Dive Brief:
- The Securities and Exchange Commission has charged ITT Educational Services Inc., along with its CEO and CFO, with fraud based on evidence that they misled investors about the major financial consequences of guaranteeing two failing student loan programs.
- Buzzfeed reports the news of the charges caused ITT’s stock to fall 36%, and it is now down 98% from its high in 2008.
- An ongoing lawsuit by the Consumer Financial Protection Bureau contends that ITT operated a predatory lending scheme, according to the article.
Dive Insight:
When students had trouble finding loans in the private market, ITT created two student loan programs, bundling the debt and selling it as securities to investors. ITT guaranteed the debt, telling investors if too many students defaulted, it would pay up, limiting their risk. ITT’s obligations started to balloon in 2012 but it hid this from investors, according to the SEC. If the U.S. Department of Education decides to hold back student financial aid dollars as an extra layer of oversight in light of recent events, ITT could fall just like Corinthian did last summer.
