SEC asked to probe trades of student loan giant Navient

A series of well-timed trades before the Labor Day weekend in shares of student loan giant Navient Corp. has spurred the AFL-CIO to ask regulators for a review of possible insider trading.

The labor organization on Tuesday urged the U.S. Securities and Exchange Commission “to examine the trading in Navient’s common stock on Aug. 31,” according to a copy of the request obtained by Bloomberg News. The trades occurred before public disclosure of a letter from the Department of Education to the Consumer Financial Protection Bureau marking a critical shift in Trump administration policy.

Navient is headquartered in Wilmington, Delaware, but has more than 2,000 employees in Indiana at offices in Fishers and Muncie. The company, formerly part of Sallie Mae, occupies the former USA Group headquarters in Fishers along Interstate 69, near the new Ikea store.

The CFPB, created in the aftermath of the financial crisis, had pledged to supervise student loan contractors and develop new rules governing their conduct. Richard Cordray, the CFPB’s director, has been the frequent target of Republican ire, with his agency targeted by some in Congress for elimination. In January, he sued Navient, accusing it of “systematically” cheating student debtors by taking shortcuts to minimize its own costs. Navient has consistently denied wrongdoing.

In an Aug. 31 letter, the Education Department rebuked Cordray’s agency for supposed overreach, saying it would no longer provide the regulator with information necessary 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.

News that the Trump administration had ended its agreement “with the CFPB should have been considered material, nonpublic information”

The decision to stiff-arm the CFPB was good news for government loan contractors such as Navient—the data cut-off could jeopardize prosecution of the agency’s lawsuit against the loan company.

Analysts at Washington-based Compass Point Research & Trading, reacting to the Education Department letter, upgraded Navient to a “buy” on the first business day after the Labor Day weekend, Tuesday, Sept. 5, 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. Friday, 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.

In response to the AFL-CIO’s call for an investigation, the department and the SEC declined to comment. Navient spokeswoman Patricia Christel said her company didn’t know about the administration’s decision regarding the CFPB before it was made public.

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, according to the group. The next morning, a few more big purchases took place.

By the time Rep. Virginia Foxx, a North Carolina Republican and chair of the House education committee, announced the Education Department’s policy shift at about 5 p.m., Navient stock had risen to $13.75 per share, a more than 4 percent jump 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.

The labor federation cites both the traditional federal laws proscribing insider trading, and a separate statute called the Stop Trading on Congressional Knowledge Act. In some instances, Washington insiders have been convicted of abusing public positions for personal gain. In 2012, former U.S. Food and Drug Administration chemist Cheng Yi Liang admitted buying and selling stock based on confidential information to rack up more than $3.8 million over a five year period. A judge sentenced him to five years in prison.

In the case of Navient, “the trading activity is unusual,” said Heather Slavkin Corzo, director of the AFL-CIO Office of Investment, which helps oversee union pension funds that own Navient stock. “Whether it’s folks on Wall Street or in Washington, insider trading undermines the fairness of our financial markets.”