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“Shorting” New York City’s Schools?

Hedge fund manager David Einhorn was in the news this week after he and his firm were hit with an $11.2 million fine for insider trading. Based on an investigation by authorities in the UK, Einhorn was cited for selling millions of shares of a troubled business just minutes after an executive there quietly revealed to him that the company was in financial trouble:

“Einhorn is an experienced professional with a high profile in the industry,” said Tracey McDermott, the FSA’s acting enforcement chief. “We expect someone in his position to be able to identify inside information when he receives it and to act appropriately. His failure to do so is a serious breach.”

If the name sounds familiar to many New Yorkers, it may be because of his recent flirtation with becoming the white knight of the beleaguered Mets franchise; others may remember him for his fame as the financial analyst whose decision to bet on the collapse of Lehman Brothers made him a huge profit in 2008.

For those who follow education, however, Einhorn now joins the ranks of fellow hedge funders who have been implicated both in questionably ethical business decisions and in the New York City charter school sector. Up to this point, the most famous case of this was probably that of Raj Rajaratnam, who was just sentenced to 11 years in prison for his own insider trading. Rajaratnam was a long-time supporter of Geoffrey Canada’s Harlem Children’s Zone, and Canada himself testified at the trial on his behalf.

In Einhorn’s case, his involvement in the city’s corporate school reform lobby goes back at least to 2006, when, as Steven Brill’s recent book points out, his gift of $250,000 in cash to Democrats for Education Reform (where he still serves on the Board of Advisors and is a major donor) was instrumental in getting that organization off the ground. Einhorn was also an early financial supporter of Eva Moskowitz’s Success Charter Network — which, as Brill also notes, emerged after Einhorn’s DFER allies recruited her to found the chain.

As questions continue to be raised about the role of these loosely regulated financial firms in the current economic crisis (and about the inadequate taxes their founders pay on their income from them), it’s an apt time to question whether the large role Einhorn and others in his field are playing in our city’s charter schools is in the best interest of the students in the system.

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