The Coalition for Educational Success is urging the Securities and Exchange Commission to investigate possible insider trading by short-sellers who obtained material non-public information from U.S. Department of Education officials in violation of their ethical obligations. These Department officials appeared to have provided information about the substance and timing of the Department’s gainful employment regulation to Wall Street investors who had "bet short" on the career college sector. The Coalition’s request follows a comprehensive review of documents made available through Freedom of Information Act (FOIA) requests, which show repeated meetings and communications between short-sellers and the Department during the gainful employment regulatory rulemaking process.
Documents received by the Coalition reveal possible insider trading by known short-sellers Steve Eisman of FrontPoint Financial Services, Antal Desai of CPMG, Inc. and others. Information obtained by the Coalition suggests that these persons may have engaged in shorting the stocks of companies in the career college sector while in possession of material nonpublic information obtained from the Department.
"Despite the sensitive nature of the information involved, the Department developed extremely cozy relationships with several different short-sellers whose sole interest was harming the career college industry financially so they could profit from stock drops. Indeed, Department officials communicated secretly dozens of times with short-sellers concerning the details of the upcoming regulations," writes Jenner & Block, LLP, counsel for the Coalition.
The Coalition’s letter to the SEC details numerous instances that appear to demonstrate that senior Department officials violated ethics rules by sharing nonpublic information concerning the timing and substance of the gainful employment regulations with short-sellers and their allies. Some examples include: — In an April 7, 2010 email, DOE Director of Workforce Development Ann Manheimer wrote to Antal Desai, a known short-seller with CMPG, Inc.: "The latest on timing for the NPRM is May." This information clearly could benefit Desai if he wished to take or increase a short position against career colleges.