Education Department to Monitor ITT Educational Services in Wake of Fraud Charges

Finance
Posted By Abby Perkins on June 10, 2015 at 9:25 am
Education Department to Monitor ITT Educational Services in Wake of Fraud Charges

In May of 2015, the Securities and Exchange Commission filed charges against ITT Educational Services, as well as its CEO and CFO. The SEC claims that ITT concealed the company’s poor performance from its investors, and also failed to inform investors about the impending failure of two loan programs that were guaranteed by ITT. In the wake of these charges, the U.S. Department of Education has increased its monitoring of ITT.

What the charges claim

ITT Educational Services created two loan programs to provide financial aid to students, after the private student loan market dried up during the recession. ITT also guaranteed these loans, telling investors that if the default rate became too high, ITT would cover the loans to decrease the risk to investors.

The SEC’s complaint alleges that, instead of notifying investors of climbing default rates and covering defaulted loans, ITT made payments on student accounts to prevent default and concealed this practice from its investors. These payments temporarily kept tens of millions of dollars of guarantee payments from becoming due. ITT executives also allegedly concealed information from auditors and participated in dishonest bookkeeping tactics designed to hide liabilities from auditors and investors.

These charges come in addition to a 2014 lawsuit from the U.S. Consumer Financial Protection Bureau, which claims that ITT participated in predatory lending practices by pushing students into expensive private loans, even if they were likely to default.

A closer eye

While the SEC is concerned about dishonesty with ITT investors, the U.S. Department of Education is concerned about dishonesty with students. ITT is now required to provide cash-flow statements every two weeks, and must also provide detailed information on other financial transactions, school closures, and changes to programs. The Education Department is also requiring ITT to provide a monthly roster of enrolled students, with details about each student’s graduation date, enrollment status and contact information. This will allow the Department of Education to closely monitor the company’s financial status and better protect enrolled students.

The cost to ITT

In addition to any restitution and punishments these lawsuits may place on ITT, there are other consequences to their alleged dishonesty. For example, California’s Department of Veterans Affairs has suspended approval for new GI Bill funds to all 15 ITT Technical Institute campuses in the state, and are threatening to pull all currently enrolled students if ITT does not provide the proper paperwork to the SEC. Senator Dick Durban (D-IL) is also calling for more scrutiny of ITT and other for-profit institutions.

It’s clear that the predatory marketing and lending practices of some for-profit schools are coming to light, and various government agencies and legislatures are starting to crack down. What’s not so clear? How ITT Educational Services will recover from a 95% decrease in stock price since January of 2014, or how this will affect currently enrolled students.

Abby Perkins
Email | Twitter | LinkedIn Abby Perkins attended Davidson College, where she graduated with a B.A. and Honors in English and wrote for The Davidsonian newspaper. Abby's work has been featured on Yahoo! Finance and Entrepreneur. As Managing Editor, Abby is a regular contributor to the GoodCall newsroom, covering education and financial aid.

You May Also Like