CREW Criticizes Witness Profiting from Senate Testimony

WASHINGTON -  Yesterday, Citizens for Responsibility and Ethics in Washington
(CREW) sent a letter to the Senate Committee on Health, Education,
Labor and Pensions, asking the Committee to consider changes to its
rules and practices regarding witnesses invited to testify at committee
hearings. On June 24th, Steven Eisman, a portfolio manager of a hedge
fund known to short-sale stocks in for-profit education companies,
testified before the committee.

In the past, Mr. Eisman was
able to manipulate the market reaction in the for-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.

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 of the named companies plummeted and Mr. Eisman reaped huge
profits from short-sales in those companies. Mr. Eisman likely expected
to profit similarly for his congressional testimony last week.

CREW Executive Director Melanie Sloan said, “While many who testify
before Congress have a financial interest at stake, few profit directly
from their testimony alone. Congress should not be in the business of
helping hedge fund managers like Mr. Eisman make even more money.”
Sloan continued, “Congressional hearings are intended to air issues of
national significance – not line witnesses’ pockets.”

CREW’s letter asks the committee to put safeguards in place to
ensure that future witnesses cannot use an appearance before a
congressional committee for private financial gain.

Click here to read CREW’s letter.