Posts Tagged ‘Steven Eisman’

From: http://community.elearners.com/all_blogs/online_student_blogs/my_bellevue_university_experience/b/bellevue_university/archive/2010/10/19/keiser-university-sues-florida-state-college-jacksonville-how-this-may-concern-you.aspx

The “for profit vs. non-profit” fight has gotten a little bit uglier this month.  I’ve mentioned it on the forums but I’ve decided to do a little more digging before blogging on this particular news article.  In a nutshell, Keiser University (a for profit school) finds out about a collaborative effort between Florida State College Jacksonville (a non-profit school), the Institute for College Access and Success (a connected lobby group which is anti “for profit” schools), Gilchrist Bert (founder of the Water Street Capital hedge fund and famous for short selling) and of course Steve Eisman (a hedge fund analyst also famous for short selling) conspiring to drive Keiser University out of Jacksonville.

 

So who are all of these actors and how does this play out?  Why would they do this?  Is this a crusade to protect the interests of students?

 

Florida State College Jacksonville, generally a community college in Jacksonville who allegedly believes that Keiser University would steal enrollment dollars and decrease the demand for the college’s services.  The conspirators acting on behalf of FSCJ were Steven Wallace the president of the college and Susan Lehr, the vice president of government relations.

 

The Institute for College Access and Success (ICAS) is a lobby group who has a primary agenda of placing restrictions on for profit schools placing them at a competitive disadvantage to non-profits.  This organization is most famous recently for producing Robert Shireman who became the Deputy Undersecretary of Education at the U.S. Department of Education.  It was Shireman who started the ball rolling in changing the U.S. Department of Education’s official stance from neutral to hostile towards for profit education as a whole.  More on himhttp://www2.ed.gov/news/staff/bios/rshireman.html

 

Gilchrist Bert founded the billion dollar, Jacksonville based hedge fund Water Street Capital.  Gilchrist is famous for turning massive profits short selling.

 

Steve Eisman is a portfolio manager for FrontPoint Financial Services, a connected hedge fund, who is also very famous for making big bucks short selling, especially in this last mortgage crisis the nation underwent.

 

So the next logical question is, why do these hedge fund guys care about what happens to for profit schools and how exactly do they anticipate making money by short selling?  I’ll take a shot at giving an admittedly oversimplified explanation of short selling and how these guys make money doing it.  Basically a hedge fund manager borrows a stock at a given value on interest from a brokerage and then sells them.  To settle the account eventually the hedge fund manager will then have to buy back the same number of shares and return them to the broker.  If the shares can be devalued or drop in price, the hedge fund turns a profit because they are buying them back for a smaller amount of money than they borrowed them.  They keep the difference.  I’ll give an example, say you borrow a pen worth $1,000 from a friend and agree to pay him/her 10% for every month you keep the pen out of their possession.  You then turn around and sell the pen for $1,000 and during the following weeks the manufacturer of the pen drops the price to $500.  You buy the pen, return it to the owner plus the interest you owe on it and keep the difference.  Make sense?

 

So why are these guys so vested in seeing the education shares fall?  Simple, because they’ve borrowed shares and would like to return them by buying them back at a reduced price.  So other than the for profit schools who stands to lose?  The brokerage firm, that’s who.  And why should we care if the brokerage firm loses?  Take a look at your 401K, guess who is managing this account for you?  That’s right, a brokerage firm.  The brokerage is betting that the stock will remain stable or otherwise grow, meaning that the hedge fund will have to pay interest and return the stock that is now more valuable than before, thus the brokerage firm (and you) will see greater returns on your initial investment than you would otherwise.  This is a win/lose game, either the brokerage and your average investor win or the hedge fund wins.

 

So the basically the story is, these hedge fund managers smell blood in the water.  You have an administration in power that is almost openly hostile towards free market enterprise regardless of industry.  Add to that equation a U.S. Department of Education who has no problem imposing unprecedented policy upon schools based solely upon their tax status and who is also using their position to influence the decisions of non-governmental accrediting bodies.  Lastly you have Senators and Congressmen who receive large campaign donations from not only the hedge fund managers, but law firms who may represent them, non-profit schools and other organizations that may have a stake in the game.

The losers in this are the investors (me and you), the for profit schools, students and future students regardless of whether they will or already attend for profits schools or not.  Why?  Because the supply of readily available schools will drop, making it more difficult and expensive to earn a college degree (supply vs. demand).  Secondly the alumni of for profit schools stand to lose as their degree(s) will have an unfair shadow of doubt cast upon it regardless of the reality of the quality of education they received.

 

 

Following on this morning’s post about privately held for-profit school The Keiser School suing Florida State College at Jacksonville, Keiser’s senior counsel, James Waldman, was kind enough to take a few minutes this afternoon to talk with me by phone.

Most interesting to investors following the travails of publicly listed for-profits such as Grand Canyon Education (LOPE) and Apollo Group (APOL), and others, is that Waldman contends the suit is a first of its kind in terms of alleging defamation against for-profit ed, but he also says Keiser has not joined forces with any other for-profits, public or private, in bringing suit. The action is strictly related to what the company sees as a particular smear campaign by Florida State.

Waldman says the company can show that misleading statements by executives of Florida State, featured in the media, harmed the company’s business by reducing enrollment and even getting Keiser barred from recruiting at some high schools.

The issues in the suit, however, go to the heart of the criticisms against for-profit ed.

“Florida State has said that we [Keiser] are ripping off our students, and has said our degree is worthless,” said Waldman.

“There is no evidence that our degree is worthless. It is the same degree that can be obtained at the University of Florida,” contends Waldman. ”

“We have higher graduation rates than the community colleges do, and we create more jobs [for graduates] than they do,” said Waldman.

As for the connection to short sellers, such as Steve Eisman of FrontPoint Financial Services, who are named in the suit as co-conspirators, Waldman says Eisman and others “have been in direct communication with the named defendants,” exchanging information about for-profit ed.

As for Eisman, he also spoke with me this afternoon by phone. Eisman tells me he had never heard of Keiser before hearing of the suit last night. Eisman is not a party to the suit.

“I laughed,” Eisman tells me. “It’s very hard to be a co-conspirator about an institution I’ve never heard of.”

Eisman said he may have had some contact with Florida State’s government liaison, Susan Lehr, who is named as a defendant. However, it was only in the context of a general discussion of for-profit ed. “I speak to a lot of people about this stuff,” says Eisman. “We never spoke about any particular schools, and I’d never heard of Keiser before.”

The suit is ultimately “not at all important to the for-profit eds,” contends Eisman. “What I have said publicly,” adds Eisman, “is that the graduation rates are exceptionally low [in for-profit ed], the default rates are astronomical, and that the federal government should do something to change the industry. Those first two are facts, the latter is my opinion.”

From: http://blogs.barrons.com/stockstowatchtoday/2010/10/05/keiser-details-smear-campaign-against-it-eisman-never-heard-of-em/

Click here to read the Keiser Lawsuit against Florida State College Jacksonville.

A for-profit college is suing Florida State College at Jacksonville, its president, and its chief lobbyist for “tortious interference with a business relationship” and “injurious falsehood” in connection with what it says was “a false and misleading campaign in the Florida press and the national media designed to disparage Keiser University and to drive Keiser and other proprietary schools out of business.”

The complaint, filed yesterday in Broward County, Florida, names two money managers, Steven Eisman of Frontpoint Financial Services Fund, LP, Greenwich, Conn., and Gilchrist Berg of Water Street Capital, Jacksonville, Fla., as “co-conspirators.”

The involvement of short-sellers in the push for increased regulation of for-profit colleges and universities has been the subject of extensive coverage here, but the court complaint lays out new details about the way that the government-backed colleges — the complaint terms Florida State College at Jacksonville “a state-funded direct competitor of Keiser University” — worked hand in hand with short-sellers.

“Keiser suffered special damages as a result of Defendants’ negative media campaign in the form of, among other things, decreases in expected enrollment, increased costs of doing business, and decreased business valuation,” the complaint claims.

The complaint says the president of Florida State College at Jacksonville, Steven Wallace, sent Mr. Berg, described as “a prominent Jacksonville short-seller” an e-mail “with information to use against the proprietary schools.”

The complaint also cites an email from the top lobbyist for Florida State College at Jacksonville, Susan Lehr, that “personally insulted Dr. and Mrs. Keiser, Keiser University officials. Ms. Lehr called Mrs. Keiser “very arrogant like him. I guess that is what happens to you when you ‘earn’ $20 million a year and own 5 jets.”

The suit says that Ms. Lehr was “trading information with Eisman” who “stood to profit if the value of proprietary schools declined.”

And it says that Ms. Lehr promoted an Eisman speech critical of for-profit colleges in advance and “tailored a Florida State College press release to Eisman’s message.”

Says the complaint: “In May 2010, short seller Steve Eisman gave a speech called ‘subprime goes to college’ that predicted for-profit stocks would continue to fall. The speech also helped ensure that they would.”

A PDF of the complaint in the lawsuit is here.

The suit was first reported yesterday by the Florida Times-Union.

We have calls in to Florida State College for their response and will post it when we receive it; they had no comment to the Times-Union, saying that they had not yet had a chance to review the complaint.

From: http://www.futureofcapitalism.com/2010/10/co-conspirator-eisman

Keiser University, a regional for-profit college, has filed suit against Florida State College at Jacksonville President Steven Wallace and one of his top administrators, saying they tried to sully the school’s image by colluding with detractors of for-profit colleges.

The crux of Keiser’s civil suit, filed Monday in Broward County, hinges on e-mails from Wallace and Susan Lehr, FSCJ’s vice president of government relations. The e-mail exchanges included representatives from The Institute for College Access and Success, a national group that has lobbied for tighter restrictions on for-profit schools.

The lawsuit claims the community college leaders tried to launch a clandestine smear campaign designed to build negative publicity for the proprietary college, which has one campus in Jacksonville.

An FSCJ spokesman said Wallace hadn’t received the lawsuit by Monday evening and declined to comment.

In the e-mails, an account linked to Wallace disparages the for-profit sector in a note to Gilchrist Berg, a prominent Wall Street short seller who founded a multibillion-dollar Jacksonville-based hedge-fund firm.

“All right, my friend. Here is a bunch of good stuff to get you started in your exploration of greed, corruption and predatory schemes among Florida’s proprietary and for-profit career ‘colleges,’” the e-mail said. “The new technical college we will launch on 8/1/09 is designed, in part, to drive the sleazebags out of our region.”

The same e-mail identifies Lehr as the “designated antagonizer of the privates.”

Other e-mails include correspondence between Lehr and Steve Eisman, a hedge-fund manager who gave a vitriolic speech against for-profit education during a Senate hearing in May.

“I cannot thank you enough for speaking out on the for-profit higher ed industry,” the e-mail said. “I read your speech and could just leap with joy!”

The lawsuit alleges Lehr “tailored a Florida State College press release” to the speech’s message, which alluded to the “subpriming of students.” The release was distributed to multiple news outlets, according to the lawsuit.

Keiser officials said the negative publicity has hindered student enrollment and financially harmed the company. The suit seeks damages, but a total amount wasn’t listed.

James Waldman, Keiser’s general counsel, said this is the first lawsuit ever filed by Keiser.

It’s unclear if this is the first time a for-profit school has sued a state-funded institution.

“My hope is other proprietary schools take action if this is going on elsewhere,” Waldman said. “There is no place in this country for the government schools to operate in such a manner to harm private businesses.”

matt.coleman@jacksonville.com, (904) 359-4654

From: http://jacksonville.com/news/florida/2010-10-04/story/profit-college-sues-fscj-president

Hedge-fund manager Steven Eisman made a fortune shorting subprime debt, and at last May’s Ira Sohn Conference in New York he announced his next target: For-profit colleges. Now Eisman’s efforts have inspired a nasty lawsuit by a Florida school that accuses him of conspiring with administrators at two competing public colleges to drive down the value of for-profit schools.

I’d file this under “sour grapes” along with any number of similar suits against short-sellers, or the United States Football League’s hail-Mary antitrust suit against the NFL. Except for two things: Plaintiff  Keiser University in Fort Lauderdale used the Freedom of Information Act to get all sorts of nasty e-mails from public school administrators to the short-sellers. And the law firm at the bottom of the complaint, Bartlit Beck , has a well-deserved reputation for top-gun litigation.

The suit is curious because it doesn’t name Eisman or the other short-sellers as defendants and the plaintiff, Keiser, isn’t one of Eisman’s publicly traded targets. Instead it names Steven Wallace and Susan Lehr, chief executive and head of government relations, respectively, at Florida State College at Jacksonville. But more litigation may be coming soon. Keiser got 15,000 documents in its FOIA request including some that might give ammunition to public companies should they decide to sue.

“There are other documents out there that were not necessarily relevant to our lawsuit that certainly implicate claims by others,” said James Waldman, in-house counsel at Keiser. Since they’re all public documents, Waldman said, he’s in a sharing mood.

The suit accuses Florida State College of disparaging Keiser and other private schools of feeding “false stories to the media” that the private schools ripped off students and provided worthless degrees. That was Eisman’s investment thesis, of course, as well as a frequent complaint by critics of for-profit career schools that often operate on a stream of federal loan money.

Named as “co-conspirators” are Eisman of Frontpoint Partners in Greenwich, Conn.; Gilchrest Berg of Water Street Capital in Jacksonville; Antal Desai with CMCG in Dallas and officials with several groups opposed to the private student loan industry as well as U.S. Public Interest Group.

“Here’s a bunch of good stuff to get you started in your exploration of greed, corruption and predatory schemes among Florida’s proprietary and for-profit career `colleges,’” Wallace says in one e-mail to Berg the plaintiffs say they obtained under a FOIA request. In another e-mail, Wallace boasts to Berg that a planned new public technical colleege “is designed, in part, to drive the sleazebags out of our region.”

Wallace and Lehr were at a meeting and unavailable for comment Tuesday.

The lawsuit details correspondence between various public-education advocates and reporters at USA Today, Bloomberg, the Miami Herald and others. The suit says such efforts tortiously interfered with the relationship between Keiser and its students and constituted “injurious falsehood.”

In his May speech entitled “Subprime Goes to College,” Eisman ripped the entire sector as providing subpar educations financed with subsidized federal loans. He was particularly critical of Washington Post Co., which has long since moved on from its newspaper roots and now derives most of its earnings from for-profit education including its Kaplan testing unit.

So far, Eisman’s bet has paid off, with for-profit schools falling up to 50% amid rumblings the government will impose new rules tying access to federal loans with the schools’ success in finding graduates jobs.

Meanwhile in August, the General Accountability Office released a report showing that undercover tests of 15 for-profit colleges found that all 15 had engaged in deceptive practices including overstating “undercover applicants’ potential salary after graduation” and failing to disclose all costs. Perhaps mindful of future litigation, the report was careful to state that “results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.”

From: http://blogs.forbes.com/danielfisher/2010/10/05/e-mails-spice-up-lawsuit-over-private-colleges/