ITT Educational Services (ESI) Stock Drops After SEC Announces Fraud Charges

NEW YORK (TheStreet) -- Shares of ITT Educational Services (ESI) were plummeting 35.8% to $2.58 on Tuesday after the Securities and Exchange Commission announced fraud charges against the for-profit college as well as its CEO Kevin Modany and CFO Daniel Fitzpatrick.

The SEC charges allege that ITT and the two executives fraudulently concealed the company's poor performance and the "looming financial impact of two student loan programs that ITT financially guaranteed" from the company's investors.

The two loan programs were created by ITT to off-balance sheet loans to students after the private student loan market collapsed, the SEC alleged.

"Our complaint alleges that ITT's senior-most executives made numerous material misstatements and omissions in its disclosures to cover up the subpar performance of student loans programs that ITT created and guaranteed," Andrew J. Ceresney, Director of the SEC's Division of Enforcement said in a statement.

About 4.9 million shares of ITT Educational Services were traded by 12:04 p.m. Tuesday, well above the company's average trading volume of about 353,000 shares a day.

TheStreet Ratings team rates ITT EDUCATIONAL SERVICES INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate ITT EDUCATIONAL SERVICES INC (ESI) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

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