Citizens for Responsibility and Ethics in Washington (CREW), a non-profit watchdog, has claimed that they have uncovered documents that reveal association of Wall Street investors with high-ranking Education officials to craft regulations, allowing them access to net millions of dollars through the short sale of for-profit college stocks.
A press release by the organization indicates that high-level Education officials with no policy expertise are involved in the scam.
In the last couple of months, for-profit organizations have faced close scrutiny for their questionable recruiting tactics, low placement rates, low pass-out rates and high loan-default rates. This has attracted considerable attention from the government as these colleges are bringing in high amounts of federal-aid money.
Due to government investigations, these colleges have suffered in terms of revenue due to low student enrollment.
In fact, a law was proposed wherein education companies receiving over 90 percent of their revenue from the Education Department’s student grants and loans for two consecutive years will lose eligibility for the money.
Being the biggest source of revenue, the colleges urged the U.S. Congress to reconsider the law that threatened their access to millions of dollars.
As per the press release, CREW states that the rules are a ploy to lower the stock value of the publicly-traded companies that operate for-profit colleges so that savvy short sellers can cash in.
The Washington-based advocacy unit asked Education Secretary Arne Duncan to investigate the improper 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.
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 Mr. Eisman.
Cornered, the Education department finally had to provide pages of material revealing the depth of involvement of Wall Street investors in crafting regulations.
The Huffington Post was quoted saying that a Department of Education spokesman dismissed the allegations as "patently ridiculous," adding that officials gather information from a wide range of sources in drafting all regulations, including members of the for-profit sector.
All the allegations have not been substantiated as of now, and much depends on further investigations.