Pocan Leads Members of Congress in Unveiling Bold Legislation to Fundamentally Reform the Private Equity Industry
WASHINGTON, DC (July 18, 2019) – Today, U.S. Representatives Mark Pocan (WI-02) and Pramila Jayapal (WA-07), joined U.S. Senators Elizabeth Warren (D-MA), Tammy Baldwin (D-WI), and Sherrod Brown (D-OH) to unveil the Stop Wall Street Looting Act. The comprehensive bill fundamentally reforms the private equity industry and levels the playing field by forcing private equity firms to take responsibility for the outcomes of companies they take over, empowering workers, and protecting investors.
“With the help of our rigged tax code, private equity firms have made out like bandits at the expense of workers and communities. Private investment funds should not be able to cash out by gambling with the wellbeing of hard-working families,” said Pocan. “When the private equity firm Sun Capital bought Shopko – a retail chain that’s been in business for over 50 years – they loaded it up with debt, sending it into bankruptcy and leaving their workers with no severance and few options. After many employees spent years – some decades – working for Shopko, they were abruptly left out in the cold with nowhere to turn. This critical piece of legislation holds predatory private equity firms accountable and protects workers from the consequences of firms’ greed.”
“This bold legislation stands firm against Wall Street and private equity firms by protecting workers from abusive practices that eliminate jobs and topple markets,” said Jayapal. “My colleagues and I are taking the powerful steps this issue deserves – we are listening to the families, workers and small businesses that deserve fair treatment.”
“For far too long, Washington has looked the other way while private equity firms take over companies, load them with debt, strip them of their wealth, and walk away scot-free – leaving workers, consumers, and whole communities to pick up the pieces,” said Warren. “Our bill ends these abusive practices by putting private investment funds on the hook for the decisions made by the companies they control, ending looting, empowering workers and investors, and safeguarding the markets from risky corporate debt.”
“An out of state, predatory private equity firm shut down stores across Wisconsin and nearly 3,000 ShopKo workers lost their job. We need to rip up the predatory playbook that private equity firms are using to leave workers with nothing but pink slips,” said Baldwin. “Our legislation takes on Wall Street abuse and closes loopholes that private equity firms are using to make a quick buck while they shut down businesses and lay off workers. This bold reform will help rewrite the rules of our economy and protect workers from predatory practices so that we can start rewarding hard work and not just wealth.”
“Workers’ jobs, benefits, and pensions have been wiped out by private equity executives looking to make a quick buck,” said Brown. “The Stop Wall Street Looting Act will protect hardworking Ohio families by ending the risky bets that cripple Main Street companies for the benefit of Wall Street.”
Over the last two decades, private equity activity in the economy has exploded. Since 2009, investors have allocated $5.8 trillion globally to private equity. These funds have purchased companies in all sectors of the economy – from nursing homes, to newspapers, to grocery stores – laying off hundreds of thousands of workers and ruining thousands of companies in the process. Today, 35,000 companies owned by private equity employ nearly 5.8 million workers.
The private equity industry claims that it earns high returns for investors by leveraging their capital to buy companies, using funds’ management expertise to make the companies’ operations more efficient, and then selling the companies at a profit. In reality, private equity funds often load up companies with debt, strip them of their assets, and extract exorbitant fees, while guaranteeing payouts for themselves and walking away from workers, communities, and investors if the bets go bad.
The Stop Wall Street Looting Act would fundamentally reform private equity by closing the legal, tax, and regulatory loopholes that allow private equity firms to capture all the rewards of their investments while insulating themselves from risk. Firms that take appropriate steps in the interest of the company, the fund, and workers, will continue to make investments. The bill would:
- Require Private Investment Funds to Have Skin in the Game. Firms will share responsibility for the liabilities of companies under their control including debt, legal judgments and pension-related obligations to better align the incentives of private equity firms and the companies they own. In order to encourage more responsible use of debt, the bill ends the tax subsidy for excessive leverage, and closes the carried interest loophole.
- End Looting of Portfolio Companies. To give portfolio companies a shot at success, the proposal bans dividends to investors for two years after a firm is acquired and ends the extraction of wealth from acquired companies through excessive fees.
- Protect Workers, Customers, and Communities. This proposal prevents private equity firms from walking away when a company fails and protects stakeholders by:
- Prioritizing worker pay in the bankruptcy process, and improving rules so workers are more likely to receive severance, pensions, and other payments they earned.
- Creating incentives for job retention so that workers can benefit from a company’s second chance.
- Ending the immunity of private equity firms from legal liability when their portfolio companies break the law, including the WARN Act. When workers at a plant are shortchanged or residents at a nursing home are hurt because private equity firms force portfolio companies to cut corners, the firm should be liable.
- Clarifying that gift cards are consumer deposits, ensuring their priority in bankruptcy.
- Empower Investors by Increasing Transparency. Private equity managers will be required to disclose fees, returns, and political expenditures so that investors can monitor their investments and shop around.
- Require Regulators to Address Risky Leverage. The Dodd-Frank provisions that require arrangers of corporate debt securitization to retain some of the risk will be reinstated.
Joining the lawmakers in introducing the legislation are U.S. Senators Kirsten Gillibrand (D-NY), Bernie Sanders (I-VT) and U.S. Representatives Barbara Lee (CA-13), Jesús “Chuy” García (IL-04), Ayanna Pressley (MA-07), Rashida Tlaib (MI-13), Jan Schakowsky (IL-09), Ro Khanna (CA-17), and Raúl Grijalva (AZ-03).