Ethics

I have not formed an opinion one way or the other about for-profit colleges, but here is a disturbing story.  Apparently speculators are shorting the stock of companies operating for-profit colleges and then going to the Department of Education (DOE) to urge regulatory action against the colleges.  Presumably when the stock goes down as a result, these investors will close out their short positions at a substantial profit.  It is also possible that these speculators could be getting advance notice from DOE about planned regulatory actions. 

The role of DOE lawyers in these events is not at all clear. but government lawyers have a responsibility to help DOE avoid being taken advantage of in this manner.

Citizens for Responsibility and Ethics in Washington (CREW) claims to have blown the cover on this ploy and has written the SEC:

http://www.citizensforethics.org/press/entry/crew-provides-sec-new-info-short-sellers-shaping-education-regulation

Telling the SEC about suspected securities fraud sometimes does some good; sometimes not (e.g. Madoff). 

Our regulatory system will lose all credibility if speculators are allowed to bet against a company or industry and then lobby to instigate government regulatory or enforcement action.  At a minimum the short position should be fully disclosed when contacting the government.  Government officials also should not share material nonpublic information with some investors and not others. 

One approach is for government agencies -- here the Education Department -- to require persons who contact the government seeking enforcement or regulatory action against a particular company or industry to certify in writing that to the best of their knowledge they are not working in concert with any person who has taken a short position in securities of that company or industry.   If this certification is refused, the government should in most situations ignore the persons' complaints about that company or industry and should also consider contacting the SEC.  A false statement in response to this inquiry would probably constitute securities fraud as well as a violation of 18 USC 1001 (false statements), both criminal offenses.  Government officials who leak to speculators nonpublic information about regulatory or enforcement actions should be fired.