Kevin McCoy

USA TODAY

A congressional panel has found signs of "suspicious trading" in the stock of the nation's largest student loan servicing company before the firm was hit with a federal lawsuit that might have sent the shares plunging, according to Wednesday proceedings at a House hearing.

Rep. Patrick McHenry, R-N.C., the vice chairman of the House Financial Services Committee, made the disclosure during a politically-charged session on the performance of the Consumer Finance Protection Bureau. Amid renewed Republican criticism of the regulator, McHenry focused on the lawsuit the CFPB announced Jan. 18 against Navient (NAVI), the Delaware-based student loan servicing giant.

"Unfortunately, committee staff has learned of suspicious trading activity for the Navient Corporation the morning before the announcement of CFPB's enforcement action," McHenry said. The disclosure came after McHenry asked CFPB Director Richard Cordray if he knew of "any confidential leaks" that "led to insider trading."

"I'm not. And if there is something, I'd be very concerned about it," replied Cordray, who similarly said he didn't know if anyone at the CFPB had been investigated for insider trading.

CFPB says student loan giant Navient cheated borrowers

McHenry said "it's unclear at this point" whether the purported suspicious trading could have involved transactions by CFPB staffers or by outside traders tipped off by a leak about the impending Navient lawsuit.

Cordray pledged the CFPB's cooperation if the Securities and Exchange Commission or the U.S. Department of Justice were to investigate the issue.

McHenry spokesman Jeff Butler referred questions to senior committee staffers. Sarah Rozier, the panel's communications director, said in a statement: "our committee is investigating the suspicious trading activity and, as such, we have a responsibility to seek all information relevant to such investigation — which includes asking the head of the agency that brought the enforcement action if he has any knowledge on the matter."

The SEC and the Department of Justice declined to comment, as did Navient.

The company's stock closed at $16.85 a share on Jan. 13. The shares opened at $16.58 when regular trading resumed on Jan. 17, the day after the Martin Luther King Day federal holiday. The stock dropped to $15.85 within the first 24 minutes of that session, then fell lower during the afternoon, before closing at $15.77 a share.

Eric Hunsader, a market data and software expert at Nanex, a financial data and research provider, said in a phone interview that the Jan. 17 value drop seemed to suggest "there had to be news in the market."

"If there was no other issue that would take it down that day, this looks like there could have been a leak" about the yet to be announced lawsuit, said Hunsader.

A separate action by a JPMorgan Chase analyst before the markets opened that day could provide an alternate explanation for the stock decline. JPMorgan downgraded its recommendation on the stock from overweight to neutral, a decision that typically prompts some investors to sell shares.

Navient shares plunged further the following day, as the CFPB legal action accused Navient of systematically failing thousands of student loan borrowers by providing incorrect payment information, processing payments incorrectly and failing to act when borrowers complained. The stock recovered slightly and closed at $16.05 a share on Jan. 18.

Navient seeks to dismiss student loan case, says consumer watchdog overreached

Navient has denied the CFPB allegations, and last week filed a motion to dismiss the lawsuit.

The CFPB was created as part of the Dodd-Frank financial and Wall Street safeguards enacted after the national financial crisis. Although the regulator has drawn praise from consumer advocates and Democrats, the CFPB has repeatedly been criticized for improper overreaching and other issues by Washington Republicans generally, and by Rep. Jeb Hensarling, R-Texas, chairman of the House financial services panel, in particular.

Underscoring that criticism, a three-judge panel of a Washington, D.C.-based federal appeals court last year ruled that the CFPB's operating structure was unconstitutional. The full appeals court has agreed to hear the CFPB's appeal of that decision.

Consumer Financial Protection Bureau structure ruled unconstitutional

Hensarling renewed his criticism of the agency during Wednesday's hearing, repeating calls for President Trump to fire Cordray.

"There is no greater form of consumer protection than fostering competitive, innovative and transparent markets and then vigorously policing them for fraud, theft, and deception," said Hensarling. "In policing our markets, under Mr. Cordray’s leadership, CFPB’s success record is anything but clear."

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc