Attorney General Cuomo Announces Cooperation Agreement And Settlement With Cit
NEW YORK, NY (May 10, 2007) - Attorney General Andrew M. Cuomo today announced an agreement with Student Loan Xpress, Inc. (SLX) and its parent company CIT Group Inc. (CIT), a leading provider of student loans. In the latest development in Cuomo's nationwide investigation of the student loan industry, New York-based CIT has agreed to adopt the Attorney General's Code of Conduct for education loan practices and to make a $3 million contribution to a national fund for educating high school students and their families about the financial aid process. CIT will also actively cooperate with the Attorney General's ongoing investigation into the conflicts of interest of lending officials.
Attorney General Cuomo said, "This agreement serves as a linchpin in our continuing investigation of corruption in the student loan industry. I applaud CIT for their decisiveness and full cooperation with my office. The tide is turning in our investigation as more lenders and more schools change their practices. CIT's cooperation will add even more fuel to our ongoing investigation of certain lending officials who engaged in highly questionable practices."
The Attorney General's investigation found that SLX had provided meals, entertainment, and gifts to personnel at schools with which it did loan business. SLX also sponsored advisory boards comprised of financial aid officers and had provided expense-paid trips to board meetings. In addition, SLX provided free personnel to financial aid offices, free printing services for school materials, free training seminars for financial aid officers, and school event sponsorships.
In addition, certain college financial aid officers received direct or indirect consulting fees from SLX for serving on its advisory board. Timothy Lehmann, a financial aid officer for Capella University, received $12,400, a company run by Walter Cathie, a financial aid officer for Widener University, received $80,000, and Ellen Frishberg, a former financial aid officer for Johns Hopkins University, received $43,000 and an additional $22,000 toward her graduate school tuition at the University of Pennsylvania.
In fall of 2001, SLX's then-parent corporation Direct III Marketing, Inc. issued private placement securities to Fabrizio Balestri, who was named CEO of SLX in January 2002. Balestri then sold or transferred these securities to financial aid officers David Charlow of Columbia University, Catherine Thomas of the University of Southern California, and Lawrence Burt of the University of Texas. Balestri also sold or transferred securities to Matteo Fontana, who soon after became an employee at the Office of Federal Student Aid at the United States Department of Education.
The agreement between the Attorney General and CIT does not prevent the Attorney General from pursuing action against Balestri, former SLX employees Michael Shaut or Robert deRose, or any persons who acted in concert with them in creating or maintaining relationships that potentially compromised financial aid officers. CIT has agreed to assist the Attorney General in his continued investigation.
To date, 22 schools have committed to Cuomo's Code of Conduct, 8 of which have agreed to reimburse students over $3 million for the cost of revenue sharing agreements. In addition to today's agreement with CIT, Cuomo's investigation has resulted in agreements with the nation's four largest student loan providers - Citibank, Sallie Mae, JP Morgan Chase, and Bank of America - as well as Education Finance Partners (EFP). Sallie Mae, Citibank, and EFP have also agreed to contribute $6.5 million to the national fund for educating high school students and their families about the financial aid process.
On May 7, 2007, the New York State Legislature passed the Student Lending Accountability, Transparency, and Enforcement (SLATE) Act of 2007, which was sponsored at the request of Cuomo and is the first piece of legislation in the country aimed at ending the widespread conflicts of interest the student loan industry. Yesterday, the House of Representatives overwhelmingly passed H.R. 890, the Sunshine Student Loan Act, which would institute reforms in the national student loan industry. Attorney General Cuomo then joined with Florida Attorney General McCollum to send a bipartisan letter to President Bush urging him to immediately support the legislation. Today, Cuomo sent a similar letter to Secretary of the Department of Education Margaret Spellings.
The Cooperation Agreement and Assurance of Discontinuance with CIT will be available on Attorney General Cuomo's website: www.ag.ny.gov.
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