Senator Charles E. Grassley is examining whether Education Department officials disclosed confidential government information to hedge fund managers, including the well-known stock picker Steve Eisman.
The inquiry stems from the agency’s recent efforts to overhaul the for-profit collegeindustry, which has been accused of saddling students with huge piles of debt. Expecting tough new rules in the wake of the controversy, Mr. Eisman and other hedge fund traders placed huge bets against the industry. In a letter this week, Mr. Grassley questioned the education secretary, Arne Duncan, about the agency’s ties to the hedge fund world and the lack of policies restricting contact with Wall Street players.“If it is indeed the case that Department of Education employees were on familiar terms with hedge fund short-sellers, this raises serious questions regarding the internal controls,” Mr. Grassley, Republican of Iowa, said in the letter. “My concerns center on the possibility that senior Department of Education staffers may have provided information to short-sellers during the time leading up to the public release” of new regulations.
Hey, look, Grassley's a Republican, OK? Obviously, there's nothing here. Hedge fund managers are interested in eduction out of altruism, right?The Education Department’s internal watchdog is already looking into whether certain traders influenced the for-profit college rules. Senator Joseph I. Lieberman, an independent from Connecticut, wrote to Mr. Duncan in April to request an update on the outcome of that investigation.Mr. Eisman — the former manager at FrontPoint Partners who made a fortune betting against subprime mortgages — was one of several investors to lobby the agency about the potential regulations. In an e-mail sent to agency officials in May 2010, he pushed for tough new restrictions on the colleges, according to agency documents reviewed by The New York Times.Last month, a report by the Project on Government Oversight, a nonprofit watchdog group, raised questions about Wall Street’s influence over the agency. The group obtained several e-mail chains between agency officials and hedge fund traders who discussed the for-profit college rules.