Wall Streeters Influencing Regulation of For-Profit Schools?

A Washington public-interest group says documents it has uncovered show questionable collusion between Wall Street investors and U.S. Department of Education officials who are working to draft rules governing for-profit education companies.

Citizens for Responsibility and Ethics in Washington (CREW) says documents it unearthed through a lawsuit show that Wall Streeters have been working with high-ranking Education officials to craft regulations that would allow them to net millions of dollars through the short sale of for-profit college stocks.

The records indicate that senior Education officials knew these investors - with no policy expertise - were pushing regulations for their own personal financial gain, but continued to work with them anyway.

As a result, CREW said, it has asked Education Secretary Arne Duncan to investigate the role hedge fund managers and outside interest groups played in Education's formulation of highly contentious regulations governing the for-profit education industry.

"Education officials allowed Wall Street investors to insinuate themselves into the regulatory process knowing full well their main goal was to manipulate stock prices to make money," said CREW Executive Director Melanie Sloan.  "Under these circumstances, how can Americans have any real confidence that the resulting regulations are really in their best interests, not just Wall Street's?"

An Education Department spokesman denied that there was anything improper in the meetings.

"We met with as many people as possible with relevant information — including representatives of the for-profit industry and others — as part of our efforts to protect the interest of students and taxpayers," said the spokesman in a statement to the Wall Street Journal. "We feel very confident with the integrity of our process."

For-profit education has exploded in recent years, as Americans look to get an edge up in the shaky job market. But the results are mixed, with many students complaining their degrees and certificates are worthless and many defaulting on their student loans.

Taxpayers are footing the bill for much of this, as many for-profit schools get 90% of their revenue from government aid to their students, including grants and student laons.

The Government Accountability Office (GAO) reported last year that 15 for-profit education institutions it examined made questionable claims in their marketing materials.

Short-sellers

Tipped off by well-known short-seller Steven Eisman's testimony regarding for-profit colleges last June before a Senate committee, CREW sought emails and other records regarding interactions between Education officials and Wall Street investors, including

Education initially stonewalled, CREW said, forcing the organization to sue for the documents.  Ultimately, Education provided thousands of pages of material revealing the depth of involvement of Wall Street investors in crafting regulations.

"While certainly, there is reason to be skeptical of regulations crafted by Wall Street investors with no policy expertise working arm-in-arm with federal officials, the bigger question is where else is this happening?" Sloan said. 

"Logic dictates Mr. Eisman is not the only investor to manipulate agency processes for his own financial benefit," she said.  "Americans deserve to know whether Wall Street investors have pushed regulatory changes at other federal agencies in order to impact stock prices and make money."