Stop Wall Street Looting Act

I 116TH CONGRESS 1ST SESSION H. R. 3848 To require the Securities and Exchange Commission to issue rules requiring private funds to publicly disclose certain information, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JULY 18, 2019 Mr. POCAN (for himself, Ms. JAYAPAL, Mr. GARCI´A of Illinois, Mr. GRIJALVA, Mr. KHANNA, Ms. LEE of California, Ms. PRESSLEY, Ms. SCHAKOWSKY, and Ms. TLAIB) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on Financial Services, the Judiciary, and Education and Labor, for a period to be subsequently determined by the Speaker, in each case for consider- ation of such provisions as fall within the jurisdiction of the committee concerned A BILL To require the Securities and Exchange Commission to issue rules requiring private funds to publicly disclose certain information, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 3 (a) SHORT TITLE.—This Act may be cited as the 4 ‘‘Stop Wall Street Looting Act’’. 5 (b) TABLE OF CONTENTS.—The table of contents for 6 this Act is as follows: 7 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 2 •HR 3848 IH Sec. 1. Short title; table of contents. Sec. 2. Findings. Sec. 3. Definitions. TITLE I—CORPORATE RESPONSIBILITY Sec. 101. Joint and several liability for controlling private funds. Sec. 102. Joint and several liability for holders of economic interests in control- ling private funds. Sec. 103. Indemnification void as against public policy. TITLE II—ANTI-LOOTING Sec. 201. Limitations on post-acquisition dividends, distributions, redemptions, and buybacks. Sec. 202. Prevention of fraudulent transfers. Sec. 203. Surtax on certain amounts received by investment firms from con- trolled target firms. Sec. 204. Limitation on deduction for business interest of certain businesses owned by private funds. TITLE III—PROTECTING WORKERS WHEN COMPANIES GO BANKRUPT Sec. 301. Increased priority for wages. Sec. 302. Priority for severance pay and contributions to employee benefit plans. Sec. 303. Priority for violations of Federal and State laws. Sec. 304. Limitation on executive compensation enhancements. Sec. 305. Prohibition against special compensation payments. Sec. 306. Executive compensation upon exit from bankruptcy. Sec. 307. Collateral surcharge for employee obligations. Sec. 308. Voidability of preferential compensation transfers. Sec. 309. Protection for employees in a sale of assets. Sec. 310. Protection of gift card purchasers. Sec. 311. Commercial real estate. TITLE IV—CLOSING THE CARRIED INTEREST LOOPHOLE Sec. 401. Amendment of 1986 Code. Sec. 402. Partnership interests transferred in connection with performance of services. Sec. 403. Special rules for partners providing investment management services to partnerships. TITLE V—INVESTOR PROTECTION AND MARKET TRANSPARENCY Sec. 501. Disclosure of fees and returns. Sec. 502. Fiduciary obligations. Sec. 503. Disclosures relating to the marketing of private equity funds. TITLE VI—RESTRICTIONS ON SECURITIZING RISKY CORPORATE DEBT Sec. 601. Risk retention requirements for securitization of corporate debt. TITLE VII—MISCELLANEOUS VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6211 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 3 •HR 3848 IH Sec. 701. Anti-evasion. Sec. 702. Severability. SEC. 2. FINDINGS. 1 Congress finds the following: 2 (1) During the 20-year period preceding the 3 date of enactment of this Act, activity by private eq- 4 uity funds has exploded. 5 (2) Millions of people in communities across the 6 United States rely on companies that are owned by 7 private equity funds, including almost 5,800,000 in- 8 dividuals who work for companies owned by those 9 funds. For millions of additional individuals, a pri- 10 vate investment fund acts as a landlord, a lender, or 11 an owner of a local grocery store, newspaper, or hos- 12 pital. Many pension funds are also investors in pri- 13 vate investment funds. 14 (3) Private investment funds have taken con- 15 trolling stakes in companies in a wide variety of in- 16 dustries, including the financial services, real estate, 17 media, and healthcare industries, but some of the 18 largest impacts from private investment funds have 19 been in the retail sector. In the 2 years preceding 20 the date of enactment of this Act, cases have been 21 commenced under title 11, United States Code, with 22 respect to dozens of retailers in the United States, 23 including Sears, Toys ‘‘R’’ Us, Shopko, Payless 24 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 4 •HR 3848 IH ShoeSource, Charlotte Russe, Bon-Ton, Nine West, 1 David’s Bridal, Claire’s, and Southeastern Grocers, 2 which was the parent company for BI–LO and 3 Winn-Dixie. 4 (4) Private investment funds have also targeted 5 entities that serve low-income or vulnerable popu- 6 lations, including affordable housing developments, 7 for-profit colleges, payday lenders, medical providers, 8 and nursing homes. 9 (5) While private investment funds often pur- 10 port to take over struggling companies and make 11 those companies viable, the opposite is often true. 12 Leveraged buyouts impose enormous debt loads on 13 otherwise viable companies and then strip those 14 companies of assets, hobbling the operations of those 15 companies and preventing them from making nec- 16 essary investments for future growth. If an invest- 17 ment goes well, the fund reaps most of the rewards, 18 but if the investment does not go well, workers and 19 customers of the company, and the community rely- 20 ing on the company, suffer. 21 (6) Regardless of the performance of a private 22 investment fund, the managers of the fund often 23 make profits through fees, dividends, and other fi- 24 nancial engineering. Private funds should have a 25 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 5 •HR 3848 IH stake in the outcome of their investments, enjoying 1 returns if those investments are successful but ab- 2 sorbing losses if those investments fail. 3 (7) When a case is commenced under title 11, 4 United States Code, with respect to a portfolio com- 5 pany, workers not only lose jobs, but also lose wages 6 and benefits that are owed, severance pay that has 7 been promised, and pensions that have been earned. 8 Workers should not be sent to the back of the line 9 behind other creditors if, through no fault of those 10 workers, an investment fails. 11 (8) The performance of private investment 12 funds is cloaked in secrecy. Those funds have full 13 control over the information that the funds disclose 14 to investors, which allows the funds to manufacture 15 their own performance metrics and makes it difficult 16 for an investor to compare the returns to other in- 17 vestment options. Funds also increasingly require in- 18 vestors to waive the fiduciary obligations applicable 19 to the funds. Investors should have the information 20 and bargaining power to take control over their own 21 investments. 22 (9) An increasing amount of risky debt is being 23 introduced into the market and the quality of that 24 debt is deteriorating, raising concerns with regu- 25 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 6 •HR 3848 IH lators and lawmakers about systemic risk. The insti- 1 tutions that make and securitize risky loans collect 2 large fees and then pass on risk to unwitting inves- 3 tors. The financial system should not bear all of the 4 risk while lenders and securitizers reap the rewards. 5 (10) The Federal Government should— 6 (A) protect workers, companies, con- 7 sumers, and investors in the United States; and 8 (B) put an end to the practice of looting 9 of economically viable companies for the enrich- 10 ment of private investment fund managers. 11 SEC. 3. DEFINITIONS. 12 In this Act: 13 (1) AFFILIATE.—The term ‘‘affiliate’’ means— 14 (A) a person that directly or indirectly 15 owns, controls, or holds with power to vote, 20 16 percent or more of the outstanding voting secu- 17 rities of another entity, other than a person 18 that holds such securities— 19 (i) in a fiduciary or agency capacity 20 without sole discretionary power to vote 21 such securities; or 22 (ii) solely to secure a debt, if such en- 23 tity has not in fact exercised such power to 24 vote; 25 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 7 •HR 3848 IH (B) a corporation 20 percent or more of 1 whose outstanding voting securities are directly 2 or indirectly owned, controlled, or held with 3 power to vote, by another entity (referred to in 4 this subparagraph as a ‘‘covered entity’’), or by 5 an entity that directly or indirectly owns, con- 6 trols, or holds with power to vote, 20 percent or 7 more of the outstanding voting securities of the 8 covered entity, other than an entity that holds 9 such securities— 10 (i) in a fiduciary or agency capacity 11 without sole discretionary power to vote 12 such securities; or 13 (ii) solely to secure a debt, if such en- 14 tity has not in fact exercised such power to 15 vote; 16 (C) a person whose business is operated 17 under a lease or operating agreement by an- 18 other entity, or person substantially all of whose 19 property is operated under an operating agree- 20 ment with that other entity; or 21 (D) an entity that operates the business or 22 substantially all of the property of another enti- 23 ty under a lease or operating agreement. 24 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 8 •HR 3848 IH (2) CAPITAL DISTRIBUTION.—The term ‘‘cap- 1 ital distribution’’ means— 2 (A) a cash or share dividend; 3 (B) a share repurchase; 4 (C) a share redemption; 5 (D) a share buyback; 6 (E) a payment of interest or fee on a share 7 of stock; and 8 (F) any other transaction similar to a 9 transaction described in subparagraphs (A) 10 through (E). 11 (3) CHANGE IN CONTROL.—The term ‘‘change 12 in control’’ means a change of economic interest 13 with respect to— 14 (A) the power to vote more than 50 per 15 centum of any class of voting securities of a 16 corporation that engages in interstate com- 17 merce; or 18 (B) any lesser per centum of any class of 19 voting securities of a corporation that engages 20 in interstate commerce that is sufficient to 21 make the acquirer of such an interest a person 22 that has the ability to direct the actions of that 23 corporation. 24 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 9 •HR 3848 IH (4) CHANGE IN CONTROL TRANSACTION.—The 1 term ‘‘change in control transaction’’ means a trans- 2 action that effects a change in control. 3 (5) COMMISSION.—The term ‘‘Commission’’ 4 means the Securities and Exchange Commission. 5 (6) CONTROL PERSON.—The term ‘‘control per- 6 son’’— 7 (A) means— 8 (i) a person— 9 (I) that directly or indirectly 10 owns, controls, or holds with power to 11 vote, including through coordination 12 with other persons, 20 percent or 13 more of the outstanding voting inter- 14 ests of a target firm; or 15 (II) that operates the business or 16 substantially all of the property of a 17 target firm under a lease or operating 18 agreement; 19 (ii) a corporation, other than a target 20 firm, that has 20 percent or more of its 21 outstanding voting interests directly or in- 22 directly owned, controlled, or held with 23 power to vote by a person that directly or 24 indirectly owns, controls, or holds with 25 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 10 •HR 3848 IH power to vote, including through coordina- 1 tion with other persons, 20 percent or 2 more of the outstanding voting interests of 3 a target firm; and 4 (iii) a person that otherwise has the 5 ability to direct the actions of a target 6 firm; and 7 (B) does not include a person that— 8 (i) holds the voting interests of a cor- 9 poration solely— 10 (I) in a fiduciary or agency ca- 11 pacity without sole discretionary 12 power to vote the securities; or 13 (II) to secure a debt, if the per- 14 son has not exercised the power to 15 vote; or 16 (ii)(I) is a limited partner with respect 17 to a person described in subparagraph (A) 18 that is a partnership; and 19 (II) does not participate in the direc- 20 tion of the management or policy of a cor- 21 poration. 22 (7) CORPORATION.—The term ‘‘corporation’’ 23 means— 24 (A) a joint-stock company; 25 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 11 •HR 3848 IH (B) a company or partnership association 1 organized under a law that makes only the cap- 2 ital subscribed or callable up to a specified 3 amount responsible for the debts of the associa- 4 tion, including a limited partnership and a lim- 5 ited liability company; 6 (C) a trust; and 7 (D) an association having a power or privi- 8 lege that a private corporation, but not an indi- 9 vidual or a partnership, possesses. 10 (8) HOLDER OF AN ECONOMIC INTEREST.—The 11 term ‘‘holder of an economic interest’’— 12 (A) means a person that directly or indi- 13 rectly has an economic interest in a corporation 14 or a right to participate in the governance of a 15 corporation, without regard to the form or 16 source of that interest or right; 17 (B) if the economic interest described in 18 subparagraph (A) is a security, does not in- 19 clude— 20 (i) an individual who is engaged in 21 business as an underwriter of securities 22 and who acquires that security through the 23 good faith participation of the individual in 24 a firm commitment underwriting registered 25 VerDate Sep 11 2014 22:24 Jul 23, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H3848.IH H3848 pamtmann on DSKBFK8HB2PROD with BILLS 12 •HR 3848 IH under the Securities Act of 1933 (15 1 U.S.C. 77b) until the date that is 40 days 2 after [Text truncated for display. 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