FOR IMMEDIATE RELEASE

July 14, 2021

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

SEC Must Step Up Enforcement of Rules on Private Funds 

Expansion of private equity requires revised regulations

The Securities and Exchange Commission should use the full scope of its authority to increase transparency and reduce hidden risks to investors and markets from the private equity industry, according to a letter from 15 public interest groups.

“Private equity has rapidly grown from a cadre of ‘corporate raiders’ in the 1980s into an industry managing $4.5 trillion in assets to which it now controls a larger swath of corporate America,” said Andrew Park, senior policy analyst at Americans for Financial Reform Education Fund. “But instead of investing in their companies and workers, too many private equity firms have resorted to stripping away valuable assets while leaving companies to service the debt used to acquire them.” 

The SEC also has the authority to police some PE looting. The agency can intervene in all Chapter 11 bankruptcy cases, and it could seek probes into the well-documented problem of creditors being victimized by fraudulent transfers of wealth from portfolio companies to the private equity firm. The SEC would send a powerful signal by reinvigorating its authority to police corporate bankruptcies.

With existing enforcement authority, the SEC should examine whether private funds are:

• Using misleading figures to inflate reported rates of return
• Improperly charging fees to transfer wealth from retirees to private equity executives
• Failing to disclose clear conflicts of interest to investors
• Trading on material nonpublic information
• Failing to act in the best interest of investors

“The SEC has essentially ignored these issues for too long, and the new leadership should act now to address the threats to transparency and accountability posed by private equity,” said Erik Gerding, senior fellow at Americans for Financial Reform Education Fund. “The SEC’s own examinations have produced repeated evidence that these fund executives are engaged in self-dealing and overcharging funds which invest the hard won retirement funds of working people around the country. “

The SEC should also update existing regulations by:

• Amending reporting requirements to mandate a standardized set of figures indicating a fund’s return to investors
• Requiring private funds to expand reporting of individual positions and sources of credit
• Mandate a standardized reporting protocol related to material environmental, social, and governance factors

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