SEC Charges ITT Educational Services With Fraud

mpicpp writes with news that ITT Educational Services, the company that operates for-profit college ITT Tech, has been charged with fraud over its student loan programs. The U.S. Securities and Exchange Commission accuses the company of concealing poor financial performance from its investors. ITT formed both of these student loan programs, known as the "PEAKS" and "CUSO" programs, to provide off-balance sheet loans for ITT’s students following the collapse of the private student loan market. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.

According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Indiana, the underlying loan pools had performed so abysmally by 2012 that ITT’s guarantee obligations were triggered and began to balloon. Rather than disclosing to its investors that it projected paying hundreds of millions of dollars on its guarantees, ITT and its management took a variety of actions to create the appearance that ITT’s exposure to these programs was much more limited.

Comments

Re:Why is ITT even eligible for federal student lo

[Minupla]

These weren't federal loans, as far as I can tell from RTFA. In short the allegations say that this is what happened:

1) The private loan market cratered
2) ITT said, "No problem we'll sell loans to ourselves, backed by investors, and we'll guarantee those loans" (see equity backed mortgages, for a similar case study)
3) Lots of loans started to default
4) ITT did math and said "Oh Nos", if we pay off those guarantees it's going to look bad. I know, let's pay those loans ourselves for a bit instead, I'm sure they will start paying again.
5) They didn't start paying again
6) They had to come clean to investors, stock tanks
6) They got caught in the coverup
7) SEC sues, stock tanks somemore
8) (profit)*-1

Min