It appears Wall Street obtained inside information from the Dept. of Education in advance of the DoED’s release of new rules and regulations governing for profit schools. This is not a mere conspiracy theory hatched by my tiny brain. It’s actually a matter that was raised with the Department of Education (DoED) back in April of this year by Citizens for Responsibility and Ethics in Washington (CREW) who believe there is sufficient evidence to justify an investigation of the DoEd regarding a senior official who resigned from the DoED last year and may have been involved along with others in passing sensitive information about the DoED’s proposed regulations for the Privatize Education Industry to Wall Street short sellers:
… Citizens for Responsibility and Ethics in Washington (CREW) sent a letter to Department of Education (DOE) Inspector General Kathleen S. Tighe asking for an investigation into the department’s consultant agreement with former Deputy Undersecretary Robert Shireman. Mr. Shireman left his government job in June of 2010, but was immediately hired as a paid intermittent consultant to Education’s Office of Federal Student Aid. […]
“Mr. Shireman got one heck of a deal: benefits available to federal employees without the bother of a full-time job,” said CREW Executive Director Melanie Sloan. “Given his role in the growing scandal that shows the cozy relationship between DOE officials and Wall Street short-sellers, the inspector general needs to take a look at this arrangement and find out who agreed to it and why.”
… An investigation by CREW has uncovered records that show extensive contact between DOE officials and Wall Street investors. Particularly troubling were the many emails that revealed short-sellers were influencing proposed regulations in a way that stood to drive down the stock price of for-profit colleges and allow investors to reap huge profits.
This scandal hasn’t disappeared. CREW twice contacted the Secretary of Education Arne Duncan to examine the improper influence on Education’s regulatory process as well as requesting the SEC open an independent investigation of the DoED’s role in possible market manipulation by Wall Street insiders, but so far no one other than the DoED’s Inspector General has stated she will pursue the matter according to this story paosted at the Project on Government Oversight (POGO) website on June 13th.
[F]ollowing the widely-reported announcement of a new DoED rule governing companies in the lucrative, for-profit education sector, DoED Inspector General (IG) Kathleen Tighe will be the first and perhaps the only person to look into controversial claims that may implicate the office of Education Secretary Arne Duncan.
“I am confident that the independent audit we are conducting will address the issues that have been raised,” Tighe told POGO.
Among other things, Tighe will examine whether confidential DoED information and draft documents, including one produced by her own office, were transferred to Wall Street short-sellers seeking informational advantage in their bets on the future of the $35 billion for-profit education industry.
The Project on Government Oversight post reveals that documents from a Freedom of Information Act request show numerous contacts between DoED officials and WALL Street investors. Indeed, their interest in obtaining this information in advance of the release of the regulatory scheme regarding the For-Profit Educational Industry is not hard to fathom. According to POGO’s report, the stock prices of many for profit education companies rose dramatically after the announcement of the new rules. One company’s stock rose 25% overnight. The value of the stock for the parent company of Phoenix University increased by roughly $700 million the day the new rules were released. So, one can see why Wall Street players would have wanted an early insight into the content of the rules so that they could “place their bets” accordingly.
Not surprisingly Republican and Conservative political figures such as Grover Norquist have been quick to jump on this budding scandal (there is a Democratic Administration in power, after all). However, both POGO and CREW, are respected independent watchdog organizations with no apparent financial ties to right wing organizations or corporations. From SourceWatch:
The Project on Government Oversight, othersize known as POGO, began as the Project on Military Procurement. The organization “worked to expose outrageously overpriced military spending such as the $7,600 coffee maker and the $436 hammer. After many successes reforming the military, POGO expanded its mandate to investigate systemic waste, fraud, and abuse in all federal agencies.” […]
“POGO’s organizational funding comes primarily from foundation grants and individuals. In order to preserve our independence, POGO does not accept any contributions from the federal government, corporations, unions, or anyone with a financial interest in the outcome of our investigations.”
I doubt either organization is much effected by the blather of right wing noisemakers eager to make political hay. They are serious about government oversight as their past history during the Bush years demonstrated.
I certainly hope that the extent of any investigation shows it is limited to a small number of individuals at DoED, but I have to be concerned with the number of issues of concern and incidents of “poor judgment” that have occurred at the DoED, all of which happened on Secretary Duncan’s watch. For example there was his support of the documentary “Waiting for Superman” and its director. Duncan praised its release as a “Rosa Parks” moment despite the fact that the film has come under heavy criticism for placing much of the blame for our educational system’s failure on teachers unions and promoted privatization as the answer to our educational woes.
This scandal may be the most egregious yet, however, for which Secretary Duncan bears responsibility, and so far the DoED’s own Office of the Inspector General (OIG) is the only entity investigating the matter. At the very least that opens up Secretary Duncan and DoED to allegations of a whitewash, especially since one of the leaked documents allegedly came came from the Department of Education’s Office of Inspector General:
In an on-the-record session, POGO presented the IG with a few of the more unusual documents to pop out of the controversy. The documents offer apparent evidence of multiple leaks of confidential information from DoED officials to speculators, and at least one apparent leak of a market-sensitive, confidential audit generated by IG [Kathleen] Tighe’s own office.
“I do not believe the leak involved anyone here [in the IG’s office],” Tighe told POGO.
Asked repeatedly if she would explore the possibility that members of Secretary of Education Arne Duncan’s staff might have been responsible, she offered no comment, saying only hat her broad-ranging inquiry—which also covers guidelines for contact between DoED personnel and outsiders—is expected to conclude over the summer.
That doesn’t give me much confidence that (1) Inspector General Tighe’s investigation will be wide ranging and inclusive, or (2) that Secretary Duncan and/or members in his staff were not involved in passing along inside government information to Wall Street contacts. This is particularly the case when she made these remarks after being shown the incriminating documents by POGO such as this one:
The first of the series of FOIA documents showed to IG Tighe demonstrates the apparent prevalence of leaks at DoED. It begins with an April 7, 2010, email from Ann Manheimer, DoED’s Director of Workforce Development, to Antal Desai, the head of CPMG, a Houston-based short selling firm. […]
“Nice to speak with you today,” Manheimer’s emailed the short seller, who has no credentials in the field of education. “Suggest you send me your concepts [on the proposed new regulation]—by mid April if possible.” (Other FOIA’d documents show extensive consultation between DoED officials and short sellers, as the two sides shared opinions and discussed policy issues.)
Manheimer next informs Desai that the “The latest timing for the NPRM [Notice of Proposed Rule Making] is May (2010)—that is where there will be specific language to respond to during the comment period—subject to change, of course, Thx—Ann.”
Apart from the propriety of Manheimer’s communication with a Wall Street speculator, a week later, some of the same information she gave him showed up in a Morgan Stanley investment report.
Some of the documents shown to DoED Inspector General Tighe can be viewed here and here.
CREW also has a link to exhibits to the letter it sent Secretary Arne Duncan, which go into greater detail regarding the specifics of the alleged leaked documents and other information exchanged with Wall Street short sellers and hedge fund managers (in particular, Steven Eisman of FrontPoint) here. The picture they paint is one of the heavy reliance upon and cooperation with a number of Wall Street operators who were clearly using their access and involvement with DoED senior officials to attempt to obtain a financial benefit in the markets. I urge you to review the CREW exhibits since they do a far better job of showing the nature and extent of this scandal than I can here.
In light of the foregoing, maybe its time for Arne Duncan to step down as Secretary of Education, or at a minimum take a leave of absence, until a fully independent investigative authority, such as at the SEC or DOJ, can get to the bottom of the leaky ship Secretary Duncan has been steering at DoED.