FOR IMMEDIATE RELEASE

July 18, 2019

CONTACT:
Carter Dougherty, carter@ourfinancialsecurity.org, (202) 251-6700

AFR Applauds Landmark Legislation to Curb Private Equity Abuses

 Americans for Financial Reform today applauded the introduction of the Stop Wall Street Looting Act of 2019, the first-ever major legislation designed to end destructive, predatory practices of Wall Street private equity and hedge fund executives.

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

The growth of private equity funds has been a defining feature of the American economy over the last decade. Today, private equity-owned companies employ almost 6 million workers.

Assets held by private equity firms have grown from $1 trillion prior to the 2008 financial crisis to a new record of $5.8 trillion in 2017.

AFR will host a media briefing on the details of the legislation at 3pm ET. Click here for details, RSVP to kyra@ourfinancialsecurity.org.

“These powerful interests have rigged the rules to enable financial engineering that lets a tiny handful of people extract vast wealth at everyone else’s expense,” Donner said. “It is time to change the laws to protect workers, communities, and pensions.”

Millions of jobs are at risk if Congress does not act. Already, private equity and hedge fund executives have played a key role in the demise of retailers such as Toys ‘R’ Us, Sears, and Shopko, with grave consequences for a retail workforce that is 40 percent workers of color. It is also responsible for abuses in sectors as diverse as media, gaming, manufactured housing, and health care.

The current legal framework creates incentives for private equity firms (and other big Wall Street players, notably hedge funds) to load the companies they acquire with excessive debt, and to drain money from the companies to enrich themselves, putting the survival of the firms at risk. Private equity firms also often mislead their own investors, including pension funds, about actual returns.

AFR’s 2-page summary of key provisions of the Stop Wall Street Looting Act of 2019 can be found here.

“Without significant reforms, these firms will aggressively exploit the exceptions and loopholes in the law with the same devastating results – job losses and broken communities – as before,” said Heather Slavkin Corzo, senior fellow at Americans for Financial Reform. “Until we change the heads-we-win-tails-you-lose logic of current law, Wall Street executives will always get richer, at everyone else’s expense.”

Key provisions of the Stop Wall Street Looting Act include:

• Making private equity executives legally liable for the damage they cause.
• Banning practices that permit private equity insiders to loot the companies they acquire at the expense of workers and communities.
• Closing tax loopholes that encourage predatory financial activities.
• Finally closing the carried interest loophole, a personal tax benefit to wealthy private equity executives.
• Protecting workers if employers go bankrupt by revising bankruptcy laws so that workers get paid severance and pension contributions they were promised, and so that wages and benefits have increased priority in court proceedings.
• Allowing courts to pursue the wealth of private equity general partners (the executives themselves) who actually controlled the company.
• Requiring private equity firms to be fair and transparent to investors in disclosing costs and returns, and obliging them to put the interests of the investors whose money they manage ahead of their own.
• Requiring Wall Street players that arrange corporate loan securitizations, which frequently fund buyouts, to retain a share of the risks.

“The leveraged buyout acquisition model used by private equity funds desperately needs reform,” said Marcus Stanley, policy director at Americans for Financial Reform. “This legislation would curb the incentives to load up companies with debt by ensuring that private equity managers themselves are liable for the excessive debt they impose on the companies they acquire.”

A broad range of organizations that have endorsed this legislation can be found here.

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