San Francisco 49ers CEO Jed York and others are at the center of a pair of lawsuits accusing them of engaging in insider trading at Chegg Inc., a Santa Clara-based online education platform under fire for allegedly helping students cheat during the height of the pandemic.
Two shareholder-filed lawsuits, consolidated in the U.S. District Court for Northern California earlier this year, also accuse York, Chegg CEO Dan Rosensweig and six others of breaching their fiduciary duties to shareholders.
The lawsuits say York, specifically, made insider stock deals based on “nonpublic information,” demonstrating “his motive in facilitating and participating in the scheme.”
Started in 2006, Chegg debuted on the New York Stock Exchange in 2013 — the same year York joined its board of directors — at $12.50 a share, raising $187.5 million for its initial public offering.
In 2019, Chegg and the 49ers announced a multi-year partnership to fund $100,000 in scholarships to first-generation college students in the Bay Area. For every first down made by the 49ers at Levi’s Stadium, Chegg would donate $500 to the scholarship fund. At the end of the season, five college students were selected to receive $20,000 each.
At the onset of the coronavirus pandemic in 2020, Chegg saw its subscribers surge as schools closed and students were forced to learn from home. Subscribers doubled by the end of 2020, and Chegg’s revenues increased by nearly 50% between the first quarter of 2020 to the second quarter of 2021, according to the lawsuit brought by shareholders Rak Joon Choi and Joseph Robinson.
The lawsuits claim Chegg’s design “enabled the company to monetize off its platform’s capacity to assist in academic cheating” and that Chegg failed to acknowledge that when students returned to the classroom, the opportunity to use the service to cheat would “diminish” and result in declining revenues.
The company’s executives and board of directors also allegedly deceived investors, telling them that cheating only happened in “very isolated cases,” the lawsuits said.
Chegg’s executives and directors are accused of a breach of fiduciary duties for taking a secondary public offering in February 2021 while its stock was traded at inflated prices due to “false and misleading statements.” The company netted $1.09 billion as a result.
During the period when stock prices were considered inflated, Rosenweig sold 552,000 shares of stock at average prices ranging from $63.81 to $99.55 a share, resulting in a profit of $48.8 million. Around the same time, York sold 20,000 shares of stock — 10,000 on July 1, 2020, and another 10,000 on Oct. 1, 2020 — for a profit of $1.4 million, according to the lawsuits.
York could not be reached for comment, and Brian Brokaw, on behalf of York and the 49ers, declined to comment on any of the details of the lawsuit, including the insider trading allegations. In a statement, a Chegg spokesperson rejected the allegations against the board of directors, describing them as “wholly unfounded.”
“Chegg is actively and resolutely defending against these baseless claims in official court filings,” she said. “Chegg takes academic integrity very seriously and has invested significant resources to protect it such as Honor Shield, a free academic integrity tool, to support educators.”
Brokaw said in a statement that “the 49ers are proud of the work we accomplished with Chegg to provide scholarships for first-generation students.”