The suit stems from the massive loss of shareholder value that the company suffered in early November after it announced it would not meet revenue estimates. Over the course of two days, Chegg stock lost 40% of its value and, after that tumble, had lost nearly two-thirds of its value since February.
According to the announcement, the suit will allege that Chegg, “made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects.” Such claims and such legal challenges can be common when a company’s stock falls so much so quickly.
But what’s interesting about this development from an education perspective is that the announcement of the legal challenge also says that, “Chegg’s subscriber and revenue growth were largely due to the facilitation of remote education cheating – an unstable business proposition – rather than the strength of its business model or the acumen of its senior executives and directors.”
A judge may decide whether such an assertion is legally material but it is academically accurate.
Honestly, the company’s connection to cheating before, during and since the shift to remote and online learning has been well and repeatedly documented. And as far as academic misconduct goes, having a major cheating provider face a legal challenge that specifically cites that role is big. Or at least it feels big.
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What’s also interesting is that, in announcing the revenue news that triggered the November collapse and this new lawsuit, Chegg’s CEO said, “A combination of variants, increased employment opportunities, and compensation, along with fatigue, have all led to significantly fewer enrollments than expected this semester. And those students who have enrolled are taking fewer and less rigorous classes and are receiving less graded assignments.”
As noted previously, the enrollment excuse makes no sense. This fall, the enrollment statistics showed a drop of about 3.2%. In the fall of the previous year, enrollment fell about 3.4%. In other words, enrollment declines this year were smaller than they were last year, when Chegg’s revenue and stock were soaring.
The difference between fall 2020 and fall 2021 was not enrollment. It was that fewer students were taking online classes and online tests which, in turn, meant fewer students were willing and able to pay Chegg for test answers. I am just speculating but that’s probably what the CEO meant when he alluded to a downturn in “graded assignments” – the kind someone might be willing to pay to cheat on.
This is not Chegg’s only legal hurdle.
In September, book publisher Pearson sued Chegg too, alleging a violation of its copyrights for selling the answers to questions in its books and study materials. And while the outcome of that case is unclear, an unfavorable ruling could bring major implications for Chegg and other companies doing similar business – namely selling the answers to other people’s questions.
And then there’s another legal problem – potentially problems – for Chegg.
In the past year or so, the U.K., Australia, Ireland and other jurisdictions have passed laws or started the process to ban contract cheating – the paying of money for outsourced academic work that’s submitted as though it was authentic. The practice is also illegal in 17 states, though no cases have ever been filed.
Usually, contract cheating means paying for a custom essay from an essay mill, but some of the legal bans specially include paying for homework and test answers too. Some of the bans also include a bar on advertising those cheating services.
In November, Facebook agreed to remove the ads of some cheating companies in Ireland – where such ads are prohibited. Though not Chegg specifically, it’s a bad precedent for any company that provides cheating services and relies on social media to find customers, as Chegg does.
It’s impossible to know whether any of these, or the combination of all of them, will dent or damage the company significantly. Or at all. But there’s no lens through which any of these developments are welcome news at Chegg HQ.
But for those who care about academic integrity, protecting the value of degrees and other academic credentials or lifting the quality of online education, any news that is bad for cheating providers is welcome news.