Legal Woes Mount at Corinthian

Legal troubles are becoming the norm for public secondary-education companies, and now shareholders are getting into the action.

Corinthian Colleges ( COCO) denied charges filed in federal court Thursday night alleging that the company had fraudulently acquired federal financial aid funds and used them to increase sales and earnings as well as its stock price.

The company said in a statement Friday that the class-action lawsuit is without merit and that it will defend the allegations. The lawsuit also names two current officers and one former officer as defendants.

However, shares of Santa Ana, Calif.-based Corinthian were lately up 46 cents, or 1.9%, at $24.37. Still, the stock is down about 31% from late April amid other lawsuits filed against the company, including one where a student alleged she wasn't allowed to transfer credits between different campuses.

The lawsuit, filed by certain Corinthian shareholders, alleges that the company "manipulated financial aid documents to boost loan amounts available to students, thereby fraudulently receiving additional funds from the federal government."Two weeks earlier, the U.S. Department of Education said it found violations in how the college administered federal student aid programs; two employees were fired, and the stock tanked.

The legal troubles simply add more weight to Corinthian's burden: The company said earlier this week it plans to close 10 Canadian campuses to streamline operations.

Other names in the sector, which have had their share of legal problems, were getting a similar boost Friday, as the market bounced back from a weeklong selloff. ITT Educational Services ( ESI), for example, which has seen its shares drop as shareholders allege it omitted material facts in business statements, was lately up 21 cents, or 0.6%, at $37.27 in Friday trading. The stock is up about 19% from last year, but down about 37% from mid-February.

Meanwhile, Career Education ( CECO) has battled frequent former employee complaints of faulty bookkeeping to inflate enrollment and company profits. Most recently, the company said the Securities and Exchange Commission opened a formal investigation.

But shares of Career Education were recently rising 84 cents, or 1.9%, at $45.69, after falling about 18% from early June.

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