A bankruptcy judge yesterday temporarily barred regulators from continuing litigation against ITT Educational Services Inc., questioning whether there is any point in calling the defunct school operator to account for alleged fraud, the Wall Street Journal reported today. “If you want to punish and deter ITT, you ought to be bringing criminal actions,” Judge James Carr said during a hearing in U.S. Bankruptcy Court in Indianapolis. The operator of the ITT Technical Institute chain of schools closed in September after federal authorities yanked its authority to run on taxpayer-backed student loans. At the time, the Securities and Exchange Commission, the Consumer Financial Protection Bureau and the state of New Mexico accused ITT Tech of defrauding students and investors in connection with its private-loan programs. Massachusetts also sued, accusing ITT Tech of misleading students with false graduation and job-placement statistics. The bankruptcy filing that followed started a process in which a judge must balance competing demands to a finite pool of cash and manpower. The judge said yesterday that the regulatory crackdown has to take a back seat to other bankruptcy business, at least until Dec. 21, when he will take up the question again. The SEC and CFPB wanted to steam ahead with the litigation as a demonstration to others in the for-profit education industry that bankruptcy won’t immunize companies involved in the alleged mistreatment of investors and consumers.
