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charging Whitney with retaliatory termination. Plaintiff says that defendants failed to

report the existence of the OSHA complaint and the fact that the OSHA complaint

references a memo from Anne Willcoxon, Manager of Regulatory Compliance, to the

Senior Management Team which talks of student complaints. The Willcoxon memo is

dated August 5, 2004, well before the Class Period. Plaintiff, however, does not

describe how the OSHA complaint is connected to securities fraud. The CAC does not

provide any details about the OSHA complaint or the outcome of the complaint. At best,

the OSHA complaint, and the Willcoxon memo referenced in it, show that Paisola was

critical of certain of defendants’ accounting practices and Whitney was aware of student

complaints about its products. Neither shows security fraud.

Another problem with this theory is the fact that there is no nexus between

plaintiff and the alleged abuses of the credit card process. Assuming plaintiff’s

allegations are true, it is the credit card companies who have been defrauded, not

plaintiff, and not by way of the securities laws. In short, the CAC has not alleged

sufficient facts to show an inference of scienter relative plaintiff’s chargebacks theory of


3. The Business Model Theory

Plaintiff’s third theory of liability is that the Company’s business model is a

“sham” and the Company failed to disclose the true nature of the business. In support,

plaintiff relies on information from four confidential witnesses. Defendants argue that

plaintiff fails to particularly plead any of the four witnesses’ knowledge and the

allegations of wrongdoing fails to establish scienter.

The CAC identifies the statements as false and misleading in ¶¶ 32 - 36 and ¶


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