Summary#
S. 5512, the Stop Wall Street Looting Act, is an introduced bill that would amend federal securities, bankruptcy, labor, health-care and tax laws. Its stated goal is to protect workers, companies, consumers and investors from harmful private-fund practices; that is a goal, not a guaranteed result. The bill has not become law, and whether it will pass is uncertain.
- A private fund that controls an acquired company, and people with an active role in that fund, would be jointly and severally liable for the company’s and its affiliates’ liabilities. That means each could be held responsible for the full amount. The bill would also make certain indemnity agreements invalid.
- The bill would restrict some payments and equity reductions by acquired companies, and some plant closings or mass layoffs followed by moving the business outside the United States. It would also change bankruptcy rules on transfers connected to acquisitions.
- It would change worker protections during strikes and bargaining, and give workers’ wages, severance and some benefit-plan contributions higher priority in bankruptcy. Bankruptcy courts would have to give substantial weight to preserving jobs and employment terms when approving certain asset sales.
- It would change taxes for private-fund-related businesses and investment managers, including rules for certain payments, business-interest deductions, real-estate investment trust (REIT) dividends and investment-management partnership interests.
- The SEC would set public reporting rules for certain private funds and require quarterly reports from some investment advisers. Advisers would also have to disclose information about other funds they manage to potential investors.
- Private funds receiving government funds would have to make public disclosures and could not acquire a company or distribute money to shareholders for two years. The bill would also bar certain entities from federal health-care programs after selling assets to, or newly pledging assets for a loan with, a REIT.
What it means for you#
- Workers: The bill would prohibit employers from permanently replacing striking workers, discriminating against workers who return or offer to return after a strike, and using a lockout before a strike to influence bargaining. It would also bar employers from coercing workers to attend certain employer campaign activities. In bankruptcy, wage claims would get priority up to $20,000 without the current time limit described in the bill text; some benefit-plan claims would be prioritized based on $20,000 per covered employee. The bill would add priority for certain severance, benefit contributions and labor-law claims.
- Workers at companies sold in bankruptcy: A buyer or lessee would have to tell the court how the transaction would affect jobs and employment terms. The court would have to give those factors substantial weight and, among qualifying offers, approve the one that best preserves jobs and terms. The court could enforce the buyer’s or lessee’s commitments.
- Consumers: Certain customer deposits, including unused gift-card balances, would receive bankruptcy priority up to $1,800 per person.
- Private-fund businesses and managers: They would face new liability, payment restrictions, tax rules and disclosure duties. Some SEC rules would require public reporting about fees, returns, debts, target companies, political spending and other matters.
- Investors, including pension plans: Potential investors would receive more information about funds managed by an adviser. The bill would require SEC rules against advisers making clients waive fiduciary duties owed to someone else, and would make managers of certain funds fiduciaries when a plan invests in a fund security.
- Health-care providers: An entity that sells any assets to a REIT or newly pledges assets for a loan with a REIT would be excluded from federal health-care programs. The text preserves certain pledges agreed to before enactment.
Money#
No cost or revenue estimate is included in the supplied material. No publicly available information.
- The bill requires new SEC rules and reporting, but gives no estimate for government staffing or compliance costs.
- It changes taxes and bankruptcy payment priorities, but the material gives no estimates of revenue, losses or payments.
What is unclear#
- The supplied material does not include the current versions of the laws being amended, so the full before-and-after effect of each amendment cannot be verified here.
- The bill does not estimate the number of funds, businesses, workers or health-care entities affected, or the public and private costs of compliance.
- It is unclear how the four-year ban on capital distributions interacts with the separate limit tied to a company’s financial obligations.
- The bill does not explain how regulators or courts would apply some broad terms, including “similar” reductions in equity capital and “substantial” weight for jobs and employment terms.
- The SEC and other agencies would have to supply some rules and guidance. The text does not provide all details of those rules.
Case for#
- The bill appears intended to make controlling private funds share responsibility when acquired companies or their affiliates have debts, penalties or worker-related liabilities.
- A possible argument for the bankruptcy changes is that workers should not lose unpaid wages, severance or benefits simply because a company enters bankruptcy.
- Public reporting could help investors compare fund performance and fees, and show more about the debts and outcomes of companies funds control.
- Limits on certain payments and new risk-retention rules could be seen as making fund managers and debt securitizers bear more of the risks tied to their decisions.
Case against#
- One concern is that joint and several liability for broad categories of company and affiliate liabilities could expose funds and people with active interests to large claims, even when their roles differ.
- The bill restricts distributions and some relocations after an acquisition, but does not clearly explain how all of its restrictions would work together.
- New tax rules, reporting duties and bankruptcy priorities could impose costs on funds, businesses, investors and government agencies. The supplied material does not estimate those costs or their effects.
- Some definitions and details are left for agencies or courts. That could make the law’s reach and practical effects hard to predict before rules and court decisions develop.