| Commitments and Contingencies | 11. Commitments and
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
June 30, 2016, the total face amount of those surety bonds was
approximately $21,700. As of June 30, 2016, we also caused a
letter of credit with a face amount of approximately $106 to be
issued to one of our state regulatory agencies.
Our institutions’ failure to submit their 2013 audited
consolidated financial statements and the 2013 compliance audits of
their administration of the Title IV Programs in which they
participate (“Compliance Audits”) to the ED by the due
date resulted in sanctions imposed by the ED on our institutions
that included, among other things, our institutions having to
submit a letter of credit payable to the ED. We caused a letter of
credit payable to the ED in the amount of $79,708 (the “ED
Letter of Credit”) to be issued on October 31, 2014. On
December 16, 2015, we and the ED entered into an agreement
(the “ED Agreement”), which provides that we would
provide funds to the ED for the ED to maintain in an escrow account
(the “ED Escrowed Funds”) in lieu of the ED Letter of
Credit. On December 17, 2015, we provided to the ED funds in
the amount of $79,708, which amount is subject to further
adjustment by the ED based upon changes in our annual Title IV
Programs funding, and based on the ED’s determination of the
percentage of our annual Title IV Programs funding that must be
maintained. The ED Letter of Credit was cancelled effective
December 22, 2015. As of June 30, 2016 and
December 31, 2015 the amount of the ED Escrowed Funds held by
the ED was $79,708 and was included in Collateral deposits on our
Condensed Consolidated Balance Sheets on each of those dates.
The ED Agreement provides that the ED may draw on the ED Escrowed
Funds upon certification by the ED that the drafted funds will be
used for one or more of the following purposes:
• to pay refunds of institutional or
non-institutional charges owed to or on behalf of current or former
students of our institutions, whether our institutions remain open
or have closed;
• to provide for the
“teach-out” of students enrolled at the time of closure
of our institutions; and
• to pay any liabilities owing to the
ED arising from acts or omissions by our institutions, on or before
November 4, 2019, in violation of requirements set forth in
the HEA, including the violation of any agreement entered into by
our institutions with the ED regarding the administration of Title
IV Programs.
On June 6, 2016, we received a letter from the ED (the
“June 2016 ED Letter”) stating that the ED believes
that certain actions of the ITT Technical Institutes’
accrediting agency, the Accrediting Council for Independent
Colleges and Schools (“ACICS”) (which actions are
described in Note 12 – Risks and Uncertainties), represent an
increased risk to the funds under the Title IV Programs that we
administer on behalf of students. The June 2016 ED Letter indicates
that due to this increased risk, the ED determined that the amount
of surety provided by us must be increased from approximately
$79,708 to approximately $123,646. The June 2016 ED Letter states
that we can provide the additional amount required of approximately
$43,938 (the “Additional ED Amount”) to be held as
additional ED Escrowed Funds or that we may provide a new letter of
credit payable to the ED in the Additional ED Amount. The June 2016
ED Letter also provides that we must continue to comply with the
other requirements imposed on us by the ED currently in effect.
These other requirements are described further in our 2015 Form
10-K.
On July 6, 2016, the ED informed us that the ED will permit us
to provide the Additional ED Amount in three equal installments of
approximately $14,646 on each of July 20,
2016, September 30, 2016 and November 30, 2016. The
ED stated that prior to the third installment due on
November 30, 2016, the ED will evaluate our Title IV Program
funding level for the 2016 fiscal year to determine if an
adjustment in the scheduled payment amount can be made while
ensuring that the amount held in surety represents at least 20% of
our annual student aid funding. The ED subsequently indicated that
the analysis of our annual Title IV Program funding volume will not
be the only factor that the ED considers in determining whether a
change to the third installment is warranted, and it will also take
into account the risk environment as it exists at that future
time.
On July 20, 2016, we made the required first installment
payment of $14,646 to the ED, which is being held as part of the ED
Escrowed Funds under the ED Agreement. The Additional ED Amount
will be included in Collateral deposits on our Condensed
Consolidated Balance Sheets.
Claims and Contingencies.
The following table sets forth the amounts 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
June 30, December 31, 2015 June 30,
Other current liabilities $ 15,936 $ 16,330 $ 13,397
Other liabilities 588 588 598
Total $ 16,524 $ 16,918 $ 13,995
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 June 30,
Six Months Ended June 30,
2016 2015 2016 2015
Balance at beginning of period $ 15,788 $ 15,006 $ 16,918 $ 15,574
Increases (decreases) from:
Additional accruals, other (1) 5,966 6,037 12,475 11,554
Payments, other (2) (5,230 ) (7,048 ) (12,869 ) (13,133 )
Balance at end of period $ 16,524 $ 13,995 $ 16,524 $ 13,995
(1) Consists of accruals for legal
fees.
(2) Consists of payments for legal and
other contingencies.
In connection with estimating our recorded liability for claims and
contingencies as of June 30, 2016, December 31, 2015
and June 30, 2015, 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. 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.
We may resolve certain federal and state income tax matters
presently under examination within the 12 months immediately
following the date of this filing. As of June 30, 2016, we
estimated that it was reasonably possible that unrecognized tax
benefits, excluding interest and penalties, could decrease in an
amount ranging from $0 to $11,100, and that we could pay
approximately $4,200, in each case in the 12 months immediately
following the date of this filing due to the resolution of those
matters.
We have presented legal and professional fees related to certain
lawsuits, investigations and accounting matters as a separate line
item in our Condensed Consolidated Statements of Operations. A
portion of the amounts included in this line item represent
expenses for various lawsuits, investigations and accounting
matters that we believe are not representative of those normally
incurred in the ordinary course of business. Certain of those
lawsuits and investigations are described in detail, below. The
expenses for the accounting matters included in this line item
related primarily to services relating to accounting for the
Private Education Loans and, in the three and six months ended
June 30, 2015, services relating to the accounting for the
CUSO Consolidation.
Guarantees. PEAKS Guarantee and
Purchase Obligation
We consolidated the PEAKS Trust in our consolidated financial
statements beginning on February 28, 2013. See Note 5 –
Variable Interest Entities, for a further discussion of the PEAKS
Consolidation. As a result, the assets and liabilities of the PEAKS
Trust have been included on, and all intercompany transactions have
been eliminated from, our Condensed Consolidated Balance Sheets as
of June 30, 2016, December 31, 2015 and
June 30, 2015.
Projected PEAKS Guarantee Payments
The estimated amount and timing of future payments and recoveries
with respect to the PEAKS Guarantee discussed above and elsewhere
in this report are only estimates, are based on numerous
assumptions and are subject to change. As with any estimate, as
facts and circumstances change, the estimated amounts and timing
could change. We made a number of assumptions in preparing the
estimates, which assumptions may not be correct. The assumptions
included, among other things, the following:
• the repayment performance of the
PEAKS Trust Student Loans, the proceeds from which will be used to
repay the PEAKS Senior Debt and to pay the fees and expenses of the
PEAKS Trust, and the performance of which also affects the
Asset/Liability Ratio;
• the fact that those loans will
consist of a large number of loans of individually immaterial
amounts;
• the fact that the interest rate on
the PEAKS Senior Debt is a variable rate based on the LIBOR plus a
margin; and
• the amount of fees and expenses of
the PEAKS Trust, much of which is based on the principal balance of
the PEAKS Trust Student Loans.
See also “— PEAKS Guarantee and CUSO RSA Payments
in Certain Periods,
CUSO RSA
Pursuant to the CUSO RSA, we are required to maintain collateral to
secure our guarantee obligation in an amount equal to a percentage
of the outstanding balance of the private education loans disbursed
to our students under the CUSO Program. As of June 30,
2016, December 31, 2015 and June 30, 2015, the total
collateral maintained in a restricted bank account was
approximately $8,630. This amount was included in Collateral
deposits on our Condensed Consolidated Balance Sheets as of each of
those dates. The CUSO RSA also requires that we comply with certain
covenants, including that we maintain certain financial ratios
which are measured on a quarterly basis and that we deliver
compliance certificates on a quarterly basis setting forth the
status of our compliance with those financial ratios. If we are not
in compliance with those covenants at the end of each fiscal
quarter, we are required to increase the amount of collateral
maintained in the restricted bank account to a predetermined
amount, until the end of a succeeding quarter at which we are in
compliance with those covenants. The predetermined amount is based
on the percentage of the aggregate principal balance of the private
education loans made under the CUSO Program that exceeds a certain
percentage as of the end of each fiscal quarter.
We were not in compliance with certain covenants under the CUSO RSA
as of June 30, 2016 and, as a result, will be required to
deposit approximately $200 as additional collateral in August 2016.
We do not expect to be in compliance with these covenants in the
foreseeable future, however based on the estimated principal
balance of the private education loans under the CUSO program, we
do not believe that we will be required to deposit any additional
collateral.
Under the CUSO RSA, we have the right to elect to make Discharge
Payments with respect to private education loans made under the
CUSO Program that have been charged off. The effect of a making a
Discharge Payment related to a private education loan is to reduce
the aggregate amount that we may have to pay under our guarantee
obligations with respect to that loan. We have claimed as an offset
against amounts owed to us under the Revolving Note amounts that
would have the effect of discharging our obligations with respect
to certain charged off loans under the CUSO RSA. In addition, in
the three and six months ended June 30, 2015, we made
Discharge Payments to the CUSO. We did not make any Discharge
Payments in the three or six months ended June 30, 2016.
Making Discharge Payments results in us paying amounts to the CUSO
in advance of when a guarantee payment would be due, which would
negatively impact our liquidity in a particular period, but results
in us paying a lesser amount than we otherwise would have been
required to pay under our guarantee obligation in future periods
under the CUSO RSA. See Note 5 – Variable Interest Entities,
for a further discussion of Discharge Payments.
We consolidated the CUSO in our consolidated financial statements
beginning on September 30, 2014. See Note 5 – Variable
Interest Entities, for a further discussion of the CUSO
Consolidation. As a result, the assets and liabilities of the CUSO
have been included on, and all intercompany transactions have been
eliminated from, our Condensed Consolidated Balance Sheets as of
June 30, 2016, December 31, 2015 and June 30,
2015.
CUSO RSA Amendment.
• the period of time during which we
are not required to comply with the debt service ratio covenant
under the CUSO RSA is extended through March 31, 2016;
• the period of time during which we
are not required to comply with the current ratio covenant under
the CUSO RSA is extended through March 31, 2016;
• we are not required to comply with
the average persistence percentage covenant under the CUSO RSA as
of the end of each fiscal quarter ending March 31, 2015
through March 31, 2016;
• we make a payment of $6,544 to the
CUSO, which payment is considered a Discharge Payment under the
CUSO RSA;
• at our option, we may defer the
payment of any amounts otherwise becoming due by us under the CUSO
RSA between June 8, 2015 and December 31, 2015, which
payments must be made by us on or before January 4, 2016;
and
• the payments deferred by us will not
bear interest, unless we do not pay such amounts by January 4,
2016, in which case any portion of any deferred payments remaining
unpaid as of that date will accrue interest at the rate of
12.5% per annum, from the date such deferred payment would
otherwise have been due absent the deferral provided in the Sixth
Amendment to CUSO RSA.
We made the $6,544 Discharge Payment on June 10, 2015, which
had the effect of reducing the amount of Regular Payments that we
otherwise would have had to make in 2015 by approximately $2,000.
The reason for the provision in the Sixth Amendment to CUSO RSA
that permitted us to defer to 2016 the payment of any amounts
otherwise due between June 8, 2015 and December 31, 2015
is because without such deferral, we believed that we would have
exceeded the limitation under the Financing Agreement on amounts
that we could pay in 2015 under the CUSO RSA and the PEAKS
Guarantee. We deferred the full amount of the payments due in June
2015 through December 2015 under the CUSO RSA, which totaled
$6,092. Recoveries of charged-off loans received by the CUSO from
June 2015 through December 2015 and due to us were $761 and were
not paid to us. We utilized those recovery amounts to offset
against amounts that we owed under the CUSO RSA in January 2016,
resulting in a payment of $5,331 related to this deferral.
Projected CUSO RSA Payments
Based on various assumptions, including the historical and
projected performance and collections of the CUSO Student Loans, we
believe that we will make payments under the CUSO RSA as set forth
in the following table:
Period Estimated Estimated (1) Estimated
7/1/16 - 12/31/16 $ 5,600 $ (500 ) $ 5,100
2017 12,000 (1,000 ) 11,000
2018 14,000 (1,000 ) 13,000
2019 and later 99,000 (2) 0 99,000 (2)
Total $ 130,600 $ (2,500 ) $ 128,100
(1) We expect to offset Regular Payments
due to the CUSO from us under the CUSO RSA by the recoveries from
charged-off loans that are due to us from the CUSO.
(2) We believe that this amount will be
paid by us in approximately equal portions in each of 2019 through
2025.
Our estimates of the future payment amounts under the CUSO RSA and
the timing of those payments assume, among other factors, that we
do not make any Discharge Payments in 2016 and future years, based
on the uncertainty related to the amount of future operating cash
flows that will be available to us to make Discharge Payments. If
we do make Discharge Payments in any future years, the effect of
those Discharge Payments will be to reduce the total amount of our
projected future payments under the CUSO RSA.
The estimated amount of future payments under the CUSO RSA assumes
that an offset that we made in 2013 of certain payment obligations
under the CUSO RSA against the CUSO’s obligations owed to us
under the Revolving Note will not be determined to have been
improper. See “— PEAKS Guarantee and CUSO RSA
Payments in Certain Periods
The estimated amount and timing of future payments and recoveries
with respect to the CUSO RSA discussed above are only estimates,
are based on numerous assumptions and are subject to change. As
with any estimate, as facts and circumstances change, the estimated
amounts and timing could change. We made a number of assumptions in
preparing the estimates, which assumptions may not be correct. The
assumptions included, among other things, the following:
• the repayment performance of the
private education loans made under the CUSO Program;
• the timing and rate at which those
private education loans will be paid;
• the changes in the variable interest
rates applicable to those private education loans;
• the amounts and timing of collections
in the future on those private education loans that have been
charged off; and
• our ability to utilize the available
options for payment of our obligations under the CUSO RSA.
PEAKS Guarantee and CUSO RSA Payments in Certain
Periods
Three Months Ended June 30,
Six Months Ended June 30,
2016 2015 2016 2015
PEAKS Guarantee Payments $ 2,659 $ 6,820 $ 7,193 $ 20,457
CUSO RSA Regular Payments 2,653 (1) 1,560 (2) 5,250 (3) 3,840 (4)
CUSO RSA Discharge Payments 0 6,544 0 9,253
CUSO RSA Deferred Payment 0 0 5,331 (5) 0
Total $ 5,312 $ 14,924 $ 17,774 $ 33,550
(1) This amount is net of $351 of
recoveries from charged-off loans owed to us that we offset against
amounts owed by us under the CUSO RSA.
(2) This amount is net of $231 of
recoveries from charged-off loans owed to us that we offset against
amounts owed by us under the CUSO RSA.
(3) This amount is net of $645 of
recoveries from charged-off loans owed to us that we offset against
amounts owed by us under the CUSO RSA.
(4) This amount is net of $521 of
recoveries from charged-off loans owed to us that we offset against
amounts owed by us under the CUSO RSA.
(5) This amount is net of $761 of
recoveries from charged-off loans received by the CUSO from
June 8, 2015 through December 31, 2015 that were not paid
to us that we offset against amounts owed by us under the CUSO RSA
in January 2016.
In the three and six months ended June 30, 2016 and 2015, we
offset all recoveries from charged-off loans that were due to us
from the CUSO against the amounts we owed to the CUSO under the
CUSO RSA.
Since 2013, we have not offset any amounts owed by us under the
CUSO RSA against amounts owed to us by the CUSO under the Revolving
Note. In the first quarter of 2013, we notified the CUSO that we
had determined that the CUSO was in default of its obligations to
us under the agreement pursuant to which the Revolving Note was
issued and, as a result of that default, all amounts under the
Revolving Note were immediately due and payable. We also notified
the CUSO that we would not make payments under the CUSO RSA until
we received credit for the full amount due us under the Revolving
Note, based on the provisions of the CUSO Program documents that
allow us to set off amounts owed by us under the CUSO RSA against
amounts owed to us by the CUSO under the Revolving Note. At that
time, the outstanding amount of the Revolving Note due to us was
approximately $8,200, representing principal and accrued
interest.
In response to our notification, the CUSO denied that it was in
default and refused our demand to immediately pay the Revolving
Note in full. As a consequence, over the period from February 2013
through August 2013, we offset our then current payment obligations
under the CUSO RSA and the amount of Discharge Payments we elected
to make during that period against all of the CUSO’s
obligations owed to us under the Revolving Note (the
“Offset”).
We understand that the CUSO’s position is that the Offset was
improper, because it has not defaulted and, even if it had
defaulted, the assets of the CUSO against which we could offset or
exercise our other remedies were limited. We further understand the
CUSO’s position to be that, because the Offset was improper,
we are in default under the CUSO RSA. In April 2013, the CUSO
notified us that it had taken control of the restricted account
containing the cash collateral that we deposited to secure our
obligations under the CUSO RSA (the “Collateral”). To
our knowledge, the CUSO has taken no further action related to the
Collateral. We believe that our good faith exercise of our right of
offset provided for in the CUSO Program documents does not
constitute an event of default under the CUSO RSA, and that the
CUSO’s seizure of control of the restricted account
containing the Collateral constitutes an additional default by the
CUSO. We cannot assure you, however, that the Offset will
ultimately be determined to have been proper. As of June 30,
2016, in the event of a default by us under the CUSO RSA related to
the Offset, we may be required to pay to the CUSO approximately
$10,681, net of approximately $1,049 of recoveries from charged-off
loans that are owed, but have not been paid, to us. If, instead,
the CUSO was to withdraw Collateral in that amount from the
restricted bank account, we would be required to deposit that
amount of cash in the account to maintain the required level of
Collateral.
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, one of our current executive officers
and one of our former executive officers in the United States
District Court for the Southern District of New York under the
following 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. In re
ITT Educational Services, Inc. Securities Litigation
• our failure to properly account for
the 2007 RSA, CUSO 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 was from April 24,
2008 through February 25, 2013. The plaintiffs sought, 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. Plaintiffs
filed their motion for class certification on March 27,
2015.
Following a mediation which began in the third quarter of 2015, the
parties came to an agreement in principle to settle the New York
Securities Litigation. On November 2, 2015, the parties in the
New York Securities Litigation entered into a Stipulation and
Agreement of Settlement (the “New York Settlement”) to
resolve the action in its entirety. Under the terms of the New York
Settlement, we and/or our insurers made a payment of $16,962 in
exchange for the release of claims against the defendants and other
released parties, by the plaintiffs and all settlement class
members, and for the dismissal of the action with prejudice. On
November 2, 2015, the plaintiffs in the New York Securities
Litigation filed the New York Settlement and related exhibits with
the court and moved, among other things, for the court to
preliminarily approve the New York Settlement, to approve the
contents and procedures for notice to potential settlement class
members, to certify the New York Securities Litigation as a class
action for settlement purposes only, and to schedule a hearing for
the court to consider final approval of the New York Settlement. On
November 23, 2015, the court entered an order preliminarily
approving the New York Settlement and scheduled a hearing for
March 8, 2016 to consider final approval of the New York
Settlement. Prior to the March 8, 2016 hearing, potential
settlement class members (all persons and entities who purchased or
otherwise acquired our common stock between April 24, 2008 and
February 25, 2013, both dates inclusive (with limited
exclusions)) had an opportunity to exclude themselves from
participating in the New York Settlement or to raise objections
with the court regarding the New York Settlement or any part
thereof. On March 8, 2016, the court granted final approval of
the New York Settlement and entered an order dismissing the New
York Securities Litigation with prejudice.
The New York Settlement contains no admission of liability, and all
of the defendants in the New York Securities Litigation have
expressly denied, and continue to deny, all allegations of
wrongdoing or improper conduct. Our insurance carriers funded a
combined $25,000 collectively towards the settlement payments for
the New York Settlement and the Indiana Settlement (defined
below).
On September 30, 2014, a complaint in a securities class
action lawsuit was filed against us, one of our current executive
officers and one of our former executive officers in the United
States District Court for the Southern District of Indiana under
the following caption: David Banes, on Behalf of
Himself and All Others Similarly Situated v. Kevin M. Modany, et
al. Babulal Tarapara, Individually and
on Behalf of All Others Similarly Situated v. ITT Educational
Services, Inc. et al. Kumud Jindal, Individually
and on Behalf of All Others Similarly Situated v. Kevin Modany, et
al. Kristopher Hennen,
Individually and on Behalf of All Others Similarly Situated v. ITT
Educational Services, Inc. et al. In re ITT Educational
Services, Inc. Securities Litigation (Indiana).
On May 26, 2015, an amended complaint was filed in the Indiana
Securities Litigation. The amended complaint alleged, among other
things, that the defendants violated Sections 10(b) and 20(a) of
the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly
or recklessly making false and/or misleading statements and failing
to disclose material adverse facts about our business, operations,
prospects and financial results. Plaintiffs asserted that the
defendants engaged in a fraudulent scheme and course of business
and that alleged misstatements and/or omissions by the defendants
caused members of the putative class to purchase our securities at
artificially inflated prices. The amended complaint included
allegations relating to:
• the performance of the PEAKS Program
and the CUSO Program;
• our guarantee obligations under the
PEAKS Program and the CUSO Program;
• our accounting treatment of the PEAKS
Program and the CUSO Program;
• consolidation of the PEAKS Trust in
our consolidated financial statements;
• the impact of the PEAKS Program and
the CUSO Program on our liquidity and overall financial
condition;
• our compliance with Department of
Education financial responsibility standards; and
• our internal controls over financial
reporting.
The putative class
period in the Indiana Securities Litigation was from
February 26, 2013 through May 12, 2015. The plaintiffs in
the Indiana Securities Litigation sought, among other things, the
designation of the action as a proper class action, an award of
unspecified compensatory damages against all defendants, interest,
costs, expenses, counsel fees and expert fees, and such other
relief as the court deems proper.
Following a mediation that began in the third quarter of 2015, the
parties came to an agreement in principle to settle the Indiana
Securities Litigation. On November 2, 2015, the parties in the
Indiana Securities Litigation entered into a Stipulation and
Agreement of Settlement (the “Indiana Settlement”) to
resolve the action in its entirety. Under the terms of the Indiana
Settlement, we and/or our insurers made a payment of $12,538 in
exchange for the release of claims against the defendants and other
released parties, by the plaintiffs and all settlement class
members, and for the dismissal of the action with prejudice. On
November 2, 2015, the plaintiffs in the Indiana Securities
Litigation filed the Indiana Settlement and related exhibits with
the court and moved, among other things, for the court to
preliminarily approve the Indiana Settlement, to approve the
contents and procedures for notice to potential settlement class
members, to certify the Indiana Securities Litigation as a class
action for settlement purposes only, and to schedule a hearing for
the court to consider final approval of the Indiana Settlement. On
November 4, 2015, the court entered an order preliminaril |
