GOVERNMENT CONTRACTS CLIENT ALERT: A New Risk Facing Public Companies Receiving Federal Government Contracts

    12 October 2010
    A recent lawsuit illustrates the importance of coordination between a public company’s government contracts compliance office and its risk managers. On October 8, 2010, stockholders of Education Management Corporation filed a class action suit alleging that the company made materially false and misleading statements in connection with a 2009 Initial Public Offering and continued to make false public statements designed to inflate its stock price. Parikh v. Education Management Corp. et al. (Case No. 10-cv-11723, D. Mass.) The case is significant because the allegations are based on an August 2010 General Accountability Office (GAO) Report concluding that Education Management and other for-profit educational institutions had defrauded the federal government by fraudulently inducing students to enroll, inflating tuition costs, and then overcharging the government for education costs. The company’s stock price fell nearly 18 percent following the publication of GAO’s Report.