For-Profit School Execs Settle Fraud Cases With SEC

Two top executives of ITT Educational Services, the parent of defunct ITT Technical Institute, have settled for $200,000 and $100,000 respectively, thus avoiding a trial that was set to begin July 9. CEO Kevin Modany and former CFO Daniel Fitzpatrick, neither of whom admitted wrongdoing, allegedly deceived investors about late payments and defaults on student loans backed by the company. In 2015, the SEC accused them of making secret payments on delinquent accounts to delay defaults instead of disclosing tens of millions of dollars in impending losses, while assuring investors that the programs were performing well. Because ITT kept the loan programs off its balance sheet, investors did not have direct information. When large numbers of students began defaulting, investors took the company’s word that a collapse wasn’t imminent. In 2014 ITT reported more than $60 million in charges related to its loan programs and its stock tanked. The company ceased operations at all of its ITT Technical Institutes two years later. “Holding individuals accountable – particularly senior executives – is a critical focus of our enforcement program,” said Stephanie Avakian, co-director of the SEC’s division of enforcement, in a statement. “These settlements, entered into on the eve of trial after years of litigation, reflect our commitment to this accountability.”