Shares of

ITT Educational Services

(ESI) - Get Report

dropped again Wednesday, after the company said it can no longer back its forecast for full-year 2004 earnings estimates because of a federal investigation of the company by the Department of Justice.

"In light of the pending federal grand jury investigation of the company and resulting shareholder class-action lawsuits, the company is not able to confirm the internal goals and other projections for the company's 2004 fiscal year that were previously disclosed," the company said in a Form 8-K filed with the

Securities and Exchange Commission


In October, the company had forecast 2004 earnings of $1.46 to $1.50 a share on a revenue increase of 14% to 17%. Analysts had expected $1.60 a share. The company earned $1.23 a share in the previous year.

Shares of ITT were lately down $1.65, or 4.5%, at $34.87. The stock is currently off about 40% from its Feb. 24 closing price of $57.40, which was the day before news of the federal investigation broke.

Speaking at Merrill Lynch's 7th Annual Advertising/Marketing, Education & Information Conference, ITT's Chief Executive Rene R. Champagne said that investigators had wanted documents about student metrics as well as information about the company's personnel, including himself, a

Dow Jones Newswires

report said.

Meanwhile, ITT reported that three of its senior officers were named as defendants in a class-action lawsuit filed on Feb. 26 in a southern Indiana U.S. District Court.

"The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b- 5 promulgated thereunder, by employing devices, schemes and artifices to defraud, making untrue statements of material fact and/or omitting to state material facts necessary to make statements not misleading and engaging in acts, practices and a course of business which operated as a fraud and deceit on the purchasers of ITT/ESI's securities in an effort to maintain artificially high market prices for its stock," ITT said in a statement.

The plaintiffs are seeking an award of unspecified compensatory damages, interest, costs and attorney's fees.

ITT had warned last Thursday on a conference call that the government's investigation may not be concluded quickly due to the amount of information and documents the company provided investigators. The company had failed to provide much more information regarding the investigation.

Last Wednesday, investigators searched 10 of the company's 77 locations nationwide, as well as its corporate headquarters in Indianapolis, seeking records on graduation and retention rates, attendance figures and other enrollment data.

The company had said in a statement last Thursday that it is cooperating with the federal investigation and that locations raided on Wednesday were holding classes as usual. ITT said few details of the investigation have been disclosed and that no conclusions should be drawn from Wednesday's searches.

In recent months, the industry has been hurt by periodic reports and speculation questioning record keeping and other business practices.

The initial search warrant last Wednesday and related grand jury subpoenas related to information and documentation regarding placement figures and rates, retention figures and rates, graduation figures and rates, attendance figures and rates, recruitment and admissions materials, student grades, graduate salaries and transferability of credits to other institutions.

The company said on the call that information was also released related to promotions, demotions, terminations, suspensions, reprimands, resignations, employee disciplinary actions, internal investigations and grievance actions.

"The investigators have disclosed very few details and therefore I am unable to take questions," Chief Executive Champagne had said on the call. "I can assure you that we will strive to keep you informed as more information becomes available."