Student loans fraud charges have been filed by the Securities and Exchanges Commission against ITT Tech and two of its executives.
According to the New York Post, ITT Technical Institute, CEO Kevin Modany, and CFO Daniel Fitzpatrick are being charged by the SEC for improperly reporting the ballooning student loan payments on two of their student loan programs.
“Modany and Fitzpatrick should have been responsible stewards for investors but instead … 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,” said Andrew Ceresney, the SEC’s director of enforcement.
ITT Tech, based in Carmel, Indiana, created two off-balance-sheet student loans, PEAKS and CUSO, to provide their students with alternative means of student loan support, since the private student loans market dried up, according to documents filed at a federal court in Indiana.
The loan programs performed “so abysmally,” according to the SEC, that ITT Tech started making payments to accounts to avoid default and the responsibility of having to repay millions of dollars in student loans, maintains the SEC.
The SEC also states ITT Tech should have included the PEAKS financial information with their financial information since ITT Tech had financial control over the loan program.
According to the USA Today, by 2012, ITT Tech, which is a for-profit educational facility, had missed some payments, and obligations became due and payable. Instead of advising the shareholders of the situation, Modany and Fitzpatrick began a cover-up as to how severe the student loan situation had actually become. Also, investors were not told of the near-term cash impact, which allowed them to collect on guarantees against projected student loan recoveries from years before, according to the SEC. ITT Tech also deliberately withheld information from the company’s auditor about the student loan situation.
ITT Tech (NYSE:ESI) stock has dropped nearly two-thirds of its value in 2014 since news of the loan debacle came to light.
Nicole Elam, ITT Tech spokesperson, says ITT Tech vehemently disagrees with the SEC’s charges, and also said the SEC’s actions endangers their students.
“First and foremost, ESI worked diligently with multiple leading, independent legal and financial experts before making accounting and disclosure judgments on the third-party loan programs that ended years ago. Second, we acted in good faith in making these judgments on complicated accounting and disclosure issues. We are confident that the evidence does not support the SEC’s claim. We are eager to have the court clear our reputation that has been unnecessarily endangered by the SEC’s action,” the company said.
Modany’s lawyer did not comment. Fitzpatrick’s lawyer, Frederic Firestone, said said “we do not believe he did anything wrong, and we look forward to our day in court.”
[Image courtesy of Bloomberg]