The Securities and Exchange Commission (SEC) today announced fraud charges against ITT Educational Services Inc., its chief executive officer Kevin Modany, and its chief financial officer Daniel Fitzpatrick.
The SEC’s Federal Court Complaint asserts that the ITT Educational, a national operator of for-profit colleges and the two executives, fraudulently concealed from ITT’s investors poor performance and negative impending financial impact of two student loan programs that ITT financially guaranteed.
The student loan programs, known as the “PEAKS” and “CUSO” programs provide off-balance sheet loans for ITT’s students. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.
The SEC says that the underlying loan pools had performed poorly and by 2012 and ITT’s guarantee obligations were triggered. Rather than disclosing to its investors the company projected paying hundreds of millions of dollars on its guarantees. In addition, its management took a variety of actions to create the image that ITT’s risk was much more limited.
“Our complaint alleges that ITT’s senior-most executives made numerous material misstatements and omissions in its disclosures to cover up the subpar performance of student loans programs that ITT created and guaranteed,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “Modany and Fitzpatrick should have been responsible stewards for investors but instead, according to our complaint, they engineered a campaign of deception and half-truths that left ITT’s auditors and investors in the dark concerning the company’s mushrooming obligations.”
Jeffrey Newman represents whistleblowers.