The stock price of ITT Educational Services plummeted after the Securities and Exchange Commission (SEC) filed fraud charges against the company and its CEO Kevin Modany and COO Daniel Fitzpatrick.
Th shares of the company were trading $2.45 per share, down nearly 40% at the time of this writing, around 3:15 in the afternoon in New York.
Over the past 52 weeks, ITT Educational Services traded between $2.07 and $26.10 per share. The company lost more than 90% of its stock value over the past year.
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ITT Educational Services to fight SEC charges
ITT Educational Services vowed to fight the “unfounded charges” of the SEC. The company said was disappointed by the mistaken decision of bringing an enforcement action against it.
“We vehemently disagree with the SEC’s position and we are confident that the evidence does not support the SEC’s claims. We are eager to have the court clear our reputation that has been unnecessarily endangered by the SEC’s action,” said ITT Educational Services in a statement.
The company emphasized that it has “fully cooperated” with the investigation of the SEC and engaged in extended discussions with the Commission’s Office of the Chief Accountant.
ITT Educational Services said the SEC is taking an issue with its handling and disclosure of complex accounting that occurred several years ago. The company emphasized that it expanded its disclosures to present material information to investors throughout the relevant period.
“The SEC’s disagreement with the company’s reasonable approach to the complex accounting issues at the heart of this matter would have been more appropriately handled in other ways and certainly should never have reached this stage. Unfortunately, the SEC’s Enforcement Division chose to bring this unfair case,” according to ITT Educational Services.
The company expects any regulator to refrain from taking any actions against it, its students and employees until it has a day in court. It is also committed to dedicated necessary resources to defend itself while keeping its highest priority—helping students in their effort to complete their education and obtain work in the chosen field of employment.
SEC allegations against ITT Educational Services
The SEC alleged that ITT Educational Services concealed its poor performance and the forthcoming financial impact of two student loan programs to investors.
ITT Educational Services financially guaranteed the student loan programs known as the “PEAKS” and “CUSO” that provide off-balance sheet loans to its students following the collapse of the private student loan markets. The company provided a guarantee that limited any risk of loss from the student loan programs to attract investors.
The SEC argued emphasized in the lawsuit that the company’s student loan programs performed terribly by 2012, which triggered ITT Educational Services’ guarantee obligations and started to increase.
According to the SEC, ITT Educational Services implemented different measures to show that its exposure to the student loans programs was limited instead of disclosing to investors that it estimated paying hundreds of millions of dollars on its guarantees.
Andrew Ceresney, director, division of enforcement of the SEC said, “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.”
Ceresney added that Modany and Fitzpatrick engineered a campaign of deception and half-truths instead of acting as responsible stewards for investors.