U.S. Said to Probe Alleged Leak of For-Profit College Rules

The U.S. Education Department will investigate whether Wall Street investors had advance knowledge of proposed for-profit college rules that the agency released last year, according to a person briefed on the matter.

The probe by the department’s Office of the Inspector General will focus on whether short-sellers, who look to profit when stock prices fall, found out about the draft regulations before they were publicly announced, said the person, who declined to be identified. The rulemaking process itself won’t be investigated, the person said.

Senators Richard Burr of North Carolina and Tom Coburn of Oklahoma, both Republicans, sent a letter to Inspector General Kathleen Tighe in November requesting an inquiry of the proposed rules, called “gainful employment.” The regulations would tie for-profit colleges’ access to federal grants and loans to their former students’ incomes and loan-repayment rates.

The Inspector General’s office doesn’t confirm or deny the existence of investigations, said Sara Gast, an Education Department spokeswoman.

Coburn and Hall asked Tighe to look into e-mails between department officials and outside nonprofit educational organizations that gave a preview of proposed rules. Members of those organizations may have shared such information with short- sellers, the letter said. Short-sellers seek to profit by selling borrowed shares with the expectation of replacing them later at a cheaper price.

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