Two weeks after the scandal-plagued Corinthian Colleges company filed for bankruptcy and closed its remaining schools, another national for-profit college chain is in trouble.
ITT Tech, which has 10 Florida campuses stretching from Hialeah to Pensacola, has been sued by the U.S. Securities and Exchange Commission. The 56-page lawsuit, filed last week, accuses ITT’s top executives of engaging in a “fraudulent scheme” that misled Wall Street about the true state of the company’s finances.
Repeatedly, the SEC says, ITT Chief Executive Officer Kevin Modany and Chief Financial Officer Daniel Fitzpatrick lied to investors — hiding the exploding default rates of private loans issued to ITT students to supplement their federal loans and Pell grants.
Those defaults were putting ITT in a deep financial hole, the SEC says, but company leaders continued to hide the problem in written financial statements, quarterly filings, and conference calls with financial analysts.
In a statement, ITT said it “will fight the SEC’s unjustified charges.”
“We vehemently disagree with the SEC’s position and we are confident that the evidence does not support the SEC’s claims,” the company said.
The SEC accuses ITT of using a variety of dishonest tactics: improperly keeping its troubled student loan portfolio off the company’s financial statements, failing to disclose the true amount these bad loans would cost, and making payments on delinquent student loans to artificially keep them from default (without telling the students, or the investors who had financed the loans).
ITT lied to its own auditors as well, the SEC says.
The SEC is seeking a variety of penalties against ITT. These include having the two executives pay back “any and all ill-gotten gains,” having the school face additional fines and having Modany and Fitzpatrick “permanently prohibited from acting as an officer or director of any public company.”
ITT is a big player in the for-profit college world — an October analysis by JP Morgan pegged ITT as the nation’s 10th-largest for-profit chain, with more than 57,000 students nationally.
But ITT, like some other for-profit colleges, has been accused of enrolling students with a combination of pressure tactics and misrepresentations. The high default rates on ITT’s private student loans were more than just a financial drain for company coffers; they were also a sign that former students were struggling to pay back their heavy debts.
ITT’s trouble with the SEC isn’t necessarily fatal, according to corporate attorney Greg Oehley. In an e-mail to the Herald, Oehley wrote that “a company can absolutely survive being sued by the SEC,” though he said this usually requires a new management team and maybe additional SEC oversight.