Friday, April 6, 2007
Carrying on the tradition of his predecessor, Governor Eliot Spitzer, New York Attorney General Andrew Cuomo is pursuing a wide-ranging investigation of conflicts of interest of university financial aid offices that is likely sending a chill across college campuses at this very moment. Cuomo's office has found that financial aid officers at Columbia, USC, and the University of Texas at Austin also owned shares in the parent of Student Loan Xpress, a leading lender to students and parents that is listed as a preferred lender by each of the colleges -- imagine that. To make matters worse, a Bloomberg story reports (here) that a financial aid official in the U.S. Department of Education, Matteo Fontana, sold 10,500 shares of the lender's then-parent, Education Lending Group, Inc., in its 2003 public offering. The prospectus for the offering (here) lists a number of stock owners who sold in the IPO, including the three college officials, who also held options on additional shares. The IPO price was $9.50 per share, and a Washington Post article (here) notes that a substantial profit was made on the sales. That is usually the case in such transactions when the insider sell shares acquired at much lower prices when the company was private. Student Loan Xpress is now a part of CIT Group, which as been subpoenaed along with the Columbia, USC, and UT.
Fontana's stock ownership may draw the interest of the Department of Justice, which could look into a possible violation of 18 U.S.C. Sec. 203, the federal conflict of interest statute. It's not clear how the financial aid officials received their shares, or came to be offered an investment in a company that only started in 1999 and rose to become a preferred lender at major universities. As the parent of a high school senior, I will be sure to take a second look at the recommendations of the college financial aid offices. (ph)