Oct. 28 (Bloomberg) -- Apollo Group Inc., the biggest publicly traded U.S. educator, plunged the most in more than 19 months in New York trading after the company said its accounting is being investigated by the U.S. government.

The Securities and Exchange Commission’s Enforcement Division has begun an informal probe of Apollo’s “revenue recognition,” the Phoenix-based company said yesterday in a statement. The company also expects to pay about $80.5 million in settlement and legal costs for a lawsuit related to its recruitment practices, according to the statement.

Apollo was forced to restate earnings in 2007 because stock-option grants to executives between 1994 and September 2006 were incorrectly dated. Chief Financial Officer Kenda Gonzales and Chief Accounting Officer Dan Bachus resigned in November 2006 following the company’s investigation. Apollo didn’t say when the alleged misstatement of revenue occurred.

“Management has provided little information that would enable investors to assess what the issue can be,” said Ariel Sokol, a Wedbush Securities Inc. analyst in New York who recommends selling the shares, in an e-mail yesterday. “The issue investors need to ask is whether this is company-specific or industry wide.”

Apollo fell $12.91, or 18 percent, to $60.06 at 4:29 p.m. in New York Stock Exchange composite trading. It was the biggest drop since March 28, 2008 when the company’s earnings missed analyst estimates. Before today, Apollo had fallen 4.8 percent in 2009, compared with an 18 percent gain in the Standard & Poor’s 500 Index.

University of Phoenix

Bridgepoint Education Inc., a for-profit provider of college classes that said last month that it was undergoing a federal audit of financial aid, fell $1.42, or 8.7 percent, to $14.87. Grand Canyon Education Inc., also a for-profit educator, fell $1.42, or 7.7 percent, to $17.14.

RBC Capital Markets analyst Robert Wetenhall cut his rating on Apollo Group to “underperform” from “sector perform.” Morgan Stanley analyst Suzanne Stein cut her rating on the company from to “equal weight” from “overweight.”

Apollo runs the University of Phoenix, the nation’s largest private university with 443,000 students, most of whom take classes via the Internet. Federal student aid accounted for about 86 percent of company revenue in fiscal 2009, Apollo said yesterday in a filing. That’s up from 82 percent in fiscal 2008 and 48 percent in fiscal 2001, according to company filings.

Apollo Cooperating

“We don’t know what the focus of the inquiry is,” said Brian Swartz, Apollo’s chief financial officer and treasurer, in a conference call with analysts and investors yesterday. “We believe all of our revenue recognition is appropriate in accordance with GAAP,” he said, referring to the rules and guidelines of Generally Accepted Accounting Principles.

Apollo intends to cooperate fully with the SEC in connection with the inquiry, the statement said. Kevin Callahan, an SEC spokesman, didn’t immediately return a call seeking comment late in the day.

The expected settlement costs are connected to a 2003 federal lawsuit brought by two former employees alleging the company violated a federal ban on paying recruiters on the basis of the number of students enrolled, according to the Apollo statement. Apollo paid $9.8 million in 2004 to the U.S. Department of Education to settle alleged violations of the same rule.

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

Last Updated: October 28, 2009 17:13 EDT