Stockholders v ITT Educational Services, Inc.
ITT Educational Services Stock Falls Drastically Upon Disclosure of FBI Raid
Several class actions have been filed against postsecondary education provider ITT Educational Services, Inc. (NYSE:ESI) and certain of its officers and directors by stockholders who purchased the company's common stock between October 16, 2003, and February 25, 2004. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.
Besides ITT, the action names Rene R. Champagne and Kevin M. Modany as defendants. The complaint alleges that throughout the applicable period, ITT issued multiple press releases highlighting the company's increasing financial performance and the continued robust demand for its educational programs. The company also disclosed in its filings with the SEC during the period that a substantial portion of the tuition paid by its students comes from federal education aid programs, which the company's schools are authorized to offer. The action alleges that these statements were materially false and misleading because they failed to disclose: (1) that the statistics that the company provided to the government in order to continue its eligibility in offering Title IV programs were inaccurate; (2) that the defendants' actions would result in reputational harm to the company's schools and possible disqualification of its students from future participation in federal education aid programs; and (3) that as a result, the defendants' positive statements concerning the company's future prospects were lacking in a reasonable basis when made.
As the defendants continued to issue positive statements about the ITT and its future prospects, shares of the company's stock steadily increased. Throughout this period, ITT insiders took advantage of the artificial inflation in the company's stock and sold approximately $8,455,385 of their personally-held shares to the unsuspecting public at artificially inflated prices. On February 25, 2004, ITT shocked the market when it announced that federal agents had raided the company's corporate headquarters in Indianapolis. The agents carried search warrants that were issued from a grand jury probe by the Southern District of Texas. According to the company, the investigation involved grand jury subpoenas of records concerning student placement, retention, graduation, attendance, recruitment, grades, graduates' salaries and transfers of students' credits to other colleges. Trading was halted throughout the morning. When trading resumed, shares of the company's stock fell to $38.50 per share, a decline of $18.90 per share, or approximately 33%, on extremely high trading volume.
If you purchased the securities issued by ITT Educational Services, Inc., you may request appointment by the court as a lead plaintiff if you do so by April 26, 2004. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that your claim is typical of the claims of other class members, and that you will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiff. Your ability to share in any recovery is not affected by the decision whether or not to serve as a lead plaintiff. You may retain any counsel of your choice to serve as you in this action, or you may choose to do nothing, and remain in the class as a silent member.
