These Department officials appeared to have provided information about the substance and timing of the Department's gainful employment regulation to Wall Street investors who had "bet short" on the career college sector. The Coalition's request follows a comprehensive review of documents made available through Freedom of Information Act (FOIA) requests, which show repeated meetings and communications between short-sellers and the Department during the gainful employment regulatory rulemaking process.

Documents received by the Coalition reveal possible insider trading by known short-sellers Steve Eisman of FrontPoint Financial Services, Antal Desai of CPMG, Inc. and others. Information obtained by the Coalition suggests that these persons may have engaged in shorting the stocks of companies in the career college sector while in possession of material nonpublic information obtained from the Department.

"Despite the sensitive nature of the information involved, the Department developed extremely cozy relationships with several different short-sellers whose sole interest was harming the career college industry financially so they could profit from stock drops. Indeed, Department officials communicated secretly dozens of times with short-sellers concerning the details of the upcoming regulations," writes Jenner & Block, LLP, counsel for the Coalition.

The Coalition's letter to the SEC details numerous instances that appear to demonstrate that senior Department officials violated ethics rules by sharing nonpublic information concerning the timing and substance of the gainful employment regulations with short-sellers and their allies. Some examples include:

In an April 7, 2010 email, DOE Director of Workforce Development Ann Manheimer wrote to Antal Desai, a known short-seller with CMPG, Inc.: "The latest on timing for the NPRM is May." This information clearly could benefit Desai if he wished to take or increase a short position against career colleges.

In an email dated July 19, 2010 -- one week before DOE released its second NPRM -- Eisman sent an email to DOE's Budget Development Staff Director, David Bergeron. The subject line of Mr. Eisman's email reads, "I know you cannot respond," and the text states: "But just fyi. Education stocks are running [up] because people are hearing DOE is backing down on gainful employment." Bergeron forwarded the email with "high" importance to other DOE officials, one of whom in turn forwarded it to the confidential assistant to DOE Secretary Arne Duncan, writing, "Let's discuss."

Senior DOE officials met with Robert MacArthur, the president of Alternative Research Services, Inc., a Connecticut-based investment research firm hired by CPMG. Then, in February 2010, MacArthur sent an email to DOE officials and others aligned against career colleges, and attached a then recent GAO report critical of some career colleges. MacArthur stated in the email, "[t]he letter came out on the 23rd. I am not sure how widely distributed it is though. It may affect the stock prices in the industry if the market believes there will be increased scrutiny from various parts of the federal government."

Currently, the Department has withheld more than 90% of the documents requested by the Coalition. Since these instances were found with such a limited number of documents provided by the Department, one can only assume that these ethical and legal transgressions are merely the tip of the iceberg.

The Coalition's letter notes that Citizens for Responsibility and Ethics in Washington (CREW) sent the SEC letters dated February 9, 2011, and March 1, 2011, requesting an investigation and providing the agency with documents supporting their request. The Coalition also cites a May 2, 2011 letter from United States Senator Mike Enzi that urges the SEC to investigate and notes "troubling questions about the involvement of investor groups in the development" of the Department's regulations.

"Notwithstanding the lack of transparency into the short-sellers' involvement, the almost inescapable conclusion -- given the amount of time and resources short-sellers spent meeting and exchanging information with DOE officials -- is that the short-sellers gained inside information and/or influenced DOE to pass harsh regulations so as to depress the stock prices of career colleges to their own personal advantage," concluded the Coalition's letter.

About The Coalition for Educational Success

The Coalition for Educational Success includes many of the nation's leading career colleges, serving more than 350,000 students at 478 campuses in 41 states. Career colleges provide training for students in 17 of the 20 fastest growing fields. The Coalition advocates for policies that support wider access to higher education, particularly for non-traditional students including full-time workers, workforce returners, working parents, minorities and veterans. <div style="display:inline-block;overflow:hidden;width:1px;height:1px;"><img src="https://sww1.yellowbrix.com/images/content/cimage.nsp?ctype=full_story&id=39284&story_id=1167137416817838269&ip_id=46592&source_id=100121&session_id=SMARTPROS_ACCOUNTING&filter_id=88741&scrm=1" width=1 height=1></div>