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Judge dismisses shareholder lawsuit against EDMC

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Thursday, Sept. 29, 2011

A group of shareholders who lost money when a Downtown, for-profit educator's stock plummeted in 2010 failed to provide enough evidence to pursue a claim that they were defrauded, a federal judge ruled today in dismissing their lawsuit.

The shareholders claimed that Education Management Corp., several of its officers and the financial institutions who underwrote the company's 2009 initial public offering misled investors about the source of the company's growth.

U.S. District Judge Nora Barry Fischer adopted a report filed by U.S. Magistrate Judge Robert C. Mitchell that determined the shareholders had failed to develop any evidence that any company official or underwriter had lied to investors or that the drop in EDMC's stock value in August 2010 was driven by anything other than a general drop in stock value for all for-profit education companies.

Fischer also agreed with Mitchell that the shareholders can't base their lawsuit on claims the federal government and a growing number of states make in a separate lawsuit, which seeks to recover more than $11 billion in state and federal aid funds.

The federal and state governments' lawsuit claims the company paid its recruiters solely based on the number of students they persuaded to enroll in EDMC's 101 schools. EDMC, whose schools including the Art Institute of Pittsburgh, denies it has improperly paid its recruiters.

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