"The allegations of untrue statements primarily concern enrolment numbers and completion rates pertaining to the proposed acquisition of Quantum Education Group by Intueri upon IPO," the Australian company said.
The offer documents were "subject to a detailed pre-vetting exercise by the Financial Markets Authority and New Zealand (Stock) Exchange over a period exceeding a month before they were approved for release," Arowana said. "Neither the FMA nor the NZX reported any adverse findings."
What Arowana did not say is that it is not the responsibility of either the FMA or the NZX to verify statements in any offer documents. That responsibility lies with the float's promoters, in this case, Arowana, its directors and Intueri's directors.
Arowana said that "furthermore, a group of experienced legal, accounting and investment banking advisers was engaged and formulated a comprehensive due diligence system under which a thorough due diligence process was carried out."
Arowana's lengthy rebuttal includes the facts that the FMA and the Serious Fraud Office investigated Intueri between 2015 and April 2017 and that the Tertiary Education Commission had commissioned "a big four accounting firm to perform a forensic investigation into Quantum and Intueri and concluded with the release of a TEC report in December 2017."
"No findings as to any illegality were made by any of these regulatory bodies," it said.
What Arowana didn't say was that TEC said in December 2017 that Quantum "deliberately took advantage of reporting procedures to enable the business to keep millions of dollars in student fees."
TEC said Quantum had taken steps to retain newly enrolled students on its books until the students were no longer entitled to a fees refund but before Quantum had to officially record their enrolment.
"That meant Quantum could keep the fees, which were often paid with student loans," TEC said at the time.
"This wasn't illegal but we need to note it was entirely unacceptable," it said, adding that it had acted to remove the loophole that Quantum had exploited.
The legal action claims that Intueri, Arowana and their directors made misleading statements in the prospectus and investment statement about students enrolled with Quantum Education Group, a business Intueri bought for $53 million with the proceeds from the float.
The offer documents had said that Quantum had 4,628 students enrolled in 2013 and that Intueri including Quantum had 5,950 students enrolled.
They also said that Intueri's domestic student course completion rates in 2012 were 88 per cent and that Quantum had achieved a 91 per cent completion rate in 2012 "from a 'second chance learner' student demographic that typically has worse than average statistics, reflecting Quantum Education's sophisticated student management system and supported distance learning model."
The documents also said that an important factor in Intueri's academic outcomes was Quantum's "sophisticated pastoral care and student management system."
In fact, of the 4,628 Quantum enrolments in 2013, 2,877 were students who enrolled, used government-provided student loans to pay for the course and then withdrew either before starting or very early in the course.
However, Quantum reported only 1,741 enrolments to the TEC and the percentage success rates in the offer documents were based on this figure, not the total enrolments.
This was despite the documents saying that "course completed rates are a key metric in relation to securing direct government funding."
The float allowed Arowana to sell down its stake in Intueri to 24.9 per cent for estimated net cash proceeds of A$94.7m ($96.8m), out of which Chin was paid a A$13.3m bonus.
Arowana's rebuttal said that both it and Chin had retained "the maximum allowable shareholding possible subsequent to the IPO of 24.99 per cent, notwithstanding that the IPO was oversubscribed."
"Further, Kevin Chin personally invested circa A$750,000 in the IPO, having been scaled back from an initial order of over A$1m. Neither Arowana nor Kevin Chin sold any shares post-IPO."
The offer documents had said Arowana would sell up to 85 million shares, but it ended up selling just over 75 million. The $2.35 float price was at the bottom of the indicative range, which went as high at $2.75.
Intueri also asked for and was granted an NZX waiver allowing it to list on the exchange with just 330 shareholders rather than the minimum 500 normally required under the listing rules.
