Education Officials Connected To Targeted Lender
Thursday, April 5th 2007, 6:06 pm
By: News On 6
ALBANY, N.Y. (AP) _ The federal Education Department official who oversees lenders owned about $100,000 worth of stock in a student loan company now under investigation in an expanding nationwide probe of the $85 billion student loan industry.
A September 2003 filing with the Securities and Exchange Commission shows Matteo Fontana held at least 10,500 shares of Education Lending Group Inc., the former parent company of Student Loan Xpress. The shares were valued around $9.50 each at the time, according to New York Attorney General Andrew Cuomo's office, which is leading the investigation.
Fontana currently oversees all lenders and guarantee agencies that participate in the Federal Family Education Loan Program, Higher Ed Watch reported.
Student Loan Xpress is now part of CIT Group Inc., one of several lenders targeted in Cuomo's probe.
Fontana's stock ownership was first reported Thursday by Higher Ed Watch, part of the New America Foundation.
The Education Department did not immediately return a call for comment. Fontana did not immediately respond to an e-mail message seeking comment and his assistant said he was out of the office Thursday afternoon.
What started as a probe into possible kickbacks to school officials for steering students to certain lenders has mushroomed this week as investigators reveal ties between high-ranking financial officers and the loan companies.
Cuomo's investigators say they have found numerous arrangements that benefited schools and lenders at the expense of students. In some cases, investigators said, lenders provided all-expense-paid trips to exotic locations for college financial aid officers who directed students to the lenders.
On Wednesday, Cuomo's office sent a subpoena to Columbia University and sent letters to the University of Southern California and the University of Texas seeking information about financial aid officers ownership of stock in Education Lending Group.
The SEC records show David Charlow, the associate dean of student affairs at Columbia University, owned 7,500 shares of Education Lending Group's stock and owned 2,500 stock warrants at the time of the stock prospectus. Cuomo's office said Charlow sold the 7,500 shares for about $9.50 each and in 2005 sold more of the securities for a total profit of more than $100,000.
Investigators said Charlow bought the securities for $1 a share in 2001. Cuomo's office believes others also got similar deals.
Charlow has been placed on leave while the university investigates.
Columbia University on Thursday said it removed Student Loan Xpress from its list of preferred lenders and it believes Charlow was the only official at the school who owned stock in the Student Loan Xpress's parent company.
The SEC records also show Catherine Thomas of USC and Lawrence Burt of Texas each owned 1,500 shares in the company.
Burt denied any financial arrangement between either himself or UT and the company and said his previous ownership of the shares had no connection to Student Loan Xpress's position on UT's preferred lender list. Burt sold the stock in 2003, he said. Based on the stock's price of $9.50 per share at the time of the sale, Burt made a little more than $14,000.
James Grant, a spokesman for USC, said the school will review the information in the letter and respond to the AG's office.
Earlier Thursday, The Associated Press reported that State University of New York Chancellor John Ryan serves on CIT's board of directors.
Ryan, who announced last month that he will step down at the end of May, has been a director at CIT since July 2003, according to the company's Web site.
Cuomo's office issued a subpoena this week to the New Jersey-based company seeking information about stock transactions between one of its subsidiaries, Student Loan Xpress, and financial aid officers at three universities _ Columbia University, the University of Texas and the University of Southern California.
CIT said it acquired Education Lending Group Inc., the parent company of Student Loan Xpress, in 2005, after the stock transactions took place.
``The reported transactions in securities of that company occurred several years prior to CIT's acquisition of the company,'' the company said in a statement. ``We are currently seeking to determine the facts surrounding those transactions.''
Student Loan Xpress is listed as a preferred lender at SUNY Maritime College, where Ryan served as president after retiring from the Navy and the Naval Academy in 2002.
``The chancellor stands by his service on the board of the CIT group, an approved outside activity, for which he received state Ethics Commission permission on July 2, 2003, while he was at SUNY Maritime, and July 20, 2005,'' SUNY spokesman David Henahan said in a statement.
He added that Student Loan Xpress was only added to SUNY Maritime's preferred lender list in March 2006, after Ryan left.
A company SEC filing shows Ryan earned about $146,000 last year in cash, stock and options for his service on the CIT board. He is paid $340,000 a year as chancellor.
Ryan was appointed chancellor in December 2005 by the Board of Trustees controlled by then-Gov. George Pataki after serving several months as the acting chancellor. He will leave at the end of May to become president and CEO of the Center for Creative Leadership, a training company headquartered in Greensboro, N.C.
Ryan declined further comment.
On Monday, all 29 four-year State University of New York campuses agreed to abide by a code of conduct written by Cuomo's office that the attorney general make the loan process more transparent for students and families.
As part of the code, college employees are prohibited from receiving anything of value for serving on the advisory board of any lending institution.
Cuomo's office is investigating several other lenders, including the nation's largest student-loan provider, SLM Corp. _ commonly known as Sallie Mae. Others include Citibank, Nelnet Inc., Education Finance Partners Inc., EduCap Inc. and the College Board.