More Federal Scrutiny for Troubled ITT

Federal regulators stepped up their scrutiny of ITT Educational Services this week, Inside Higher Ed reported. The U.S. Securities and Exchange Commission (SEC) on Tuesday filed suit against the for-profit giant, charging ITT and its two top executives with fraud for allegedly concealing massive losses in two company-backed student loan programs.

The commission's complaint, filed in the U.S. District Court in Indianapolis, says ITT attempted to hide the fact that the loan pools underlying two of its programs had performed so badly that the company would be on the hook for losses that came from those financing the loans. Rather than disclose those looming liabilities, the SEC said ITT and its top two executives made numerous misstatements and omissions – in public filings and in calls with investors – to conceal the condition of the student loan programs.

The complaint also states that ITT made payments on delinquent borrowers' accounts to keep their loans from defaulting, which would have triggered "tens of millions of dollars of guarantee payments."

ITT said it "vehemently" disagrees with the SEC's allegations.

"Throughout the relevant time period, we repeatedly expanded our disclosures in an effort to present material information to investors," the company said in a written statement. "We also repeatedly conferred with outside experts, as well as our outside, registered independent auditor. We shared extensive information with these experts to confirm that our accounting treatment was reasonable and appropriate. The company's robust record of consultation and deliberation rebuts any allegation of wrongdoing."

The company is also the target of other federal agencies, The Chronicle of Higher Education reported. The U.S. Education Department placed ITT on heightened cash monitoring, the same penalty that took down Corinthian Colleges by freezing aid payments and causing a cash-flow crisis. Additionally, the Consumer Financial Protection Bureau sued ITT last year, arguing that the for-profit pressured students to take out loans it knew they would be unlikely to pay back.

ITT serves over 50,000 students at some 135 ITT Institute and Daniel Webster College campuses in 39 states and online.

 

Related Links

U.S. Securities and Exchange Commission Press Release

http://www.sec.gov/news/pressrelease/2015-86.html

Inside Higher Ed

https://www.insidehighered.com/news/2015/05/13/sec-charges-itt-fraud-over-student-loan-programs

The Chronicle of Higher Education

http://chronicle.com/blogs/ticker/giant-for-profit-and-executives-hit-with-fraud-charges-for-lying-to-investors/98683