Elizabeth Warren Calls for SEC Insider Probe of Navient Trades

The Trump administration decision to end cooperation with the CFPB led to suspicious trading in the student loan company, the senator says.
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The U.S. Securities and Exchange Commission should investigate possible insider trading of shares of student loan company Navient Corp., Senator Elizabeth Warren of Massachusetts and Representative Suzanne Bonamici of Oregon, said Monday in a letter to the agency chairman, Jay Clayton.

The trades occurred just before public disclosure of a letter from the Department of Education to the Consumer Financial Protection Bureau that marked an important shift in Trump administration policy. The change—that the Education Department would no longer share information on the student loan market with the CFPB—was significant enough that it later prompted one analyst to upgrade Navient shares to a “buy” rating.

The circumstances surrounding the well-timed trades and the publication of the letter “raise questions about whether one or more [Education] Department officials may have engaged in the unauthorized disclosure of material, nonpublic information,” the two Democrats wrote in the letter. They echoed an Oct. 10 letter from the AFL-CIO, in which the labor organization called attention to a series of well-timed trades before the Labor Day weekend. The SEC should “examine the trading in Navient’s common stock on Aug. 31,” the AFL-CIO said. 

The CFPB has been supervising student loan contractors while developing new rules of conduct. In January, it sued Navient, accusing the company of “systematically” cheating student debtors by taking shortcuts to minimize its own costs. Navient has denied wrongdoing. In an Aug. 31 letter, the Education Department rebuked the CFPB for supposed overreach, saying it would no longer provide information necessary for the regulator to police loan companies such as Navient. Only the Education Department has the authority to supervise companies that collect on federal student debt, officials Kathleen Smith and Wayne Johnson wrote. 

The decision to stiff-arm the CFPB was good news for Navient, in part because the data cut-off could jeopardize prosecution of the agency’s lawsuit against it. Analysts at Washington-based Compass Point Research & Trading, reacting to the Education Department letter, upgraded Navient on the first business day after the Labor Day weekend, telling clients the missive was an “unambiguous signal” that companies such as Navient would face a “far less onerous” regulatory environment.

The letter to the CFPB was dated Aug. 31, a Thursday, but wasn’t received by the CFPB until around 3:50 p.m. the next day, according to the consumer bureau. Beginning late in the day on Aug. 31, large trades began to send Navient shares surging. This continued on the morning of Sept. 1. The Education Department letter was made public by Congress later that day.

Navient spokeswoman Patricia Christel didn’t immediately respond to a request for comment. Earlier this month she said the company didn’t know about the Trump administration’s decision regarding the CFPB before it was made public. Elizabeth Hill, an Education Department spokeswoman, also didn’t immediately respond to a request for comment. Warren and Bonamici sent a copy of their SEC letter to Kathleen Tighe, the Education Department’s inspector general.

Ryan White, an SEC spokesman, declined to comment.

According to the AFL-CIO,  an unknown number of investors made three big purchases of Navient stock at the price of $13.20 per share late on Aug. 31. This amounted to 872,394 shares, equal to 24 percent of trading volume that day. The next morning, a few more big purchases took place. By the time Representative Virginia Foxx, a North Carolina Republican and chair of the House education committee, announced the Education Department’s policy shift, Navient stock had risen to $13.75 per share, a jump of more than 4 percent from the market close Aug. 31.

In its letter to the SEC, the AFL-CIO said “news that the U.S. Department of Education had terminated its [memorandum of understanding] with the CFPB should have been considered material, nonpublic information until the House Committee on Education and the Workforce issued its press release on Sept. 1.” Kelley McNabb, a spokeswoman for Foxx, said the congresswoman’s committee “had no knowledge of this policy change until” that afternoon.

Randi Weingarten, president of the American Federation of Teachers, AFL-CIO, said calls for an SEC probe are part of a bigger effort to hold Education Department Secretary Betsy DeVos to account for student loan policies allegedly done “at the behest of these very big lending institutions who may be backed by all sorts of Wall Street firms.”

“What we are seeing is a pattern,” Weingarten said in an interview Monday. “Predatory and usurious practices that actually are really cheating and defrauding kids.”

— With assistance by Josh Eidelson

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