Profit-Seeking Colleges Claim Education|Officials May Have Tipped Short-Sellers

WASHINGTON (CN) - Profit-seeking chain colleges are pulling out all the stops in their fight against government regulation. A trade group filed a FOIA complaint demanding documents that it claims may show whether Department of Education officials leaked contents of the Department's response to a scorching GAO report to investors, who then short-sold stock in profit-seeking colleges.

It's the second federal complaint the Coalition for Educational Success has filed against the Department of Education.

In November, the Coalition claimed the Cabinet department's new rules were adopted illegally and are unconstitutionally broad. Now the Coalition claims the Department of Education ignored its FOIA request for records that may show collusion between federal education officials and short sellers.

The Coalition demanded Department of Education records of "communications between Ann Manheimer, Director of Workforce Development at ED [the Education Department], and various individuals and institutions."

The complaint states: "Some of these individuals and institutions are part of the not-for-profit sector. Others of these individuals and institutions are investors who may have 'shorted' stocks of for-profit colleges, meaning they stand to benefit financially if the public shares of for-profit career college companies decline in value."

The Coalition also demands "all communications concerning for-profit educational institutions or ED's proposed gainful employment rule between any individual at ED and certain known critics of for-profit schools, who, on information and belief, have themselves communicated with investors holding 'short' positions in the stock of for-profit institutions."

The Coalition claims the new "gainful employment" regulations already have battered the share prices of profit-seeking career colleges, though the regulations have not yet taken effect.

(The Government Accountability Office reported last year that it investigated 15 profit-making colleges and found that all 15 "made deceptive or otherwise questionable statements to GAO's undercover applicants."

(The profit-making colleges, many of them chain schools such as Corinthian Colleges and the Apollo Group, which runs the University of Phoenix, and trade schools with a large Internet presence, have been sued more than 100 times in recent years, including at least a dozen class actions, by students who claimed that the colleges lied about their accreditation, the transferability of credits, the qualification of their professors, their job placement programs, the cost of tuition, the job placement records and salaries of their graduates, tuition refunds, the availability of classes, and that they pressure students to take out more money in student loans than necessary - which money goes to the colleges, which then may cancel the classes the students sought, leaving the students, and taxpayer-funded loan programs, on the hook for the loans.

(The release of the GAO report was followed by a slew of shareholder lawsuits from investors who claimed the for-profit colleges had propped up their share prices by concealing their questionable practices.)

The Department of Education adopted new rules in October 2010, to reduce shenanigans in the colleges' recruitment of students. The Coalition sued, claiming the regulations were illegally adopted and are unconstitutionally broad.

The Coalition says it sent its first FOIA request in November, a month after the new rules were adopted, but the Department requested more time than the standard 20 days to respond. The Department failed to respond to further communications and failed to send the requested records, according to the FOIA complaint.

The Coalition is represented by Paul Smith with Jenner Block.

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