Uncovering the Truth About Who's Profiting from For-profit Education Regulation -- CREW

[Donnachaidh]

http://www.citizensforethics.org/blog/uncovering-truth-whos-profiting-forprofit-education-regulation

Today CREW asked Education Secretary Arne Duncan to investigate the role hedge funds and outside interest groups have played in the agency's formulation of highly contentious regulations governing the for-profit education industry. CREW's review of thousands of pages of documents, obtained through a lawsuit against Education under the Freedom of Information Act, reveals that hedge fund managers such as Steven Eisman - who made a name and a great deal of money for himself predicting the financial meltdown and shorting companies offering subprime mortgages - attempted to manipulate Education's regulatory process for personal financial gain. Mr. Eisman and his hedge fund FrontPoint were shorting the for-profit education industry at the same time he was trashing that industry during testimony before a Senate committee, and through lengthy industry analyses he shared with top Education officials.

When Mr. Eisman speaks, the markets listen: the price of for-profit education companies plummeted after both his May 26, 2010 speech before the Ira Sohn Investor Conference and his June 24, 2010 congressional testimony. His efforts at Education also paid off; Deputy Undersecretary Robert Shireman, who was leading the regulatory charge for Education, adopted Mr. Eisman's "Subprime Goes to College" theme, comparing the for-profit education industry to Wall Street firms responsible for the financial meltdown in a speech he gave shortly after reviewing Mr. Eisman's materials.

Even more troubling, Education officials knew short-sellers like Mr. Eisman were in it for the money. Blinded by their regulatory zeal, however, they allowed these outside interests to manipulate their regulatory process because it furthered their longstanding ultimate goal: implementing stringent regulations to govern the for-profit industry.

So why should we care that Wall Street investors are in bed with Education Department officials? For one thing, government agencies like Education wield enormous power, which includes the power to issue regulations that can have an enormous economic impact on those they regulate. This is certainly the case with Education's upcoming regulation of the for-profit education industry. As a check on that power, and to insure transparency and a level playing field, agencies are required to follow certain procedures, such as providing advance public notice of any proposed regulations and an opportunity for public comment.

More at the link --