I got passed an interesting tip yesterday that Steve Eisman is currently being named as the Defendants’ Co-Conspirators in a lawsuit between two colleges.
For all readers who have not heard of Steve Eisman, he was made famous by Michael Lewis’s bestseller The Big Short: Inside the Doomsday Machine in which Lewis tells the story detailing how Steve Eisman made a fortune by shorting the housing market.
The case involves Keiser University, a regional for-profit college, has filed suit against Florida State College at Jacksonville (FSCJ) President Steven Wallace and another administrator.
Keiser University filed a 34 page lawsuit against Florida State College.
The lawsuit claims the community college leaders tried to launch a clandestine smear campaign designed to build negative publicity for the proprietary college, which has one campus in Jacksonville. So far officials at Florida State College refused to comment on the case.
So how does Steve Eisman come into the picture? The lawsuit alleges that Susan Lehr, FSCJ’s vice president of government relations corresponded by email with Steve Eisman, and thanked him for his help in speaking out against for profit colleges.
Steve Eisman’s name was mentioned 16 times in the 34 page document. Eisman admits that he is now short several for profit higher education institutions. Eisman has called these institutions the next bubble at a presentation he gave at the Ira Sohn Conference in May of this year. The full presentation can be found here. After the conference Eisman testified before congress on the topic on for profit colleges’ loans.
The lawsuit mentions this fact stating:
In May 2010, Eisman gave a speech regarding his views on proprietary universities. Defendant Lehr promoted Eisman’s speech in advance and tailored a Florida State College press release to Eisman’s message that proprietary schools are guilty of “subpriming students.” Eisman himself forwarded a copy of his speech to undisclosed recipients including co-conspirators. Helped by the coordinated efforts of the community colleges and various advocacy groups, including Defendants, Eisman’s speech was widely reported. As described in more detail below, various news outlets picked up on and further disseminated the coordinated message about for-profits “subpriming students.” Following Eisman’s speech, Defendant Lehr wrote Eisman to thank him for making it, and he responded that she should stay in touch.
Emails between Defendant Lehr and co-conspirator Pauline Abernathy of TICAS also confirm that Lehr and Abernathy, among others at both Florida State College at Jacksonville and TICAS, were trading information with Eisman, whom they knew stood to profit if the value of proprietary schools declined.
In addition to Eisman, Defendant Lehr traded information with Dallas-based CPMG Inc., another investment firm that had an apparent interest in seeing the value of proprietary schools decline. CPMG’s Antal Desai contacted Lehr looking for student stories to use against proprietary schools. After confirming with Nassirian that Desai was on the same team, Lehr began trading information with him to hurt proprietary schools.
How will this play out? I have no idea and am far from a legal expert in these matters.
However this lawsuit brings a point to mind.
When Eisman was predicting the housing bubble to burst he too was ridiculed. He made lots of enemies among institutions. Short sellers normally are the target of the media, Government, companies they short and common people who consider short selling unpatriotic. It is ironic that many of these short sellers who were being harassed by all fronts were later vindicated when the bubble burst.
Bill Ackman is a case in point. A new, riveting book Confidence Game talks about how Bill Ackman extensively researched MBIA, and decided the company was taking on incredible risks. Ackman made a spectacular investment by deciding to short the stock. However, it took many years for Bill Ackman to be proven correct. In the interim he was investigated by the SEC and by the then New York Attorney General Eliot Spitzer. The regulators were going after the short sellers instead of listening to their dire warnings.
All these events make me wary of people who attack short sellers when they speak out against unsound companies.
Only time will tell if Eisman will be vindicated once again. However, I would put my money any day on Steve Eisman over Kaiser University.
Disclosure: No positions
For anyone who wants to read the full lawsuit I have uploaded it onto scribd. Use fullscreen mode for better viewing.