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Sallie Chairman Sold Shares Ahead of Cuts

By Amit R. Paley
Washington Post Staff Writer
Saturday, February 10, 2007

Sallie Mae Chairman Albert L. Lord sold $18.3 million worth of company stock last week, just days before the Bush administration unveiled a multibillion-dollar cut in subsidies to the lending industry that caused Sallie Mae shares to plummet.

Lord sold 400,000 shares of company stock Thursday, Feb. 1, and Friday, Feb. 2. The following Monday, after President Bush announced a budget that would cut subsidies to the student-lending industry by about $19 billion over five years, Sallie Mae's stock plunged about 9 percent, to $42.37 from $46.46, its lowest closing price in more than two years.

In a Securities and Exchange Commission filing that night, SLM Corp., as Sallie Mae is formally known, disclosed Lord's sale of the shares, which it said was done to fund unspecified personal projects.

Tom Joyce, a spokesman for Sallie Mae, said this week that Lord had planned to sell the shares for weeks and told the company about his plans to sell the stock, which represented about 29 percent of the Sallie Mae shares he owns outright, nine days before the sale.

Democrats in Congress have been calling for changes in student loan programs that would hurt Sallie Mae. The Reston-based student lending company has opposed the changes. But, Joyce said, Lord had no idea Bush would propose such huge rollbacks of lender subsidies. "Nobody had these cuts on their radar screen," he said. "The student lending community did not see this coming."

"I can understand that people are raising questions, but the timing was just completely coincidental," Joyce said. "He had been thinking of doing this for many weeks. He was watching the market and just elected to do it on Thursday and Friday."

If Lord had sold his shares at Monday's closing price of $42.37, he would have received about $1.4 million less. Lord sold the shares in a series of transactions over the two days at prices that ranged from $45.75 to $46.03.

"It certainly seems to raise some fairly significant questions," said Larry P. Ellsworth, a former lawyer with the SEC's trial unit. He said company executives generally cannot trade on potentially market-moving information if they receive the information in their official roles and it is not available to the public.

Lord, who was traveling yesterday and could not be reached for comment, did not act on such information, Joyce said.

William M. Diefenderfer III, chairman of the Sallie Mae board's audit committee, said Lord told the directors at the end of a meeting Jan. 25 that that he planned to sell up to $30 million worth of company stock. "Everybody said fine, and that was it," Diefenderfer said yesterday.

"Al is as honest as the day is long," Diefenderfer added. "If he knew the cuts were coming, he would not have sold."

Chad Colby, a spokesman for the Education Department, said some Capitol Hill staff members were briefed on the proposed budget last Thursday but that the suggested cuts were not shared with Sallie Mae officials before Monday's announcement.

There were signs that the White House would propose cutting subsidies for the lending industry in its budget, said Matt Snowling, an analyst at Arlington investment bank Friedman, Billings, Ramsey Group.

"We downgraded Sallie Mae about three or four weeks ago because we had heard that the administration was looking at cutting into lender subsidies," he said. "It's not completely a surprise to us, although it clearly was a surprise to a lot of investors."

The company's stock has been declining for months, though this week's drop was particularly precipitous.

The day after the president's budget and Lord's sale were disclosed, Sallie Mae stock closed at $41.96 per share, a 52-week low. The stock rebounded yesterday, closing at $42.55.

Staff researcher Richard Drezen contributed to this report.

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