Education and training services provider Vocation Ltd (ASX: VET) could be facing more problems after litigation funder Bentham IMF Ltd (ASX: IMF) announced it would be funding a class action against the company.
Vocation's shares have plummeted more than 67% in just the past month, after the company announced that the Victorian government was withholding $19.6 million in funding following a review.
Just two months ago, shares were trading at around 52- week highs of $3.40.
The problem for Vocation is that the company had consistently maintained the line that any findings from the review would be immaterial. Add in nothing was said when the company raised $74 million in a capital raising in September, and investors may have the right to feel agrieved.
Bentham IMF says the claim relates to alleged misleading or deceptive conduct and alleged breaches by Vocation of its continuous disclosure obligations at Vocation's Registered Training Organisations.
Two weeks ago, in an extraordinary move, the company's largest shareholder and founder Brett Whitford called for Vocation's CEO Mark Hutchison to be sacked. Mr Whitford holds 8.9% of the company, and is likely to join the reported more than 30 institutions who are reported to have signed up for the class action.
Fund managers have been dumping stock since the share price crash, including Platypus Asset Management and Greencape Capital.
And it seems the bad news keeps leaking out of Vocation. The Australian reported two weeks ago that the company is embroiled in a previously undisclosed investigation by the federal skills regulator, and that the qualifications of 2,400 students had been revoked in a separate issue.
Navitas Limited (ASX: NVT) CEO Rod Jones has warned that Vocation's issues will result in reputational damage to other providers in the sector. The Age reports that there are hundreds of private operators in the sector, which attracts around $9 billion in taxpayer funding.
It remains to be seen whether the government will take a closer look at the sector now, with a view to cutting back funding, or imposing stricter regulation.
It's a clear warning to investors in industries that are heavily reliant on government funding, not limited to child care, health care and education.
