||United States District Court for the Northern District of California
||The Honorable Susan G Van Keulen
||May 5, 2020 - November 1, 2021
Chegg is a provider of online research tools, online tutoring services, digital and physical textbook rentals, and other educational resources.
The complaint alleges that the defendants touted that Chegg was “in a unique position to impact the future of the higher education ecosystem” and that the primary cause of Chegg’s success was its “strong brand and momentum” which would allow Chegg “to continue to grow and take advantage of the ever-expanding opportunities in the learner economy.”
The truth regarding Chegg was revealed after the close of trading on November 1, 2021, when Chegg revealed its financial results for the first quarter in which students returned to campus across the United States. Chegg stunned investors with fewer-than-expected enrollments and declined to provide 2022 guidance. In fact, Chegg’s Chief Executive Officer and President, Daniel L. Rosensweig, admitted that the defendants were aware of the slowdown in September 2021.
Following this news, the price of Chegg’s common stock fell nearly 50%, falling from $62.76 per share on November 1, 2021 to close at $32.12 per share on November 2, 2021.
The complaint further alleges that with the market price of Chegg stock artificially inflated, several of Chegg’s senior officers and directors cashed-in, selling more than $90 million of their personally-held shares.
The complaint alleges that throughout the Class Period, the defendants failed to disclose to investors that: (1) Chegg’s increase in subscribers, growth, and revenue had been a temporary effect of the COVID-19 pandemic that resulted in remote education for the vast majority of U.S. students and once the pandemic-related restrictions eased and students returned to campuses nationwide, Chegg’s extraordinary growth trends would end; (2) Chegg’s subscriber and revenue growth were largely due to the facilitation of cheating – an unstable business proposition – rather than the strength of its business model or the acumen of its senior executives and directors; and (3) as a result, Chegg’s current business metrics and financial prospects were not as strong as it had led the market to believe.
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