Senators Elizabeth Warren (D-MA), Tammy Baldwin (D-WI) and Sherrod Brown (D-OH), and Representatives Mark Pocan (D-WI) and Pramila Jayapal (D-WA) introduced a bill to govern the private funds that engage in change in control transactions.
According to the bill's sponsors, private equity funds, which claim to earn high returns for investors and make companies more efficient, often do not serve either's best interest. Highlighting high profile bankruptcies of Toys "R" Us, Sears and Payless, the sponsors stated that private equity funds often (i) put the companies they buy into debt, (ii) sell off assets and (iii) guarantee payouts for themselves through "exorbitant fees," regardless of how the investments perform.
"The Stop Wall Street Looting Act" would, among other things:
make private funds responsible for their portfolio companies' liabilities (e.g., debt, legal judgments and pension obligations);
bar dividends to investors for two years after a company is acquired;
impose a 100% surtax on fees paid by target companies to private fund managers;
close the "carried interest loophole";
limit deductions for the business interest of certain private fund-owned businesses;
increase the priority claim for unpaid wages, severance and employee benefit contributions from $10,000 to $20,000;
prioritize severance and pension payments during bankruptcy proceedings;
restrict executive compensation enhancements and prohibit special compensation payments; and
hold firms liable for unpaid wages, severance, employee benefit contributions and pensions.
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