Inspector General Investigating US Education Dept Over Rules -Source
April 28 2011 - 11:40AM
Dow Jones News
The U.S. Department of Education's Office of Inspector General
has launched a probe into possible influence by short-sellers on
the Education Department's recent rulemaking process, according to
a person familiar with the matter.
The investigation may proceed for some time, and there is no
guarantee the OIG will make any specific findings.
In November, Sen. Richard Burr (R., N.C.) and Sen. Tom Coburn
(R., Okla.) sent a letter asking the OIG to look into possible ties
between the department and investors who were selling short the
stock of various for-profit companies. Correspondence between the
parties, which include FrontPoint Partners's Steve Eisman, had been
released by the department after Citizens for Responsibility and
Ethics in Washington, a watchdog group known as CREW, filed
requests under the Freedom of Information Act.
Additionally, lobbying groups supporting the for-profit colleges
have alleged the Education Department leaked early copies of the
rules to outside organizations and people with financial interests
in the industry.
The Education Department has come under fire from a number of
sources since it began issuing a package of new rules last summer
that will affect for-profit college operators such as Apollo Group
Inc. (APOL), ITT Educational Services Inc. (ESI) and Corinthian
Colleges Inc. (COCO). The Education Department released 13 of 14
rules in October but has yet to release the most controversial,
which would tie graduates' student-loan repayment rates to
programs' access to federal financial aid.
That final rule has seen strong opposition from lobbyists and a
number of members of Congress, as many schools fear they may face
program closures if they lose access to the funds. The U.S. House
of Representatives voted last month to de-fund the so-called
gainful employment rule, but it was later dropped from the final
budget bill.
The Education Department said earlier this month it was "very
close" to issuing the final rule, which will be "much more
thoughtful" than an early draft. The department has said it sought
input from a number of parties, including the schools that could be
affected by the rules.
Eisman, the hedge fund portfolio manager famous for his bearish
bet on the mortgage industry, likened for-profit schools to
sub-prime mortgages at an investor conference in May. He sent a
copy of that presentation to the Education Department, according to
documents released by CREW, and repeated many of the criticisms in
front of a Senate committee hearing in June.
A representative from the Education Department referred
questions to the OIG. An OIG representative wasn't immediately
available for comment.
The OIG investigation was first reported Thursday in The Daily
Caller, also citing sources.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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