On Wednesday, Reuters reported that the Department of Education sent the highly controversial "gainful employment" regulation to OMB for final review.
Ever since CREW first learned noted short-seller Steve Eisman was pushing for a gainful employment regulation, we have been trying to uncover the extent to which Wall Street investors with a financial interest in for-profit colleges have been involved in Education’s rulemaking process. This regulation is likely to have a huge financial impact on for-profit colleges; hints about the extent of the regulation have been enough to drive down industry stock prices. At the same time, declining stock prices may create windfalls for short-sellers.
CREW sent numerous Freedom of Information Act requests to Education and sued the department for failing to produce the requested records. Over the course of the past year, we have uncovered a number of documents revealing Education officials working on the regulations were communicating with Wall Street investors about them. As a result, CREW asked Education Secretary Arne Duncan to investigate problems in the department’s rulemaking process and the SEC to look into potential market manipulation.
Our calls have been echoed by members of Congress. In November, Senators Richard Burr (R-NC) and Tom Coburn (R-OK) asked Education Inspector General Kathleen Tighe to investigate whether protocols governing the federal rulemaking process had been followed. In April, Sen. Joseph Lieberman (I-CT) expressed similar concerns in a letter to Secretary Duncan and asked to be kept informed of the outcome of the inspector general’s investigation. And yesterday, Sen. Mike Enzi (R-WY), sent a letter to the director of the enforcement division of the SEC asking for an investigation into whether investors with a financial interest in the outcome of the rulemaking process had engaged in inappropriate communications with Education officials. Further, a bipartisan group of over 100 members of Congress sent a letter to President Obama requesting that Education withdraw the proposed gainful employment regulation.
Given the ongoing IG investigation, the potential for an SEC investigation, and the significant congressional concern, why rush the regulation out? What if the IG investigation reveals the regulation was, as it appears, improperly promulgated? Would it then be revoked? Public confidence in Education’s regulatory process has been shaken. The department would do well to wait for the results of the IG investigation before deciding whether and when to publish the gainful employment regulation.