Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 1 of 28

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From: Anne Weismann [[email protected])

Sent: Friday, July 23, 2010 8:42 AM
To: ED FOrA Manager
Subject: Freedom of Information Act Request
Attachments: FOIA 7-23-10.pdf

FOJA Public Liaison: Enclosed please find a Freedom of Information Act Request from Citizens for Responsibility and
Ethics in Washington (CREW). Please contact Anne Weismann at 202-408-5565 with any questions. Anne Weismann

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 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 2 of 28

CREW I citizens for responsibility

and ethics in washington

July 23, 2010

By Email: [email protected] and Fi"l-Class Mail

U.S. Department of Education

Office of Management
Regulatory Infonnation Management Services
400 Maryland Avenue, S.W., LBJ 2W220
Washington, D.C. 20202-4536
Attn: FOIA Public Liaison

Re: Freedom of Infonnation Act Request

Dear FOIA Public Liaison:

Citizens for Responsibility and Ethics in Washington (CREW) makes this request for
records, regardless of forma!, medium, or physical characteristics. and including electronic
records and information, pursuant to the Freedom of Information Act, (FOIA), 5 U.S.C. § 552,
and U.S. Department of Education (Education) FOlA Regulations, 34 C.F.R. §§ 5.1, et seq.

Specifically, CREW seeks any and all records of or reflecting communications from April
20,2009, to the prescnt to, from, andlor between officials at Education regarding for·profit
education and any and all of the following:

(1) Mr. Steven Eisman;

(2) Any or all individuals identified as officers, directors, or employees of
FrontPoint Partners, LLC;
(3) Any or all individuals identified as officers, directors, or employees of Morgan
Stanley Investment Management, Inc.;
(4) Deputy Undersecretary of Education Robert Shireman;
(5) Ms. Pauline Abernathy;
(6) Any or all individuals identified as officers, directors. or employees of the
Institute for College Access and Success;
(7) Mr. Bannak Nassirian;
(8) Any or all individuals identified as officers, directors, or employees of the
American Association of Collegiate Registrars and Admissions Officers;
(9) Mr. Manuel P. Asenio;
(10) Any or all individuals identified as officers, directors, or employees of The
Alliance for Economic Stability;
(11) Ms. Johnetle McConnell Early.

1400 Eye Street, N.W., Suite 450, Washington, D.C. 20005 I 202.408.5565 phone I 202.588.5020 fax I ,_.
www.citizensforetilk:s.org
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 3 of 28

FOIA Public Liaison

July 23, 2010
Page Two

Please search for records regardless of fonnat, medium, or physical characteristics. We

seek records of any kind, including electronic records, audiotapes, videotapes, photographs, and
back-up tapes. Our request includes any telephone messages, voicc mail messages, daily agenda
and calendars, information about scheduled meetings and/or discussions, whether in-person or
over the telephone, agendas for those meetings and/or discussions, participants included in those
meetings and/or discussions, minutes of any such meetings and/or discussions, e-mail or
facsimiles sent as a result of those meetings and/or discussions, and transcripts and notes of any
such meetings and/or discussions to the extent they relate to the aforementioned requested
information.

If it is you position that any portion of the requested records is exempt from disclosure,
CREW requests that you provide an index of those documents as required by Vaughn v. Rosen,
484 F.2d 820 (D.C. Cir. 1973), cert. denied, 415 U.S. 977 (1972). As you are aware, a Vaughn
index must describe each document claimed as exempt with sufficient specificity "to permit a
reasoned judgment as to whether the material is actually exempt under FOIA." Founding
Church ofScientology v. Bell, 603 F.2d 945, 959 (D.c. CiT. 1979). Moreover, the Vaughn index
must "describe each document or portion thereof withheld, and for each withholding it must
discuss the consequences of supplying the sought-after-information." King v. u.s. Dep't of
Justice, 830 F.2d 210, 223-24 (D.C. Cir. 1987) (emphasis added). Further, "the withholding
agency must supply 'a relatively detailed justification, specifically identifying the reasons why a
particular exemption is relevant and correlating those claims with the particular part of a
withheld document to which they apply. ,.. Id. at 224. citing Mead Data Central v. u.s.Dep't of
the Air Farce, 566 F.2d. 242, 251 (D.C. Cir. 1977).

In the event some portions of the requested records are properly exempt from disclosure,
please disclose any reasonably segregable non-exempt portions In accordance with 5 U.S.c. §
552(b). Ifit is your position that a document contains non-exempt segments that are so dispersed
throughout the document as to make segregation impossible, please state what portion of the
document is non-exempt and how the material is dispersed throughout the documents. Mead
Dala Central, 566 F.2d at 261. Claims of non-segregability must bc made with the same degree
of detail as required for claims of exemption in a Vaughn index. If a request is denied in whole,
please state specifically that it is not reasonable to segregate portions of the record for release.

Public Interest Fee Waiver Request

In accordance with 5 U.S.c. § 552(a)(4)(A)(iii) and 34 C.F.R. § 5.64, CREW requests a

waiver of fees associated with processing this request for records. The subject of this request
concerns the operations of the federal government and the disclosures likely will contribute to a
better understanding of relevant government procedures by CREW and the general public in a
significant way. Moreover, the request is primarily and fundamentally for non-commercial
purposes. 5 U.S.C. § 552(a)(4)(A)(iii). See, e.g., McClellan Ecological v. Carlucci, 835 F.2d
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 4 of 28

FOIA Public Liaison

July 23, 2010
Page Three

1282,1285 (9" CiT. 1987).

Specifically the requested records will inform the public about the role of Education in
the controversy over the forMprofit education industry and the extent to which Education has
knowingly relied on, or been manipulated by, the views of individuals who seek to advance their
financial interests in the for~profit industry by publicly criticizing certain for-profit education
entities and companies. For example, a recent news article chronicles efforts by Johnette
McConnell Early, who works for a financial firm that pays her to investigate for~profit schools,
to solicit signatures on a letter to Secretary of Education Arne Duncan pledging support for
Education's efforts to tighten regulation of the for-profit education industry. Sharona Coutts,
Investment FWlds Stir Controversy over Recruiting by For-Profit Colleges, ProPublica,.July 9,
2010 (attached as Exhibit A). One signator, when informed of Ms. Early's financial conflict of
interest - which she failed to disclose - noted: '''I think it's sleazy to basically use me and use
other executive directors that have a real issue to make a profit for some companies,", Id.

The motives of another individual with financial interests in the for~profit education
industry, Steven Eisman, also were called into question when he offered testimony very critical
of that industry before a Senate education subcommittee. Id.; see also Chris Frates, Short Sellers
Flag School Stocks, Politico, June 30, 2010 (attached as Exhibit B). Mr. Eisman, as a hedge
fund manager who short sells the for-profit education industry, warned Congress that for-profit
schools arc at risk for the same kind of catastrophic market crash that hit the subprime mortgage
industry. ld. These efforts come at a time when Education is contemplating regulations intended
to rein in perceived abuses in the federal financial aid program and that have the potential to
impact significantly the forMprofit education industry. See Jennifer Epstein, 'Bad Apples" or
Something More?, Inside Higher Ed, June 24, 2010 (attached as Exhibit C). The public deserves
to know the extent to which these individuals and others have influenced or attempted to
influence Education's regulatory proposals.

CREW is a non~profit corporation organized under section SOl(c)(3) oftbe Internal

Revenue Code. CREW is committed to transparency in government and protecting the citizen's
right to be aware of the activities of government officials and to ensuring the integrity of those
officials. CREW uses a combination of research, litigation, and advocacy to advance its mission.
The release of information garnered through this request is not in CREW's financial interest.
CREW will analyze the information responsive to this request, and will share its analysis with
the public, either through memoranda, reports, or press releases. In addition, CREW will
disseminate any documents it acquires from this request to the public through its website,
www.citizensforcthics.org .. which also includes links to thousands of pages of documents
CREW has acquired through its multiple FOIA requests as well as documents related to CREW's
litigation and agency complaints, and through www.scribd.com.
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 5 of 28

ForA Public Liaison

July 23, 2010
Page Four

Moreover, CREW has a demonstrated interest in the subject of this request and a
demonstrated history of publicly disseminating infonnation on the for-profit education
controversy to the public. On July I, 2010, CREW sent a letter to Chainnan Tom Harkin of the
U.S. Senate Committee on Health, Education, Labor and Pensions, expressing concerns about the
Committee allowing Steven Eisman to testify on the state of the for-profit education industry,
given his apparent financial conflicts of interest (attached as Exhibit D). CREW sent a follow-up
letter to Chainnan Harkin on July 14, 2010, after reports surfaced of other efforts to manipulate
the federal government into increasing the regulation of [or-profit colleges (attached as Exhibit
E). Advocating greater transparency in the industry and efforts to regulate the industry, CREW
stated in its July 14 letter:

those advocating greater regulation also must be transparent

about their tactics and motives. Otherwise, serious questions
arise as to exactly who is engaged in abusive conduct to maximize
private financial benefits: the for-profit educational industry, or those
raising the alarm about the industry. Americans need to have confidence
that legislative and regulatory processes are not being manipulated for
private financial gain.

See Exhibit E.

Under these circumstances, CREW satisfies fully the criteria for a fcc waiver.

News Media Fee Waiver Request

CREW also asks that it not be charged search or review fees for this request because
CREW qualifies as a "representatives of the news media" pursuant to the FOIA, 5 U.S.c. §
552(a)(4)(A)(ii)(Il). In Nal '[ Sec. Archive v.u.s. Dep'l ofDefense, 880 F.2d 1381, 1386 (D.C.
Cir. 1989), the U.S. Court of Appeals for the D.C. Circuit found the National Security Archive
was a representative ofllie news media under the FOIA. As the court reasoned, the FOIA's
legislative history indicates the phrase "representative of the news media" is to be interpreted
broadly "if the act is work as expected ... In fact, any person or organization which regularly
publishes or disseminates information to the public . .. should qualify for waivers as a
'representative ofthe news media. ", Id., citing 132 Congo Rec. S14298 (daily cd. Sept. 3.0, 1986)
(emphasis in original).

CREW routinely and systematically disseminates infonnation to the public in several

ways. First, CREW maintains a frequently visited website, www.citizensforcthics.org, that
received 46,927 page visits and 21,949 site visits in June 2010. In addition, CREW posts all of
the documents it receives under the FOrA on www.scribd.com. and that site has received
249,533 visits to CREW's documents sinee April 14, 2010.
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 6 of 28

ForA Public Liaison

July 23, 2010
Page Five

Second, since May 2007, CREW has published an online newsletter, CREWCuts, that
currently has 15,651 subscribers. CREWCuts provides subscribers with regular updates
regarding CREW's activities and information the organization has received from government
entities. A complete archives of past CREWCuts is available at
http://www.cirizensforethics. org/news letter.

Third, CREW publishes a blog, Citizens blogging/or responsibility and ethics in

Washington that reports on and analyzes newsworthy developments regarding government ethics
and corruption. The blog, located at http://www.citizensf'(xethics.orglblog. also provides links
that direct readers to other news articles and commentary on these issues. CREW's blog had
2,644 hits in June.

Finally, CREW has published numerous reports to educate the public about government
ethics and corruption. Examples include: The RevolVing Door, a comprehensive look into the
post-government activities of 24 former members of President Bush's cabinet; 2008 Top Ten
Ethics Scandals; 2008 Most Embarrassing Re-Elecled Members a/Congress; and Those Who
Dared: 30 Officials Who Slood Up For Our Country. These and all other CREW reports are
available at http://www.citizensforethics.orglreports.

Based on these extensive publication activities, CREW qualifies for a fee waiver as a
"representative of the news media" under the FOrA.

If you have any questions about this request or foresee any problems in releasing fully the
requested records please contact me at (202) 408-5565. Also, if CREW's request for a fee
waiver is not granted in full, please contact me immediately upon making such a dctcnnination.
Please send the requested records to Anne L. Weismann, Citizens for Responsibility and Ethics
in Washington, 1400 I Street, N.W., Suite 450, Washington, D.C. 20005.

Sincerely,

Anne L. Weismann
Chief Counsel

Enclosures
Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 7 of 28

EXHffiITA
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 8 of 28
Investment FWlds Stir Controversy Over Recruiting by For-Profit Colleges ~ ProPublica Page 1 of 5

RO ,PUBLICA
--,j/

For-Profit Schools

Investment Funds Stir Controversy Over

Recruiting by For-Profit Colleges
by Sharona Coutts
ProPubfica,July 9.12:02 p.m.

Nancy Panico runs a large center for homeless and at~risk

youth in Tucson, Ariz. About a year ago, a woman
contacted her with some questions about for~profit
schools that have tried to recruit homeless youths -~ a
problem that Panico's shelter had encountered. The
woman, Johnette McConnell Early, visited Panico at the
center and, a few months later, asked for her signature QD.
a letter [1] alerting the U.S. Department of Education to
the issue.

Panico and 19 other executives from homeless shelters

and service agencies around the country eventually signed (iStockPhoto)
the letter, addressed to Secretary of Education Arne
Duncan, asserting that "for-profit trade schools and career
colleges are systematically preying upon our clients." The June 17 letter pledged "unequivocal" support to the
department's steps to tighten regulation of the for-profit industry.

Some who signed had personal knowledge of aggressive recruiting tactics, but others told ProPublica they
had only heard about them secondhand from colleagues and news reports. Early visited with many of the
executives, they said, drafted the letter and coordinated the effort to get them to sign.

What Early did not tell Panico or several others who signed: She was working for a financial finn that pays
her to investigate for-profit schools.

ftHad I known, I probably wouldn't have signed on," Panico said. "I probably would have contacted one of the
other people and said, 'Hey, now that we have all this infonnation,let's do this ourselves.' I think it's sleazy
to basically use me and use other executive directors that have a real issue to make a profit for some
companies. "

http://www.propublica.orglarticlelinvestment-funds-stir-controversy ~over~ recruiting ~by -for... 7/12/20 10

 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 9 of 28
Investment Funds Stir Controversy Over Recruiting by For~Protit Colleges ~ ProPublica Page 2 of5

For~profit universities have come under increasing scrutiny of regulators [2] and con~ressionalcommittees
(3) who have beard complaints about alleged recruiting abuses (4) (PDF). More recently, attention has
turned to the behind-the.scencs influence of hede:e funds (5) (PDF) that are also critical of the industry and
have sold short, betting that the stock of publicly traded universities will drop in price if, for instance,
Congress or the Department of Education cracks down.

To cover tuition costs, the schools rely heavily on federal grant and loan programs controlled by Duncan's
agency.

In an interview, Early confirmed to ProPublica that an "investment finn is paying for my time" but would not
disclose the identity of that finn. When asked whether her client was betting against the for-profit higher
education industry, Early said she did not know.

"Since I'm not part of their finn, I can't say what their position is," Early said. "But clearly an investment
firm is not going to look into something unless they're thinking about whether it's a good or bad invesbnent."

Last month, the prominent investment fund manager Steven Eisman testified [6] before a Senate education
subcommittee hearing £3] on the "emerging risk" posed by increasing federal subsidies to for~profit schools.
Eisman is best known for predicting the crash of the subprime mortgage market [7]. He's become a scathing
critic of for·profit colleges and universities, and in his testimony referred to the practice of recruiting at
homeless shelters. Eisman predicted that students at these schools will default on $275 billion in
government loans over the next 10 years.

Less than a week after Eisman's appearance, Sen. Dick Durbin, D~I11., called for congressional action to
tighten the rules governing for-profits. Referring to Eisman's testimony, Durbin said some schools were
enticing "low-income, high·risk students" into "mortgaging their futures - not on overpriced homes this
time, but on worthless diplomas," and said Congress must clamp down on the quality of education the
schools deliver, and the ....'By the government administers financial aid.

Eisman's testimony was controversial. Advocates of for-profit schools and a government watchdog group
criticized the subcommittee, saying Eisman was allowed to present himself as an expert and make self·
serving criticisms of an industry in whose failure they believe he has n vested interest. One group, Citjzens
for Responsjbility and Ethics (8], wrote to Health, Education, Labor and Pensions Committee Chairman Sen.
Tom Harkin, D-Jowa, to complain that Eisman had a conflict of interest in delivering his testimony.

Eisman did not return calls requesting comment. He told the Senate subcommittee he had a stake in the
industry, but did not disclose specifics. In an earlier speech [9], Eisman named five particular companies
that he said would suffer if the Education Department adopted regulations tying tuition to the employment
their graduates obtain •. Apollo Group, the owner of the University of Phoenix; lIT Educational Services;
Corinthian Colleges; Education Management Corporation; and The Washington Post Company, which owns
Kaplan University.

Since April, a nonprofit group associated with another high-profile investor, Manuel P. Asensio, has written
five.ld:t.en [10] criticizing the for-profit education industry and calling for tighter regulation to congressmen
and regulators with jurisdiction over the sector.

Short sellers have shown a steadily increasing interest in for-profit schools, according to Will Duff Gordon,
an analyst at Data Explorers, a company that collects and analyzes data about short-selling. Since April, his
company has also seen a spike in short positions in the sector, indicating a strengthening view that the stocks

http://VIWW.propublica.orglarticlelinvestment~ fimds·stir ~controversy·over-recruiting~by ~ for... 7/12120 10

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Investment Funds Stir Controversy Over Recruiting by For-Profit Colleges - ProPubJica Page 3 of 5

will fall. In general, short sellers place bets that a company's stock or some other financial instrument will
decline in value.

''This is not an opportunistic bit of short selling," Gordon said of for-profit schools. "People have worked out
that these companies are overvalued. They've put on bigger and bigger short positions as the price keeps
going down. And they have been right because the price keeps dropping."

For their part, short seHers claim they are merely bringing to light the fundamental problems of an industry
that survives in large part on taxpayer largesse.

More than 1,600 for-profit colleges, universities and trade schools received $3.3 billion in Pell grants in the
year ending last June, according to Department of Education data. About 950 schools shared some $2.5
billion in federal loans in the same period. Proprietary schools are slated to pocket significantly more this
year, thanks to the Obama administration's increased funding for the need-based Pell grants.

Short sellers say they provide a public service by exposing fraud or mismanagement of publicly traded
companies. Most academic studies that have examined the issue confirm that short sellers are most often
correct in their assessment that particular companies or industries are overvalued, according to William N.
Goetzmann, director of the International Center for Finance at the Yale School of Management.

But some short sellers appear to be moving beyond assessing particular companies and taking a financial
position accordingly. Now, says the Career College Association, some are trying to stage-manage the
reporting of negative stories to fuel the impression of a groundswell of anger against the schools.

"Certainly there are legitimate critics. I may not agree VYith them, but they're not in it to fatten their wallets,"
said Harris Miller, president ofthe CCA, which represents for-profit schools. "But I think that a lot of the
activity going on, and with other media reports, is being driven by the short sellers, who are hiring people
who are semi-disguising who they are and not being candid with people about their role in trying to drive
down the stock price of certain companies."

Early terminated the interview with ProPublica when asked whether the hedge fund knew she had drafted
the letter and eool'dinated the effort to have it cosigned by representatives for homeless shelters.

But when informed of Early's connection to an investment firm, several people who signed the letter said
they found the episode disquieting.

who signed told ProPublica they were under the impression that Early was conducting research for a
'[\.,,0
Bloomberg Businessweek reporter working all a story about for-profit schools enrolling homeless people.
Early confirmed in the interview that she "connected" the reporter with several people at homeless shelters.

Bloomberg Businessweek in May ran an article under the headline, "Homeless high school dropouts lured by
for-profit colleges [11]." In a statement, a Bloomberg spokesperson said: "We did not obtain information
from anyone working on our behalf. Our story was the product solely of our own reporting."

The PBS investigative news program Frontline posted the letter [12] on its website after it was provided by
another short seller, Frontline producer Martie Campbell told ProPublica. Campbell said she would
"absolutely not" have posted the letter had she known the full circumstances of its provenance.

http://www.propublica. org!article/investment-funds-stir-controversy-over-recruiting-by-for... 7/12/20 10

 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 11 of 28
Investment Funds Stir Controversy Over Recruiting by For-Profit Colleges - ProPublica Page 4 of5

It is not unusual for reporters to follow up on tips from hedge funds, financial firms or other sources with an
interest in how a story might shape events. ProPublica has interviewed hedge fund managers and their
researchers about for-profit colleges and universities to learn about their concerns and get leads. They
disclosed they were short on the sector; any information or sources they provided were independently
verified and vettcd by a reporter.

Others who signed the letter said Early told them that she worked for a think tank, or that they believed she
was working on a book. Like Panico, they supported the substance of the letter. But one of the signers-·
Jennifer Brandon, executive director of Community Voicemail in Seattle. Wash. -- said she had no direct
knowledge of for-profits recruiting homeless people.

Early told Neil Donovan, executive director and president of the National Coalition for the Homeless [13J in
Washington, D.C., that she worked for a Dallas company that offered advice and private research called J.W.
McConnell & Sons, Donovan said. ProPublica contacted state and local officials in Texas who said they could
find no record of the firm.

Donovan said he was angered to learn of Early's association with an investment firm.

"My next letter will be to Arne Duncan saying that I dido't know that, and I'm going to ask his inspector
general to look into the fact that they received a letter where the source of the letter was misrepresenting
themselves," Donovan said. "I think that's completely inappropriate and it's using homeless people as pawns,
and that is what our mission is against."

"It makes me fee! uncomfortable," added Larry James, president and CEO of Central Dallas Ministries. "I'm
quite certain none of us knew that connection, and that would have given me pause."

Not all those who signed were troubled by Early's conduct. Jane Burch, CEO of New Beginnings for Women
and Children in Tucson, said Early told a staffer that she had "something to do with an investment firm," and
that her organization would never have signed a letter unless they agreed with its contents.

"I have no evidence that there is any wrongdoing here," Burch said. "Why would I not want to see another
avenue to have our clients' rights protected?"

Both sides in the debate claim moral ground. The for-profits argue they are performing a social service by
making education available to many who have been excluded from traditional four-year colleges; the short
sellers claim they are protecting the same groups of people from deceptive marketing techniques and a
mountain of debt.

A Department of Education spokesperson said the agency remains focused on regulatory matters. Among
other things, the department has announced plans to scrap regulations that watered down a ban on schools
paying recruiters according to how many new students they brought in.

ProPublica intern Joe Kokenge [14] contributed reporting to this story.

1. http://www.propublica.org/documents/itemjletter-to-doe-saying-for-profit-schools-are-preying·on-the-homeless
2. http://www.ed.gov/ news/studcntMaid-rules-protect-bonowers-and-taxpayers
3. http://help.senate.gov/heanngsjhearing/?id"'464686ba-S056-9502-sd9s-e21a6409CC53
4. http://www.gao.gov/new.itcms/do96oo.pdf

http://www.propublica.org/article/investment-funds·stir-controversy ~over-recruiting-by-for.. . 7112120 I0

 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 12 of 28
Investment Funds Stir Controversy Over Recruiting by For-Profit Colleges - ProPublica Page50f5

5· http://~.citirensforethics.org/fi!es/201007019620·%20CREW%20Letter%2oto%20Chairman9620Harkin.pdf

6. http://help.senate.gov/imo/media/doc/Eisman.pdf
7· http://www.fool.com/investing/general/2008/12/01/michacl-lcwis-on-the-hedge-fund-manager-who-saw-it.aspx
8. http://www.citizensforethics.o rgj
9· http://www.propublica.org/documents/item/presentation-by-steve-eisman-at-the-ira-sohn-conference
10. http://www.eally.org/home/75-congressional.hearings-called-menacing-to-for-profit-education
11. http://www.bloomberg.com/news/2010-04-30jhomeless-dropouts-from-high-school-lured-by-for-profit-colleges
-with-cash.html
12. http://www.pbs.orgjwgbhjpagesjfrontlinejcoJlegeincjresponses/
13. http://www.nationalhomeless.orgj
14. http://www.propublica.org/site/authorjjockokenge

© Copyright 2010
Pro Publica Inc.

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Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 13 of 28

EXHIBITB
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 14 of 28

POUTICO
Short sellers flag school stocks
By CHRIS FRATES 16/30/1 0 4:44 AM EDT

lnvestors who make money by betting against troubled companies have started warning
lawmakers that the for-profit higher education industry is abusing federal student aid to make a
profit. But critics argue the so-called short sellers are only trying to smear the industry's
reputation in.a bid to drive its stock prices down.

Two renowned short sellers have been lobbying lawmakers and administration officials, warning
that for-profit schools are positioned for the same kind of crash that recently hit the subprime
mortgage industry.

Steven Eisman, a hedge fund manager who shorted the subprime mortgage market, testified
before a Senate committee last week. And famed short seller Manuel P. Asensia's new nonprofit
group has written to Education Secretary Arne Duncan, asking him to investigate the business
practices ofa for-profit education company.

The Wall Streeters say the for-profit education industry's growth has been fueled by
government-backed student loans. Since students and the government, not the schools, bear the
risk of default, for-profit colleges have every incentive to enroll as many students a<; possible,
regardless of their ability to repay the loans, they argue.

Even worse, they say, the schools target the poorest Americans by promising a path to prosperity
only to leave them with a subpar education that will not help them secure the better-payingjobs
necessary to repay their student loans.

"Without the scam on the DOE, for-profits would not exist," Asensio said in an interview. "It's
the worst product at the highest price." He said the for-profits get the least-educated people,
"who are most susceptible and are least capable of analyzing what they're buying, to gct on
board."

Asensio is president of the nonprofit, nonpartisan group Alliance for Economic Stability, which
is aimed at creating a fair financial marketplace. He said he has never shorted the for-profit
education industry. But, he said, he understands why some of his colleagues would.

"We don't see any redeeming value for the for-profit education stocks," Asensio said. "There's
no reason for them to exist."

Eisman used similarly strong language, telling a Senate panel that the industry was "as socially
destructive as the subprime mortgage industry" - and was sharply criticized for using his
testimony to degrade the same industry he was betting against.
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 15 of 28

At the hearing, Eisman acknowledged that he has a financial stake in the industry and told Senate
Health, Education, Labor and Pensions Committee Chairman Tom Harkin, "The reason why I'm
here today is that it's my hope that there's still time to do something."

"I don't have an interest in them failing," Eisman continued. "There are very bad things going on
in this industry. [think there's some very bad actors, and things should be done with that."

Short sellers make money by borrowing and then selling assets they think are overvalued,
waiting for their value to decline before repurchasing them at the lower price and selling them
back to the lender. The short seller pockets the difference between the higher sale price and the
lower repurchase cost.

Eisman's congressional appearance raised industry hackles even before he uttered his first
words.

Harris Miller, president of the Career College Association, called Eisman "a Wall Street short
seller born with a silver spoon in his mouth, who got his first big paycheck the old·fashioned
way, through his parents."

Miller's pre-hearing statement predicted Eisman's testimony would include "self-serving attacks
on nontraditional students designed to fatten his wallet."

And in an interview, Miller also said he is "skeptical" of Asensio's claim that he has no financial
interest in the industry.

"I don't understand how somebody who makes money by making money gets involved in an
issue he has no interest in," he said.

And the progressive group Accountable America said Eisman's testimony made the hearing look
like a "scam."

"Inviting Eisman to a HELP committee hearing on a sector he is short selling is like asking an
arsonist whether a building will burn down. He'll say, 'yes' but that is because he plans to burn it
down," said Tom Matzzie, the group's chainnan.

Miller defended the industry, saying for-profit schools are helping to meet demand at a time
when states are cutting back funding for community colleges and public universities.

The nationally accredited schools, he said, are highly regulated and risk losing their access to
federal student aid if they don't meet graduation and job placement rates.

And then there's the invisible hand of the market to contend with, he said.

"If you're consistently underperfonning, in tenns of education and placement, students will not
enroll," Miller said.
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 16 of 28

Democratic Rep. Robert Andrews said he is working on legislation that would create an
education quality index to measure the performance of for-profit and traditional schools alike.

The measure would rate schools on three metdcs: graduation rates, the number of students who
found work in the field they studied and the percentage of students repaying their loans. It would
be weighted to give an advantage to schools that enroll more low-income students, he said.

Schools that do a poor job - whether for-profit or nonprofit - would lose federal student
assistance money, the New Jersey congressman said.

Andrews also seemed to question the short sellers' sincerity, noting that he has never seen a
similar crusade to protect taxpayers in other controversial policy areas. Indeed, he said, a casual
investor probably would avoid investing in an industry that's being examined by Congress.

Short sellers, he said, "can create a kind of self-fulfiUing prophecy where you testify in front of a
congressional committee, that makes people skittish and drops the stock prices - which is what
you want. I have a concern about that. You can't play in lhe game and influence the outcome of
the game when you're short selling."
Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 17 of 28

EXHIBITC
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 18 of 28

'Bad Apples' or Something More?

June 24, 2010

WASHINGTON •• Two weeks ago, the hub of the federal government's scrutiny offar.profit higher education was the
U.S. Department of Education, where a team of staffers were pulling the finishing touches on a set of proposed
~.ill!illiiolls aimed at reining In abuses of the federal financial aid.m:ogram.

Abruptly, though, since the draft rules were released to reporters and Congressional staffers on June 15,1119 I,!cti'lily
has moved to Capitol Hill-- a change in location that has been accompanied by an equally sudden and stark shift in

Education Secretary Arne Duncan and other Obama administration officials have often sought to characterize their
probing of the for-prorrt sector as aimed at identifying ~bad adors" and as part of a search for new measures of
"value" for postsecondary institutions of all types, be they public, independent or corporate.

But the metoric and activity coming from Congress has thus far been harsher, suggesting skepticism among
lawmakers in both chambers and on both sides of the aisle aboulthe behavior of - and appropriate role in higher
education for -- private seclor colleges. The intensity of the language and the assertions of systemic problems recall
for some observers the last period of broad-based and aggressive scrutiny of for-profit higher education, a set of
heanngs Ihat led 10 major revisions of the Higher Education Ad in 1992

When the Senate's Health, Education, Labor and Pensions Committee today holds the first in a series of oversIght
hearings examining for-profit colleges and the rapidly increasing federal education dollars that flow to them through
students. the discourse is likely to be anything but friendly toward the sector.

Some of the best evidence of the probable tenor comes from the committee itself. In a written statement.. the
chairman, Sen. Tom Harkin (O.lowa), said the hearings would aim to 'ensure that students are actually getting the
knowledge and skills they need to payoff Ihe debt" they accrue at for-profit institutions. 'While for-profit colleges have
a responsibility to their shareholders, they also have a responsibility to provide educational value to their students,
and an obligation to ensure that the federal dollars they receive are well spent:

Between 2000 and 2009, the amount of Tille IV federal aid -- Pell grants, Stafford loans and all other aid administered
by the Department of Education .- going to for-profit institutions grew $4.6 billion to $26.5 billion. Enrollments nearly
tripled from 673,lJOO in 2000 to 1.8 million in 2008 (and even higher since then with the nationwide rise in
unemployment). While students at the institutions make up about 10 percent of the postsecondary student population,
their institutions receive 24 percent of nile IV funds.

Whae the Senate has initiated its head-on scrutiny of the SectOf. the House of Representatives atleasl began its
examination 2 bit more circuitously.

last week, the House Education and Labor Committee gm,ducted a hearing bitled as an examinauon of ac:credl!lx$
and the qedit hour. Bulthe commillee's chair, Rep. George Miller (D-Calif.), used discussion of a for·profrt
institution's allocation of too much credit for some courses as a way into big-pidure questioning of the seelor.
"Institutions now have requirements to shareholders, to profit margins, to the stock mar1<et and to others," he said.
"This is a matter of serious concern.·
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 19 of 28

After that hearing, Democratic staffers said. Miller and fellow House Democrats Timothy Bishop, of New York. and
Ruben Hinojosa, of Texas, came together with Harkin and Sen. Richard Durbin (0-111.) to sign a request for the
Government Accountability Office to a conduct a wide-reaching review examining the sector's academic quality and
use of federal funds.

On Monday. they !>~!lt.iL~lter to Gene L. Dodaro. the office's acting comptroller general, that cited "(r]ecenl press
reports [which) have raised questions about the quality of proprietary institutions" that "stem from the rapid growth of
this industry over the lasf few years, reported aggressive recruitment of students by such institutions, increased
variety in the delivery methods used to provide education to students, and the value of the education provided by
such institutions."

For-profit college officials and Congressional Republicans alike say they share a desire for more data. Harris N.
Miller. president of the Career College Association. said in a Monday statement thai he welcomed the call for more
information about the institutions and their performance, 'It is time for analysis by anecdote to end: he said. "We
have every expectation that the GAO, using facts and figures, will provide a full and fair review.. " Private sector
colleges and universities, operating under the triad of regulation -- federal and state governments and federally
approved accreditors -- are equipping men and women from all walks of life to be successful in a globally competitive
workforce, and the GAO report will confirm that."

A Republican Senate committee staffer said that members of his party would likely have signed onto the data request
had they been asked. 'We were never approached," the staffer said. "As far as I know, no Republicans were asked to
sign on to it:

The aide stressed that Democrats seem to be establishing a partisan divide on the issue 'It's unfortunate that Harkin
is making this into a partisan issue because it's not: he said. 'There certainly seem to be some problems in the for-
profit sector that need to be addressed and anecdotal information isn't really a smart way to make policy. We need a
better, more comprehensive look:

This spring, the staffer added, Sens, Mike Enzi, of Wyoming, and Lamar Alexander, of Tennessee, who is also a
former secretary of the Education Department. had asked Harkin to hold a hearing specifically discussing the
department's proposed regulations and their potential influence on for-profit cof!eges, but "the response was this
general hearing.'

The Hearing

That hearing -- today's -- is the Senate's first in-depth examination of the sector since 1990, when the now-retired
Sen, Sam Nunn (D-Ga.) held a series of drama-filled hearings that generated amendments to the Higher Education
Act of 1965 that ended up putting some career colleges out of business and forcing many others to change their
student recruitment and employee compensation practices.

"Given the massive investment that we've made in federal aid. it's the responsibility of the chairman to ask the right
questions,' a Democratic committee aide said, elaborating on Harkin's statement. "It's hard to see everything that's
out there on student defaults, debt. questions around outcome measures and hear people basically suggesting that
the federal aid programs are being used to the detriment of students and the taxpayers, anq not do something."

The hearing comes as concerns mount that the Pell grant maximum will need 10 be cut by $800 per student in fiscal
year 2011 to make up for an $8 billion shortfall. As lawmakers look at the billions of dollars flowing to for-profits, they
can't help but wonder whether some of that money could be better distributed to less expensive institutions. The
proposed Title IV program integrity rules would start to decrease the amount of federal aid going to for-profit
institutions, said Teddy Downey, an analyst at Washington Research Group, but a Congressional limit of some kind
might go even further. "Democrats aren't going to want to fight tooth and nail for a large increase in Pell grants if
these hearings turn out to reveal that there is a lot of bad behavior throughout the industry."

Committee staffers wouldn't confirm how many more hearings are to come, only promising thai more will follow over
a not-yet-determined period oftime.
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 20 of 28

Set to testify first today;s Kathleen S. Tighe, the Education Department's inspector general, who in her prepared
lestimony identified several areas of "waste, fraud and abuse in the proprietary sedor." The Education Department's
proposed regulalrons, she said, would address many - but not all - of the problems and still need to go through a
final round of public comment and revisions without being substantively changed to have the kind of effect she hopes
to see.

Three others testifying are all outspoken critics of the sector. Steven Eisman, a Wa;1 Street trader (known as a Wshort
seller) who has begun calling for-profit loan debt the next subprime mortgage crisis; Yasmine Issa, a graduate of the
for-profit Sanford-Brown InstitUle who is saddled with more than 520,000 in loan debt and says she can't get a job in
the field for which her training was intended to prepare her; and Margaret Reiter, a former Califomia deputy attomey
general and COflsumer advocate who is an unabashed foe of lor-profit higher colleges. The only panelist representing
the for-profit col'eges is Sharon Thomas Parrott, senior vice president of govemment and regulatory affairs and chief
compliance officer at DeVry, Inc.

Stacking the panel seemingly decisively in opposition to for-profit colleges naturally rubs the sector the wrong way. In
a statement, the CCA said that because the witness list is 'composed almost entirely of sector critics: it "is unlikely to
help the American people understand the important changes taking place in postsecondary education:

Harris Miller, the group's president, has insisted that he welcomes the scrutiny - something he's said in his
statements on the GAO report and the Senate hearing - but as Congress' rhetoric has ratcheted up, so too has the
for-profit sector's.

After the witnesses for the first panel were announced on Monday, Miller issued his second statement of the day,
saying he was "surprised that secretary of Education Arne Duncan or one of his lieutenants is not the primary witness
to give the committee a broad overview of higher education and our sector's role in it: Instead, that role seems to
have been given to Eisman, who Miller described as ~a Wall Street short-seDer born with a silver spoon in his mouth,
who got his first big paycheck the old-fashioned way, through his parents" and who stands 10 make money iffor-profrt
higher educatiofl stocks fan as a resurt of hearing testimony,

Miller's attack on Eisman went further on Wednesday. when he held an hourlong news conference questioOing
Eisman's motives and attempting to discredit the investor's paralleling of for-profrt higher education to sUbprime
mortgages. "Comparing the for-profit career college sector to the subprime mortgage banking Industry is as silly as it
is simplistic: Miller said, before listing the many differences he sees.

Miller also used the conference as a chance to again assert his sector's opposition to the Education Department's
use of a student debt-lo-income ratio 10 determine whether urogram prepares its gr<lduaWs fo(.:galnlul
QillplQvmenl. "

Barmak Nassirian, associate executive director 01 the American Association of Coilegiate Registrars and Admissions
Officers, defends Eisman's views of the sector. "If his diagnosis fit lt1e mainstream position of the sell-side position,
he'd take it," Nassirian said. "I hope people understand how meaningful this is. This is a guy who when the same kind
of orthodoxy reigned supreme on mortgages, he broke ranks -- housing is a good thing but giving people loans they
can't afford to pay is unsustainable. He's making the same case vis-a-vis the for-prOfit higher education sector.
lNhat's being peddled is not education."

Democratic Senate staffers also defended the decision to indude Eisman on the panel. "This guy predicted the last
subprime crisis and now he's saying Congress is sitting on 8 massive problem, there's something pretty outrageous
w
going on here. one said, 'VoJhen you start having criticisms of that h:gh a level you have 10 confrontlhem, look into
them one way or another."

Even if some lawmakers or observers are critical of Eisman's potentiat financial stake in the outcome of any
Washington action on lor-profrt higher education, Pauline Abernathy, vice president of the Institute for College Access
and Success, noled that Sharon Thomas Parrott, who is testifying on behalf of DeVry, also has a financial interest.
"Eisman's being transparent in his financial interests,~ Abernathy said. "People can evaluate what he has to say and
at least lake in the facts."
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 21 of 28

"Bad Apples" or a Rotten Orchard?

Since late January, when a negotiated rule-making PLQc_ess ended with representatives of for-profit and nonprofit
institutions unable to agree on several key issues, Department of Education staff members have worked behind Ihe
scenes to complete revisions of a set of regulations aimed al guarding against abuse and waste in the Title IV federal
financial aid program.

Throughout the spring, the CCA and the major for-profit higher education companies spent millions of dollars lobbying
the department and Congress. At the same time, department officials, inCluding Education Secretary Arne Duncan,
repeatedly said they were focused on identifying and eliminating the "bad apples" among the institutions. Again and
again - at least in interviews and speeches -- they stressed that they were not trying to root out the whole sector.

In training their sights on for-profit higher education, and especially in the rhetoric they have used in doing so, though,
Congressional Democrats appear more willing to question the quality and performance of the entire sector in a
dramatic way. They're starting with an examination of the sector as a whole to determine whether the problems being
reported are just at some institutions or are widespread.

Anthony Guida, senior vice president of regulatory affairs and strategic development at Education Management
Company, said that it's "not surprising considering the amount of federal funds that our sector receives that Congress
wants to take a closer look" at where that money is going. "I would hope that as the hearings develop thaI the focus is
really on are we deiivering a quality education and are we serving students,· he said. "Hopefully the GAO assessment
will allow the discussion to go from hyperbole and anecdotes about a small number of incidents and move into a fact-
based discussion of the whole sector:

Abernathy - whose organization was headed by Robert Shireman..Jhe outgoing deputy under~~ret<lry of £S!~~1JlQfl,
who has led the department's review of for-profit colleges -- said she considers bad actors and a full-on sector review
10 be one and the same. ''When the industry talks about bad actors it's a reason not to acl," she said. ''When
Secretary Duncan talks about bad actors, iI's Ihe reason we need to act."

The current business model of for-profit colleges -- bolstered in large part by federal aid dollars -- "rewards
companies based on new enrollments. which doesn't reward the good actors who actually guide students through to
a degree," Abernathy said. ''We need standards and rules so that good actors can succeed and become lhe norm."

But whether Ihis series of hearings will be as dramatic and sector-changing as the Nunn hearings is up for debate.

"I think what you're seeing on the Senate side is a replay of the Nunn hearings on steroids," Nassirian said. "The
fraud and abuse are on steroids. What the Nunn hearings uncovered were financially sort of incomparable to what's
going on now -- the scale of what's going on here is so much greater. And the corporatization of the proprietary sector
and their newfound connection to Wall Street and the advent of the publicly traded 'school' have put wasle, fraud and
abuse on steroids."

Terry W. Hartle, senior vice president of government and public affairs at the American Council on Education, said
he's not sure. "The evidence of abuse was pretty apparent when the Nunn hearing began. II was nol unheard·of to
find default rates of 50 and 60 percent. For-profit school owners were convicted of crimes; one of the witnesses was
brought into the Nunn hearings in handcuffs:

Now, though, he said, "I think what you have are, frankly, a lot of questions: Whether those questions yield answers
that do dramatic damage to the sector -- or, perhaps, bring about significant improvements _. has yet to be seen.

- Jennifer Epstein
Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 22 of 28

EXHIBITD
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 23 of 28

citizens .for. respon~ibility

CREW I and ethIcs III washmgton

July 1.2010

Chainnan Tom Ilarkin

Senate Comminee on Health, Education,
Labor and Pensions
428 Dirksen Senate Office Building
I U and C Streets, N.E.
Washington, D.C. 20510

By Facsimile: (202) 228-5044

Dear Chaimlan Harkin:

Citizens for Responsibility and Ethics in Washington ("CREW") respectfully requests

that the Committee on Health, Education, Labor and Pensions consider changes to its rules and
practices regarding witnesses invited to testify at committee hearings based on last week's
testimony b)" Steven Eisman. a portfolio manager of a hedge fund known to short-sale stocks in
for-profit education companies. In the past, Mr. Eisman was able to manipulate the market
reaction in the [or-profit education industry and profit handsomely through short-sales based on
his dire public forecasts for companies in that industry. Mr. Eisman's recent congressional
testimony, during which he decried the for-profit education industry as "socially destructive as
the subprime mortgage industry,"] appears designed to accomplish this same end.

At a June 24, 2010 hearing on federal spending on for-profit education, Mr. Eisman
testified on the problems in the [or-profit education industry. His testimony is a scathing attack
on an industry he describes as "fundamentally unsound" and one that has led us to "the eusp of a
new social disastcr,',2 Mr. Eisman offered the very dire prediction that over the next ten years,
defaults of Title lV loans would total $275 billion:' AI the same time, according to recent news
repol1s and Mr. Eisman's own response to questions at last week's hearing, he is a portfolio
manager of a hedge fund that profits significantly from short-sales of stocks in the for-profit
education industry. See, e.g., Lanny Davis, Transparency Bv 'Shorts' on 'For-Profit' Schools
Needed Too, The Hill, June 23, 2010 (anached as Exhibit A); Chris Frates, Short Sellers Flag
School Stocks, Politico, June 30, 2010 (attached as Exhibit B). After a May 26, 2010 speech by
Mr. Eisman before the Ira Sohn Research Conference in which he characterized specifically
identified for-profit education institutions as on financially shaky ground, share values oftbc

I Testimony of Steven Eisman before the U.S. Senate Committee on Health, Education,

Labor and Pensions, June 24, 2010, available at http://help.senate,govlhearings.

1400 Eye Street, NW., Sute 450. WasMigtoo. D.C. 20005 I 202.tlO8.5565 phone I 202.588.5020 fax www.citizensfOlelhics.org
..."..,
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 24 of 28

Chainnan Tom Harkin

July I, 2010
Page Two

named companies plummeted and Mr. Eisman reaped huge profits from short-sales in those
companies. Davis, The Hill, June 23, 2010. Mr. Eisman likely is counting on the same profits
resulting from last week's congressional testimony and a predictable down-swing in the share
value offar-profit education companies.

CREW is troubled that under these circumstances. the Committee on Health, Education,
Labor and Pensions invited Mr. Eisman to testify on policy issues related to the for.profit
education industry. To our knowledge, Mr. Eisman has no expertise in education policy; he
holds no degrees, has no experience, and no background on the education policies at issue. Mr.
Eisman's only experience is that he works for a hedge fund that is betting millions of dollars on
stock prices falling in the for·profit education industry. His financial conflicts of interest could
not be more blatant, yet they were not disclosed in advance of his testimony. Even more
troubling is rvlr. Eisman's use of the congressional hearing and the Committee as a vehicle to
advance his own economic interests by dmgging down stock prices of publicly traded companies.

Hearings like those held by the Comminee serve a significant public function by airing
issues of national significance. The Committee's decision to broadcast the hearing and provide
public access to the witnesses' written statements reflects an understanding of the fundamental
importance of transparency in the Committee's work. Yet by inviting witnesses like Mr. Eisman
to testify, the Committee undermines those laudable and important goals. Accordingly, CREW
recommends that the Committee consider changes to its rules in order to identify in advance aU
conflicts of interest potential witnesses may have. In addition, safeguards must be put in place to
ensure that never again is a witness pennitted to use his or her hearing testimony for private gain.
The integrity of the Committee and the hearing process demands no less.

Thank yOll for your attention to this very important i

Melanie Sloan
Executive Director

EncIs.

cc: Ranking Member Michael B. Enzi

Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 25 of 28

EXHIBITE
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 26 of 28

CREW I citizens for responsibility

and ethics in washington

July 14,2010

Tom Harkin )
Chamnan
U.S. Senate Conuninee on Health, Education.
Labor and Pensions
428 Dirksen Senate Office Building
pi and C Streets, N.E.
Washington, D,C. 20510

B)' Facsimile: (202) 228-5044

Dear Chairman Harkin:

Thank you for your July 2nd response to Citizens for Responsibility and Ethics in
Washington's ("CREW") letter setting forth concerns with the recent testimony of Steven
Eisman before the Committee on Health, Education, Labor and Pensions ("HELP"). We
understand that you remain comfortable with Mr. Eisman's testimony. notwithstanding his
private financial interests, because he met the test of advancing the public interest in the
wlderlying matter of the hearing: for-profit colleges. Further, we agree with you that given the
disastrous economic impact of the collapse of the subprime mortgage industry, the federal
government must be vigilant in protecting Americans and the nation as a whole from future
serious economic injury such as may be posed by the for·profit college industry.

Nevertheless, separate and apart from the issues pertaining to Mr. Eisman, new
infomlation has come to light regarding efforts to manipulate the federal government into
increasing the regulation of for·profit colleges. On July 9, 2010, ProPublica reported efforts by
lohnette McColmell Early to fuel a groundswell of anger and discontent against the [or-profit
college industry. I Ms. Early solicited the unwitting sign-on of 19 executives from homeless
shelters and service agencies to a letter to Secretary of Education Arne Duncan expressing
concerns that "for-profit trade schools and career colleges are systematically preying upon our
clients:' and pledging support for the agency's efforts to tighten regulation of that indusU}'.2
While some of those who signed the letter had personal knowledge of aggressive recruiting
tactics, others had only heard about them from colleagues and news reports.}

I Sharona Coutts. Investment Funds Stir Controversy Over Recruiting bv For·Profit Colleges,

ProPuhlica, July 9, 2010 (attached as Exhibit A).

Jd; Letter to Secretary of the Department of Education Arne Duncan, June 17, 2010 (attached
Z

as Exhibit B).

l Coutts, ProPublica, July 9. 2010.

1400 Eye Street. N.W" Suite 450, Washington, D.C. 20005 I 202.408.5565 phone I 202.588,5020 fax www.citizensforethics.org
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 27 of 28

Honorable Tom Harkin

July 14,2010
Page Two

Significantly, Ms. Early works for a financial firm she has refused to identify, which is
paying her to investigate for-profit scbools. 4 Although Ms. Early claimed not to know whether
the firm is betting against the for-profit higher education industry, she did say, "Clearly an
investment finn is not going to look into something unless they're thinking about whether it's a
good or bad investment."s

In addition, a non-profit group associated with another high-profile investor, Manuel P.

Asensio has written five letters to members of Congress and regulators since April criticizing the
for-profit college industry and calling for stricter regulation. 6 Further, according to at least one
analyst of short-selling, "[s]hort sellers have shown a steadily increasing interest in for-profit
schools. ,,7

Taken as a whole, this new evidence suggests a concerted effort by individuals who stand
to gain financially to drive down the stock price of certain for-profit schools. Not content to
simply provide their views on the for-profit school industry, some are taking an active role to
shape pUblic views of -- as well as congressional and executive branch reaction to -- that
industry, hoping to reap great fmancial benefits from the market's reactions.

Again. CREW agrees that the for-profit school industry merits scrutiny by the HELP
Committee and other regulators, and we welcome the opportunity to assist in providing greater
transparency in that industry. At the same time, however, those advocating greater regulation
also must be transparent about their tactics and motives. Otherwise, serious questions arise as to
exactly who is engaged in abusive conduct to maximize private fInancial benefits: the for-profit
educational industry, or those raising the alarm about the industry. Americans need to have
confidence that legislative and regulatory processes are not being manipulated for private
financial gain .

• Jd.; In a July 12, 2010 conversation with CREW, Steve Eisman denied any connection with
Ms. Early.

l Coutts, ProPublica, July 9, 20 I0,

~ Jd.
 Case 1:10-cv-01712-RMC Document 7-7 Filed 02/16/11 Page 28 of 28

Honorable Tom Harkin

July 14,2010
Page Three

As the HELP Committee continues its investigation of the for·profit college industry and
considers appropriate regulatory reforms, CREW respectfully suggests that you take into account
and publiciy air the interests of the advocates on all sides of the issue. A good place to start
might be by requiring Ms. Early to identify the financial firm that employed her to drum up
signatures for the letter to Secretary Duncan.

Please do not hesitate to contact us if we can be of any service as the Committee's

inquiries continue.

"7tll/
Melanie Sloan
Executive Director

Encls.

cc: Ranking Member Michael B. Enzi