U.S. SEC settles lawsuit against ex-ITT Educational Services executives

ITT Educational Services

06/07/2018 23:36

By Nate Raymond
    July 6 (Reuters) - The U.S. Securities and Exchange
Commission on Friday said it settled a lawsuit against two
former ITT Educational Services Inc  ESINQ.PK  executives
accused of hiding the defunct for-profit college operator's
actual financial condition from investors.
    The settlements with former Chief Executive Officer Kevin
Modany and former Chief Financial Officer Daniel Fitzpatrick
came ahead of a trial scheduled for Monday in federal court in
Indianapolis, Indiana.
    The deal came after the SEC's commissioners took the rare
step last year of rejecting an earlier proposed settlement
negotiated between the defendants and the agency's staff.
    Under Friday's settlements, both men agreed to be barred
from serving as officers and directors of publicly-traded
companies for five years. Modany and Fitzpatrick will also pay
penalties of $200,000 and $100,000, respectively.
    Modany and Fitzpatrick settled the lawsuit without admitting
or denying the SEC's claims that they acted as so-called
"control persons" for ITT's securities violations.
    David Miller, Modany's lawyer, and Fredric Firestone,
Fitzpatrick's lawyer, said both men were pleased to put the case
behind them.
    In 2015, the SEC sued Carmel, Indiana-based ITT, Modany and
Fitzpatrick and accused them of fraudulently concealing from its
investors potentially huge losses in two student loan programs
that the for-profit college operator had guaranteed. 
    The SEC said that by 2012, the loans made through those
programs were performing abysmally, with high default rates.
    But instead of disclosing that it expected to owe hundreds
of millions of dollars because its guarantee obligations had
been triggered, ITT and its management took steps to make its
exposure to the programs appear limited, the SEC said.
    In 2016, the U.S. Department of Education banned ITT from
enrolling new students who receive federal aid.
    ITT subsequently announced it would shut its 137 technical
college campuses in 39 states, which affected about 35,000
students. It filed for bankruptcy in September 2016.
    The SEC settled its case against ITT in July 2017, after
reaching agreements-in-principle two months earlier to resolve
the charges against Modany and Fitzpatrick. 
    But in August 2017, SEC attorneys informed the court that
the agency's commissioners had rejected the proposed settlements
with Modany and Fitzpatrick.
    Democratic Senators Dick Durbin of Illinois and Sherrod
Brown of Ohio wrote to SEC Chairman Jay Clayton in June 2017
urging the SEC to permanently bar Modany from acting as an
officer of a publicly traded company and to seek tough penalties
against him and Fitzpatrick.
    The case is SEC v. ITT Educational Services Inc et al, U.S.
District Court, Southern District of Indiana, No. 15-00758.

 (Reporting by Nate Raymond in Boston
Editing by Tom Brown)
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Messaging: nate.raymond.thomsonreuters.com@reuters.net; Twitter
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