July 18, 2019

Warren, Baldwin, Brown, Pocan, Jayapal, Colleagues Unveil Bold Legislation to Fundamentally Reform the Private Equity Industry

Comprehensive Bill Would Ensure Private Investment Funds Have Skin in the Game

Reforms Would Empower Workers, Safeguard the Financial System, and Protect Investors

Bill Text (PDF) | One-Pager (PDF) | Section-by-Section Summary (PDF) | Economic Analysis (PDF)

Washington, DC - United States Senators Elizabeth Warren (D-Mass.), Tammy Baldwin (D-Wisc.), and Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, along with Representatives Mark Pocan (D-Wisc.), and Pramila Jayapal (D-Wash.), today unveiled the Stop Wall Street Looting Act, a comprehensive bill to fundamentally reform the private equity industry and level the playing field by forcing private equity 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 Kirsten Gillibrand (D-N.Y.), Bernie Sanders (I-Vt.) and Representatives Barbara Lee (D-Calif.), Jesús "Chuy" García (D-Ill.), Ayanna Pressley (D-Mass.), Rashida Tlaib (D-Mich.), Jan Schakowsky (D-Ill.), Ro Khanna (D-Calif.), and Raúl Grijalva (D-Ariz.).

"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 Senator 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 Senator 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 Senator 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."

"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 Representative 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 Representative 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."

"Let me be clear: private equity firms have taken advantage of working people for far too long," said Representative Barbara Lee. "When private equity firms roll into town, businesses, communities, and working families lose. What's more, the loss falls disproportionately on communities of color with the targeting of investments like payday lending, bail bonds, private college, and retail. This commonsense legislation will stop these abusive practices and ensure that no one gets left behind when a business fails."

"It's time to eliminate greed as a business practice and start rewarding work again, and this bill is an important step toward that goal," said Senator Gillibrand. "It's shameful that a few powerful investors can mine a company to benefit themselves at the expense of communities, workers, and their families. We must take on predatory practices of private equity firms and fight to protect and empower workers and ensure they have a voice in the economy."

"For far too long, workers have found themselves collateral damage in the destructive business decisions of private equity," said Representative Pressley. "This bill protects the interests and dignity of workers throughout acquisition and beyond."

"People who have worked hard their whole lives to earn a pension deserve to be able to rely on that money still being there when they retire," said Representative Tlaib. "They do not deserve greedy Wall Street firms raiding their earnings and playing games with their futures. We need to stand up for workers and communities in the face of toxic corporate greed, and the Stop Wall Street Looting Act is a powerful tool in that fight."

"We must act now to prevent more mass lay-offs due to predatory private equity deals," said Representative Ro Khanna. "Our laws should reward hard work and persistence, not loopholes and financial looting. Proud to support this bill to demand fairness and transparency from Wall Street."

"When a private equity firm comes looking to invest, you shouldn't have to worry that it puts your job at risk," said Representative Schakowsky. "I'm proud to cosponsor the Stop Wall Street Looting Act because we need to protect workers, small businesses, and pensions from private equity's predatory practices. Congress must encourage responsible investment practices by private equity firms and discourage attempts to undermine the job security and retirement of everyday workers."

“Private equity firms epitomize Wall Street greed and are destroying communities and the lives of workers across the country,” said Representative Grijalva. “Instead of allowing these firms to run amok and profit off the backs of workers they stiff when they make all their profits, this legislation tightens regulations, protects workers, and hold these firms accountable for their actions.”   

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.

"The Stop Wall Street Looting Act will, for the first time, create sensible rules for the private equity industry that will allow productive investment to continue while halting the kinds of abusive practices that wipe out jobs and cripple strong companies," wrote Eileen Appelbaum, PhD, Co-Director and Senior Economist at the Center for Economic and Policy Research (CEPR).  CEPR's economic analysis of the legislation can be read here

The legislation is supported by the AFL-CIO, Americans for Financial Reform, American Federation of Teachers, SEIU, United for Respect, UNITE HERE, NewsGuild, Communications Workers of America, the Strong Economy for All Coalition, the Center for Popular Democracy, the Economic Policy Institute, the Action Center on Race and the Economy, Alliance of Californians for Community Empowerment, the Hedge Clippers campaign,  the National Employment Law Project, Partnership for Working Families, People's Action, Public Citizen, Take on Wall Street, and the Working Families Party.

"The Stop Wall Street Looting Act will shut down loopholes and carve outs in the law that allow a handful of Wall Street millionaires and billionaires to take over healthy businesses and suck them dry," said AFL-CIO President Richard Trumka. "It will protect the 5.8 million workers employed by private equity-owned companies and many more workers and retirees whose retirement savings are tied up with these Wall Street tycoons."

"In the darkness of the under-regulated and underexposed private equity industry, there's a massive wealth transfer from workers to Wall Street," said Randi Weingarten, President of the American Federation of Teachers. "Sen. Warren's legislation shines a light on the most pernicious practices of the private equity industry. It protects American workers by closing the carried interest tax loophole, exposing predatory fees, and preventing private equity managers from taking excessive risks to enrich themselves at the expense of portfolio companies, investors and working people. It's high time we prioritize long-term investments and the dignity of working people trying to plan for a better life and a secure retirement, not short-term payouts to billionaire private equity managers."

"I put 30 years of my life into Toys 'R' Us and built my store into a beloved part of my community. Wall Street profiteers threw that love and value away when they bled Toys 'R' Us dry for profit. If we hadn't spoken out, they would have left tens of thousands of us on the street without the severance and respect we had earned," said Madelyn Garcia, a United for Respect leader who spent her entire career with Toys 'R' Us and was a store manager in Boynton Beach, Florida when her store was shuttered. "This bill is about giving working people a better chance to stand up to billionaire predators and fight for our jobs, our livelihoods, and our dignity. This bill is what standing up for working people looks like."

"Private equity and hedge funds have come to wield enormous influence over the American economy, often with terrible consequences for workers and communities," said Lisa Donner, Executive Director, Americans for Financial Reform. "We need effective rules of the road to stop predatory practices by these Wall Street giants."

"We need policies like those proposed in the Stop Wall Street Looting Act to discourage companies from taking on excessive debt to complete deals, protect workers in bankruptcy, and hold private equity owners responsible when the companies they target end up in bankruptcy. We need to make sure wealthy private equity managers pay their fair share of taxes by closing the loop hole on carried interest," said D. Taylor, President of UNITE HERE. Read his full statement of support here.

"Private equity firms and hedge funds have played a particularly destructive role in local journalism. Motivated only by greed, they deplete news organizations, eliminate beats, lay off journalists at twice the industry average, and shutter newspapers to sell their assets. They make it virtually impossible for local news organizations to serve as government watchdogs or effectively tell the stories of their communities. It's time they are held accountable. Our democracy depends on it," said NewsGuild-CWA President Bernie Lunzer. "The Stop Wall Street Looting Act will highlight and limit these predatory maneuvers."  

"For years, private equity fund managers have gotten obscenely wealthy on the backs of the working class. They have made billions by buying up companies, loading them up with debt and stripping them of assets, and leaving workers and retirees holding the bag if anything goes wrong. They've put everyone from manufacturers to retailers to local newspapers out of business in the process. The Stop Wall Street Looting Act 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. CWA is proud to endorse this important bill," said Shane Larson, Director of Legislation, Politics, and International Affairs for the Communications Workers of America. 

"When we talk about extraction in our economy, private equity firms are some of the biggest culprits," said Jennifer Epps-Addison, Network President and Co-Executive Director of the Center for Popular Democracy. Black communities were devastated by the Great Recession, losing nearly half our wealth following the collapse. This legislation will help restore and keep wealth in Black and Brown communities, instead of the pockets of Wall Street billionaires." 

"If the Vikings had had public relations teams, they would have claimed to be making better use of the resources of the fishing villages they pillaged. Private equity often leaves a similar trail of destruction-looting productive resources rather than salvaging unproductive ones. 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," said Thea Lee, President of the Economic Policy Institute. Read her full statement of support here.

"Private equity firms are the poster children of everything that is wrong with Wall Street, and it's about time that Congress is finally taking steps to hold them accountable," said Maurice Weeks, Co-Executive Director of the Action Center on Race and the Economy. "From Toys 'R' Us to Sears to Payless Shoes, private equity firms have driven a long list of retail chains into the ground, and cost thousands of workers their livelihoods. The impact has been particularly devastating in Black and Brown communities, which are overrepresented in retail jobs. This bill will ensure that when the titans of Wall Street decide to treat the next retail chain as an ATM, workers will be protected." 

"Private Equity has been pillaging our communities, businesses and workers to line the pockets of a handful of executives for too long," said Sasha Graham, state board president of the Alliance of Californians for Community Empowerment (ACCE). "We can no longer allow for their greed to go unchecked at the expense of everyone else. It's time to pass the Stop Wall Street Looting Act."

"Our communities are fed up with Wall Street destroying our jobs, pillaging our neighborhoods, corrupting our government, and exploding inequality," said Charles Khan, spokesman for the Hedge Clippers campaign. "The Stop Wall Street Looting Act creates strong new rules for private equity and hedge funds centered on economic fairness and community needs, not billionaire greed.  It will make a real difference for Black, Brown and white working people across America."

"NELP applauds this effort to hold private equity managers accountable for the predatory business decisions to liquidate companies in order to line their own pockets," said Christine Owens, Executive Director of the National Employment Law Project. "For too long private equity funds have been operating in the shadows, while leaving those who helped build the companies they take over with pink slips and communities with shuttered stores, factories, hospitals, and businesses. By creating transparency about fee structures and relationships, the pension funds managing the retirement futures for millions can make better fiduciary decisions before committing investment dollars. And holding managers accountable for siphoning value from communities and workers provides an opportunity to recover what they are owed. We commend this bill's sponsors and their long history of fighting for worker power from financial services trickery and abuse."

"Private equity firms are raising record amounts for infrastructure investments, and that should worry all of us," said Lauren Jacobs, Executive Director of the Partnership for Working Families. "These firms are maximizing profit for Wall Street executives at the expense of the public good. We need rules of the road to stop private equity firms from looting our public assets and harming workers, communities, and businesses. Our public goods are for all of us and should make our communities healthier and stronger."

"The massive private equity industry lets Wall Street investors play with our money like it's an after-dinner Monopoly game - with no accountability," said George Goehl, Director of People's Action. "It's real people who pay the price, losing their jobs, livelihood and homes when those companies close or declare bankruptcy. This is no game; tough federal policies and serious penalties for these profiteers are long overdue."

"Public Citizen welcomes this thorough, robust reform that proposes to remove the financial incentives of  buccaneers who have pillaged fine American companies, left millions without jobs, and drowned other corporations in debt," said Bart Naylor, Financial Policy Advocate with Public Citizen. "American law must no longer enable this transfer from working Americans to elite Wall Street players."

"The rules of finance determine who does and doesn't get money, so they need to be fair and transparent," said Porter McConnell, Take On Wall Street campaign director. "But private equity fund managers have legally sucked all the value out of company after company and walked away with millions, leaving white, Black, and Brown communities with fewer jobs, more expensive housing, crushing student debt, and overcrowded emergency rooms. Private equity's business practices are neither fair nor transparent, and they have no place in our democracy. It's on us to fix the law to stop their looting. Now that this bill has been introduced, we will fight like hell to make it the law of the land."

"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."

The bill text can be read here, the one-page summary can be read here, and a section-by-section summary can be read here.

Senator Warren has been a vocal critic of private equity abuses throughout her time in the Senate:

  • 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.
  • Earlier that month, Senator Warren and Representative Alexandria Ocasio-Cortez (D-N.Y.) questioned Treasury Secretary Steven Mnuchin on his involvement in dubious financial engineering and other managerial decisions that enriched investment company executives while decimating Sears' long-term growth and sustainability -- ultimately resulting in Sears' bankruptcy and the loss of tens of thousands of jobs.
  • 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 re-introduced in March 2019 and is included in the Stop Wall Street Looting Act.