U.S. hedge fund manager Tilson bets against K12, stock dips

NEW YORK Tue Sep 17, 2013 5:59pm EDT

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NEW YORK (Reuters) - Hedge fund manager Whitney Tilson said on Tuesday he is betting against online education giant K12 Inc, pushing the shares lower.

"This is a growth story that is about to crash," Tilson, who runs Kase Capital, said at the Value Investing Congress where he spoke publicly about his short bet for the first time.

Tilson has been short the stock, where he borrowed the shares in the hopes of repaying the loan for less after the shares drop, for roughly a year. The bet has clearly weighed on his returns as the company's stock price has shot up 70 percent this year.

Tilson criticized the company's aggressive recruitment policies, saying that even students who are unsuited to online learning and might perform better in a bricks-and-mortar school are signed up.

"They will do business with anyone who has a pulse," Tilson told Reuters after making his case against the company with a power point presentation.

K12 did not immediately return an email seeking comment.

He also said K12 might face obstacles if tax regulators were to investigate how the for profit-company is making money on charter schools that are generally non-profit operations. "If the IRS starts to challenge them on this, it is game over," he said, referring to the Internal Revenue Service.

The stock price closed the day off 0.71 percent at $34.90 but had fallen as low as $33.75 when Tilson was speaking.

Looking ahead, Tilson said the stock price might fall further. "There are a lot of warning flags and the company could miss earnings guidance soon," he said.

But Tilson's position is a small one, roughly 3.7 percent of his roughly $70 million dollar fund, he said.

"I've been short this for a year but I only pulled this together for a public presentation now. This is not like Bill Ackman making his public presentation for his $1 billion short against Herbalife," Tilson said of his college friend who runs $11 billion Pershing Square Capital Management. "This is tiny."

(Reporting by Svea Herbst-Bayliss; Editing by Leslie Gevirtz)

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