A group of Democratic lawmakers introduced a bill in Congress that seeks to reform the private equity industry.
The Stop Wall Street Looting Act would reform private equity in several ways. Specifically, it would require private equity firms, general partners, and their insiders to share responsibility for the liabilities of companies under their control – including debt, legal judgments, and pension-related obligations. The lawmakers said this would better align the incentives of private equity firms and the companies they own. Liability would not extend to the fund’s limited partners. It would also ban dividends to investors and the outsourcing of jobs for two years after a firm is acquired.
In addition, it would prioritize worker pay in the bankruptcy process and improve rules, so workers are more likely to receive severance, pensions, and other payments they earned. Further, it would create incentives for job retention. Also, it would end the immunity of private equity firms from legal liability when their portfolio companies break the law, among other provisions.
“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,” Sen. Elizabeth Warren (D-MA), one of the bill’s sponsors, said. “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.”
It is also sponsored by Sens. Tammy Baldwin (D-WI), Sherrod Brown (D-OH), Bernie Sanders (I-VT), and Jeff Merkley (D-OR), along with Reps. Mark Pocan (D-WI), Pramila Jayapal (D-WA), Eleanor Holmes Norton (D-DC) and Jesús “Chuy” García (D-IL).
“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,” Baldwin said. “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.”
In recent years, private equity activity in the economy has exploded, with private equity fund assets more than doubling to nearly $5 trillion this year. The number of private equity funds has increased by nearly 60 percent.
“Too often private equity leaves workers and communities out in the cold,” 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 bill is supported by the AFL-CIO, American Federation of Teachers, Americans for Financial Reform, Communication Workers of America (CWA), Economic Policy Institute (EPI), and UNITE HERE, among others.