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U.S. BUSINESS NEWS |
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| July 21, 2003 |
Dow Jones WebReprint
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Leading the News:
FBI Investigates If University Stole
Trade Secrets
By DANIEL GOLDEN
Staff Reporter of
THE WALL STREET JOURNAL
The Federal Bureau of Investigation has conducted a preliminary
investigation of allegations that the University of Phoenix, the nation's
largest for-profit university, stole trade secrets from its former
testing-software provider.
The university is a wholly owned subsidiary of Apollo Group Inc., a
Phoenix-based education concern.
Jan Caldwell, a special agent in the FBI's San Diego office, said no
charges have been filed as a result of the investigation into the
allegations by Chariot Software Group, a closely held San
Diego company that built and maintained the university's online system for
placement testing of newly enrolled students for several years. Chariot
has told the FBI that the university administrators supplied high-level
access passwords for its proprietary system to another vendor, which then
imitated Chariot's system in a supposed redesign for the university.
"The investigation is pretty well concluded, but there might be some
tail-end things going on," Ms. Caldwell said. She declined to speculate on
what the outcome would be.
Kenda Gonzales, Apollo's chief financial officer, denied Chariot's
allegations and said no one at the university, or Apollo, had access to
Chariot's proprietary software code. They had access only to the content
of the tests, which was Apollo's property, she said, adding that the FBI
hasn't contacted Apollo.
George Madden, Chariot's chief executive, said in an interview that its
relationship with the university soured after a contentious May 2001
meeting with an Apollo executive to discuss a possible investment in or
purchase of Chariot by Apollo. After Chariot's $10,000-a-month contract
with the university expired in September 2002, the university replaced it
with another vendor, closely held Phoenix-based Momentum Interactive.
Mr. Madden said three University of Phoenix administrators had access
to Chariot's proprietary code. An investigation by Chariot, he said, found
Momentum used that access to copy and modify Chariot's code to develop a
replacement system that the university now uses.
He said the replacement system developed by Momentum directed
University of Phoenix students to test-question illustrations contained in
Chariot's servers -- even after the Chariot contract expired. As a result,
Apollo offered a $2,000 settlement to Chariot, which the software vendor
rejected, Mr. Madden said. Ms. Gonzales of Apollo confirmed that a
settlement was offered but said she couldn't recall the amount.
Allan Henry, a Momentum partner and co-founder, declined to comment.
Momentum changed its name to Veleo last month.
William Gore, chief of criminal investigations for the San Diego
district attorney's office, said he is familiar with the allegations and
may review them if the FBI takes no action.
Apollo's enrollment, revenue, earnings and share price have all climbed
in recent years. It had nearly 190,000 online and so-called
bricks-and-mortar students as of May 31, primarily at the University of
Phoenix, up from 85,000 in 1999.
Apollo's net income for its fiscal third quarter, ended May 31, rose
46% to $74.3 million, from $50.8 million in the year-earlier quarter.
Revenue increased 32% to $364.2 million from $276.3 million. In recent
weeks, its share price has hovered around $65, double a year ago.
At 4 p.m. Friday on the Nasdaq Stock Market, Apollo Group's shares were
up $1.48, to $64.15.
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