The bankruptcy trustee for ITT Educational Services Inc., Deborah Caruso, has sued five credit unions — Indianapolis-based Eli Lilly Federal Credit Union (now Elements Financial Federal Credit Union); Greenwood Village, Colo.-based BellCo Credit Union; Wichita, Kan.-based Credit Union of America; Sylvania, Ohio-based Directions Credit Union; and Waterloo, Iowa-based Veridian Credit Union — for their alleged role in helping the former management of the college chain boost executive pay while eventually making ITT insolvent, The Wall Street Journal reported March 31.
Also sued was a consortium formed by the credit unions called Student CU Connect and consulting group The Rochdale Group Inc.
The suit stems from a private student-loan program that started in 2009, where ITT executives allegedly used Student CU Connect — which was created through Rochdale — to move off bad loans from ITT's balance sheet, according to the Journal. The suit seeks to nullify the $157 million the group of credit unions claims it is owed by ITT, reclaim $42.6 million in payments already made to the credit unions, and avoid or recover at least another $25 million.
The suit also claims that along with ITT management, the credit unions knew the impact of the Student CU Connect program, thus defrauding the government by aiding and abetting the school's management in their breach of fiduciary duties, as ITT's loans were largely government-backed, according to the report.
Richard Bernard, whose firm Foley & Lardner LLP represents the defendants in the lawsuit, told the Journal that the allegations have no merit, and that the credit unions would vigorously defend themselves in court. The news outlet also sought statements from ITT's former executives, who did not respond to requests for comment.
ITT loans have long been controversial. In early 2014, the college chain was sued by the Consumer Financial Protection Bureau, accusing ITT of exploiting its students and drove them to take out loans that they would likely default on.