AP via Yahoo:

Education Dept. oversight questioned
By NANCY ZUCKERBROD, AP Education Writer Fri Apr 13,2007

WASHINGTON - An Education Department official placed on leave over a potential conflict of interest in his management of the government's student loan program filed disclosure forms that raise questions about the department's oversight of its own employees.

The forms, released by the department late Thursday, show the official, Matteo Fontana, listed ownership in 2002 of stock in two companies that manage student loans: Direct III Marketing Inc. and Education Lending Group. In fact, the companies are the same; Direct III Marketing changed its name to Education Lending Group at about that time.

Fontana valued the stock in each in the range of $1,000 to $15,000. Department rules generally allow employees to work on matters affecting companies they own stock in so long as the amount does not exceed $15,000.

His disclosure forms state that Fontana sold all his stock in the company in December 2002. But a separate disclosure the company filed with the Securities and Exchange Commission nine months later lists him as offering 10,500 shares of Education Lending Group for sale. His disclosure form for that year makes no mention of ownership of such stock.

Fontana's disclosure for 2004 shows that on July 7 of that year, he sold common stock in a company listed only as EDLG worth $100,000 to $250,000, investing a like amount in a vacation home. EDLG is an abbreviation for Education Lending Group Inc.

Michael Dannenberg, director of education policy at the New America Foundation, a think tank that disclosed Fontana's SEC filing last week, said the financial disclosure forms released Thursday reveal lax oversight by the department.

"It appears that the Department of Education's financial disclosure requirements are general and that there's not a careful watch for potential conflicts of interest," he said.

Education Department spokeswoman Katherine McLane said the ethics office within the department depends on employees to complete their forms accurately and honestly.

"The onus is on the person reporting their assets to make complete and candid disclosures," McLane said. "The ethics office is not an auditing body."

She declined to comment on Fontana's filings, saying the matter was under investigation by the department.

But she said Spellings has ordered that all department financial disclosures filed this year be reviewed by at least two lawyers.

A telephone call to Fontana's home late Thursday went unanswered.

Sen. Edward Kennedy, D-Mass, chairman of the Senate Education Committee, has asked for an SEC investigation of the transfer of stock from a company official to Fontana and loan officers at three schools.

A "memorandum of gift" shows the official gave 7,000 shares of Direct III Marketing to Fontana in December 2001.

Kennedy said his own investigation revealed that the official apparently acquired the stock at a discount and sold it to the others at a discount.

On Thursday, Kennedy said Fontana's disclosure forms "raise grave concerns about the effectiveness and impartiality of the ethics process at the department." He added: "The forms show that department officials were aware that Mr. Fontana held a significant financial interest in a company that he was charged with overseeing. Any American can tell you that this is dead wrong."

The student lending industry is already under scrutiny by New York Attorney General Andrew Cuomo, who is investigating allegations of possible kickbacks to school officials for steering students to certain lenders. Cuomo's investigators say they have found numerous arrangements that benefited schools and lenders at the expense of students.