San Francisco 49ers CEO Jed York and others are facing lawsuits alleging insider trading at Chegg Inc., a Santa Clara-based online education platform accused of aiding student cheating during the pandemic.
Consolidated in the U.S. District Court for Northern California, the lawsuits also claim that York, Chegg CEO Dan Rosensweig, and six others breached their fiduciary duties to shareholders.
The lawsuits contend that York made insider stock deals using “nonpublic information,” revealing his involvement in the scheme.
In 2006, Chegg was founded and went public on the New York Stock Exchange in 2013. York joined its board of directors that same year when the initial public offering raised $187.5 million at $12.50 per share.
In 2019, Chegg and the 49ers established a partnership to fund scholarships for first-generation college students in the Bay Area. Chegg would donate $500 to the scholarship fund for every 49ers first down at Levi’s Stadium. At the end of the season, five college students were awarded $20,000 each.
During the COVID-19 pandemic in 2020, Chegg experienced a surge in subscribers due to school closures and remote learning. Subscribers doubled by the end of 2020, and Chegg’s revenues increased by nearly 50% from Q1 2020 to Q2 2021, according to shareholders Rak Joon Choi and Joseph Robinson.
The lawsuits argue that Chegg’s platform facilitated academic cheating, and the company failed to acknowledge that revenue would decline as students returned to in-person classes.
The lawsuits also accuse Chegg’s executives and directors of deceiving investors by downplaying the extent of cheating, claiming it was limited to isolated cases.
Additionally, the executives and directors are accused of breaching fiduciary duties by conducting a secondary public offering in February 2021, benefiting from inflated stock prices resulting from “false and misleading statements.” The offering garnered $1.09 billion.
During the period of inflated stock prices, Rosenweig sold 552,000 shares of stock, earning a profit of $48.8 million. York sold 20,000 shares, earning a profit of $1.4 million, according to the lawsuits.
Jed York and the 49ers declined to comment, and a Chegg spokesperson rejected the allegations against the board of directors, calling them baseless. The spokesperson emphasized Chegg’s commitment to academic integrity and mentioned the implementation of tools like Honor Shield.
The 49ers expressed pride in their collaboration with Chegg to provide scholarships for first-generation students, according to a statement by Brian Brokaw.