Pearson is being sued for 'over-optimistic' financial projections

Pearson is being sued for 'over-optimistic' financial projections

A class action complaint has been filed against Pearson in the US on grounds of over-optimism for its financial projections, relating to revisions to the education company's 2017 forecast and the retraction of its ambitious £800m profit target for 2018.

Pearson c.e.o. John Fallon had described the company's competitive performance during its third quarter results in October 2016 as "strong in a tough market", and had reassured investors it was "on track" to deliver on its long term growth goal of achieving £800m profit in 2018. However, in January 2017, the company cut its profit guidance for the next two years and lowered its 2017 dividend in light of the "uncertain and challenging markets". It also announced it was selling its stake in Penguin Random House.

The complaint, brought on behalf of all those who purchased Pearson American Depositary Receipts between 21st January 2016 and 17th January 2017, alleges Pearson's officers and directors made "overly optimistic projections" for 2017 and 2018, according to shareholder rights law firm Robbins Arroyo LLP, in violation of federal securities laws under the Securities Exchange Act of 1934.

The complaint, filed against Pearson in the US District Court for the Southern District of New York, alleges that "Pearson officials made overly optimistic projections for 2017 and 2018 regarding its US education business when, in reality, students were not likely to purchase Pearson’s products when more affordable alternatives were available, resulting in unsold products".

A spokesperson for Pearson said the company believes the allegations are "baseless" and that it would "vigorously defend against them in court".

"We are in full compliance with all UK and US securities laws, including all disclosure requirements," said Pearson's spokesperson.

The company recently issued its annual results showing Pearson had made a pre-tax loss of £2.6bn for the year. However, the share price jumped marginally with 2016 operating profits and eps slightly better than its January 2017 guidance. Fallon also emphasised it would continue to invest in Pearson this year to ensure it emerges "the winner in digital education".