The WSJ joins forces with short-seller demonizers

By Felix Salmon
January 26, 2011

Back in October, Mike Elk dug into the weird way in which various well-regarded liberal activists, including Tom Matzzie, Lanny Davis, and CREW, were suddenly campaigning aggressively alongside the for-profit education industry. Unsurprisingly, there was money involved, and a lot of it seems to have flowed from John Sperling, the chair of the Apollo Group, which owns the University of Phoenix, and is a major funder of progressive organizations.

Tim Fernholz followed up with some very pointed questions for CREW in particular, which had been aggressively filing FOIA requests seemingly aimed at revealing what everybody already knew, which is that hedge fund managers who were short the for-profit education sector had been talking to the government about what they had discovered:

Here are important questions that CREW has refused to answer:

* Is the for-profit higher education industry, including John Sperling, funding their organization?

* Why have they gotten involved in this specific regulatory dispute and no others?

* Why did they not consult experts on education policy or short-selling before complaining to the Senate and filing FOIA requests?

* What are the connections between CREW Executive Director Melanie Sloan and Julian Epstein, president of the LawMedia Group, a lobbying firm specializing in astroturfing that is working on behalf of for-profit colleges?

Now, the results of the FOIA requests have been made available to the WSJ, which devotes three bylines and 2,000 words to their entirely un-newsworthy contents. What the WSJ doesn’t do is even attempt to ask any of Fernholz’s questions, let alone answer them. CREW is presented as an entirely unconflicted organization:

A group called Citizens for Responsibility and Ethics in Washington, or CREW, wrote to Education Secretary Arne Duncan last week that “certain hedge fund managers had direct and sustained input into the regulatory process.”

In what the group called “more troubling,” it said Education Department officials sought and received investors’ input despite knowing their financial motives, and asked for an investigation…

Investors were on the scene as well. Their efforts are revealed in large caches of documents and emails reviewed by the Journal, many of which surfaced as a result of a freedom-of-information suits filed by CREW, the Washington watchdog, and of legal action by a Florida for-profit college.

One investor, a New York firm called Quilcap Corp., sent a research article to an Education Department official, the emails show.

It goes on from there — but the fact that the WSJ’s list of revelations is topped by an emailed research article says all that you need to know. The only reason the WSJ is covering this story at all seems to be that the information was not public before — but just because something was secret doesn’t make it newsworthy.

The fact that the WSJ is covering a non-story is no big deal. Much worse is the fact that the real story — the corruption of liberal organizations — was right under their nose, and sitting in plain sight in any Google search, yet they completely ignored it. It seems that even the WSJ is much happier gratuitously participating in the demonization of short-sellers than in impartial coverage of the debate over for-profit colleges.

Update: I’m told this story was being shopped around various media outlets by Lanny Davis, who has very close connections to CREW, and who represents the Coalition for Education Success, a trade association of for-profit colleges. If the story did indeed come from Davis, which seems likely, there should have been a lot more disclosure.

17 comments

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I have to assume that you’re not a journalist, just some sort of blogger. Have you wondered why Center for American Progress would be interested in this story? No. Did you mention that a short-seller was called to testify before the Senate as an expert, AN EXPERT, in higher education even though he, himself, admitted he had no knowledge on the subject? Don’t think think it corrupt that this guy made a fortune shorting for-profit education stocks after his testimony drove their stock prices down? Who does he give to? Why was he called? These are the real questions, which is why you avoid them.
You get a stiff one thinking liberal groups are being bought and paid for without asking who might be paying for the other side? Who stands to benefit the most from killing for-profit schools? Why is there a concerted effort to deny education choice to poor and minority students and force them into subsidized, unionized schools? The answers are pretty obvious, but you aren’t interested in the questions, so the answers mean nothing to you.
The media is dying a slow death because of a lack of honesty and little interest in digging for the actual story, exemplified right here in this piece. You care more about why the allegations, for which there is significant proof, are being made rather than whether or not they are true. You are a sad excuse for a journalist, which is why I have to assume you aren’t one. Or at least hope.

Posted by larryfine | Report as abusive

The White House itself a co-conspirator in this. Mary Ellen Mc Guire was the chief contact inside the White House on Gainful Employment. She too was in communication with short sellers one month after she left the White House.
On August 12, 2010 Mary Ellen Mc Guire, conducted a conference call with Morgan Stanley.
Mc Guire said: “The White House was extremely involved in this from start to finish.” When asked about the numbers and thresholds in the Gainful Employment rule pending at the Office of Management and Budget, she responded: “I can not imagine any circumstance where the administration would pull back on those numbers. If anything they are going to hit harder on the consumer side.”
http://www.todayscampus.com/articles/loa d.aspx?art=2189
This investment advice was given to investors WHILE the rule was pending at OMB.

Posted by RileyA | Report as abusive

It should also be noted that the Deputy Undersecretary of Education, Robert Shireman, was paid by his organization, The Institute for College Access (TICAS) while working on this on the Obama transition team. Shireman’s group is the chief lobbying group in support of Gainful Employment. TICAS has not filed a tax return since 2008 to hide this conflict of interest with a DOE official getting paid by a lobbying group and working on Gainful Employment at the same time.

Posted by RileyA | Report as abusive

I am also wondering who has bought out John Podesta? He created a group called Campus Progress “Screw U” which is a front group to attack for profit colleges. Everyone knows that Podesta is a fee-for-service shop. His group became a cheerleader for Boone Pickens’ efforts to make money off of natural gas in the name of climate change — and was handsomely rewarded!
http://www.campusprogress.org/screwu
The question is who is paying for this: 1) short sellers like Eisman who are making billions, 2) trial lawyers who are making billions, or 3) teacher unions who want to unionize the sector?

Posted by RileyA | Report as abusive

I don’t know that for-profit or not-for-profit education has exactly covered itself in glory over the last 20 years, but no matter how much of a backer of capitalism you are, you ought to acknowledge the massive potential for looting in for-profit education. What other sector has all of the following?

1. Nearly infinite government-guaranteed leverage available (if someone with no income can borrow $100k for an education that won’t get them a job, what’s the leverage or LTV ratio on that loan?).

2. Widespread cultural approval and the perception that everyone needs this product; massive scalability and minimal customer scrutiny of value/price.

3. Intangible/self-measured outcomes with no consensus about a national system for measuring educational quality.

4. Massive oversupply of highly trained labor willing to work for any amount of money (all the unemployed people with teaching experience in the NFP sector and masters/PhDs whose masters/PhD institution let them go once they had).

5. Persistent underinvestment by its primary competitor (the government), particularly in the programs needed by sympathetic minority groups with organized political action organizations?

No one is making up conspiracy theories about private sector education – it’s prudent to take a harder look at this sector, given the above. Also, larryfine, the fact that you have no idea who Felix is suggests you’re probably a paid shill from one of the organizations he ripped rather than a regular reader. Felix, keep it up – this is good stuff!

Posted by najdorf | Report as abusive

1: Short sellers are usually short for a reason. The unlimited downside and limited upside in shorting favors prudence.

2: Mike Elk was just fired by Huffington Post. The sequence of events makes me wonder if the Huffington Post people were under pressure from these cats.

Posted by Setty | Report as abusive

It’s all too much inside baseball for me at nine in the morning, but my sympathies always lie with the short sellers. They are the only actors who are rewarded for getting past the hype and the glitz and the armies of well-dressed publicity flacks and showing that everything the Street thinks is solid gold is actually rotten.

And talk about courage: they bet against the current of history, becasue stocks, as a class, tend to rise in value over time, and they do so in a way that gives them unlimited downside risk and limits their potential gains to just the amount of the investment.

So nobody likes shorts because they’re big meanies and they say mean things about companies we like, but mean things need to be said sometimes.

Posted by ckbryant | Report as abusive

Some good comments on this thread…

For-profit education isn’t exactly a scam, but when you combine Wall Street ethics (more profit = good, less profit = bad, nothing else matters), heavy government subsidies, a highly complex product that depends almost exclusively on the quality of the employees and is very difficult to evaluate using conventional business management techniques (let alone by the customer base)… What the heck do you expect?

You see much the same dynamics in for-profit charter schools. The evaluation metrics are weak, so more effort goes into “gaming the system” than into the real quality of the product. The simplest way to ensure high performance by your graduates is to winnow out anybody who isn’t performing to high standards. Actually trying to EDUCATE those with weaknesses is a losing proposition in for-profit education.

Not that NFP colleges are really all that different. A Harvard education is good, but what REALLY differentiates Harvard graduates from the rest is that they get to cherry-pick their talent on admission.

Is it better for society to continue to subsidize a broken model and close our eyes to its flaws? Or to reward a few individuals for raising the curtain on the problems?

Posted by TFF | Report as abusive

‘…a lobbying firm specializing in astroturfing that is working on behalf of for-profit colleges?’

What is ‘astroturfing’?

Posted by Gotthardbahn | Report as abusive

Astroturfing is creating fake “grass-roots” organizations.

Posted by AnonymousChef | Report as abusive

In response to earlier commentor, Peter Goodman terminated my association with the Huffington Post. Goodman has written quite critically against the for profit school industry. My firing had absolutely nothing to do with the for profit school industry.

However, Lanny Davis has called people I have written for on multiple occasions and tried to get me canned. I do not believe Peter Goodman had anything to do with this

Posted by Mike.elk | Report as abusive

The phrase “well-regarded liberal activist” being attached to Lanny Davis is a good one. Of all his clients, for-profit schools are probably the most benign.

Posted by Harouni | Report as abusive

RileyA has his or her facts all wrong. The Institute for College Access & Success (TICAS) is a 501(c)3 non-profit organization and filed its 2009 return (called a Form 990) with the IRS last year. TICAS makes its Form 990 available to the public, as required by law. TICAS did not compensate Robert Shireman, its former president, for any time he spent working on the Obama transition team.

Posted by AsherL | Report as abusive

Response from LMG: LMG does not work for the for-profit universities as your story reported. LMG did a very short term, limited duration contract (2 months) for Keiser University from August-September of 2010 but no longer does any work for them in any way. Had you checked with us, you could avoided this mistake.

Posted by LMG_DC | Report as abusive

My inside sources within LMG tell me the contract was can celled as a result of the bad publicity they received after my article was printed in early October. Keiser University, per my interviews with Julian Epstein, president of LMG, was a client up until that point. Also, Tom Matzzie in his updates to his initial blog post also makes it clear that Keiser had a contract with LMG up until that point – http://www.huffingtonpost.com/tom-matzzi e/senate-invites-arsonist-t_b_624398.htm l

This characterization of the contract with Keiser University has a short term contract is just another attempt to spin the deceit of lobbyists like Tom Matzzie and Julian Epstein, who it should be noted refuse to register as lobbyists despite doing quite a bit of lobbying.

Posted by Mike.elk | Report as abusive

I love your blog, but in exactly which universe is
Lanny Davis a “well-regarded liberal” activist ?

I’m sure that Davis would insist that he isn’t liberal.
I have never read one good word written about Davis. I mean that quite literally.

Posted by robertwaldmann | Report as abusive

Oh, by the way, outstanding post on CREW, conflict of interests, and their FOIA requests.

Posted by robertwaldmann | Report as abusive