A group of Democratic Senators renewed their attacks on the private equity industry last Wednesday by introducing the Stop Wall Street Looting Act.
While the bill’s name makes clear its general stance on the private equity industry, the legislation takes aim in particular at leveraged buyouts. First, the bill would prevent PE firms from forcing new loans on companies they own to extract dividends that those companies could “not afford” (as defined by the legislation). Second, the bill would ban PE-owned firms from paying dividends or making buybacks for 24 months after the private-equity fund closes an LBO to acquire the firm.
More broadly, the bill would also tax carried interest at ordinary income tax rates, and levy a new tax on fees received by PE funds from portfolio companies.
Sen. Warren explained her hostile stance towards the PE industry in a politically-charged press release:
“Private equity firms were already gutting companies and killing jobs before COVID-19, now they’re drooling over companies to exploit during this crisis. Private equity firms get rich off of stripping assets from companies, loading them up with a bunch of debt, and then leaving workers, consumers, and whole communities in the dust,” said Senator Warren.
Several senators in the Democratic caucus have deep ties to the private equity industry, making it unlikely the bill becomes law.