The Honorable Mary Jo White Chairman Securities and ... - Politico

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Oct 21, 2015 - 2015. http://www.sec.gov/news/pressrelease/2015-‐86.html. ... 3013. http://www.gpo.gov/fdsys/pkg/CHRG-‐11
The Honorable Mary Jo White Chairman Securities and Exchange Commission 105 F Street NE Washington, DC 20549 October 21, 2015 Dear Chair White: We are writing to raise concerns about potential conflicts of interest in the matter of United States Securities and Exchange Commission v. ITT Educational Services, Inc., Kevin M. Modany, and Daniel M. Fitzpatrick. We urge you to take steps to ensure that potential conflicts of interest or preexisting personal relationships that might exist between counsel to the Defendants and Commission staff do not impede justice in this important enforcement matter. We commend the Commission for protecting investors, consumers, and students by charging ITT and its executives with fraud. As the Commission has previously noted, “Modany and Fitzpatrick should have been responsible stewards for investors but instead, according to our complaint, they engineered a campaign of deception and half-truths.”1 While the defendants are reportedly contesting the charges,2 ITT’s public filings suggest that they may be interested in settling the matter.3 As you have previously noted, “every agency needs to be concerned about both the fact and appearance of the so-called revolving door.”4 In this instance, we understand that counsel to the Defendants previously held leadership roles at the Commission, and believe it is important for the commission to take steps, and to be transparent about those steps, to prevent this fact from affecting, or appearing to affect, the outcome of the case. According to news reports, ITT, Modany, and Fitzpatrick reportedly retained former senior SEC officials5 to defend them against these charges:                                                                                                                         1

 Securities  and  Exchange  Commission:  SEC  Announces  Fraud  Charges  Against  ITT  Educational  Services.  May  12,   2015.  http://www.sec.gov/news/pressrelease/2015-­‐86.html.     2  Response  from  ITT:  http://www.ittesi.com/2015-­‐05-­‐12-­‐ITT-­‐ESI-­‐Will-­‐Fight-­‐The-­‐SECs-­‐Unfounded-­‐Charges;  response   from  Fitzpatrick:  http://www.usatoday.com/story/money/business/2015/05/12/itt-­‐educational-­‐services-­‐sec-­‐ fraud-­‐charges/27169703/;  response  from  Modany:  http://seekingalpha.com/article/3230586-­‐itt-­‐educational-­‐ services-­‐esi-­‐ceo-­‐kevin-­‐modany-­‐on-­‐q4-­‐2014-­‐results-­‐earnings-­‐call-­‐transcript?page=4.   3  The  Board  of  Directors  has  established  a  short-­‐term  compensation  plan  based  on  a  set  of  management   objectives.  The  first  of  these  objectives  is  to  “resolve  certain  outstanding  legal  and  regulatory  matters  involving  the   company.”  http://www.sec.gov/Archives/edgar/data/922475/000119312515221170/d938313ddef14a.htm   4  Hearing  before  the  Committee  on  Banking,  Housing,  and  Urban  Affairs  of  the  United  States  Senate.  March  12,   3013.  http://www.gpo.gov/fdsys/pkg/CHRG-­‐113shrg80698/html/CHRG-­‐113shrg80698.htm   5  Jenna  Greene:  SEC  Brings  Fraud  Case  Against  For-­‐Profit  College,  Two  Executives.  National  Law  Journal.  May  12,   2015.  http://www.nationallawjournal.com/id=1202726180104/SEC-­‐Brings-­‐Fraud-­‐Case-­‐Against-­‐ForProfit-­‐College-­‐ Two-­‐Executives?slreturn=20150630103517.  We  have  not  independently  verified  whether  each  party  is  still  

1.   ITT retained Brian Lane of Gibson, Dunn & Crutcher. Mr. Lane joined the firm after 16 years at the Commission. Mr. Lane served as Director of the Division of Corporation Finance, where he supervised over 300 staff members.6 He also served as counsel to a former SEC chairman and a former SEC commissioner. Gibson Dunn, & Crutcher noted that Mr. Lane “was the principal architect of some of the SEC’s most important regulatory developments.”7 2.   Kevin Modany retained Joan McKown of Jones Day. Ms. McKown joined the firm after 24 years at the Commission, including 17 years as Chief Counsel to the Enforcement Division, where “she played a key role in establishing enforcement policies at the agency.”8 Jones Day has touted that Ms. McKown “reviewed all enforcement recommendations sent to the Commission and actively participated in the Commission's consideration of all enforcement cases during her tenure.”9 3.   Daniel Fitzpatrick retained Frederic Firestone of McDermott Will & Emery. Mr. Firestone joined the firm after 12 years at the Commission, where he served as Associate Director of the Enforcement Division.10 The head of the firm’s Controversies Business Unit boasted that Mr. Firestone’s “experience initiating, leading and implementing a wide range of SEC investigations and settlements, coupled with his deep knowledge of the Commission, will be of incredible benefit to our clients.”11 We understand that it is common for former Commission staff to leverage experience gained during their government service to accept offers for lucrative jobs at law firms representing big corporations, such as ITT. But it is critically important that ITT’s victims and the public have confidence that nothing will interfere with the Commission’s effective enforcement of the law. We would kindly appreciate responses to the following inquiries:

                                                                                                                        retained  by  these  officials.  We  understand  that  Mr.  Modany  may  no  longer  be  represented  by  the  same  attorney   as  originally  reported.   6  Gibson  Dunn:  Brian  J.  Lane.  http://www.gibsondunn.com/lawyers/blane   7  PR  Newswire:  SEC  Corporation  Finance  Director  Brian  Lane  Joins  Gibson,  Dunn  &  Crutcher  LLP  as  Partner.   http://www.prnewswire.com/news-­‐releases/sec-­‐corporation-­‐finance-­‐director-­‐brian-­‐lane-­‐joins-­‐gibson-­‐dunn-­‐-­‐ crutcher-­‐llp-­‐as-­‐partner-­‐77328087.html   8  Jones  Day:  Joan  E.  McKown.  http://www.jonesday.com/jemckown/   9  Jones  Day:  Joan  E.  McKown,  former  Chief  Counsel  of  SEC's  Enforcement  Division,  joins  Jones  Day  in  Washington.   http://www.jonesday.com/joan-­‐e-­‐mckown-­‐former-­‐chief-­‐counsel-­‐of-­‐secs-­‐enforcement-­‐division-­‐joins-­‐jones-­‐day-­‐in-­‐ washington-­‐10-­‐05-­‐2010/   10  McDermott  Will  &  Emery:  Frederic  D.  Firestone.  http://www.mwe.com/Fredric-­‐D-­‐Firestone/   11  McDermott  Will  &  Emery:  High-­‐Ranking  Securities  &  Exchange  Commission  Enforcement  Officials,  Fredric  D.   Firestone  and  Michael  A.  Ungar,  To  Join  McDermott  Will  &  Emery.   http://www.mwe.com/news/uniEntity.aspx?xpST=NewsDetail&news=8882    

1.   Are there any Commission employees who may have a substantive involvement in this matter who served as a peer or direct report to Mr. Lane, Ms. McKown, or Mr. Firestone during their government service? 2.   To what extent will the Commission permit counsel to the Defendants to contact Commission staff that are not specifically assigned to the complaint against ITT, Modany, and Fitzpatrick? 3.   Large financial institutions have a number of business relationships with ITT and stand to benefit if the fraud charge is resolved with meager penalties. For example, JPMorgan Chase and Cerberus both have substantial credit arrangements with ITT.12 Has any Commission employee who may have a substantive impact on this matter held any former employment arrangement with JPMorgan Chase, Cerberus, or any other shareholder or creditor of ITT? Thank you again for your attention to this matter, which is of great importance to not only investors, but to students, veterans, and taxpayers. We will be monitoring this matter extremely closely. Respectfully, Higher Ed, Not Debt Veterans for Education Success Jobs with Justice Student Debt Crisis cc:

Hon. Arne Duncan, Secretary of Education

 

                                                                                                                       

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 Securities  and  Exchange  Commission  Form  8-­‐K.  December  4,  2014.   http://www.sec.gov/Archives/edgar/data/922475/000092247514000048/form8_k.htm