[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 9985 Introduced in House (IH)]
<DOC>
118th CONGRESS
2d Session
H. R. 9985
To subject certain private funds to joint and several liability with
respect to the liabilities of firms acquired and controlled by those
funds, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
October 11, 2024
Mr. Pocan (for himself, Ms. Jayapal, Mr. Grijalva, Mr. Larsen of
Washington, Ms. Lee of California, Ms. Norton, Mrs. Ramirez, Ms.
Schakowsky, and Ms. Ocasio-Cortez) 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 the
Workforce, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the
jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To subject certain private funds to joint and several liability with
respect to the liabilities of firms acquired and controlled by those
funds, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Stop Wall Street
Looting Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
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 and
holders of active interests in controlling
private funds.
Sec. 102. Indemnification void as against public policy.
TITLE II--ANTI-LOOTING
Sec. 201. Limitations on post-acquisition dividends, distributions,
redemptions, buybacks, and outsourcing.
Sec. 202. Prevention of fraudulent transfers.
Sec. 203. Surtax on certain amounts received by investment firms from
controlled target firms.
Sec. 204. Limitation on deduction for business interest of certain
businesses owned by private funds.
Sec. 205. Guardrails around accessing public funds.
Sec. 206. Prohibiting payments from Federal health care programs to
entities that sell assets to or use assets
as collateral for a loan with a real estate
investment trust.
Sec. 207. Repeal of special rule for taxable REIT subsidiaries with
interests in certain health care property.
Sec. 208. Elimination of qualified REIT dividends from qualified
business income.
Sec. 209. Protections for striking workers.
TITLE III--PROTECTING WORKERS WHEN COMPANIES GO BANKRUPT
Sec. 301. Increased priority for wages.
Sec. 302. Priority for severance pay and contributions to employee
welfare 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 TAX LOOPHOLES
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.
Sec. 504. Greater visibility into non-bank direct lending and private
credit.
TITLE VI--RESTRICTIONS ON SECURITIZING RISKY CORPORATE DEBT
Sec. 601. Risk retention requirements for securitization of corporate
debt.
TITLE VII--MISCELLANEOUS
Sec. 701. Anti-evasion.
Sec. 702. Severability.
SEC. 2. FINDINGS.
Congress finds the following:
(1) During the 20-year period preceding the date of
enactment of this Act, activity by private equity funds has
exploded.
(2) Millions of people in communities across the United
States rely on companies that are owned by private equity
funds, including nearly 12,000,000 individuals who work for
companies owned by those funds. For millions of additional
individuals, a private investment fund acts as a landlord, a
lender, or an owner of a local grocery store, newspaper, or
hospital. Many pension funds are also investors in private
investment funds.
(3) Private investment funds have taken controlling stakes
in companies in a wide variety of industries, including the
financial services, real estate, media, and healthcare
industries, but some of the largest impacts from private
investment funds have been in the retail sector. In the 10
years preceding the date of enactment of this Act, cases have
been commenced under title 11, United States Code, with respect
to dozens of retailers in the United States, including Sears,
Toys ``R'' Us, Shopko, Payless ShoeSource, Charlotte Russe,
Bon-Ton, Nine West, David's Bridal, Claire's, J. Crew, Neiman
Marcus, Guitar Center, Art Van Furniture, and Southeastern
Grocers, which was the parent company for BI-LO and Winn-Dixie.
(4) Private investment funds have also targeted entities
that serve low-income or vulnerable populations, including
affordable housing developments, for-profit colleges, payday
lenders, medical providers, and nursing homes.
(5) While private investment funds often purport to take
over struggling companies and make those companies viable, the
opposite is often true. Leveraged buyouts impose enormous debt
loads on otherwise viable companies and then strip those
companies of assets, hobbling the operations of those companies
and preventing them from making necessary investments for
future growth. If an investment goes well, the fund reaps most
of the rewards, but if the investment does not go well, workers
and customers of the company, and the community relying on the
company, suffer.
(6) Regardless of the performance of a private investment
fund, the managers of the fund often make profits through fees,
dividends, and other financial engineering. Private funds
should have a stake in the outcome of their investments,
enjoying returns if those investments are successful but
absorbing losses if those investments fail.
(7) When a case is commenced under title 11, United States
Code, with respect to a portfolio company, workers not only
lose jobs, but also lose wages and benefits that are owed,
severance pay that has been promised, and pensions that have
been earned. Workers should not be sent to the back of the line
behind other creditors if, through no fault of those workers,
an investment fails.
(8) The performance of private investment funds is often
cloaked in secrecy. Those funds have full control over the
information that the funds disclose to investors, which allows
the funds to manufacture their own performance metrics and
makes it difficult for an investor to compare the returns to
other investment options. Funds also increasingly require
investors to waive the fiduciary obligations applicable to the
funds. Investors should have the information and bargaining
power to take control over their own investments.
(9) An increasing amount of risky debt is being introduced
into the market and the quality of that debt is deteriorating,
raising concerns with regulators and lawmakers about systemic
risk. The institutions that make and securitize risky loans
collect large fees and then pass on risk to unwitting
investors. The financial system should not bear all of the risk
while lenders and securitizers reap the rewards.
(10) The Federal Government should--
(A) protect workers, companies, consumers, and
investors in the United States; and
(B) put an end to the practice of looting
economically viable companies for the enrichment of
private investment fund managers.
SEC. 3. DEFINITIONS.
Except as otherwise expressly provided, in this Act:
(1) Affiliate.--The term ``affiliate'' means--
(A) a person that directly or indirectly owns,
controls, or holds with power to vote, 5 percent or
more of the outstanding voting securities of another
entity, other than a person that holds such
securities--
(i) in a fiduciary or agency capacity
without sole discretionary power to vote such
securities; or
(ii) solely to secure a debt, if such
entity has not in fact exercised such power to
vote;
(B) a corporation, 5 percent or more of whose
outstanding voting securities are directly or
indirectly owned, controlled, or held with power to
vote, by another entity (referred to in this
subparagraph as a ``covered entity''), or by an entity
that directly or indirectly owns, controls, or holds
with power to vote, 5 percent or more of the
outstanding voting securities of the covered entity,
other than an entity that holds such securities--
(i) in a fiduciary or agency capacity
without sole discretionary power to vote such
securities; or
(ii) solely to secure a debt, if such
entity has not in fact exercised such power to
vote;
(C) a person whose business is operated under a
lease or operating agreement by another entity, or
person substantially all of whose property is operated
under an operating agreement with that other entity; or
(D) an entity that operates the business or
substantially all of the property of another entity
under a lease or operating agreement.
(2) Capital distribution.--The term ``capital
distribution'' means--
(A) a cash or share dividend;
(B) a share repurchase;
(C) a share redemption;
(D) a share buyback;
(E) a payment of interest or fee on a share of
stock; and
(F) any other transaction similar to a transaction
described in any of subparagraphs (A) through (E).
(3) Change in control.--The term ``change in control''
means a change in a legal right with respect to--
(A) the power to vote more than 5 per centum of any
class of voting securities of a corporation that
engages in interstate commerce; or
(B) any lesser per centum of any class of voting
securities of a corporation that engages in interstate
commerce that is sufficient to make the acquirer of
such an interest a person that has the ability to
direct the actions of that corporation.
(4) Change in control transaction.--The term ``change in
control transaction'' means a transaction, or a set of related
transactions, that effectuates a change in control.
(5) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(6) Control person.--The term ``control person''--
(A) means--
(i) a person--
(I) that directly or indirectly
owns, controls, or holds with power to
vote, including through coordination
with other persons, 5 percent or more
of the outstanding voting interests of
a corporation; or
(II) that operates the business or
substantially all of the property of a
corporation under a lease or an
operating or management agreement;
(ii) a corporation, other than a target
firm, that has 5 percent or more of its
outstanding voting interests directly or
indirectly owned, controlled, or held with
power to vote by a person that directly or
indirectly owns, controls, or holds with power
to vote, including through coordination with
other persons, 5 percent or more of the
outstanding voting interests of another
corporation; or
(iii) a person that otherwise has the
ability to direct the actions of a corporation;
and
(B) does not include a person that--
(i)(I) is a limited partner with respect to
a controlling private fund that is a
partnership;
(II) does not participate in the direction
of the management or policy of a corporation;
and
(III) is not an insider with respect to the
controlling private fund described in subclause
(I);
(ii) is a pension fund or employee welfare
benefit plan, if neither the fund nor plan (as
applicable), nor any beneficiary or affiliate
of the benefit or plan, is an insider with
respect to a controlling private fund; or
(iii) holds the voting interests of a
corporation solely--
(I) in a fiduciary or agency
capacity without sole discretionary
power to vote the securities; or
(II) to secure a debt, if the
person has not--
(aa) exercised the power to
vote; or
(bb) exercised any other
governance rights with respect
to the corporation.
(7) Controlling private fund.--The term ``controlling
private fund'' means a private fund that, directly or through
an affiliate, becomes a control person with respect to a target
firm through the change in control transaction with respect to
the target firm.
(8) Corporation.--The term ``corporation'' means--
(A) a joint-stock company;
(B) a company or partnership association organized
under a law that makes only the capital subscribed or
callable up to a specified amount responsible for the
debts of the association, including a limited
partnership and a limited liability company;
(C) a trust; and
(D) an association having a power or privilege that
a private corporation, but not an individual or a
partnership, possesses.
(9) Employee welfare benefit plan.--The term ``employee
welfare benefit plan'' has the meaning given the term in
section 3 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002).
(10) Holder of an active interest.--The term ``holder of an
active interest''--
(A) subject to subparagraph (B)(ii), means--
(i) a person that directly or indirectly
has the right to participate in the governance
of a controlling private fund, without regard
to the form or source of that right; and
(ii) any insider with respect to a
controlling private fund; and
(B) does not include--
(i) a person that--
(I) holds an economic interest
solely to secure a debt, if that person
does not exercise any voting or other
governance right with respect to the
interest;
(II)(aa) is a limited partner with
respect to a controlling private fund
that is a partnership;
(bb) does not participate in the
direction of the management or policy
of a corporation; and
(cc) is not an insider with respect
to the controlling private fund
described in item (aa); or
(III) is a pension fund or employee
welfare benefit plan, if neither the
pension fund nor employee welfare
benefit plan (as applicable), nor any
affiliate or beneficiary of the pension
fund or employee welfare benefit plan,
is an insider with respect to, or
affiliate of, a controlling private