ALBANY, N.Y. -- New York Attorney General Andrew Cuomo's office is investigating what it believes are stock grants from student loan companies to financial aid officers at three major universities as part of a widening investigation into the $85 billion student loan industry.
Cuomo's office yesterday sent a subpoena to Columbia University and letters to the University of Southern California and the University of Texas seeking information about financial aid officers' ownership of stock in a loan company on each school's list of preferred lenders.
Securities and Exchange Commission records for Education Lending Group Inc. show officials at the three schools in September 2003 owned at least 1,500 shares each of the company. Education Lending Group's subsidiary, Student Loan Xpress, is listed as a preferred lender at each school.
The 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.
Robert Hornsby, a spokesman for Columbia, said the school placed Charlow on leave, started an investigation, and notified the attorney general's office when it learned of his stock ownership following widespread attention generated by Cuomo's probe.
Columbia is reviewing Cuomo's recommendations for student loan disclosure and supports a code of conduct for colleges proposed by the attorney general, he said.
Records 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.
"They are on our lender list for the same reason the other 19 are on the list, they provide the best package of benefits to students," he said.
James Grant, a spokesman for USC, said the school will review the information in the letter and respond to the attorney general's office.
Student Loan Xpress is now owned by New Jersey-based CIT Group Inc., one of the lenders under investigation by Cuomo.
Cuomo's office said it sent a subpoena Tuesday to Student Loan Xpress and CIT. A CIT spokesman did not immediately return a call seeking comment.
The 2003 SEC filing states that Student Loan Xpress was created "to market to the financial aid offices of schools in order to be included on that school's preferred lender list.
"Being on a preferred lender list at an educational institution provides Student Loan Xpress, Inc. with the opportunity to generate more student loans at that institution than other lenders who are not on the preferred lender list," the company said.
Cuomo's investigators say they have found numerous arrangements made to benefit schools and lenders over students. Cuomo has the authority to conduct a nationwide investigation because schools from across the country recruit students from New York.