The fraud case has been settled against ITT Technical Institute, but the Securities Exchange Commission continues to pursue top executives from the college for deceiving investors about the high rates of late payments and the number of defaults on student loans backed by the company.
ITT executives assured investors in conference calls that the programs were performing well when in fact the company was making secret payments on the delinquent accounts to delay defaults, according to the complaint.
ITT Technical Institute ended its operations in September, shutting down 137 campuses after the U.S. Department of Education cut off access to federal loans and grants and threatened to pull the school’s accreditation amid mounting lawsuits and investigations. The company filed for bankruptcy protection, leaving 35,000 students with worthless degrees and many with high interest student loan debt.
The student loan programs are what is at the heart of the SEC lawsuit. ITT created two in-house student loan programs. To get investors to finance the programs, the company offered a guarantee to limit the risk of students not repaying the debt. According to the complaint, if a certain percentage of loans defaulted, the company agreed to cover the principal, interest and fees.
The SEC said investors did not have accurate information about the performance of the debt because ITT kept the loan programs off its balance sheets. Regulators said executives failed to tell investors that the company was facing $30 million in guarantee obligation payments at the end of 2012 and used accounting tricks to cover up the numbers.
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