By Jenna Greene, From The National Law Journal

ITT Educational Services’ chief executive and chief financial officer named as the U.S. Securities and Exchange Commission on Tuesday brought fraud charges against for-profit college chain ITT Educational Services Inc. and its top executives, alleging they hid the “extraordinary failure” of two student-loan programs from investors.

According to the SEC complaint filed in Indiana federal court, the company financially guaranteed the two private loan programs for ITT students. After an “extremely high” number of students defaulted, ITT found itself on the hook for more than $100 million in payments.

Rather than admit this to shareholders and company auditors, ITT, according to the SEC, “engaged in a series of deceptive acts to hide the poor performance of the student loan programs and their financial impact on ITT.”

ITT and the executives have picked a trio of prominent Washington lawyers to fight the charges.

Gibson, Dunn & Crutcher partner Brian Lane (left), former director of the SEC’s Division of Corporation Finance, represents ITT. The company’s chief executive, Kevin Modany, turned to Jones Day partner Joan McKown, previously chief counsel of the SEC Enforcement Division. Daniel Fitzpatrick, the chief financial officer, hired Fredric Firestone, head of McDermott Will & Emery’s securities defense group and a former SEC Enforcement Division associate director.

Firestone said Fitzpatrick is “an honest and decent man, a man of integrity. We do not think he did anything wrong and look forward to our day in court.”

Lane and McKown were not immediately reached for comment.

The SEC is seeking disgorgement and civil penalties. The agency also wants the executives barred from serving as directors of any public company, and to return their bonuses and stock sale profits.

Indiana-based ITT has more than 55,000 students enrolled in online classes or at one of its 130 campuses.

The company is “highly dependent on a steady flow of students capable of paying its fees,” SEC Enforcement Division director Andrew Ceresney said in a conference call with reporters on Tuesday. ITT executives, Ceresney said, created “a sophisticated scheme designed to mislead investors,” including making minimum payments on behalf of student borrowers who were behind on what they owed.

ITT also faces a suit by the Consumer Financial Protection Bureau, which accused the company of predatory student lending in February 2014. Ceresney said the SEC suit focuses on harm to investors; the CFPB case focuses on harm to consumers. “We’ve generally been in touch with the CFPB, but this investigation was conducted primarily by the SEC,” he said.

The SEC investigation team included Zachary Carlyle, Jason Casey and Anne Romero, with assistance from Judy Bizu.

The litigation will be led by Carlyle, Nicholas Heinke and Polly Atkinson.

IMAGE: U.S. Securities and Exchange Commission building in Washington, D.C.

Photo: Diego M. Radzinschi/NLJ

For more on this story go to: http://www.nationallawjournal.com/id=1202726180104/SEC-Brings-Fraud-Case-Against-ForProfit-College-Two-Executives#ixzz3a2QFsH3W