Durbin, Brown, Warren, Blumenthal Blast Sec For Weak Settlement With Former For-Profit College Executive
WASHINGTON – U.S. Senators Dick Durbin (D-IL), Sherrod Brown (D-OH), Elizabeth Warren (D-MA), and Richard Blumenthal (D-CT) today slammed the U.S. Securities and Exchange Commission’s (SEC) “incredible” settlement with ITT Educational Services, Inc. (ITT) Chief Executive Officer Kevin Modany. The SEC recently settled its fraud case against Mr. Modany, barring him from serving as a public company executive in the future but agreeing to a fine of just $200,000. Mr. Modany made $36 million at ITT between 2007 and 2014.
“This measly fine amounts to nothing more than a parking ticket for a man who made $36 million defrauding students, taxpayers, and investors at ITT between 2007 and 2014. With this settlement, you send a message to corporate executives across the for-profit college industry and public companies generally that massive fraud will be met with nothing more than a token slap on the wrist from the SEC,” the members wrote.
In 2015, the SEC filed fraud charges against ITT, Mr. Modany, and Mr. Fitzpatrick, the former Chief Financial Officer for ITT. When announcing its lawsuit, the SEC noted that top executives, including Mr. Modany, “engineered a campaign of deception and half-truths that left ITT’s auditors and investors in the dark” with respect to its private student loan scheme. In 2016, ITT announced it would stop enrolling new students and then filed for bankruptcy – leaving thousands of defrauded students with mountains of student loan debt.
Last year, Durbin and Brown pressed the SEC to prevent future abuses in the for-profit college industry by holding ITT Tech and its executives accountable. Specifically, they pressed for the highest applicable civil money penalties and disgorgement of the ill-gotten gains with which Mr. Modany and Mr. Fitzpatrick have thus far absconded. They also pressed for Mr. Modany to be permanently barred from acting as an officer or director of any public company and encouraged the SEC to work with the Department of Justice to determine whether criminal referral is appropriate.
Today, the members continued, “During your confirmation hearing you pledged that you are ‘100 percent committed to rooting out any fraud and shady practices.’ In a June 2017 letter, Senators Durbin and Brown wrote, ‘Your handling of the SEC’s actions with regard to…Mr. Modany…will be an opportunity to prove it.’ By that test, this settlement fails to uphold your commitment.”
Full text of the letter is available here and below:
July 20, 2018
Dear Chairman Clayton:
We write today concerning the U.S. Securities and Exchange Commission’s (SEC) incredible settlement with ITT Educational Services, Inc. (ITT) Chief Executive Officer Kevin Modany.
We were stunned to learn in the press that the SEC recently settled its fraud case against Mr. Modany – barring him from serving as a public company executive in the future but agreeing to a fine of just $200,000. This measly fine amounts to nothing more than a parking ticket for a man who made $36 million defrauding students, taxpayers, and investors at ITT between 2007 and 2014. In fact, Mr. Modany’s last bonus in January 2016 – even as ITT was crumbling around him – was more than twice the amount of his fine from the SEC under the announced settlement. In addition, the settlement failed to secure an admission of guilt or provide relief to those impacted by Mr. Modany’s fraud. With this settlement, you send a message to corporate executives across the for-profit college industry and public companies generally that massive fraud will be met with nothing more than a token slap on the wrist from the SEC.
The SEC’s capitulation in this case is even more troubling in light of the ongoing lawsuit against Mr. Modany and former ITT directors by the ITT bankruptcy trustee which seeks $250 million and sheds additional light on Mr. Modany’s gross misconduct. According to the complaint, Mr. Modany “could not be trusted to place ITT’s interests above his own personal interests given, among other things, his desire to retain control of ITT and obvious incentive to maintain the benefits of his substantial compensation package” and “rather than exploring strategies to maximize ITT’s remaining value for the benefit of all stakeholders, Modany selfishly focused on securing a strategic transaction that would trigger his severance payment…” In fact, in at least one instance according to the complaint, Mr. Modany worked to torpedo a potential sale of ITT.
During your confirmation hearing you pledged that you are “100 percent committed to rooting out any fraud and shady practices.” In a June 2017 letter, Senators Durbin and Brown wrote, “Your handling of the SEC’s actions with regard to…Mr. Modany…will be an opportunity to prove it.” By that test, this settlement fails to uphold your commitment.
Sincerely,
-30-