At Banking Hearing on the 10th Anniversary of Dodd-Frank, Warren Calls for SEC Nominees to Improve Oversight of Private Equity and Protect Workers and the Economy
Warren to Commissioner Peirce: "Nothing in your record suggests that you are willing to take on powerful interests to protect either investors or workers. That's why I think it would be a mistake to confirm you for another term"; "The SEC's job is to 'protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.' That's a direct quote and that means a Commission that won't let private equity funds loot American businesses."
Washington, DC - In a Senate Banking Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) questioned the Securities and Exchange Commission (SEC) nominees, Hester Peirce and Caroline Crenshaw, regarding the economic damage caused by the private equity industry and the lack of adequate regulation for the industry, particularly amid the ongoing economic crisis. On the tenth anniversary of Dodd-Frank becoming law, Warren pressed the SEC nominees to issue safeguards that would be required under Senator Warren's Stop Wall Street Looting Act to reform the private equity industry and to require public disclosure about the risks of their investments, the fees they charge, and how well their target companies are performing.
Crenshaw agreed with Senator Warren on the necessity of these investor protections, but Commissioner Piece confirmed her opposition to improving private equity disclosure for the public and investors, even as the SEC has publicly detailed ongoing disclosure failures and the risks they cause. Senator Warren raised concerns with confirming Commissioner Peirce for another term and called for a SEC that is transparent and has the courage to stand up to the private equity industry.
The full transcript and video of her exchange with the hearing witnesses is available below.
Tuesday, July 21, 2020
U.S. Senate Committee on Banking, Housing and Urban Affairs
Senator Warren: So, later today Republicans on this committee plan to confirm an unqualified nominee to the Federal Reserve. They will do so ten years to the day after President Obama signed Dodd-Frank into law to protect our financial system. Confirming Judy Shelton to the Federal Reserve is a mistake and it will endanger our economy and I'll be voting against her confirmation and I urge my colleagues to do the same. President Trump's total failure to protect this country from a public health crisis has now caused a devastating economic crisis. But while workers and tenants and small businesses are still struggling, private equity companies are making big money and are raking in profits by taking over nursing homes, department stores, newspapers, grocery stores. They bleed these companies dry, they put workers out of a job, and they put our economy at risk while they do it. The SEC is supposed to protect our economy from these risks and I want to understand how both of you think about the threats that the private equity industry poses to workers and to the economy. So, Ms. Crenshaw I'd like to start with you: when private equity firms gobble up other businesses, they use highly leveraged loans to do it and that means they are loading up the companies they control with debt. During an economic downturn, what are the risks to the financial system if these companies start to fail?
Caroline Crenshaw (SEC Nominee): Senator, I share you concern in this area and one of the things that concerns me and I think poses the greatest risk is that we don't necessarily know, we don't have the data, to know whether it's funds, insurance companies, or banks that hold these products and I think it's absolutely crucial that we understand that data so we can assess the market and appropriately determine how to appropriately protect investors from these spillover effects.
Senator Warren: Alright, so thank you very much. You know, Dodd-Frank directed the SEC to write rules to address these risks - and in 2014, the SEC proposed requiring private equity firms to keep some skin in the game when they make risky bets. Unfortunately, the courts overturned these rules, but my Stop Wall Street Looting Act would put risk retention requirements back in place. Okay, but that's about another bill. Let's talk about something the SEC could do right now to address this problem, without any new legislation. Currently, private equity discloses the amount of debt that their companies have taken on, the fees they charge, and the performance of their investments, but all that terrific information is kept secret. That means that investors and the broader public are left in the dark about the risks in this industry. So, Ms. Crenshaw, do you believe that requiring private equity funds to publicly disclose more information about their investments would help protect both the economy and workers and help make the market more efficient?
Ms. Crenshaw: I think the SEC has long said that only through fair and--full and fair disclosures and investors have appropriately assessed the markets and adequately invest their capital and allocate their capital. And so I think disclosure would be important to investors.
Senator Warren: Good. Well I'm glad to hear it. You know last month, the SEC itself acknowledged that there are widespread problems even in the limited private equity disclosures that do exist. Commissioner Peirce, what about you? Do you agree that private equity companies should have to disclose basic information about the risks of their investments, the fees they charge, and how well those investments are performing?
Hester Peirce (SEC Nominee): The investors in private equity funds, to the extent that they share the concerns that you have, have a fair amount of leverage in terms of trying to get the disclosure they want. And so given the way the market is structured, I think it's less important for us to focus on private equity disclosures and more important to focus on the disclosures that are reaching typical retail investors.
Senator Warren: You know I have to say Commissioner Peirce, I'm not surprised to hear that you are not interested in requiring more disclosure from the private equity industry. Nothing in your record suggests that you are willing to take on powerful interests to protect either investors or workers. That's why I think it would be a mistake to confirm you for another term.
The SEC's job is to "protect investors, to maintain fair, orderly, and efficient markets, and facilitate capital formation." That's a direct quote and that means a Commission that won't let private equity funds loot American businesses. It means a Commission that is actually committed to transparency. It means an SEC that has the courage to stand up to private equity. That's what we need. Thank you Mr. Chairman.
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