Dear Commons Community,
The New York Times has a featured article today reviewing the legal battle that resulted in the ITT for –profit university giant filing for bankruptcy earlier this year. Rather than a “feel good” piece, the article laments and traces the seventeen year legal battle during which ITT was able to stall legal proceedings, to continue to operate, to defraud students, and to reap billions of dollars in profit, seventy percent of which came from federal student loan programs. Here is an excerpt:
“Dan Graves, a mental health aide in San Jose, Calif., had mixed feelings when he heard that ITT Educational Services had filed for bankruptcy in mid-September.
As a former employee who had blown the whistle on ITT, an operator of some 140 for-profit schools, Mr. Graves was happy that the government had finally taken action to protect students from the company’s aggressive sales tactics, which lured them into debilitating debt and provided little in the way of an education.
Still, he wondered what had taken the government so long. After all, it has been 17 years since Mr. Graves and another former ITT employee brought a suit alleging that the company had systematically violated the law governing compensation of sales representatives.
The two former employees shared extensive documentation with a half-dozen federal prosecutors and regulators. These officials expressed keen interest, Mr. Graves said, and estimated that the government could recover $400 million in damages from the case. But by 2004, the lawsuit was dead and Mr. Graves’s effort to provide the government with damning evidence had come to naught…..
Returning to the ill-fated ITT case, in December 2002 it seemed to get a lift when the Justice Department filed a statement of interest with the court. In it, Justice Department lawyers estimated that ITT’s compensation practices had resulted in a direct loss to the government of $400 million in defaulted student loans. But the district court dismissed the case the following year.
In early 2004, court documents show, the Justice Department began a criminal investigation into ITT colleges in eight states using at least some of Mr. Graves’s materials. In an application for a search warrant, a special investigator said he had probable cause to believe that crimes including student financial aid fraud, money laundering and racketeering had occurred at ITT “since at least 1993.”
That investigation also went nowhere.
Finally, in late 2004, Mr. Levy lost his appeal of the dismissal of the ITT case. The United States Court of Appeals for the Fifth Circuit sided with the lower court ruling that the prohibition against incentive pay was an unimportant technical requirement.
The Supreme Court declined to hear the case, putting an end to it.
Ten years later, federal and state regulators accused ITT of misleading students about the quality of its educational programs. The Consumer Financial Protection Bureau also sued the company, contending it was a predatory student lender.
The final blow came this year when the federal government began restricting financial aid to new students. ITT’s bankruptcy filing affected about 35,000 current students.”
What a sad commentary on a federal system that is “rigged” in favor of moneyed-interests and against vulnerable students.
Tony
