Allegations Federal Officials Aided Wall Street Short Sellers Spurs Inspector General Inquiry

The Department of Education Inspector General (IG) has confirmed she is conducting an audit to review claims the agency provided Wall Street speculators with potentially valuable inside information about upcoming regulation, the Project On Government Oversight (POGO) wrote today on its blog.

Inspector General Kathleen Tighe also said that if she found enough evidence substantiating these claims, she would refer the matter to the Securities and Exchange Commission. She added that she doesn't believe the apparent leak of a confidential report produced by her office to short sellers involved IG personnel. She declined to speculate about where it may have originated.

The audit should be complete over the summer and will also look at current guidelines for interaction between the Department of Education and outside parties, including possible recommended changes.

The Department's revised new rule, which was announced in this month, could have a major impact on for-profit universities and their stock prices by changing guidelines on their access to federal student loan guarantees.

Advance knowledge of the rule's timing and contents could have allowed Wall Street speculators to make bets for or against individual for-profit, publicly-traded companies. Most of the Department of Education's contacts on Wall Street seem to have involved short sellers, who speculate that companies' shares will lose value.

"Allegations that sources inside the Department of Education may have passed along sensitive information to Wall Street strike at they very integrity of our financial markets," said POGO Executive Director Danielle Brian. "The American public must have faith that their government officials aren't short selling their interests."