Sallie Mae Chairman Sells Shares, Resumes CEO Role

Sallie Mae Chairman Albert L. Lord yesterday sold 1.2 million shares -- a big chunk of his stock -- to meet the requirements of his "borrowing arrangements," the student lending giant said.

The sale comes as Sallie Mae's stock has been trading far below its summer highs following the collapse of a deal to sell the Reston firm to private investors.

"This stock sale has been painful, and was dictated by the specific terms of my securities account," Lord said in a news release issued late yesterday. "I uniquely identify with shareholders' disappointment and frustration with this transaction."

Sallie Mae didn't elaborate as to why Lord was forced to liquidate the stock. However, a report the company filed with the Securities and Exchange Commission in May said 783,891 of Lord's shares were held in a margin account and "pledged as security." Yesterday was the first chance the company gave its directors and executives to sell stock since March, when the sale of the company was under discussion.

The planned sale of Sallie Mae to a buyout group led by J.C. Flowers was supposed to be the crowning achievement of Lord's long career at the company and would have enabled him to cash in his options and stock awards at a gain of $224.9 million. Priced at $60 per share, the deal offered Lord and other investors a huge premium over the $40.75 trading price before news of the transaction was reported in April.

The company said he sold the shares on the open market, which means that he pocketed much less than he was expecting to when the buyout was still viable. Sallie Mae's stock closed at $26.69 yesterday, near its low point for the past year. Lord now owns about 340,000 "shares and share units," plus options and other rights covering about 10 million shares. Company spokesmen did not return calls for comment.

Lord has been one of the Washington area's most highly compensated executives.

Lord negotiated the proposed sale of the company as politicians were taking aim at subsidies for student lenders such as Sallie Mae.

Flowers backed out, saying cuts in subsidies enacted this year changed the situation. Flowers's retreat came as deterioration in credit markets could have made the deal more difficult and less profitable. Sallie Mae is fighting Flowers in court to force him to complete the deal or pay a $900 million breakup fee.

The demise this week of the long-foundering deal left Sallie Mae in search of a Plan B. The company announced yesterday that the board of directors had restored Lord as chief executive.

In doing so, the board carried out its second major management shakeup since the buyout was announced. Thomas J. Fitzpatrick resigned as chief executive in May. At the time, people familiar with the decision said Fitzpatrick was forced to leave because the company was trying to improve its political standing and Flowers wanted him out.

Fitzpatrick was replaced with C.E. Andrews, a former global managing partner for audit services at now-defunct accounting firm Arthur Andersen. Andrews had been serving as Sallie Mae's chief financial officer. Now, Andrews has been bumped to the role of president, Sallie Mae said yesterday.