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U.S. District Judge P. Casey Pitts of the Northern District of California has granted final approval to a $55 million class action settlement resolving investor claims against educational technology company Chegg Inc. The claims alleged that the company misled shareholders by attributing its pandemic-era growth to a sustainable business model, when in fact, the surge was driven by widespread academic cheating on the platform.

The class action was led by the Pompano Beach Police and Firefighters’ Retirement System and KBC Asset Management NV, who asserted that Chegg and its executives were aware the platform was being used for dishonest academic purposes and that post-pandemic shifts back to in-person learning would significantly impact earnings—a fact allegedly concealed from investors.

Judge Pitts called the Chegg $55M cheating settlement a “reasonable compromise,” noting it is more than five times the median recovery for similar securities class actions between 2014 and 2022. The amount also represents approximately one-third of Chegg’s market capitalization and twelve times its net cash value.

Plaintiffs estimated potential trial damages could have ranged between $900 million and $1.4 billion, but acknowledged risks in pursuing litigation further given the strength of the defense’s arguments.

Chegg experienced explosive growth during the pandemic, with subscriptions jumping from 3.9 million in 2019 to 6.6 million in 2020, and revenue climbing from $411 million to over $640 million. Despite investor concerns and faculty complaints from over 100 universities about academic dishonesty, Chegg maintained that growth was due to business factors like password-sharing crackdowns.

When students returned to physical classrooms, Chegg’s stock plummeted by nearly 50% in one day, erasing $4 billion in shareholder value.

The court also approved class counsel's request for $13.8 million in attorney fees (25% of the fund) and $261,602 in litigation expenses. Lead plaintiffs were awarded $3,500 (KBC) and $1,400 (Pompano Beach Police and Firefighters) for their service.

There were no objections from Chegg’s insurers, who have already deposited the full settlement amount into escrow.

Legal Representation:

• Plaintiffs: Saxena White PA, Rossman Legal, and Motley Rice LLC

• Defendants (Chegg): Cooley LLP

Case Information:
Steven Leventhal v. Chegg Inc. et al., Case No. 5:21-cv-09953, U.S. District Court, Northern District of California