Judge Certifies Class Against Sallie Mae
Judge Certifies Class Against Sallie Mae
MANHATTAN (CN) - A federal judge certified a securities fraud class action against Sallie Mae, the top student loan provider in the United States.
Lead plaintiff SLM Ventures accused SLM Corp., Sallie Mae's corporate name, of telling investors it used strict underwriting standards for its loans, while weakening those standards by approving risky loans to students at for-profit schools.
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"In 2006, Sallie Mae's management decided to expand the company's PEL [Private Education Loan] business. Between June 2006 and December 2007, Sallie Mae's PEL portfolio more than doubled, growing from $7 billion to $15.8 billion. At the time, Sallie Mae publicly stated that it had applied strict underwriting standards to all PEL borrowers. However, SLM Ventures alleges that Sallie Mae actually relaxed its underwriting standards and loaned billions of dollars to borrowers with low credit scores and other high risk borrowers who attended part-time, correspondence, or for-profit schools."
Sallie Mae then moved as many problem loans as possible into forbearance to hide the true number of private loans that were delinquent or in default, in violation of Generally Accepted Accounting Principles and Securities and Exchange Commission regulations, the investors said.
They accuse Sallie Mae's chairman of fudging the numbers to profit on a merger.
"In April 2007, Sallie Mae and its then-Chairman of the Board, Albert L. Lord ('Lord'), negotiated to sell the company to a group of private equity investors (the 'Flowers Transaction'). The strike price was set at $60 per share, and was contingent on Sallie Mae's financial performance and outlook. If the proposed merger closed, Lord would receive a cash payment totaling $225 million representing the value of his stock options.
http://www.courthousenews.com/2012/01/30/43445.htm
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