| Contingencies | 12. Contingencies
As part of our normal operations, one of our insurers issues surety
bonds for us that are required by various education authorities
that regulate us. We are obligated to reimburse our insurer for any
of those surety bonds that are paid by the insurer. As of
March 31, 2014, the total face amount of those surety bonds
was approximately $20,500. As of March 31, 2014, we also had
caused approximately $2,246 of letters of credit to be issued to
our workers’ compensation insurers.
We caused the ED Letter of Credit in the amount of $79,708 to be
issued on October 31, 2014. We also caused a letter of credit
in the amount of $106 to be issued and submitted to one of our
state regulatory agencies in September 2014. As of October 31,
2014, the total amount of the outstanding letters of credit that we
have caused to be issued was $82,060.
We are also subject to various claims and contingencies, including
those related to litigation, government investigations, business
transactions, guarantee arrangements and employee-related matters,
among others. We record a liability for those claims and
contingencies, if it is probable that a loss will result and the
amount of the loss can be reasonably estimated. Although we believe
that our estimates related to any claims and contingencies are
reasonable, we cannot make any assurances with regard to the
accuracy of our estimates, and actual results could differ
materially.
The following table sets forth the components of our recorded
liability related to our claims and contingencies and where the
amounts were included on our Condensed Consolidated Balance Sheets
as of the dates indicated:
As of March 31, 2014 As of December 31, 2013 As of March 31, 2013
2009 RSA $ 115,930 $ 116,923 $ 31,832
Other 13,585 8,957 6,816
Total $ 129,515 $ 125,880 $ 38,648
Other current liabilities $ 32,409 $ 25,893 $ 35,573
Other liabilities 97,106 99,987 3,075
Total $ 129,515 $ 125,880 $ 38,648
Other current liabilities primarily represented our estimate of the
loss that we believed we would realize during the 12-month period
following the dates indicated. As of March 31, 2014, amounts
in Other current liabilities included approximately $8,500 that we
claimed as an offset against amounts owed to us under the Revolving
Note. See “— Guarantees,”
The following table sets forth the activity with respect to our
recorded liability related to our claims and contingencies in the
periods indicated:
Three Months Ended March 31,
2014 2013
Balance at beginning of period $ 125,880 $ 126,978
Increases (decreases) from:
Additional accruals:
2009 RSA 0 3,803
Other 8,764 4,313
Payments, other (1) (3,971 ) (2,743 )
Payments, net of recoveries of $0 and $103 (2) (1,158 ) (203 )
Payments under PEAKS Guarantee, net of estimated recoveries of $0
and $723 (40,713 ) (516 )
Payments on Behalf of Borrowers (1,832 ) (1,855 )
Settlement payment - 2007 RSA 0 (46,000 )
Elimination of intercompany transactions (3) 42,545 985
Elimination of PEAKS Guarantee accrual (4) 0 (46,114 )
Balance at end of period $ 129,515 $ 38,648
(1) Consists of payments for legal and
other contingencies, net of recoveries from charged-off loans made
under the 2009 Loan Program that were owed, but had not been
remitted, to us.
(2) Consists of payments, net of
recoveries, under the 2009 RSA.
(3) We consolidated the PEAKS Trust in
our consolidated financial statements as of February 28, 2013
and, as a result, we eliminated from our consolidated financial
statements the amount of payments under the PEAKS Guarantee and
Payments on Behalf of Borrowers that we made following the
Consolidation. See Note 7 – Variable Interest Entities, for a
further discussion of the Consolidation.
(4) As a result of the Consolidation, in
the three months ended March 31, 2013, we eliminated from our
consolidated financial statements the contingent liability related
to the PEAKS Guarantee that we had previously recorded.
We had guaranteed the repayment of private education loans made by
a lender to our students in 2007 and early 2008 (the “2007
RSA”) that the lender charged off above a certain percentage
of the total dollar volume of private education loans made under
the 2007 RSA. In January 2013, we paid $46,000 in a settlement to
absolve us from any further obligations with respect to our
guarantee obligations under the 2007 RSA, which amount is included
in the Settlement payment – 2007 RSA line item in the three
months ended March 31, 2013 in the table above.
In order to determine the amount of the contingent liability to
record related to our guarantee obligations under the 2009 RSA, we
utilize estimates of, among other things, the projected repayment
performance of the private education loans made under the 2009 Loan
Program, which projections involve numerous assumptions. Based on
those projections and other factors, we estimate the amount of
payments that we expect to make and the amounts that we expect to
be repaid to us.
Under the 2009 RSA, we are entitled to all amounts that the 2009
Entity recovers from loans in a particular loan pool made under the
2009 Loan Program that have been charged off, until all payments
that we made under the 2009 RSA with respect to that loan pool have
been repaid to us by the 2009 Entity.
In connection with determining the amount of the contingent
liability to record related to our guarantee obligations under the
2009 RSA, we also consider the payment options available to us
under the 2009 Loan Program, including our ability to make
Discharge Payments under the 2009 RSA. To the extent that we
project that we will have sufficient funds available to make
Discharge Payments under the 2009 RSA, we incorporate an assumption
that we will make Discharge Payments into our estimate of the
amount of payments that we expect to make when determining the
contingent liability. If we do not believe that we will have
sufficient funds available to make Discharge Payments, we assume
that we will make Regular Payments to satisfy our obligations under
the 2009 RSA. We discount the amount of those expected future
monthly Regular Payments at a risk-free rate of interest. Making
Discharge Payments may result in us paying a lesser amount than we
otherwise would have been required to pay under our guarantee
obligations in future periods under the 2009 RSA and, therefore,
results in an estimated contingent liability amount that is less
than if we had assumed that we would make Regular Payments in
future periods.
We discount the amounts that we expect will be repaid to us under
the 2009 RSA to reflect a risk-free rate of interest. The
difference between the amount of the guarantee payments that we
expect to make and the discounted amount that we expect will be
repaid to us under the 2009 RSA is included in our estimate of the
amount of our contingent liability related to our guarantee
obligations under the 2009 RSA.
In connection with estimating our recorded liability for claims and
contingencies as of March 31, 2014, December 31,
2013 and March 31, 2013, we considered whether additional
losses for claims and contingencies were reasonably possible, could
be estimated and might be material to our financial condition,
results of operations or cash flows. In order to estimate the
possible range of losses under the 2009 RSA, we made certain
assumptions with respect to the performance of the private
education loans made under the 2009 Loan Program over the life of
those loans. The life of a private education loan made under the
2009 Loan Program may be in excess of ten years from the date of
disbursement. Therefore, our estimate of the possible range of
losses under the 2009 RSA was based on assumptions for periods in
excess of ten years, and those assumptions included, among other
things, the following:
• the repayment performance of the
private education loans made under the 2009 Loan Program;
• the timing and rate at which those
private education loans will be paid;
• the changes in the variable interest
rates applicable to the private education loans;
• the amounts and timing of collections
in the future on those private education loans that have defaulted;
and
• our ability to utilize the available
options for payment of our obligations under the 2009 RSA.
We consulted with third-party consumer credit consulting firms in
arriving at our assumptions and estimates. The assumptions have
changed, and may continue to change, significantly over time as
actual results become known, which would affect our estimated range
of possible losses related to the 2009 RSA. With respect to our
guarantee obligations under the 2009 RSA, we believe that it is
reasonably possible that we may incur losses in an estimated range
of $10,000 less than to $28,000 greater than the liability recorded
as of March 31, 2014 for the 2009 RSA. As with any estimate,
as facts and circumstances change, the recorded liability and
estimated range of reasonably possible losses could change
significantly. With respect to legal proceedings, we determined
that we cannot provide an estimate of the possible losses, or the
range of possible losses, in excess of the amount, if any, accrued,
for various reasons, including but not limited to some or all of
the following:
• there are significant factual issues
to be resolved;
• there are novel or unsettled legal
issues presented;
• the proceedings are in the early
stages;
• there is uncertainty as to the
likelihood of a class being certified or decertified or the
ultimate size and scope of the class;
• there is uncertainty as to the
outcome of pending appeals or motions; and
• in many cases, the plaintiffs have
not specified damages in their complaint or in court filings.
Litigation .
On December 22, 2008, we were served with a qui tam action
that was filed on July 3, 2007 in the United States District
Court for the Southern District of Indiana by a former employee
(“relator”) on behalf of herself and the federal
government under the following caption: United States of America
ex rel. Debra Leveski v. ITT Educational Services, Inc. et seq
• treble the amount of unspecified
funds paid to us for federal student grants;
• treble the amount of unspecified
default payments, special allowance payments and interest received
by lenders with respect to federal student loans received by our
students;
• all civil penalties allowed by law;
and
• attorney’s fees and costs.
A qui tam action is a civil lawsuit brought by one or more
individuals (a qui tam “relator”) on behalf of the
federal or state government for an alleged submission to the
government of a false claim for payment. A qui tam action is always
filed under seal and remains under seal, until the government
decides whether to intervene in the litigation. Whenever a relator
files a qui tam action, the government typically initiates an
investigation in order to determine whether to intervene in the
litigation. If the government intervenes, it has primary control
over the litigation. If the government declines to intervene, the
relator may pursue the litigation on behalf of the government. If
the government or the relator is successful in the litigation, the
relator receives a portion of the government’s recovery.
On August 8, 2011, the district court granted our motion to
dismiss all of the relator’s claims in the Leveski Litigation
for lack of subject-matter jurisdiction and issued a judgment for
us. On February 16, 2012, the relator in the Leveski
Litigation filed a Notice of Appeal with the 7 th th th th
We have defended, and intend to continue to defend, ourselves
vigorously against the allegations made in the complaint.
On March 11, 2013, a complaint in a securities class action
lawsuit was filed against us and two of our current executive
officers in the United States District Court for the Southern
District of New York under the caption: William Koetsch,
Individually and on Behalf of All Others Similarly Situated v. ITT
Educational Services, Inc., et al. Massachusetts Laborers’ Annuity Fund, Individually
and on Behalf of All Others Similarly Situated v. ITT Educational
Services, Inc., et al (the “MLAF Litigation”). In re ITT Educational
Services, Inc. Securities Litigation
• our failure to properly account for
the 2007 RSA, 2009 RSA and PEAKS Program;
• employing devices, schemes and
artifices to defraud;
• making untrue statements of material
facts, or omitting material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading;
• making the above statements
intentionally or with reckless disregard for the truth;
• engaging in acts, practices, and a
course of business that operated as a fraud or deceit upon lead
plaintiffs and others similarly situated in connection with their
purchases of our common stock;
• deceiving the investing public,
including lead plaintiffs and the purported class, regarding, among
other things, our artificially inflated statements of financial
strength and understated liabilities; and
• causing our common stock to trade at
artificially inflated prices and causing the plaintiff and other
putative class members to purchase our common stock at inflated
prices.
The putative class period in this action is from April 24,
2008 through February 25, 2013. The plaintiffs seek, among
other things, the designation of this action as a class action, an
award of unspecified compensatory damages, interest, costs and
expenses, including counsel fees and expert fees, and such
equitable/injunctive and other relief as the court deems
appropriate. On July 22, 2014, the district court denied most
of our motion to dismiss all of the plaintiffs’ claims for
failure to state a claim for which relief can be granted. On
August 5, 2014, we filed our answer to the second amended
complaint denying all of the plaintiffs’ claims and the
parties are currently engaged in discovery. All of the defendants
have defended, and intend to continue to defend, themselves
vigorously against the allegations made in the second amended
complaint.
On September 30, 2014, a complaint in a securities class
action lawsuit was filed against us and two of our current
executive officers in the United States District Court for the
Southern District of Indiana under the caption: David Banes,
Individually and on Behalf of All Others Similarly Situated v.
Kevin M. Modany, et al.
• misleading investors regarding the
integrity of our financial reporting, including the reporting of
the PEAKS Trust;
• knowingly or recklessly making
materially false and/or misleading statements and/or failing to
disclose material adverse facts about our business operations and
prospects, including that:
• our financial statements contained
errors related to the accounting of the PEAKS Trust and the PEAKS
Program; and
• we lacked adequate internal controls
over financial reporting;
• knowingly or recklessly engaging in
acts, transactions, practices and courses of business that operated
as a fraud or deceit upon the plaintiff and the purported
class;
• employing devices, schemes and
artifices to defraud in connection with the purchase and sale of
our common stock;
• deceiving the investing public,
including the plaintiff and the purported class; and
• artificially inflating and
maintaining the market price of our common stock and causing the
plaintiff and other putative class members to purchase our common
stock at artificially inflated prices.
The putative class period in this action is from April 26,
2013 through September 19, 2014. The plaintiff seeks, among
other things, the designation of this action as a class action, an
award of unspecified damages, interest, costs and expenses,
including counsel fees and expert fees, and such other relief as
the court deems proper. All of the defendants have defended, and
intend to continue to defend, themselves vigorously against the
allegations made in the complaint.
On October 3, 2014, a complaint in a securities class action
lawsuit was filed against us and two of our current executive
officers in the United States District Court for the Southern
District of Indiana under the caption: Babulal Tarapara,
Individually and on Behalf of All Others Similarly Situated v. ITT
Educational Services, Inc., et al.
• we failed to consolidate the PEAKS
Trust in our consolidated financial statements;
• our consolidated financial statements
contained errors related to the accounting of the PEAKS Trust and
PEAKS Program;
• we improperly accounted for our
guarantee obligations under the PEAKS Guarantee;
• our financial results were
overstated;
• we lacked adequate internal and
financial controls;
• our consolidated financial statements
were materially false and misleading at all relevant times;
• we artificially inflated and
maintained the market price of our common stock, causing the
plaintiff and other putative class members to purchase our common
stock at artificially inflated prices;
• we deceived the investing public,
including the plaintiff and the purported class; and
• we employed devices, schemes and
artifices to defraud in connection with the purchase and sale of
our common stock.
The putative class period in this action is from February 26,
2013 through September 18, 2014. The plaintiff seeks, among
other things:
• the designation of this action as a
class action;
• an award of unspecified compensatory
damages, including interest;
• an award of reasonable costs and
expenses, including counsel fees and expert fees; and
• such other relief as the court deems
proper.
All of the defendants have defended, and intend to continue to
defend, themselves vigorously against the allegations made in the
complaint.
On October 9, 2014, a complaint in a securities class action
lawsuit was filed against us and two of our current executive
officers in the United States District Court for the Southern
District of Indiana under the caption: Kumud Jindal,
Individually and on Behalf of All Others Similarly Situated v.
Kevin M. Modany, et al.
• our financial statements contained
errors related to the accounting of the PEAKS Trust and PEAKS
Program;
• we lacked adequate internal controls
over financial reporting;
• our financial statements were
materially false and misleading at all relevant times;
• we engaged in acts, transactions,
practices and courses of business which operated as a fraud and
deceit upon the plaintiff and the purported class;
• we employed devices, schemes and
artifices to defraud in connection with the purchase and sale of
our common stock; and
• we artificially inflated and
maintained the market price of our common stock, causing the
plaintiff and other putative class members to purchase our common
stock at artificially inflated prices.
The putative class period in this action is from April 26,
2013 through September 19, 2014. The plaintiff seeks, among
other things, the designation of this action as a class action, an
award of unspecified damages, interest, attorneys’ fees,
expert fees and other costs, and such other relief as the court
deems proper. All of the defendants have defended, and intend to
continue to defend, themselves vigorously against the allegations
made in the complaint.
On November 7, 2014, the parties in the Banes Litigation,
Tarapara Litigation and Jindal Litigation filed a stipulation to
consolidate the Tarapara Litigation and Jindal Litigation into the
Banes Litigation.
On May 8, 2013, a complaint in a shareholder derivative
lawsuit was filed against two of our current executive officers and
all but one of our current Directors in the United States District
Court for the Southern District of New York under the following
caption: Sasha Wilfred, Derivatively on Behalf of Nominal
Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et
al.
• causing or allowing us to disseminate
to our shareholders materially misleading and inaccurate
information relating to a series of risk-sharing agreements through
SEC filings, press releases, conference calls, and other public
statements and disclosures;
• willfully ignoring obvious and
pervasive problems with our internal controls and practices and
procedures, and failing to make a good faith effort to correct
these problems or prevent their recurrence;
• violating and breaching fiduciary
duties of care, loyalty, reasonable inquiry, oversight, good faith
and supervision;
• causing or allowing us to
misrepresent material facts regarding our financial position and
business prospects; and
• abandoning their responsibilities and
duties with regard to prudently managing our businesses in a manner
imposed upon them by law.
The complaint seeks:
• unspecified damages;
• restitution;
• disgorgement of all profits, benefits
and other compensation obtained by the individual defendants;
• an order directing us to take all
necessary actions to reform and improve our corporate governance
and internal procedures; and
• costs and disbursements, including
attorneys’, accountants’ and experts’ fees, costs
and expenses.
On August 6, 2013, the parties agreed to stay the Wilfred
Litigation, until the Securities Litigation was dismissed with
prejudice or the defendants filed an answer in the Securities
Litigation. On September 8, 2014, the district court approved
the parties’ agreement for an additional stay of the Wilfred
Litigation, until the earlier of:
• a final disposition of the Securities
Litigation; or
• 30 days after written notice
terminating the stay has been provided by any of the parties in the
Wilfred Litigation to all other parties.
On October 15, 2014, the plaintiff gave the requisite notice
terminating the additional stay.
On May 27, 2014, a complaint in a shareholder derivative
lawsuit was filed against two of our current executive officers,
all but one of our current Directors and one former Director in the
United States District Court for the District of Delaware under the
following caption: Janice Nottenkamper, Derivatively on Behalf
of Nominal Defendant ITT Educational Services, Inc. v. Kevin M.
Modany, et al.
• our exposure under guarantees entered
into with third-party lenders to obtain financing for our
students;
• increases in our bad debt expense
caused by increases in student loan defaults;
• our reserves associated with our
obligations under third-party private education loan programs and
internal student financing;
• the unwillingness of third-party
lenders to provide private education loans to our students;
and
• our pushing students into high-cost
private loans that were likely to default.
As a result of this conduct, the complaint alleges that the
defendants breached their fiduciary duties to us, were unjustly
enriched, abused their control of us and grossly mismanaged us
by:
• causing or allowing us to disseminate
to our shareholders materially misleading and inaccurate
information relating to a series of risk-sharing agreements through
SEC filings, press releases, conference calls, and other public
statements and disclosures;
• willfully ignoring obvious and
pervasive problems with our internal controls and practices and
procedures, and failing to make a good faith effort to correct
these problems or prevent their recurrence;
• violating and breaching fiduciary
duties of care, loyalty, good faith, diligence and candor;
• causing or allowing us to
misrepresent material facts regarding our financial position and
business prospects; and
• abandoning and abdicating their
responsibilities and duties with regard to prudently managing our
businesses in a manner imposed upon them by law.
The complaint seeks:
• unspecified damages;
• restitution;
• disgorgement of all profits, benefits
and other compensation obtained by the individual defendants;
• an order directing us to take all
necessary actions to reform and improve our corporate governance
and internal procedures; and
• costs and disbursements, including
attorneys’, accountants’ and experts’ fees, costs
and expenses.
Although the Wilfred Litigation and Nottenkamper Litigation are
each brought nominally on behalf of us, we expect to incur defense
costs and other expenses in connection with those actions.
On May 18, 2012, we received a Civil Investigative Demand (the
“Original CID”) from the U.S. Consumer Financial
Protection Bureau (the “CFPB”). In September 2013, the
CFPB withdrew the Original CID, and we received a new Civil
Investigative Demand (the “New CID”) from the CFPB.
Both the Original CID and the New CID provided that the purpose of
the CFPB’s investigation was, in part, “to determine
whether for-profit post-secondary companies, student loan
origination and servicing providers, or other unnamed persons have
engaged or are engaging in unlawful acts or practices relating to
the advertising, marketing, or origination of private student
loans.” Both the Original CID and the New CID contained broad
requests for oral testimony, production of documents and written
reports related to private education loans made to our students,
internal financing provided to our students and certain other
aspects of our business. We provided documentation and other
information to the CFPB, while preserving our rights to object to
its inquiry.
On February 26, 2014, the CFPB filed a complaint against us in
the United States District Court for the Southern District of
Indiana under the following caption: Consumer Financial
Protection Bureau v. ITT Educational Services, Inc.
• Section 1036(a)(1) of the
Consumer Financial Protection Act of 2010 (the “CFPA”),
12 U.S.C. § 5536(a)(1), which prohibits unfair, deceptive and
abusive acts and practices, from July 21, 2011 through
December 2011, by:
• subjecting consumers to undue
influence or coercing them into taking out private education loans
through a variety of unfair acts and practices designed to
interfere with the consumers’ ability to make informed,
uncoerced choices;
• taking unreasonable advantage of
consumers’ inability to protect their interest in selecting
or using the private education loans; and
• taking unreasonable advantage of
consumers’ reasonable reliance on us to act in the
consumers’ interests; and
• the Truth in Lending Act, 15 U.S.C.
§§ 1601 et seq
On April 28, 2014, we filed a motion to dismiss the CFPB
Litigation for, among other reasons, lack of jurisdiction and
failure to state a claim upon which relief can be granted. We have
defended, and intend to continue to defend, ourselves vigorously
against the allegations made in the complaint.
On February 27, 2014, the New Mexico Attorney General filed a
complaint against us in the District Court of New Mexico under the
following caption: State of New Mexico, ex rel. Gary K King,
Attorney General v. ITT Educational Services, Inc., et al.
• we misrepresented matters related to
our nursing education program, including, without limitation, its
programmatic accreditation status, the transferability of credits
earned in the program and the curriculum of the program;
• we misrepresented the terms of the
financial aid available to students and the cost of our
programs;
• we engaged in unfair or deceptive
trade practices;
• we failed to issue refunds; and
• our form enrollment agreement
contained unenforceable and unconscionable provisions.
The complaint seeks:
• an order declaring portions of our
enrollment agreement illusory, unconscionable and
unenforceable;
• preliminary and permanent injunctive
relief;
• disgorgement of unjust enrichment
amounts;
• unspecified civil penalty
amounts;
• restitution; and
• reasonable costs, including
investigative costs.
We have defended, and intend to continue to defend, ourselves
vigorously against the allegations made in the complaint.
On December 17, 2013, a complaint was filed against us in a
purported class action in the Superior Court of the State of
California for the County of Los Angeles under the following
caption: La Sondra Gallien, an individual, James Rayonez, an
individual, Giovanni Chilin, an individual, on behalf of themselves
and on behalf of all persons similarly situated v. ITT Educational
Services, Inc., et al.
• failed to pay wages owed;
• failed to pay overtime
compensation;
• failed to provide meal and rest
periods;
• failed to provide itemized employee
wage statements;
• engaged in unlawful business
practices; and
• are liable for civil penalties under
the California Private Attorney General Act.
The purported class includes recruiting representatives employed by
us during the period of December 17, 2009 through
December 17, 2013. The amended complaint seeks:
• compensatory damages, including lost
wages and other losses;
• general damages;
• pay for missed meal and rest
periods;
• restitution;
• liquidated damages;
• statutory penalties;
• interest;
• attorneys’ fees, cost and
expenses;
• civil and statutory penalties;
• injunctive relief; and
• such other and further relief as the
court may deem equitable and appropriate.
We have defended, and intend to continue to defend, ourselves
vigorously against the allegations made in the amended
complaint.
There can be no assurance that the ultimate outcome of the Leveski
Litigation, Securities Litigation, Banes Litigation, Tarapara
Litigation, Jindal Litigation, Wilfred Litigation, Nottenkamper
Litigation, CFPB Litigation, New Mexico Litigation, Gallien
Litigation or other actions (including other actions under federal
or state securities laws) will not have a material adverse effect
on our financial condition, results of operations or cash
flows.
The current officers named in the Securities Litigation, Banes
Litigation, Tarapara Litigation, Jindal Litigation, Wilfred
Litigation and Nottenkamper Litigation include Daniel M.
Fitzpatrick and Kevin M. Modany.
Certain of our current and former officers and Directors are or may
become a party in the actions described above and/or are or may
become subject to government investigations. Our By-laws and
Restated Certificate of Incorporation obligate us to indemnify our
officers and Directors to the fullest extent permitted by Delaware
law, provided that their conduct complied with certain
requirements. We are obligated to advance defense costs to our
officers and Directors, subject to the individual’s
obligation to repay such amount if it is ultimately determined that
the individual was not entitled to indemnification. In addition,
our indemnity obligation can, under certain circumstances, include
indemnifiable judgments, penalties, fines and amounts paid in
settlement in connection with those actions and investigations.
Government Investigations.
On October 30, 2012, we received a Civil Investigative Demand
(“CID”) from the Massachusetts Office of the Attorney
General (“MAG”). The MAG’s CID provides that the
MAG is investigating allegations that we may have violated
Massachusetts General Laws, Chapter 93A, Section 2(a) by
“engaging in unfair or deceptive practices in connection with
marketing and advertising job placement and student outcomes, the
recruitment of students, and the financing of education.” The
MAG’s CID contains broad requests for production of documents
related to our students in Massachusetts, including the financial
aid available to those students, our recruitment of those students,
the career services that we offer to those students, our marketing
and advertising, the retention and graduation rates of those
students and many other aspects of our business. We are cooperating
with the MAG in its investigation, and we have provided
documentation, communications and other information to the MAG in
response to the CID. We believe that our acts and practices
relating to our students in Massachusetts are lawful. There can be
no assurance, however, that the ultimate outcome of the MAG
investigation will not have a material adverse effect on our
financial condition, results of operations and/or cash flows.
In January, February, April and May 2014, we received subpoenas
and/or CIDs from the Attorneys General of Arkansas, Arizona,
Colorado, Connecticut, Hawaii, Idaho, Iowa, Kentucky, Missouri,
Nebraska, North Carolina, Oregon, Pennsylvania, Tennessee and
Washington under the authority of each state’s consumer
protection statutes. The Attorney General of the Commonwealth of
Kentucky has informed us that it will serve as the point of contact
for the multistate group to respond to questions relating to the
subpoenas and CIDs. The subpoenas and CIDs contain broad requests
for information and the production of documents related to our
students and practices, including marketing and advertising,
recruitment, financial aid, academic advising, career services,
admissions, programs, licensure exam pass rates, accreditation,
student retention, graduation rates and job placement rates, as
well as many other aspects |
