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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowITT Educational Services Inc. dodged a bullet from the U.S. Department of Education, according to a securities filing issued Friday morning, but now faces a new threat: a potential enforcement action from the U.S. Securities & Exchange Commission.
The Carmel-based operator of for-profit colleges said it received a so-called Wells notice on Aug. 7 in which SEC staff members have recommended that the agency take enforcement action on ITT related to its loans to students and its disclosure of information to shareholders.
That revelation sent ITT shares tumbling as much as 36 percent Friday, to below $4.88 per share.
The good news for ITT was that the Education Department issued just the standard sanctions against ITT for its failure to submit financial statements for 2013 or compliance audits of its use of federal funds.
The Education Department placed ITT on heightened cash management for the next five years and said ITT’s colleges must disburse student funds before drawing federal Title IV student loan money. ITT said the action won’t delay its receipt of student aid for more than one business day.
That was far better than it could have been. ITT competitor Corinthian Colleges Inc. said in July that it plans to close or sell its 107 campuses after the Education Department imposed a 21-day delay on its access to student loan funds.
In early August, some analysts and investors feared the Education Department would slap ITT with a Corinthian-style delay in student loan funds, which would have caused ITT to breach its loan agreements with its creditors. If ITT had then been unable to renegotiate its loans with its creditors, it could have been forced into bankruptcy.
But that worst-case scenario is not playing out as some feared.
ITT’s problems with both the Education Department and the SEC stem from its failure to file its 2013 audited financial statements and its 2014 quarterly financial statements.
ITT has delayed those reports because it has to change how it accounted for a disastrous private loan program for its students which it arranged in 2009 with credit unions. Previously, ITT kept that loan program—and its huge losses—off its balance sheet.
Nicole Elam, an ITT spokeswoman, said the Wells notice from the SEC does not mean the agency will bring an enforcement action against ITT. In fact, the company will have a chance to make a case to the agency why such an action is unnecessary.
Elam said ITT will emphasize to the SEC that it made its accounting decisions about the loan program in “good faith” after consulting with many legal and accounting experts.
“We made good-faith judgments on those things,” Elam said. “It was not our intent to mislead anybody.”
ITT was sued in February by the Consumer Financial Protection Bureau over claims it engaged in predatory lending by encouraging students to take loans they would struggle to repay. The company has denied wrongdoing.
ITT Educational Services Inc., an operator of for-profit colleges, said it received a notice that the U.S. Securities & Exchange Commission may take enforcement action related to its loans to students.
Carmel-based ITT has also been placed on heightened cash monitoring by the Education Department and must disburse student funds before drawing federal Title IV money, the company said Friday in a regulatory filing. ITT said it received the so-called Wells notice from the SEC on Aug. 7.
ITT shares dropped nearly 30 percent shortly after Friday's opening bell, falling to $5.41 each.
The federal government and state attorneys general are clamping down on for-profit college for their recruiting, lending and marketing practices. Corinthian Colleges Inc. said in July that it plans to close or sell its 107 campuses after the Education Department imposed a 21-day delay on its access to student loan funds.
ITT said it was put on cash monitoring because it hasn’t submitted financial statements for 2013 or compliance audits of its use of federal funds. It said the action won’t delay its receipt of student aid for more than one business day.
ITT was sued in February by the Consumer Financial Protection Bureau over claims it engaged in predatory lending by encouraging students to take loans they would struggle to repay. The company has denied wrongdoing.
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