Sen. Tom Harkin’s New GAO Report Send For-Profits Tanking

Sen. Tom Harkin's New GAO Report Send For-Profits Tanking

Before the controversy surrounding his earlier investigative report on for-profit education has wound down, Senator Tom Harkin is scheduled to release another report from the Government Accountability Office (GAO) today, on the for-profit education sector.

It may be recalled that Harkin commissioned an earlier report, dated August 4, 2010 by the GAO, which was highly critical of the recruiting practices of for-profit colleges and universities, in fact, it all but called the practices fraudulent. These conclusions were drawn on the basis of 28 key investigative “scenarios.” Unfortunately, this report was exposed to be full of errors, and in fact subsequent developments pointed to Harkin having exercised undue pressure on the GAO to release the report at short notice, thereby contributing to the errors.

This led House Oversight Committee Chairman Darrel Issa (R-Calif) to start an inquiry into the whole affair, which in turn led to the report being ‘revised’ with 16 changes being made to the 28 investigative scenarios mentioned above.

Unfortunately, another angle soon emerged – renowned short seller Steven Eisman. According to the Washington Times, the National Legal and Policy Center sent a letter in March, that requested the SEC to investigate the activities of short-sellers, such as Steven Eisman, who made profits from the collapse of share prices of companies that are in the for-profit education field.

The letter, in part, read, “A major feature of the short-seller effort has been to promote Department of Education policies that would result in draconian new standards for education loans applicable to students at for-profit schools. This intended slashing of funds would have the effect sought by the short-sellers: a collapse in the share prices of the listed for-profit trade school companies resulting in a direct monetary benefit to the shorts. It is also beyond debate that the tactics of the short-sellers and their allies, appear to have worked insofar as share prices of affected companies have lost billions of dollars.”

It appears that allegedly, Steve Eisman, who had publicly announced that he was short selling education stock and therefore had a vested and pecuniary stake in the fate of the inquiries, had had secret meetings at the DOE and Harkin’s offices on the issue of for-profit education and that the DOE had thereafter promptly issued new regulations on for-profit education.

Given the above background, what could be expected today from the second GAO report courtesy Sen. Tom Harkin?

According to this article, Harkin will again choose to bring the for-profit sector within his cross-hairs, regardless that the entire education sector is presently beset with problems, such as a mounting loan bubble, unemployment and loan defaults.

At the time of this writing for profit stocks are down on the news. Apollo Group Inc (NASDAQ:APOL) is down 3.10%, DeVry Inc. (NYSE:DV) -2.83%, Strayer Education Inc (NASDAQ:STRA) is down 6.4%, and ITT Educational Services, Inc. (NYSE:ESI) is down 5.9%.