in 2012, 2013, and 2014. ¶ 370. In addition, CW19 discussed "graduate employment metrics" with all three Individual Defendants at Quarterly Leadership Meetings. ¶¶ 368-69. CW19 was also one reporting level below Hamburger. ¶ 368. CW18—a Senior Director of Admissions at DeVry— similarly discussed the 90% Representation with Hamburger, and he described how a career services script touting the 90% Representation was approved by David Pauline, DeVry University's President. ¶¶ 367-68. These facts support an inference that Defendants must have known (or were reckless in not knowing) that the 90% Representation was false. None of the cases Defendants cite diminish the strong implication of scienter these allegations create. Defs.' Br. at 8-26. In Boca Raton Firefighters & Police Pension Fund v. Devry Inc., No. 10-cv-7031, 2012 WL 1030474, at *11 (N.D. Ill. Mar. 27, 2012), the court found that allegations regarding meetings at which the individual Defendants did not attend did not support scienter. That is the exact opposite of the factual scenario presented here. ¶¶ 368-72. Similarly, In re Bally Total Fitness Securities Litigation, No. 04-cv-3530, 2007 WL 551574, at *2 (N.D. Ill. Feb. 20, 2007) actually shows that the CW accounts placing the Individual Defendants in meetings supports scienter. There, the court explained that allegations supporting scienter include the defendants' attendance at "specific meetings during which particular financial representations [are] discussed." Id. In Bally, the court declined to rely on a single CW allegation involving an alleged meeting, however, because the court found that "[i]t [was] impossible to discern what part of the allegation [was] based on fact and what part [was a] 12 Institutional effectiveness at DeVry included job placement statistics. See supra n.8. 23 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 30 of 43 PageID #:1797 conclusion." Id. at *10. That is not this case. Here, multiple CWs participated in meetings during which the Individual Defendants discussed the exact representation at issue and the government investigations questioning their veracity. Thus, the CW allegations at issue are exactly the kind the Bally court said would support an inference of scienter.13 (c) Defendants Fraudulent Practices Pervaded the Organization In its Order addressing the sufficiency of the initial complaint, the Court noted that the Confidential Witness allegations then at issue did not show that "the misclassification problem was so pervasive and widespread, and that such a high volume of graduates were being misclassified, that defendants. . . have had knowledge of at least a substantial risk that the 90% Statement was false or misleading." DeVry, 2017 WL 6039926, at *14. Taken together, twenty Confidential Witness allegations in the Amended Complaint now show that DeVry's use of waivers and opt-outs to manipulate its employment statistics was so pervasive across the organization that the Defendants must have known the 90% Representation was false, or else recklessly disregarded the substantial risk that the statistic was baseless. CW3 reported that DeVry's policy of using opt-outs and waivers to remove graduates from inclusion in its employment statistics "was the same for every DeVry campus; the only difference was when the campus chose to implement the process." ¶ 299. Moreover, without waivers and opt-outs CW3 estimated that the true job placement rate was 60% to 70% and the Massachusetts Attorney General's investigation uncovered that some DeVry programs had placement rates as low as 52%. ¶ 301. Multiple Confidential Witnesses from across the country corroborated that the 13 Plumbers Local No. 200 Pension Fund v. Washington Post Co., 930 F. Supp. 2d 222 (D.D.C. 2013) is also distinguishable on its facts. There, the court found that allegations showing that defendants attended "executive meetings" where fraudulent practices "may" have been discussed raised "some inference of scienter," but not a "strong inference." Id. at 228-29. But here, the Amended Complaint contains confidential witness allegations showing that the Individual Defendants specifically discussed not only DeVry's employment statistics, but also the FTC and DoE investigations which were examining whether the Company was making unsubstantiated claims about DeVry' employment statistics. 24 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 31 of 43 PageID #:1798 waiver and opt-out process existed at their campuses. See Ex. A (Map of Confidential Witnesses); ¶¶ 413-20 (detailing allegations from CWs who worked at 10 different campuses located in 6 states). And importantly, CW14 described how DeVry maintained a national "career services manual" that directed all Career Services Offices on how they could code to achieve these employment statistics that otherwise would be unattainable. ¶ 354. In other words, the manual provided instructions for manipulating the results to achieve the desired employment statistics, which otherwise had no basis in reality. See Ross, 2012 WL 5363431, at *9 (corroborated CW accounts showed "defendants' practice of improperly inflating job placement statistics was both widespread and pervasive.") Other witnesses' fact-based allegations show DeVry's executives were reckless at a minimum. CW10 reported that, in response to regulatory scrutiny in 2010, he was directed to work on a project contacting graduates "to discover which students were actually finding work in their chosen fields." ¶ 330. CW11 discussed how his colleagues were terminated for not reciting the 90% statistic on sales calls with prospective students. ¶¶ 334-39. And CW16 recalled being instructed by the corporate head of Career Services—Madeline Slutsky—to "find every marketing document that quoted the 90% rate," and reported that the corporate office received "reports on job placement statistics on a regular basis." ¶ 362. These revelations strongly support scienter. See Ross, 2012 WL 5363431, at *9 (finding a strong inference of scienter when Confidential Witness allegations contained "detailed facts supporting the claim that defendants' practice … was both widespread and pervasive."); In re ITT, 34 F. Supp. 3d at 308-09.14 (d) Allegations Showing Defendant Hamburger Was an Involved Manager Contribute to the Inference of Scienter 14 The few allegations containing partial hearsay do not diminish the larger picture created when the allegations are considered collectively—that the Defendants must have known (or were reckless in not knowing) the 90% Representation was false because it was branded into all facets of the organization. 25 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 32 of 43 PageID #:1799 Defendants are also wrong that new allegations provided by CW15 and CW20 describing Defendant Hamburger's hands-on management style (¶¶ 358-59, 372) contribute nothing to the scienter analysis. Defs.' Br. at 19-20 n.11. These well-supported allegations include an email showing Hamburger reviewed employment statistics from an individual school and visited CW15's campus five times. Id. While similar allegations, considered in isolation, have been held insufficient—revelations that "[d]efendants were 'hands-on' managers, 'intimately knowledgeable about all aspects of [a company's] financial and business operations," contribute to a finding of scienter at the pleading stage when considered with the balance of pleaded allegations. In re VeriFone Holdings, Inc. Sec. Litig.,704 F.3d 694, 710 (9th Cir. 2012) (scienter pleaded, because inter alia, "[Defendants'] were hands-on managers with respect to operational details and financial statements, and that they would have been aware of the complications associated with the [ ] merger"). Erickson, 2015 WL 12732435, at *9 (specifically considering allegations that "Defendants were 'hands-on' managers, 'intimately knowledgeable about all aspects of Corinthian's financial and business operations.'"). Here, twenty corroborated Confidential Witnesses allegations support a finding that the Company used an engrained methodology to inflate its job placement statistics that was uniform across the organization and that must have been intimately known to DeVry's leadership. Each Confidential Witness is described with particularity so that his role within DeVry, tenure, and the information relayed to Plaintiff is clear. Moreover, the witness accounts corroborate one another and show that the same practices existed at campuses across the country. Defendants claim all the information revealed by CWs should be "heavily discounted" for no other reason than that the facts are inconvenient for them. Defs.' Br. at 15. But their entire argument based upon two outlier decisions, Higginbotham and Boeing, that bear no 26 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 33 of 43 PageID #:1800 resemblance to this case. See Supra p. 18-22. Notably, Tellabs did not discount these CW allegations, "steeply" or otherwise. Thus, where CW allegations conform to the kind Tellabs described, they are not discounted. See, e.g., Ross, 2012 WL 5363431, at *4 ("[s]o long as plaintiffs describe with particularity the sources of their information, including how the sources were in a position to know the matters alleged, such allegations are sufficient under the PSLRA."). As in Ross, the CWs here (1) are numerous; (2) are described with specificity, including their titles, responsibilities, and to whom they reported; (3) provided only information that they were in a position to know; and (4) gave detailed, corroborating accounts. ¶¶ 39-55. Thus, they are unlike the allegations in Higginbotham or Boeing, and should not be discounted. Notably, the Amended Complaint contains thirteen completely new Confidential Witnesses, as well as additional allegations from four of the Confidential Witnesses included in the prior complaint. See ¶¶ 299-300, 302, 307-72, 373-77, 379. All of these witnesses are described with particularity. Defendants attempt to tear down the damning picture created by these allegations by improperly attacking witness credibility. For example, Defendants take issue with allegations from CW11, who worked as an Associate Director of Admissions of DeVry's Online Division, claiming the facts he provides should be discounted because he worked in Admissions, not Career Services. Defs.' Br. at 16. But his allegations simply show that DeVry's use of the 90% Representation was so pervasive within the organization that the Individual Defendants must have been intimately familiar with how it was calculated. Specifically, CW11 reported that DeVry included the statistic in an "Observation Form" that was distributed nationwide and some of his colleagues actually "lost their jobs due in part to their refusal to cite the 90% statistic." ¶¶334-39. CW11 certainly was in a position to know these facts. Similarly, CW16, who Defendants attempt to write off as merely "a secretary," was in fact 27 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 34 of 43 PageID #:1801 the secretary to Madeline Slutsky who was in charge of DeVry's Corporate Career Services Office, and who was repeatedly named as a target of the FTC's investigation in documents that Plaintiff obtained through FOIA requests. ¶ 251. It should be surprising to no one that the secretary of the Company's head of Career Services was in a position to know about the business of the Career Services department. Thus, CW16's allegations, which are based on his personal knowledge, are quite revealing: he was instructed by Slutsky in 2013 to "find every marketing document that quoted the 90% rate" because he understood Ms. Slutsky was "working with Pat Duncan, the Director of Regulatory Compliance, to identify every single document which had 90% verbiage and which DeVry could no longer use." ¶ 362. Thus, Defendants' narrow attacks on the well-pleaded Confidential Witness allegations are ineffective. 3. Defendants' Proposed Inference Finds No Support Defendants' proposed "non-fraudulent inference" that DeVry "relied on a disclosed methodology and fairly reported statistics. . . based on that methodology" is unavailing. Defs.' Br. at 20. Defendants' position actually assumes the Individual Defendants were intimately familiar with DeVry's methods for excluding graduates from its employment statistics (an acknowledgement that supports scienter), and asks the Court to make a factual determination that DeVry's "methodology" was 100% above-board and fully disclosed to investors. But Defendants' inference is inconsistent with this Court's prior holding and unsupported by the allegations in the Amended Complaint. Thus, it is hardly the most plausible inference. First, this Court already held that Plaintiff presented sufficient facts in the initial complaint to allege falsity. See DeVry, 2017 WL 6039926, at *9. The allegations Defendants now point to showing that DeVry had a "written national policy" describing "the process and rules for which students were included or excluded in the job placement statistics" do nothing to dispel the fact that DeVry's 90% Representation was false or misleading. Rather, these 28 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 35 of 43 PageID #:1802 allegations only show that DeVry's "methodology," which Plaintiff alleges in large part caused the 90% Representation to be false or misleading, was intimately known to Defendants. DeVry was systematically manipulating their employment statistics using an unsound methodology that was never fully disclosed to investors, and which Defendants do not even explain in their brief. Second, Defendants' proposed inference ignores the vast majority of the allegations in the Amended Complaint. Notably absent from Defendants' story are the documents gathered from the DoE, which supported that agency's conclusion that "this was not an isolated instance but part of a pattern whereby DeVry either intentionally or through wanton negligence avoided clear statutory and regulatory requirements." ¶ 271. Similarly, the fact that DeVry settled four government actions challenging the 90% Representation undercuts the notion that DeVry "follow[ed] a transparent process for calculating employment statistics." Defs.' Br. at 22. Finally, the idea that the "methodology" DeVry used to calculate the 90% Representation was fully disclosed to investors is simply untrue (and in fact was already rejected by this Court). See Defs.' Br. at 20. In support, Defendants point to vague small print in its annual statements which gives no indication how DeVry's employment statistics were actually calculated. For example, DeVry Education Group's 2010 10-K ambiguously implies that the 90% statistic includes graduates who were "eligible for career services assistance," states that "the reliability of such data depends on the quality of information that graduates self-report," and then goes on to make the false claim that "[m]ore than 59,000 graduates during [the past] 10-year period actively pursued employment or were already employed [and] 88.6% of those held positions related to their program of study within six months of graduation." Defs.' Ex O. at 30-31. No reasonable person could read this "disclosure" and profess to be "fully" informed about the methodology DeVry used to calculate its employment statistics. The Company's repeated use of 29 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 36 of 43 PageID #:1803 the phrase "actively pursued employment" to describe the students included in the statistics cannot, as a matter of law, inform investors that DeVry was manipulating the results by systematically waiving and opting out students from inclusion in its statistics based on undisclosed criteria—or that it's actual employment rate was approximately 60% to 70%, and sometimes as low as 52%, as the Massachusetts AG uncovered. ¶¶ 301, 293. Moreover, the fact that DeVry adopted a longer (but no less vague) description of its purported "methodology" description in its 2014 10-K simply raises the reasonable inference that the Individual Defendants knew the 90% Representation was baseless and tried (albeit unsuccessfully) to incrementally bolster the Company's disclosure language in 2014 because, by then, the Company was being investigated by multiple government agencies for providing false numbers. See ¶¶ 58, 252. Even then, the description did not advise that the Company was systematically opting out students from the analysis and wrongly including others. Thus, a "reasonable person" simply could not find Defendants' proposed non-fraudulent inference compelling. To do so would require them to completely ignore this Court's previous decision that the statements were false, as well as the vast majority of the allegations in the Amended Complaint describing Defendants' deceptive methodology—a nationwide policy that included graduates in the statistic who should have been excluded and excluded those who should have been counted. If Defendants knowingly implemented the methodology described in the Amended Complaint and continued to adhere to it while government investigators, DeVry's advertising vendor, DeVry's President, and high-level employees all questioned it, then a reasonable person certainly could find that Defendants were reckless. See Akorn, 240 F. Supp. 3d at 821. C. Collateral Estoppel Precludes An Argument that Scienter was not Properly Pled with Respect to Defendant Hamburger 30 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 37 of 43 PageID #:1804 Critically, in a parallel derivative action, limited document discovery produced evidence that the Company's board—which included Defendant Hamburger—"knew that DeVry was not meeting the 90% post-graduation employment benchmark." City of Hialeah Emps. Ret. Sys. v. Begley, No. 2017-0463, 2018 WL 1912840, at *3 (Del. Ch. Apr. 20, 2018). Under the doctrine of collateral estoppel, that decision precludes Defendant Hamburger from arguing on this motion to dismiss that he had no knowledge of this fact. See Gilldorn Sav. Ass'n v. Commerce Sav. Ass'n, 804 F.2d 390, 392 (7th Cir. 1986) (denial of motion to dismiss in a parallel proceeding precluded re-litigation of an issue already decided; "issue preclusion. . . prevents a party from relitigating an issue. . . already litigated and lost"); Cosek v. Chinn Enters., Inc., No. 94-cv- 6660, 1996 WL 377056, at *1 (N.D. Ill. July 1, 1996) ("collateral estoppel can preclude the reexamination of even purely legal questions raised in cases 'closely aligned in time and subject matter'"). In the derivative case, the court held that "[t]he Complaint alleges specific facts, supported by documents obtained by using Section 220 of the Delaware General Corporation Law, which support an inference that the directors knew that DeVry was not meeting the 90% post-graduation employment benchmark." City of Hialeah, 2018 WL 1912840, at *3. The court found that DeVry's documents (incorporated into the complaint) showed that "the directors received regular reports from management, monitored whether DeVry was achieving the 90% employment figure, and understood how DeVry's numbers were trending relative to this metric." Id. Because all the requirements for issue preclusion are met, the Delaware Chancery Court's decision is binding on Defendant Hamburger: (1) the issue of whether Hamburger knew the 90% Representation was litigated and decided; (2) the parties are the same; (3) the issue decided by the Delaware court is identical to the question here —whether Hamburger knew that the 90% Representation was false; and (4) the resolution of the issue there was necessary for the result. 31 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 38 of 43 PageID #:1805 See Gilldorn, 804 F.2d at 391. D. This Court Already Found that Plaintiff Pleaded Falsity The Amended Complaint pleads with particularity that Defendants made numerous false and misleading statements about the 90% Representation during the Class Period. This Court has already ruled in its previous Order examining the initial complaint that "plaintiff [did] just enough, by making the most diligent pre-complaint inquiry within its power and stating enough facts to 'raise a reasonable expectation that discovery will reveal' additional evidence of falsity. . . ." DeVry, 2017 WL 6039926, at *9. Thus, this Court already determined that the 90% Representation was plausibly false or misleading. But despite the Court's governing determination, Defendants make the exact same argument that this Court already rejected. Compare Defs.' Br. at 27-32 with ECF No. 15 at 14-23. Because the Court already ruled on this exact issue and Defendants have not come forward with a good reason to re-examine it, the Court should not deviate from its earlier determination. See Avnet, Inc. v. Motio, Inc., No. 12-cv- 2100, 2015 WL 5307515, at *3 (N.D. Ill. Sept. 9, 2015) (law of the case doctrine "allows reconsideration [of issues already litigated and decided] only for a compelling reason such as a manifest error or a change in the law that reveals the prior ruling was erroneous."). If the Court were to reexamine its falsity determination, the Amended Complaint now adds actual evidence showing that the 90% Representation was materially false or misleading. For example: internal documents produced to the DoE suggest that DeVry's own President did not believe the 90% Representation (¶ 271); DeVry's advertiser, Leo Burnett, expressed doubts to the Company about statistics in an email produced to the DoE (Id.); documents show DeVry lied to federal regulators when it claimed to have stopped making the 90% Representation (Id.); the Massachusetts Attorney General Office disclosed that its investigation "found that certain DeVry programs had job placement rates as low as 52 percent" (¶ 293); the NY AG stated that 32 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 39 of 43 PageID #:1806 DeVry "DeVry. . . exaggerated graduates' success in finding employment at graduation [and] . . . inaccurately classified a significant number of graduates as employed in their field of study." (¶¶ 290-91); CW3 estimated that the true job placement rate was 60% to 70% (¶ 301); and CW8 discovered that "the numbers DeVry was producing and generating for the SEC reports were just not accurate" (¶ 314). Further, four government agencies received discovery and concluded that DeVry's statistics were unsubstantiated. ¶¶ 238-88; see also ¶¶ 383-426. Defendants' argument that the Plaintiff needs to plead additional evidence to allege material falsity is simply wrong. Defendants assert that, at the pleading stage, the Plaintiff must show "what. . . the nationwide statistics actually were for each year of the proposed class period" and "explain what percentage of that discrepancy was attributable to each of the [misleading] practices it challenged." Defs.' Br. 29. This is a blatant misrepresentation of the law. As this Court already has explained, "under Rule 9(b), plaintiff need not 'plead facts showing that the representation is indeed false.'" DeVry, 2017 WL 6039926, at *9 (citation omitted). Plaintiff is not required to actually possess Defendants' internal documents to survive a motion to dismiss. See In re Cabletron Sys., Inc., 311 F.3d 11, 33 (1st Cir. 2002) ("[T]he rigorous standards for pleading securities fraud do not require a plaintiff to plead evidence"). The 90% Representation also included the false claim that graduates were making an average salary of around $43,000. See, e.g., ¶ 84. But, as revealed by the FTC, and corroborated by several witnesses and the NY AG, DeVry's higher-income claims were based on a flawed third-party report that not only suffered from its own methodological shortcomings but contradicted DeVry's internal data. ¶¶ 246, 290, 293, 390-91, 305-06.15 15 CW3 corroborated the FTC's conclusions, stating that the advertised salary statistics were "so fraudulent, "bogus," and "a lie," and that graduates who found jobs almost always obtained salaries of between $25,000 and $30,000—far short of the approximately $40,000 that they were led to expect. ¶306. 33 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 40 of 43 PageID #:1807 E. Loss Causation is Properly Alleged Plaintiff easily satisfies the Rule 8 pleading standards for loss causation. See Ong ex rel. Ong v. Sears, Roebuck & Co., 459 F. Supp. 2d 729, 743 (N.D. Ill. 2006). Plaintiff and the proposed Class purchased DeVry stock during the Class Period when the price was artificially inflated due to Defendants' false statements. ¶¶ 485, 494. When the FTC and DoE revealed that Defendants lied to the market on January 27, 2016, the artificial inflation was removed and DeVry's stock price fell 15%, resulting in economic losses. ¶¶ 485-88. Contrary to Defendants arguments, the January 27 disclosures revealed government regulators' conclusions that DeVry engaged in widespread manipulation of its employment claims, not merely an unsubstantiated risk. The FTC's decision to file a lawsuit against DeVry was the culmination of an investigation involving the production of more than 2 million documents and responses to approximately sixty-four interrogatories. ¶¶ 238-56. And on the same day, the DoE publicly announced its intent to limit DeVry's participation in federal programs because of DeVry's misrepresentations. ¶¶ 257-73. In other words, the DoE announced its conclusion that DeVry lied about its employment statistics—and the market reacted accordingly. See ¶ 260. The FTC similarly produced a comprehensive list of documents in its 26(f) report similarly supporting its conclusion that DeVry lied about the 90% Representation. The January 27 disclosures also showed that DeVry's employment statistics had been manipulated on a grand scale, revealing that "Defendants [ ] created the student outcome statistics by manipulating information, selecting certain information, and omitting other pertinent information and data." ¶¶ 240, 242. Cf. Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1063 (9th Cir. 2008). These corrective disclosures necessarily revealed new information to the market about Defendants' fraud because CW13, who worked in Sacramento, reported strikingly similar results, reporting that DeVry's starting salaries in Sacramento were only about $24,000 to $25,000 annually. ¶ 351. 34 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 41 of 43 PageID #:1808 they synthesized the results of the FTC and DoE investigations, which were based on information in DeVry's own files. C.f. In re Gentiva Sec. Litig., 932 F. Supp. 2d 352, 387 (E.D.N.Y. 2013) (holding the announcement of a government investigation can be corrective because, to hold otherwise would "preclude any type of action such as this, where there has been no conclusive finding of fraud by a government agency, or a criminal charge initiated, or a formal corrective disclosure by the defendant"). In this jurisdiction, the announcement of an investigation is enough to satisfy loss causation. See Greater Pa. Carpenters Pension Fund v. Whitehall Jewellers, Inc., No. 04-cv-1107, 2005 WL 61480, at *5 (N.D. Ill. Jan. 10, 2005) (loss causation properly pleaded when corrective disclosures included the "partial disclosure of. . . SEC and DOJ investigations"). Even so, there is more than just an investigation here. The DoE and FTC announced on the corrective disclosure date that DeVry was actually issuing false statements about their employment outcomes (¶ 240-42); DeVry later settled with the FTC for $100 million; and the CWs here support that there was indeed an actual fraud and not just a risk of a fraud. Importantly, no court in the Seventh Circuit has taken the restrictive view of the Eleventh Circuit (cited by Defendants – and not precedent here) that the announcement of an investigation standing alone is insufficient to plead loss causation. See Meyer v. Greene, 710 F.3d 1189, 1201-02 (11th Cir. 2013). And, as explained above, there is indeed more than an announcement of an investigation in this case. The Seventh Circuit has explicitly stated that loss causation "ought not place unrealistic burdens on the plaintiff at the initial pleading stage." Whitehall, 2005 WL 61480, at *5 (citing Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645, 649 (7th Cir. 1997)). Thus, Plaintiffs have clearly satisfied their burden to plead loss causation here. IV. CONCLUSION For all of these reasons, Defendants' motion should be denied. 35 Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 42 of 43 PageID #:1809 DATED: May 24, 2018 LABATON SUCHAROW LLP By: /s/ Carol S. Villegas Jonathan Gardner (admitted pro hac vice) Carol C. Villegas (admitted pro hac vice) Theodore J. Hawkins (admitted pro hac vice) 140 Broadway New York, New York 10005 Telephone: (212) 907-0700 jgardner@labaton.com cvillegas@labaton.com thawkins@labaton.com Mark S. Willis (admitted pro hac vice) 1050 Connecticut Avenue, NW, Suite 500 Washington, D.C. 20036 Telephone: 202-772-1880 mwillis@labaton.com Counsel for Lead Plaintiff Utah Retirement Systems, and the Proposed Class WEXLER WALLACE LLP Kenneth A. Wexler Mark R. Miller 55 West Monroe St. Suite 3300 Chicago, IL 60603 Telephone: (312) 346-2222 Facsimile: (312) 346-0022 Email: kaw@wexlerwallace.com mrm@wexlerwallace.com Liaison Counsel Case: 1:16-cv-05198 Document #: 96 Filed: 05/24/18 Page 43 of 43 PageID #:1810 CERTIFICATE OF SERVICE I hereby certify that on May 24, 2018, I caused the foregoing to be filed with the Clerk of the Court using the Court's CM/ECF system. Notice of this filing will be sent to all counsel of record through the Court's CM/ECF system. Dated: May 24, 2018 /s/ Theodore J. Hawkins Theodore J. Hawkins