Stock Buyback Reform and Worker Dividend Act of 2019

II 116TH CONGRESS 1ST SESSION S. 2391 To amend the Securities Exchange Act of 1934 to impose requirements relating to the purchase of certain equity securities by issuers, and for other purposes. IN THE SENATE OF THE UNITED STATES JULY 31, 2019 Mr. BROWN introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Securities Exchange Act of 1934 to impose requirements relating to the purchase of certain equity securities by issuers, 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. 3 This Act may be cited as the ‘‘Stock Buyback Reform 4 and Worker Dividend Act of 2019’’. 5 SEC. 2. FINDINGS. 6 Congress finds the following: 7 (1) Over the last several decades— 8 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 2 •S 2391 IS (A) the volume and value of stock 1 buybacks have increased significantly, with par- 2 ticularly large increases occurring in the 15 3 years preceding the date of enactment of this 4 Act; and 5 (B) the wealth gap in the United States 6 has widened drastically, as corporate profits 7 and executive compensation have skyrocketed, 8 but, for workers, salaries and wages have barely 9 increased and purchasing power has remained 10 the same. 11 (2) Between 2004 and 2013, some of the larg- 12 est companies in the United States spent at least 13 100 percent of their net income on stock buybacks 14 and, between 2010 and 2017, companies in the 15 United States spent more than $3,000,000,000,000 16 on those buybacks. After the enactment of changes 17 to the tax laws of the United States in December 18 2017, companies in the United States further in- 19 creased stock buyback activity. 20 (3) In 2018— 21 (A) companies listed in the S&P 500 index 22 spent $806,400,000,000 purchasing their own 23 stock, an amount that is 55 percent higher than 24 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 3 •S 2391 IS in 2017 and 36 percent higher than in 2007, 1 the year that— 2 (i) had previously held the record for 3 the largest total buyback amount; and 4 (ii) marked the beginning of the most 5 significant financial crisis since the Great 6 Depression; and 7 (B) companies spent more money on stock 8 buybacks than on debt payments, capital ex- 9 penditures, research and development, or divi- 10 dends. 11 (4) Stock buybacks benefit large shareholders 12 and corporate executives, the pay packages of whom 13 include significant stock compensation. Those 14 buybacks can also increase the earnings per share 15 for a company and nearly 1⁄2 of the companies listed 16 in the S&P 500 index link executive compensation to 17 earnings per share. 18 (5) Compared to the typical worker, the com- 19 pensation for a chief executive officer (referred to in 20 this paragraph as a ‘‘CEO’’) has increased signifi- 21 cantly. In 1989, the ratio of CEO-to-worker com- 22 pensation was 58 to 1, but, in 2017, that ratio was 23 312 to 1. Over roughly the same period of time, the 24 wealth gap in the United States has widened consid- 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 4 •S 2391 IS erably. Between 1989 and 2016, the share of wealth 1 in the United States held by the top 1 percent of in- 2 dividuals in the United States with respect to annual 3 income increased from just below 30 percent to 4 nearly 39 percent, while the share of wealth held by 5 the bottom 90 percent of individuals in the United 6 States with respect to annual income dropped from 7 slightly more than 33 percent to less than 23 per- 8 cent. 9 (6) Since 2000, corporate profits, as a percent- 10 age of total income in the United States, have in- 11 creased by nearly 5 percentage points while workers’ 12 salaries, as a percentage of that total income, have 13 decreased by 4 percentage points. 14 (7) The economic strength of the United States 15 is undermined by the wealth gap described in this 16 section. According to the Organisation for Economic 17 Co-operation and Development, increasing income 18 inequality in the United States between 1990 and 19 2010 reduced the per capita gross domestic product 20 of the United States by approximately 5 percentage 21 points. 22 (8) Left unaddressed, the patterns of corporate 23 excess and growing wealth inequality described in 24 this section will worsen and workers will continue to 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 5 •S 2391 IS contribute to corporate profits without sharing in 1 those profits. 2 SEC. 3. REPURCHASE OF COMMON STOCK. 3 (a) REPEAL OF SAFE HARBOR.—Section 240.10b–18 4 of title 17, Code of Federal Regulations, shall have no 5 force or effect. 6 (b) DISCLOSURE AND OTHER REQUIREMENTS.—The 7 Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 8 is amended by inserting after section 9 (15 U.S.C. 78i) 9 the following: 10 ‘‘SEC. 9A. ISSUER COMMON STOCK REPURCHASES. 11 ‘‘(a) DEFINITIONS.— 12 ‘‘(1) IN GENERAL.—Except as provided in para- 13 graph (2), in this section, the definitions of terms in 14 section 240.10b–18(a) of title 17, Code of Federal 15 Regulations, as in effect on the day before the date 16 of enactment of this section, shall apply to any such 17 term that appears in this section. 18 ‘‘(2) COVERED PURCHASE.—The term ‘covered 19 purchase’— 20 ‘‘(A) means a purchase (or any bid or limit 21 order that would effect such purchase) of the 22 common stock of an issuer (or an equivalent in- 23 terest, including a unit of beneficial interest in 24 a trust or limited partnership or a depository 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 6 •S 2391 IS share) by or for the issuer or any affiliated pur- 1 chaser (including riskless principal trans- 2 actions); 3 ‘‘(B) includes a purchase described in sub- 4 paragraph (A) that is effected during a trans- 5 action described in subparagraph (C)(iv) in 6 which the consideration is solely cash and there 7 is no valuation period; and 8 ‘‘(C) does not include a purchase described 9 in subparagraph (A) that is effected— 10 ‘‘(i) during the applicable restricted 11 period of a distribution that is subject to 12 section 242.102 of title 17, Code of Fed- 13 eral Regulations, or any successor regula- 14 tion; 15 ‘‘(ii) by or for an issuer plan by an 16 agent independent of the issuer; 17 ‘‘(iii) as a fractional share purchase (a 18 fractional interest in a security) evidenced 19 by a script certificate, order form, or simi- 20 lar document; 21 ‘‘(iv) during the period from the time 22 of public announcement, as defined in sec- 23 tion 230.165(f) of title 17, Code of Federal 24 Regulations, or any successor regulation, 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 7 •S 2391 IS of a merger, acquisition, or similar trans- 1 action involving a recapitalization, until the 2 earlier of the completion of that trans- 3 action or the completion of the vote by tar- 4 get shareholders; 5 ‘‘(v) pursuant to section 240.13e–1 of 6 title 17, Code of Federal Regulations, or 7 any successor regulation; 8 ‘‘(vi) pursuant to a tender offer that 9 is subject to or specifically excepted from 10 section 240.13e–4 of title 17, Code of Reg- 11 ulations, or any successor regulation; or 12 ‘‘(vii) pursuant to a tender offer that 13 is subject to section 14(d), and any rules 14 or regulations prescribed by the Commis- 15 sion relating to that section. 16 ‘‘(b) REQUIREMENT.— 17 ‘‘(1) IN GENERAL.—Except as provided in para- 18 graph (2), it shall be unlawful as a fraudulent, de- 19 ceptive, or manipulative act or practice under section 20 9(a)(2) or 10(b) of this Act or section 240.10b–5 of 21 title 17, Code of Federal Regulations, or any suc- 22 cessor regulation, for an issuer or affiliated pur- 23 chaser of the issuer to effect a repurchase of the 24 common stock of the issuer unless the issuer or af- 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 8 •S 2391 IS filiated purchaser, as applicable, complies with the 1 requirements under this section. 2 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 3 apply— 4 ‘‘(A) to an issuer or affiliated purchaser of 5 an issuer if— 6 ‘‘(i) a violation of the requirements 7 under this section occurred solely by rea- 8 son of the conduct of a broker, dealer, or 9 other person acting for the issuer or affili- 10 ated purchaser; 11 ‘‘(ii) the issuer or affiliated purchaser 12 did not know or have reason to know that 13 the broker, dealer, or other person was en- 14 gaging or would engage in that conduct; 15 and 16 ‘‘(iii) the issuer or affiliated purchaser 17 had taken reasonable steps to ensure that 18 the broker, dealer, or other person would 19 comply with the requirements under this 20 section; or 21 ‘‘(B) to a broker, dealer, or other person 22 acting for an issuer or affiliated purchaser of 23 the issuer if— 24 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 9 •S 2391 IS ‘‘(i) a violation of the requirements 1 under this section occurred solely by rea- 2 son of the conduct of the issuer or affili- 3 ated purchaser; and 4 ‘‘(ii) the broker, dealer, or other per- 5 son did not know or have reason to know 6 that the issuer or affiliated purchaser was 7 engaging or would engage in conduct that 8 would violate the requirements under this 9 section. 10 ‘‘(c) DISCLOSURE.— 11 ‘‘(1) IN GENERAL.—Any issuer or affiliated 12 purchaser of the issuer that seeks to effect a plan 13 or program to repurchase common stock of the 14 issuer shall, on or before the date on which the 15 issuer or affiliated purchaser begins repurchasing 16 common stock under the plan or program, disclose 17 to the Commission on a Form 8–K a filing that in- 18 cludes— 19 ‘‘(A) the economic rationale, long-term 20 benefits, and reason for the repurchase; 21 ‘‘(B) the minimum and maximum number 22 (if any) of shares of common stock to be repur- 23 chased, and the dollar value to be spent, under 24 the plan or program; 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 10 •S 2391 IS ‘‘(C) the manner and method of repur- 1 chase, including any price guidelines or limita- 2 tions, or contractual plan or arrangement; 3 ‘‘(D) the intended disposition or treatment 4 of the repurchased common stock; 5 ‘‘(E) whether any executive officer of the 6 issuer or affiliated purchaser is purchasing 7 common stock during the pendency of the re- 8 purchase; 9 ‘‘(F) whether any executive officer of the 10 issuer or affiliated purchaser is permitted, or 11 intends, to sell common stock during the pend- 12 ency of the repurchase; 13 ‘‘(G) a summary of any communications 14 between the issuer and any holders of common 15 stock of the issuer regarding the scope and im- 16 plementation of the plan or program; and 17 ‘‘(H) the source of funds for the repur- 18 chase, specifying if any debt will be incurred by 19 the issuer or affiliated purchaser. 20 ‘‘(2) WEEKLY DISCLOSURE.— 21 ‘‘(A) IN GENERAL.—In addition to the re- 22 quirement under paragraph (1), each issuer 23 that effects a repurchase of common stock of 24 the issuer in any calendar week shall, not later 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 11 •S 2391 IS than the last business day of the following 1 week, file with the Commission a public disclo- 2 sure filing (in such form and manner as the 3 Commission shall, by rule, establish) that iden- 4 tifies— 5 ‘‘(i) the number of shares of common 6 stock of the issuer that the issuer repur- 7 chased; 8 ‘‘(ii) the average price paid per share 9 during the week covered by the filing; and 10 ‘‘(iii) the identity of any broker-dealer 11 that effected the purchase during the week 12 covered by the filing. 13 ‘‘(B) NO REPURCHASE.—An issuer shall 14 not be required to submit a filing under sub- 15 paragraph (A) with respect to any calendar 16 week in which the issuer does not repurchase 17 the common stock of the issuer. 18 ‘‘(3) DEFINITION.—In this subsection, the term 19 ‘executive officer’ has the meaning given the term in 20 section 240.3b–7 of title 17, Code of Federal Regu- 21 lations, as in effect on the day before the date of en- 22 actment of this section. 23 ‘‘(d) PURCHASING REQUIREMENTS.— 24 ‘‘(1) ONE BROKER OR DEALER.— 25 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 12 •S 2391 IS ‘‘(A) IN GENERAL.—Except as provided in 1 subparagraph (B) and paragraph (2)(B)(ii), a 2 covered purchase shall be effected from or 3 through only 1 broker or dealer on any single 4 day. 5 ‘‘(B) EXCEPTION.—Subparagraph (A) 6 shall not apply to a covered purchase that is 7 not solicited by or on behalf of an issuer or an 8 affiliated purchaser of the issuer. 9 ‘‘(C) SAME BROKER OR DEALER.—If a 10 covered purchase is effected by or on behalf of 11 not less than 1 affiliated purchaser of an issuer 12 (or the issuer and not less than 1 of the affili- 13 ated purchasers of the issuer) on a single day, 14 the issuer and all affiliated purchasers shall use 15 the same broker or dealer. 16 ‘‘(D) LIMITED ACCESS TO LIQUIDITY.—If 17 a covered purchase is effected on behalf of an 18 issuer by a broker-dealer that is not an elec- 19 tronic communication network or other alter- 20 native trading system, that broker-dealer can 21 access electronic communication network or 22 other alternative trading system liquidity in 23 order to execute a repurchase of common stock 24 VerDate Sep 11 2014 00:55 Aug 13, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2391.IS S2391 pamtmann on DSKBFK8HB2PROD with BILLS 13 •S 2391 IS on behalf of the issuer or any affiliated pur- 1 chaser of the issuer on that day. 2 ‘‘(2) TIME OF PURCHASES.— 3 ‘‘(A) IN GENERAL.—A covere [Text truncated for display. 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