ITT CEO Resigns as Investigation into For-Profit College's Top Executives Intensifies
Schubert Jonckheer & Kolbe is actively investigating alleged misconduct by ITT Educational Services, Inc’s top executives, including claims that ITT’s officers and directors breached their fiduciary duties to the company.
The Schubert firm’s investigation concerns whether ITT’s officers and directors failed to disclose certain risks related to their student lending program, including exposure to state and federal government lawsuits.
ITT is a for-profit college, which has approximately 61,000 students on 147 campuses. It is heavily dependent on student loans to finance educational services, and the company created risk-sharing vehicles to finance its loans.
For example, under its PEAKS program, a third-party lender would loan ITT students money for tuition expenses. The third-party lender would sell those loans to a trust. The trust in turn sold its securities to investors. The assets of the trust, including its student loans, served as collateral for and were intended to be the principal source of repayment of the securities. As a credit enhancement to investors in the trust, ITT guaranteed payment of principal, interest, and certain call premiums.
State and federal lawsuits allege that ITT was required to fully disclose these guarantees to its own shareholders and should have disclose these guarantees on its balance sheet. ITT’s officers and directors allegedly failed to ensure that the risk the company incurred in making guarantees for the PEAKS program were properly accounted for and disclosed to the public.
On February 22, 2013, ITT announced that it had received an SEC subpoena requiring it to produce documents and information on how it accounted for those guarantees. In response to this announcement, ITT’s stock price dropped 17%.
On May 22, 2014, ITT disclosed that, due to the “uncertainties” related to the accounting treatment of the PEAKS Trust and the company's guarantee obligations under it, it was withdrawing its 2014 forecasts. In addition, questions regarding the accounting treatment of the PEAKS trust caused the company to delay filing its 2013 Form 10-K and its First Quarter 2014 Form 10-Q with the SEC, and it may face restricted government funding as a result. ITT’s share price dropped approximately 25% following this announcement.
On August 4, 2014, ITT announced that its CEO, Kevin M. Modany, would resign from the Company, effective February 4, 2015.
ITT shareholders may have the option to pursue a shareholder derivative action through which shareholders may hold insider wrongdoers accountable for their actions, prevent future misconduct, and bring long-term value back to the company.
If you currently own ITT stock and wish to obtain additional information about the investigation and your legal rights, please fill out our form at right or contact Willem Jonckheer by phone at (415) 788-4220.