Education Alternatives Inc., responding to a lawsuit filed by two investors, defended its accounting practices yesterday, saying it complies with industry standards.
The suit, filed Feb. 23 in federal district court in Minneapolis, charges that the company, which runs nine Baltimore schools, used irregular accounting methods and made unfulfilled promises to boost the company's stock price last fall.
But John T. Golle, EAI's chairman and chief executive, said the company has fully disclosed its accounting practices in Securities and Exchange Commission filings. He said the firm accounts for its revenue in the same manner as any large, publicly held company.
"We believe the charges in the suit to be without merit, and we're going to defend ourselves vigorously," Mr. Golle said, adding that Arthur Andersen & Co. audited the company's financial statements for the year ending June 30, 1993.
The suit, which claims the company misled shareholders who bought EAI stock between Sept. 20, 1993, and Feb. 8, 1994, also names company officers and EAI's accountants. Company officials took advantage of the stock's turn upward to sell thousands of shares and earn six- to seven-figure one-time profits, the suit charges.
In a response Feb. 25, Arthur Andersen called the allegations "preposterous and totally without merit."
The suit claims Mr. Golle announced in October that EAI would take on several more schools to manage, bringing in $100 million in revenues by the end of June. The Board of Estimates approved a contract last fall that will give EAI control of non-instructional services at two more city schools next school year.
"The company's goal of $100 million was set, but I never promised that," Mr. Golle said.
The suit also says EAI and Andersen used "unusual or fraudulent" accounting methods, artificially inflating revenues received from the nine Baltimore schools. EAI counted as revenue the $30 million paid by the school system, though most of that money goes back to the city to pay for teachers and support services.