Defending the Short Sellers (Mostly)

by Andrew Gillen

Sharona Coutts has a wonderful piece confirming the rumors of how an investment fund made a killing by short selling the for-profit colleges and then manufacturing some bad press (specifically, arranging for press stories about the for-profits recruiting at homeless shelters) that drove down their share price.

It is one thing to short sell an industry and then make up an untrue rumor to profit from the trade, but that isn’t what happened here. The investment fund exposed real practices that most people find rather distasteful. In a sense, they provided a public service. To be sure, they profited handsomely from it, but that is really beside the point.

The one thing that they can be criticized for is trying to hide that they had a financial stake in the outcome. This applies to both Steven Eisman’s testimony, as well as to Johnette McConnell Early, the person hired by the investment fund to organize the homeless shelter directors and who actually drafted the letter that sparked the scandal. This conspiratorial behavior served little purpose, as the case was strong enough even if the motives of the exposers were appropriately disclaimed.

Other than that, I find little objectionable about what happened. Higher education needs more scrutiny, and if the only way to get it is by allowing some people to profit by providing it, then so be it. For-profits aren’t the only schools in need of increased scrutiny though, so ultimately it’s a shame that you can’t short public and non-profit universities, and then profit from exposing their unsavory practices too.