NEW YORK (Reuters) - Short-seller Jim Chanos predicted that many student loan companies will face serious legal issues in coming months and said his firm expects many of their stocks to fall.
Speaking at the Reuters Hedge Funds and Private Equity Summit 2007 on Wednesday, Chanos said investigators will uncover "many tens of billions of dollars in fraud" at loan companies.
"We're short broadly speaking all of them," Chanos said. He declined to name exactly which companies he has targeted for stock declines, however.
His firm, Kynikos Associates, which specializes in short selling, has been shorting companies in the sector for as much as three years, he said.
The short seller makes a bet that a stock will fall by borrowing and then selling it. He expects to buy the shares later at a lower price to return them to the lender.
Chanos's comments come amid an unfolding regulatory probe into the $85 billion-a-year college loan industry by New York State Attorney General Andrew Cuomo.
Sallie Mae (SLM.N: Quote, Profile, Research, Stock Buzz), one of the largest lenders, today said it agreed to pay $2 million to settle an investigation and change its business practices.
"The real fraud they will find is the herding of middle- and lower-income kids into all kinds of degree schools, and they come out with $40,000 to $50,000 in loans," said Chanos. "We've only just scratched the surface."
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