Warren, Baldwin, Brown, Pocan, Jayapal, Colleagues Reintroduce Bold Legislation to Fundamentally Reform the Private Equity Industry
Private Equity Activity has Exploded and Continued to Grow During the Pandemic, Exploiting Workers, Consumers, and Communities; Comprehensive Bill Would Hold Wall Street Accountable, Empower Workers, Safeguard the Financial System, and Protect Investors
Bill Text (PDF) | One-Pager (PDF) | Section-by-Section Summary (PDF) | Economic Analysis (PDF) | Private Equity: By the Numbers (PDF)
Washington, DC - United States Senators Elizabeth Warren
(D-Mass.), Tammy Baldwin (D-Wisc.), Sherrod Brown (D-Ohio), Chair of the Senate
Banking Committee, along with Representatives Mark Pocan (D-Wisc.) and Pramila
Jayapal (D-Wash.), today reintroduced the Stop Wall Street Looting Act, a
comprehensive bill to fundamentally reform the private equity industry and
level the playing field by forcing private investment firms to take
responsibility for the outcomes of companies they take over, empowering
workers, and protecting investors. Joining the lawmakers in introducing the
legislation are Senators Bernie Sanders (I-Vt.) and Jeff Merkley (D-Ore.) along
with Representatives Eleanor Holmes Norton (D-D.C.) and Jesús "Chuy"
García (D-Ill.).
"Private equity firms were already gutting companies and killing jobs
before COVID-19, now they’re drooling over companies to exploit during this
crisis. Private equity firms get rich off of stripping assets from companies,
loading them up with a bunch of debt, and then leaving workers, consumers, and
whole communities in the dust," said Senator Warren.
"The Stop Wall Street Looting Act ends these abusive practices by
putting private investment fund managers on the hook for the companies they
control, ending looting, empowering workers and investors, and safeguarding the
markets from risky corporate debt."
“Out of state, private equity firms have shut down Wisconsin manufacturing
plants and stores and laid off our workers in Janesville, Waukesha and Green
Bay. We need to rip up the predatory playbook that these private equity firms
are using to leave workers with nothing but pink slips,” said Senator
Baldwin. “Our legislation takes on private equity abuse and closes
loopholes that these 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 that are resulting in
devastating job loss for working families.”
“When private equity firms buy up homes and companies, they put profits
over everything and everyone else,” said Senator Brown. “I’m
proud to cosponsor the Stop Wall Street Looting Act to hold private equity
accountable and put workers, families, and communities first.”
“It’s long past time for billionaires and big corporations to stop gambling
with hardworking Americans’ and their communities’ assets in service of
corporate greed. Too often private equity leaves workers and communities out in
the cold,” Representative Pocan said. “When the private equity
firm Sun Capital bought Shopko - a Wisconsin-based 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. This
bill will finally hold predatory private equity firms, like Sun Capital
accountable and protect workers from the consequences of firms' greed."
“The devastating COVID-19 pandemic has only made it more clear that we must
finally put working people over Wall Street and our communities over corporate
profits,” said Congresswoman Jayapal. “As we fight for an
equitable and transformative recovery that makes long-overdue investments in
families across America, the Stop Wall Street Looting Act will hold Wall Street
accountable while putting power back where it belongs — in the hands of working
people.”
“Congress must ensure that the greed and recklessness of Wall Street can never
destroy the livelihoods of everyday Americans ever again,”said Senator
Sanders. “Now is the time to end Wall Street’s greed, protect
workers, and create an economy that works for everyone, not just the 1%.”
“We cannot let corporate greed and private equity abuse continue to take advantage of working people,” said Senator Merkley “and this legislation is a critical step in holding billionaires accountable and protecting consumers from predatory companies.”
Over the last two decades, private equity activity in the economy has exploded,
and its presence in the economy has only been magnified by the COVID-19
pandemic. A recent report
found that private equity firms’ portfolio companies received over $5 billion
in taxpayer money from the CARES Act, despite private equity firms sitting on
record-high amounts of cash. Private equity-owned nursing homes had
devastatingly high
mortality rates during the pandemic, consistent with academic research
showing that private equity ownership increases nursing home deaths. Private
equity-owned retailers
shut their doors for good, too loaded up with debt to make it through.
Meanwhile, private equity landlords
laid in wait for the eviction moratorium to end so they could make more money, even
if it meant kicking families out of their homes.
The private equity industry continues to grow and is on pace to set dealmaking
and deal value records this year. Over the last five years, private equity fund
assets have more than doubled,
reaching nearly $5 trillion this year, and the number of private equity funds
has increased by nearly 60%. The 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, the industry relies on a business model
in which managers are incentivized to pursue short-term profits and pocket huge
fees as they load up companies they buy with debt, strip them of their assets,
and extract exorbitant fees; often 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, the firm’s general partners, and their insiders 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. Liability would not extend to the fund’s limited partners, ensuring that only those that control portfolio firms are on the hook. 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 and the outsourcing of jobs for two years after a firm is acquired – ending the extraction of resources from acquired companies.
- 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 other information about their funds 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 risk will be reinstated.
The legislation is supported by Action Center on Race and the Economy
(ACRE), AFL-CIO, American Economic Liberties Project, American Federation of
Teachers, Americans for Financial Reform, Center for Popular Democracy,
Communication Workers of America (CWA), Data for Progress, Economic Policy
Institute (EPI), Indivisible, National Employment Law Project (NELP), People’s
Action, PE Stakeholder Project, Student Borrower Protection Center, Take
Medicine Back, Take on Wall Street, UNITE HERE, United for Respect, Working
Families Party, and Worth Rises.
“The current system of special privileges and loopholes for private equity
encourages abuses that help super-rich Wall Street executives get even richer
at the expense of workers, communities, patients, racial equity and our
climate, and enables them to take control of ever-larger pieces of our world,
from retail, to technology, to housing, to healthcare and more,” said
Lisa Donner, Executive Director, Americans for Financial Reform. “The
Stop Wall Street Looting Act would be a powerful step toward creating rules of
the road that promote a more just and sustainable economy"
“I was a Sales Manager at Art Van Furniture and absolutely loved my job until
private equity firm T.H. Lee (THL) acquired the company and ran it into the
ground. In the blink of an eye — and at the beginning of the pandemic — I found
myself with no job, no severance pay after 23 years of loyal service, and no
health care during the biggest public health crisis of our lifetimes….It’s way
past time to protect essential workers over wealthy corporate executives —
Congress must pass the Stop Wall Street Looting Act and finally put working
people first,” said Shirley Smith, former Sales Manager at Art Van
Furniture and Leader with United for Respect.
“The private equity industry has for too long been shrouded in secrecy and
lacking real accountability and transparency which has enabled a massive and
unfair wealth transfer from workers to Wall Street. Private equity managers
have played fast and loose with public employees’ retirement savings, minting a
new class of billionaires at the expense of workers’ retirement security. The
Stop Wall Street Looting Act would reverse this trend by closing the carried
interest tax loophole, exposing predatory fees, and preventing private equity
from taking excessive risks to enrich themselves while harming investors,
portfolio companies, and working people. This legislation puts a stop to
private equity’s most abusive practices, protecting workers and communities
across the globe,” said Randi Weingarten, President, American
Federation of Teachers.
“We applaud Senator Warren for introducing this bill to protect American
workers from the excesses of private equity. In the hospitality industry, we
have seen companies all but decimated by private equity. And right now, the
labor movement’s attention is turned to Brookwood, Alabama where 1,100 miners
have been on strike for seven months, fighting for a fair return on the sweat
equity they have made to save their company after its 2016 bankruptcy. A
consortium of private equity companies, led by Apollo, purchased the distressed
bonds of the mining company’s predecessor and gained control over the company’s
primary assets . Ultimately, workers agreed to more than a billion dollars in
concessions in order to save the company, including wage cuts of up to $6 an
hour. Instead of restoring those cuts when the company regained profitability,
the company sent hundreds of millions of dollars in dividends to shareholders,
the largest of whom were Apollo and other private equity firms. Opportunistic
investors shouldn’t be allowed to use the bankruptcy process to extract cash
from ailing companies and leave workers and communities high and dry,” said
D. Taylor, President, UNITE HERE.
“The Warrior Met Coal strike is the poster child for why we need the Stop
Wall Street Looting Act,” added Liz Shuler, President, AFL-CIO.
“For nearly seven months, coal miners in Alabama have been on strike to recover
wages and benefits that were stripped away from them through bankruptcy. In
contrast, private equity firms reaped millions in special cash dividends after
acquiring the assets of Warrior Met's predecessor company through
bankruptcy."
“The Stop Wall Street Looting Act’s protections are critically important for working families as we continue to deal with the impact of the COVID-19 pandemic and its subsequent economic downturn. CEOs aren’t the only ones hurt by company closings. Bankruptcies shake employees and consumers at their core too. For example, when nursing homes close their doors seniors, people with disabilities and their loved ones are left scrambling for new homes, while workers are trying to figure out how they will pay bills. Under this bill’s provisions, including prioritizing worker pay and benefits, incentivizing job retention and prohibiting companies from running away from their obligations, we can protect more workers and consumers in these uncertain times,” said Mary Kay Henry, international president of the Service Employees International Union.
“For too long, private equity firms have held outsized power in our workplaces
and communities. COVID-19 created an even bigger opportunity for these Wall
Street firms to scale up their predatory practices that directly loot from
Black, brown, and Indigenous people,” said Maurice BP-Weeks,
Co-Executive Director, Action Center on Race & the Economy (ACRE).
“If we’re committed to protecting workers and ending the racial wealth gap, we
need to end private equity extraction from our communities by passing the Stop
Wall Street Looting Act.”
"Private equity firms’ heavy use of debt at companies at companies they
acquire, growing extraction of cash from companies through debt-funded
dividends, and limitation on their own liability increasingly set up a ‘heads I
win, tails you lose’ structure where private equity firms can make substantial
profits for themselves regardless of the consequences for workers, consumers,
communities in which their companies operate, tenants, government payors, and
others," said Jim Baker, Executive Director, PE Stakeholder
Project.
"The growth of the private equity industry has highlighted gaps in the
laws that govern our economy. Private equity firms’ relentless pursuit of
profit imposes side-effects on millions of citizens: some positive, some
negative,” said Ludovic Phalippou, Professor of Financial Economics,
Saïd Business School, University of Oxford. “It is imperative to take
a hard look at the bankruptcy code, the tax code, and investor protection.
Private equity plays a valuable role in the economy, but any decision maker
should be liable for the negative side-effects they impose on others. This proposal
and the debates it will spark are important milestones on the way to a more
sustainable and stable society."
"Every day, working people see more evidence of the harms caused by
predatory private equity fund managers,” said Chris
Shelton, President, Communication Workers of America (CWA). “These
funds load up companies with debt, strip them of their assets, outsource and
eliminate jobs, and, in doing all of this, risk the futures of workers,
retirees and entire communities. CWA is proud to endorse the Stop Wall Street
Looting Act, which will fix that by shining a light on these predatory
practices and ensuring that private equity funds will be held accountable for
the results of their risky bets."
"If pirates had public relations teams, they would claim that their
pillaging results in better use of the resources of the ships they attack, said
Heidi Shierholz, President, Economic Policy Institute (EPI). “That’s
the spin used by private equity, whose actions—looting productive resources,
not salvaging unproductive ones as claimed—often leave a trail of destruction.
This bill addresses serious problems with the private equity business model,
without getting in the way of firms that actually do produce allocative or
operational efficiencies that strengthen the U.S. economy."
“In the prison industry, private equity firms like Platinum Equity, American
Securities, and HIG Capital prey on a captive market. These three firms, in
particular, have significantly consolidated the $1.4 billion prison telecom
space and together own an astounding 90% of the market. Their portfolio
companies rake in millions charging families as much as a $1 per minute to make
a simple call and $0.35 to send an email. These are rates that could never pass
in the public market, but families supporting incarcerated loved ones don’t
have a choice and the private equity executives puppeteering these companies
know it,” said Bianca Tylek, Executive Director of Worth Rises.
“With these predatory practices, Platinum Equity, American Securities, and HIG
Capital have driven a third of families impacted by incarceration into debt.
And telecom is only one example — private equity firms have ties to a wide
range of sectors across the prison industry, from healthcare to commissary to
electronic monitoring, which all exploit incarcerated people for investor
profits. This is a national crisis.”
“With sky-high frees, hidden risks, opaque no-bid contracts, and too many
tragic consequences for workers and communities across America, private equity
is dangerously under-regulated. Managers pocket billions in fees, win or lose,
often betting with public funds. But it's taxpayers who end up footing the bill
when things go wrong. Without sensible federal legislation to create an even
playing field, investors — including tens of millions of retired Americans —
will be at a permanent disadvantage to Wall Street. I applaud this effort to
bring some much-needed accountability and oversight to private equity, give
investors a fighting chance, and give working families and retirees the
protection they deserve," said Joe Torsella, Former Treasurer,
State of Pennsylvania.
"In a world where globalization gets the blame for the loss of
American jobs, wage stagnation, and inequality, Wall Street-driven
financialization is too often the real culprit. Private equity firms have
undermined the financial stability of Main Street companies, thrown them into
bankruptcy, sent jobs overseas, and led to hundreds of thousands of layoffs of
US workers. This pattern is particularly devastating where private equity firms
have bought out manufacturing firms and closed plants in towns where few other
good jobs exist – such as Hufcor in Janesville, Wisconsin, or Anchor Hocking in
Lancaster, Ohio. These manufacturing companies had survived globalization, and
helped their communities prosper. But they didn't survive being the playthings
of Wall Street," said Dr. Rosemary Batt, Professor, and co-author
of Private Equity at Work: When Wall Street Manages Main
Street.
"For too long, private equity barons have strip-mined our society
through financial engineering and predation on those of us who work for a
living. The Stop Wall Street Looting Act is essential to protecting our wages,
our dignity, our health and our liberty,” said Matt Stoller, Director
of Research, American Economic Liberties Project.
"Across the economy, private equity cheats families and extracts
wealth from communities,” said Mike Pierce, Policy Director, Student
Borrower Protection Center. “These firms have been at the center of
the most predatory schemes in higher education for decades. From backing
dubious schools that sucker students with lofty false promises to fueling
private student loan companies whose practices would make corner loan sharks
blush, private equity firms have made a brisk business of turning students’
pain into cash. Enough is enough. It’s time for this rogue industry to be held
accountable for exploiting the American Dream."
"The current system that prioritizes lining the pockets of wealthy Wall
Street executives, at the expense of communities and workers, is both an
injustice and an outrage," said Leah Greenberg, Co-Executive
Director of Indivisible. " Private equity firms simply cannot be
allowed to strip a company for parts while leaving employees high and dry - all
while making exorbitant, tax-privileged fees. This is nothing more than a
legalized scam, and Black and Brown communities have disproportionately been
the target. The Stop Wall Street Looting Act finally takes on this greed, and
would shield our communities from this predatory behavior."
"As a former Trustee on two public pension fund boards, I have witnessed
the exploitative investment tactics in the private equity industry. Using
workers’ retirement savings, the industry has enriched itself at the expense of
a generation of workers with less retirement security and a future generation
with less opportunity for retirement. The rules of our economy must protect
workers from this kind of exploitation by ensuring risks and rewards are shared
by all. The Stop Wall Street Looting legislation does just that,"
said Wayne Moore, Board member and former trustee, Los Angeles County Employee
Retirement Association (LACERA).
"Private equity is entirely incompatible with quality emergency care.
Physicians cannot serve two masters. Private equity ownership is a betrayal of
the proud history of emergency medicine, rooted in the traditions of social
justice that came out of the civil rights movement. Our largest professional
organization has become compromised. Physicians risk losing their jobs if they
speak out. Patients are being bankrupted. We need the Stop Wall Street Looting
Act to reform this predatory business model so that the bedside emergency
physician can advocate in their patient's best interest once again," said
Mitch Li, Founder, Take Medicine Back.
"I bought my manufactured home because I needed an affordable place.
My neighbors are mostly seniors and people with disabilities. Since Havenpark
Capital bought our park three years ago, they've increased our rents and fees
50% and are pushing people out. They've ruined our community," said
Holly Hook, MHAction member and resident of Swartz Creek Estates in Swartz
Creek, MI.
"This pathbreaking legislation brings needed reforms to a sector whose
money manipulations have abused workers and eroded once healthy companies while
lining the pockets of Wall Streeters. For too long, private equity has sapped
the real economy,” said Bartlett Naylor, Financial Policy Advocate,
Congress Watch (Public Citizen).
"Through their actions, the private equity titans have cheated state
and municipal employees out of bigger pensions. They have misled people about
their investment performance. They have influenced regulators in positions of
authority to look the other way. And, worst of all, they can live with this
conduct, as long as their personal wealth increases," said Jeff
Hooke, Senior Finance Lecturer, and author of The Myth of
Private Equity.
"For too long, private equity has been allowed to generate outsize
returns for its executives through layoffs or pay cuts for workers,” said
Irene Tung, Senior Policy Researcher and Policy Analyst, National Employment
Law Project. “Private equity controls ever-larger proportions of our
economy; it’s time to hold the private equity managers that destroy companies
and jeopardize workers’ livelihoods accountable for the human costs of their
actions."
“Predatory private equity managers attack our communities, using huge piles of
borrowed money to gentrify our neighborhoods, kill our jobs, steal our pensions
and snatch away our healthcare. Now we’re fighting back — Senator Warren’s bill
strikes a blow against private equity greed and extraction to protect our
people and stop runaway inequality,” said Ana Maria Archila,
co-Executive Director of the Center for Popular Democracy.
"For too long, vulture capitalists have harvested companies and
pension programs, extracting massive profits while crushing the working
class," said Maurice Mitchell, national director of the Working
Families Party. "This bill brings some much-needed
accountability, transparency, and reform to the shadow economy of private
equity. Members of Congress need to get on board."
"For too long, private equity barons have targeted white, Black and Brown
working people for wealth extraction, only to be rewarded with a tax break for
their predatory practices. It is past time we reined in these firms, and stop
rewarding their behavior through the tax code,” said Mandla Deskins,
Advocacy Coordinator, Take on Wall Street.
Senator Warren has been a leader on highlighting and ending abusive private
equity practices throughout her time in the Senate:
- In August, Senators Warren, Ron Wyden (D-Ore), and Brown launched an investigation into private equity ownership of for-profit hospice companies and subsequent reductions in the quality of care, focusing on Kindred at Home and the period where the company was purchased and owned by Humana and two private equity firms, TPG Capital and Welsh, Carson, Anderson and Stowe.
- At a Senate Banking, Housing, and Urban Affairs Committee nomination hearing and during an exchange with Senator Warren, a Department of Housing and Urban Development (HUD) nominee committed to consider changes that facilitate sales of distressed homes to homeowners, not private equity firms.
- In July, Senator Warren called on large corporate landlords to avoid needless evictions as the CDC eviction moratorium neared expiration.
- Senators Warren, Sherrod Brown (D-Ohio), and Bernie Sanders (I-Vt.) applauded the Government Accountability Office (GAO) for agreeing to their request to investigate the operations of commercial Institutional Review Boards (IRBs), the private - and often private equity-owned - entities that approve drug research and other studies involving human subjects.
- In March, Senator Warren called out Genesis’, a for-profit nursing home chain which "restructured" and handed over much of its control to private equity, for its failed response to the COVID-19 pandemic and corporate greed. Genesis gave its then-CEO -- who left the company in near bankruptcy in January 2021 -- $8 million in salary and bonuses since the start of the pandemic while leaving its workers and residents without adequate PPE and COVID-19 safety supplies.
- Senator Warren secured commitment from then SEC Nominee Gary Gensler, now Chair, to look at all of the authorities to make the markets more honest and more transparent, including through greater transparency around private equity business practices.
- In February, Senator Warren urged Wally Adeyemo, then nominee for Deputy Secretary of the Treasury, to commit to using the Financial Stability Oversight Council (FSOC) as a tool to address risks that financial activities impose on low-income and underserved communities authorities to address economic inequality - including by recommending more regulatory scrutiny of private equity funds.
- In November 2019, Senators Warren, Brown, and Representative Pocan wrote to four private equity firms that invested in companies providing nursing home care and other long-term care services, citing reports that show private equity investment has played a role in the declining quality of care in nursing homes and requesting information about each firms' management of this sector.
- In October 2019, Senator Warren and Representatives Pocan and Ocasio-Cortez wrote to five private equity firms that own companies providing support services to prisons highlighting how private equity firms deliver poor quality food and services at exorbitant prices, making huge profits off of incarcerated people, their families, and taxpayers.
- In October 2019, Senator Warren, and Representatives Pocan, and Doggett (D-Texas) wrote to five private equity firms with investments and physician staffing and emergency transport companies, questioning the role these companies play in patients receiving exorbitant surprise bills for out-of-network medical treatment.
- In September 2019, Senator Warren and Representative Pocan wrote to six private equity firms with holdings in for-profit colleges requesting information about the firm’s management of colleges and universities and the problems plaguing for-profit colleges.
- In May 2019, Senator Warren and Representative Dave Loebsack (D-Iowa) wrote to the private equity firms behind some of the country's largest manufactured housing communities to request information about their use of predatory practices to boost profits in the communities they own.
- In October 2018, she demanded answers from Vornado Realty Trust and five hedge funds on their role in the liquidation of Toys "R" Us, which resulted in 30,000 workers losing their jobs without severance pay-after it was revealed that the company's bankruptcy was the result of the leveraged buyout of the company in 2005 by two private equity firms.
- In April 2018, she published an op-ed in which she spoke out against the House's attempts to include a provision in its bank deregulation bill that would benefit a handful of big private-equity firms while putting ordinary investors at greater risk.
- In June 2015, she was an original co-sponsor of the Carried Interest Fairness Act, legislation that would close the carried interest loophole that allowed private equity fund managers to pay lower taxes. The legislation was reintroduced in March 2019 and is included in the Stop Wall Street Looting Act.
###
Next Article Previous Article
