Chegg Law Suit Moves Ahead, Seeks Information
Plus, Chegg on TV. Plus, are textbook publishers to blame for cheating?
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Investor Lawsuit Against Chegg Moves Along, Plus a Help Request
Class representative plaintiffs have been named as an investor legal challenge against Chegg is moving ahead. I’d written about these legal challenges, and maybe this one specifically (see Issue 83), in the past.
Either way, the skinny is that investors are claiming that, as Chegg’s stock soared during the pandemic, Chegg didn’t mention that its core business model was servicing academic misconduct (see Issue 162). And that because the business bounce was based on cheating, it was possible and even likely that it would not continue. The investors say they were misled.
The law firm handling the case has helpfully posted a summary along with the legal documents.
I think the case is important because it appears to say explicitly that Chegg’s business model is cheating and not tutoring or peer-based learning or student-centered learning or other marketing nonsense. From the lawyers:
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
In a separate statement, the lawyers are even more direct. It’s long, sorry. But it’s worth reading:
The suit alleges Chegg executives knew Chegg’s record subscriber growth and financial success during the pandemic was not sustainable and would not outlive the pandemic, as Chegg was predominately used by students to cheat. Still, the Company told investors the opposite and that the growth was the result of students craving Chegg’s legitimate online educational services that their schools supposedly did not provide. As Chegg CEO Rosensweig told investors during an October 2020 earnings call, “millions of students around the world are now asking for a better return for their education and demanding” “adaptive, affordable, personalized, and tailored” online assistance, putting Chegg “in a unique position to impact the future of the higher education ecosystem.”
The suit also alleges that Chegg misled investors by emphasizing the company’s purported commitment to preventing cheating and maintaining the “highest ethical standards” and “responsible business practices,” when, in reality, the opposite was true—Chegg knew that its platform was overwhelmingly used to cheat, but refused to implement simple and obvious measures to curb cheating because it did not want to alienate its core user base. As alleged in the suit, Chegg only took steps to limit cheating when forced to do so, and even then, did only the bare minimum.
Chegg knew their services were primary cheating vehicles. I mean Forbes literally ran a print edition cover story on Chegg cheating. But not only did Chegg not do what they could easily have done to limit it (see Issue 38 for just one example), they have since made it even easier to cheat on their platform (see Issue 152).
Then there is this, which is new to me - also from the lawyers:
While investors sustained losses, the suit describes how several Chegg officers and directors realized $95 million in insider trading proceedings, including nearly $50 million by the Company’s CEO, Dan Rosensweig, and the Company itself capitalized on the fraud by raising more than $1 billion in a February 2021 secondary offering at a fraud inflated price of over $100 per share.
I’m no lawyer but that sounds bad.
Chegg Legal Challenge Help Request
Regarding the above legal challenge, friends of “The Cheat Sheet” have asked me to share this:
A securities fraud class action lawsuit against Chegg is in its beginning stages. In September 2022, the Court appointed a pension fund for firefighters and police officers to serve as a lead plaintiff. The suit generally asserts that Chegg and its executives violated the U.S. federal securities laws by issuing false and materially misleading statements attributing the Company’s record revenues during the pandemic to students’ legitimate uses of the Chegg platform. As alleged in the action, the Company’s record subscriber growth and financial success during the pandemic was not driven by legitimate and sustainable online educational services, but was rather fueled by rampant student cheating during remote schooling.
The suit seeks to hold Chegg and its management accountable for alleged fraudulent misrepresentations. Chegg announced subscriber growth had slowed dramatically after the first quarter in which students widely returned to school. This resulted in the price of Chegg stock falling nearly 50% – wiping out over $4.3 billion in market capitalization in a single day and greatly damaging those who purchased the company’s shares on the open market in reliance on Chegg’s public representations.
Christian Moriarty and Camilla Roberts are university professors and experts in the field of academic integrity. They are working with the Court-appointed lead counsel and want to hear about your experiences with Chegg. They are interested in learning whether, in your own experience, Chegg was predominately used by students for legitimate educational purposes. They are also interested in learning details of how incidents of cheating spiked during distance learning and the pandemic, how Chegg may have played a role in the increased cheating, and how Chegg responded to such incidents.
If you'd like to share your experiences, please contact email@example.com
Chegg’s CFO on Yahoo! Money
Days after issuing its required earnings reports (see Issue 162), Chegg’s CFO was interviewed on Yahoo! Money for six minutes to discuss the money his company was taking in. Not one word about cheating, of course.
The CFO talks about the “great momentum” in the Chegg study pack, the subscription service that allows students to get answers to assignment and test questions on demand. Something he says:
has had a very nice impact not just on our revenue growth but our earnings
Personally, I like where the CFO says the company:
embarked upon offering subscription services, homework help services, that were exactly how students wanted
He means with the answers. Or just the answers. I bet that is precisely “exactly how students wanted” their “homework help.”
The gag-worthy Yahoo! Money interview with Chegg was helpfully circulated in the ASU/GSV newsletter. GSV, it should be noted, invests in three well-established cheating providers: Course Hero, Photomath and Quillbot, which is owned by Course Hero. So there’s that.
Textbook Publishers and Academic Misconduct?
Back in September, Shawntell Kroese at the University of Nebraska-Lincoln wrote an article for Inside Sources on the links between textbook publishing and cheating.
Many academic institutions across the country are overly reliant on pre-made test banks and outsourced homework questions that have risen in prominence due largely to the major publishing companies. Given the expansive use of these prepared test questions by college professors, it is fair to wonder if publishers share some of the responsibility for the recent cheating trends.
That’s largely true. If instructors are using test-bank questions, those questions are unquestionably compromised - available, with answers, from an incalculable library of providers. Some of those are as simple as message boards or search engines. Others are sophisticated cheating profiteers - selling the answers outright for their own profit. That’s the basis of the Pearson/Chegg lawsuit (see Issue 55).
Kroese continues that the ubiquity of answers to test-bank questions has:
caused faculty members and administrators at many colleges and universities to express their frustration with the availability of homework and test answers online.
Unfortunately, faculty and administrators too often blame their students or these online learning platforms. However, more attention should be placed on the current shortcuts in creating these tests and homework questions.
OK - so, no.
First, there are two - let’s say three - very big intermediate steps between a textbook publisher making practice or test questions and cheating. Eliminating any one of them would solve this particular problem.
One, obviously, professors don’t have to use publisher test questions. Two, companies could stop stealing and selling them or, in the case of free sharing sites, move to limit the practice. The materials are usually copyright protected after all. Or three, students should not be using Chegg or Google or Reddit to search for answers to test questions. That’s cheating, regardless of who wrote the questions.
Putting that entire chain of events on the textbook publishers seems off - like blaming car makers for car theft. Or like saying musicians “share some of the responsibility” for music piracy. I mean, if they would just stop making the music and putting it out there … brilliant.
Further, describing the companies that share or sell questions and answers as “online learning platforms,” as the author did - that’s a tell. That’s what all cheating companies want you to call them.
It’s an obvious tell because earlier in the article, Kroese lists a few places students can find the answers to test-bank questions - Google, Reddit and YouTube. “Online learning platforms” indeed. She never mentions Chegg or Course Hero or the other -billion-dollar cheating companies. Though she is quick to point out how much money textbook publishers make.
It’s enough to make you wonder point the author was really trying to make. I think I know.