By Peter Byrne
In early 2007, Sen. Dianne Feinstein (D-California) introduced legislation that has benefited her husband’s investments in ITT Educational Services and Career Education Corporation. This measure--co-sponsored with Sen. Barbara Boxer (D-California)--was inserted into the College Cost Reduction and Access Act and became law in September 2007. It increased federal tuition aid (Pell Grants) by $20 billion over five years and affected hundreds of thousands of low-income students attending community and for-profit colleges
After the announcement of the Pell Grant increase, ITT Educational Services’ stock price began increasing. It gradually rose from $79 per share pre-announcement to $127 per share shortly after the legislation passed. The stock of Career Education Corporation increased from $29 per share to $34.
In the same quarter that the bill passed, Blum Capital Partners increased its holdings in Career Education Corporation by 25 percent. (The privately-owned investment firm’s holdings in Career Education Corporation reached $508 million as of early 2010.) In its annual report for 2007, Career Education acknowledged the positive effect that the College Cost Reduction and Access Act had upon its revenue.
Blum Capital Partners also traded heavily in ITT Educational Services stock after the announcement of the Feinstein-Boxer measure. In its annual report for 2007, ITT noted that the College Cost Reduction and Access Act “significantly” increased the amount that individual students could receive in Pell Grants, which “positively impact[ed] our student’s ability to fund their educational expenses.” (As of early 2010, Blum Capital Partners held $415 million in ITT, which, like Career Education Corporation, draws the majority of its revenue from guaranteed federal financial aid to its students.)
In addition to ushering in legislation that has directly benefited her husband’s investments, Sen. Feinstein’s official Senate website advertises a link to an online application for Pell Grants that provide tuition for attending for-profit colleges. The link travels to a list of eligible institutions which includes schools owned by Career Education Corporation and ITT Educational Services.
This is not the first time that Sen. Feinstein has used her official position in ways that have helped enrich her husband. In her role of the Senate Appropriations Committee, she oversaw $1.5 billion in projects that were contracted to Mr. Blum’s military construction companies. Through her press office, Sen. Feinstein declined to comment for this story.
But ethics experts find her actions troubling. John M. Simpson of Consumer Watchdog in Santa Monica, California told us: "While increasing the number of Pell Grants may be good policy in the abstract, it certainly seems to be a blatant conflict of interest for Sen. Feinstein to introduce legislation that so clearly benefits her husband's business. She should have stayed away from this issue and let others introduce the legislation if they were so inclined.”
An update to a previously published piece.
Posted by Peter Byrne on 09/22/10
