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ITT Educational CEO signals resignation amid stock freefall, federal scrutiny

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After a day of trading in which investors watched their shares lose 46 percent of their value, Carmel-based ITT Educational Services Inc. announced late Monday afternoon that CEO Kevin Modany planned to resign within six months.

Modany, 47, also resigned immediately as director and chairman of the struggling for-profit education firm, which recently has drawn scrutiny from government authorities.

Shares were trading at $7.72 at market close on Monday, down $6.59 from their close on Friday. The stock has lost 77 percent of its value since the beginning of the year.

ITT disclosed late Friday that a deal to sell and lease back company real estate had fallen through. The deal potentially was worth $119 million for the firm.

The failure of the real estate deal was the latest in a string of mishaps this year for ITT. In May, the company reported that new student enrollment was falling by 10 percent or more due to a change in advertising that had backfired. And the company has not finalized its financial reports since the third quarter of 2013 because it may have improperly excluded a private student loan program from its balance sheet.

Modany, who will step down as CEO on or before Feb. 4, has been ITT’s chief executive since April 2007 and chairman of the board since February 2008. He has presided over the company's biggest highs and some of its deepest lows.

During the depths of the recession in 2009, ITT's enrollment skyrocketed as displaced workers rushed into its classrooms to acquire new skills. The company's stock price spent most of 2009 and 2010 above $100 per share.

But during that same period, when banks didn't want to lend to help students pay ITT's high tuition, ITT made fateful decisions that have come back to bite it.

ITT promised to cover losses on a series of loans extended by credit unions. But when unemployment remained high, ITT students defaulted on those loans at record rates--with more than 60 percent failing to repay. ITT estimates it will lose $127 million on those loans.

Those loan programs also drew the scrutiny of the Consumer Financial Protection Bureau which sued ITT in February for what it called "predatory" lending, in which ITT employees allegedly pushed students into high-cost loans likely to end in default. Also, the SEC is looking into ITT's accounting practices. And now the company has said that the U.S. Department of Education may require it to post a letter of credit to continue qualifying for federal student grants and loans.

The company also said on Aug. 1 that it was arranging financing for a letter of credit of as much as $98 million, an increase from $80 million, in case the Education Department demands it.

On Monday, ITT announced that longtime board member John Dean would become executive chairman.

"We thank Kevin for his many contributions to [ITT] since he became CEO in 2007, especially the commitment, dedication and enthusiasm that he brings to the company every single day," Dean said in a prepared statement. "Kevin is a widely respected leader in the industry, and has worked tirelessly for over a decade on behalf of our students and the employers who hire them.

"Over the past several years, he has led the company through a very challenging time in our industry with an unwavering passion and conviction that has served our institutions and their students well."

 

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  • All Washed Up
    Too bad. The guy is 47 and washed up. I hope Modany invested his money wisely as he is now unemployable. His reputation is now well known. If the board had done an adequate background check, he would have never been hired in the first place. Speak to the employees at ITT, whether that be at HQ or the campuses. He is known as an ego maniac who can justify anything if it benefits himself. He is a toxic leader if there ever was one. And hopefully his possie of yes men will soon be right behind him in the unemployment line. ITT needs to find a leader who can rally support and moral and build this back up to being the great company it was under Mr. Rene Champagne. Hopefully this person will under the mission of a company whose mission is education. By the way, great job by IBJ in its coverage of the issues facing ITT!
  • Kevin's new pool
    To bad.... and he just finished what looks to be about a $100,000 pool/cabana/grotto, etc. to his house in Carmel. It looks like something at a resort not a residential property. I wonder if it will be for sale??? :)
  • Amen
    Amen Matt Mason! Modany is megalomaniac!
  • Where is the justice?
    It is about time the Board did something about Kevin Modany. They should be ashamed that they allowed him to literally ruin the lives of thousands of people, from the hundreds of very good employees he fired for his own failure to lead, to the students who have lost credibility of their educational efforts due to his goal to become the rich and powerful 'all mighty ruler' Ask him, and he will brag about his accomplishment of becoming the CEO of a publically traded company before the age of 40. Too bad he has absolutely zero leadership skills. I only hope that carma serves here. He should be forced to take some of the millions he has stolen from the federal taxpayers and pay restitution to the individuals who he has stomped on while driving a company filled with good people and hardworking students into the ground. He is a person without empathy, remorse, or desire to serve anyone but himself, so will never fess up to anything on his own. Someone ... please... hold this individual responsible for his own actions!
    • ITT Gets Its Due
      ITT is almost a quasi governmental entity since it relies on student loans for over 90% of its revenues. It has had a habit of making predatory loans to ignorant/uninformed students while these questionable loans are guaranteed by underwriters like Sallie Mae. Give a crook enough rope and he/she/it will eventually hang itself. I feel bad for the ITT educators but, as a taxpayer, I hope the situation is cleaned up.

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