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Sallie Mae Board Members Under SEC Trading Probe

By David S. Hilzenrath
Washington Post Staff Writer
Wednesday, April 25, 2007

Sallie Mae, the nation's largest provider of student loans, said yesterday that the Securities and Exchange Commission is investigating trading in its stock by at least two members of its board of directors.

The disclosure, in a regulatory filing that also reported a 23 percent decline in Sallie Mae's earnings during the first quarter, did not name the directors or explain the basis for the probe.

It was previously reported that the SEC and congressional committees were examining the sale of $18.3 million of company stock by Chairman Albert L. Lord in February, days before the Bush administration unveiled a budget proposal that called for cuts in subsidies to student loan providers. Sallie Mae's stock price declined after the cuts were proposed.

Sallie Mae spokesman Tom Joyce has said Lord had no knowledge of the administration's plan when he sold the stock.

Spokesmen for the Reston lender did not return calls yesterday.

Sallie Mae announced last week that it accepted a $25 billion buyout offer from investors who would take the company private. The deal is subject to shareholder and regulatory approval.

In yesterday's filing, Sallie Mae also reported that the SEC is examining trading in Sallie Mae stock in the context of the April 16 buyout announcement. Sallie Mae did not say whose trades were under suspicion.

Trading based on inside information, such as advance word of a buyout, can be illegal.

In the probe related to the buyout, Sallie Mae said, the SEC requested documents and information two days after the deal was announced.

In the probe of directors' trades, the company said, Sallie Mae received subpoenas from the SEC on April 13 seeking testimony and documents from two officers and the company. The company said it was cooperating.

Lord told The Washington Post last week that he would leave the company with a payoff of $135 million and that in the absence of a buyout, he did not see Sallie Mae's depressed stock price rebounding any time soon.

In yesterday's report, Sallie Mae said it earned $116.2 million (26 cents a share) in the quarter that ended March 31, compared with $151.6 million (34 cents) in the corresponding period a year earlier. The company reported that it collected $1.95 billion in interest from loans and other investments for the quarter, up from $1.48 billion the previous year. Sallie Mae also generated $519.9 million in fees and other income, up from $285.8 million.

Profit declined in part because the company sharply boosted its reserves to cover potential losses from loan defaults. SLM, as the company is formally known, set aside $150 million in the first quarter to cover potential losses, compared with $60 million in the first quarter of 2006.

Losses on derivatives and other transactions intended to hedge against risks also depressed earnings. They totaled $357 million during the first quarter on a pretax basis, compared with $87 million a year earlier.

The earnings report did not appear to shake investors' bets that the buyout will go forward at $60 per share. Sallie Mae shares closed at $53.74 yesterday, down 61 cents but still up sharply from the $40.75 price that preceded news of a potential buyout.

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