Documents uncovered by Citizens for Responsibility and Ethics in Washington (CREW) through a lawsuit against the Department of Education show that Wall Street investors have been working with high-ranking Education officials to craft regulations, allowing them to net millions of dollars through the short sale of for-profit college stocks. Even more disturbing, these newly discovered records reveal senior Education officials knew these investors – with no policy expertise – were pushing regulations for their own personal financial gain, but continued to work with them anyway.

As a result, CREW has 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. “Under these circumstances, how can Americans have any real confidence that the resulting regulations are really in their best interests, not just Wall Street’s?”

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. Education initially stonewalled, forcing CREW to sue for the documents. Ultimately, Education provided thousands of pages of material revealing the depth of involvement of Wall Street investors in crafting regulations.

“While certainly, there is reason to be skeptical of regulations crafted by Wall Street investors with no policy expertise working arm-in-arm with federal officials, the bigger question is where else is this happening?” Ms. Sloan said. “Logic dictates Mr. Eisman is not the only investor to manipulate agency processes for his own financial benefit. Americans deserve to know whether Wall Street investors have pushed regulatory changes at other federal agencies in order to impact stock prices and make money.”

Click here to read CREW’s letter to Secretary Duncan.

Click here to see CREW’s exhibits.

Update: Click here to read the response from the Department of Education (03/04/11).

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