Education Dept. inspector general investigating influence of Wall Street short sellers on regulations

The Education Department’s inspector general is investigating Wall Street short sellers’ role in strict new regulations of the for-profit college sector, sources confirm to The Daily Caller.

The investigation could reveal the extent to which the investors, who are hoping to profit when the for-profit firms’ stock goes down, influenced the process or received advance knowledge about regulatory actions by the department.

The for-profit schools, also called career colleges, are on the block for strict new rules following complaints they often trick unprepared students into enrolling with false promises of high wages from the jobs they’ll get after graduation.

Industry representatives say the charges are overblown and warn the regulations will decimate the sector, rather than reform it.

The most contentious new rule, known as “gainful employment,” is still being finalized at the Education Department.

In one sense, the Inspector General’s investigation is not surprising because two key senators requested an investigation on the subject in November.

Sens. Tom Coburn, Oklahoma Republican, and Richard Burr, North Carolina Republican, sent a letter requesting the investigation to Education Department Inspector General Kathleen Tighe Nov. 17.

“Documents indicate the Department may have leaked the proposed regulations to parties supporting the Administration’s position and investors who stand to benefit from the failure of the propietary school sector,” the senators wrote, “We believe an independent investigation will provide additional transparency surrounding the actions taken by Department officials.”

Ann Weismann, the chief counsel at Citizens for Responsibility and Ethics in Washington (CREW), a watchdog group that has led the investigation of the influence of the short-sellers on the regulations alongside representatives of the for-profit schools, said the inspector general’s investigation is “significant.”

“First, the Department has given a very bland, across the board assurance that everything is fine, suggesting that no one inside the department wanted to take a hard look,” Weisman said, “second, since the congressional request, we have uncovered more evidence of a collusive effort to give people advance knowledge.

CREW is involved in ongoing litigation regarding document requests under the Freedom of Information Act to the agency, and recently received scores of new documents the group is still reviewing.

Cathryn Grant, a spokeswoman for Inspector General Tighe, said “as per policy, we neither confirm nor deny ongoing investigations.”