By Jim Lardner, Americans for Financial Reform
At a time when private equity funds are in the news and under scrutiny by the regulators, the House is set to consider a bill that rolls back the clock to a time when private fund advisers operated in the shadows, without meaningful oversight.
The Investment Advisors Modernization Act of 2016 (H.R. 5424) would allow private funds to evade SEC examinations, and to distribute misleading and even fraudulent advertising materials. The bill also allows private funds to evade SEC examinations, and to distribute misleading and even fraudulent advertising materials. In addition, it eliminates key systemic risk information for regulators by dramatically reducing the number of funds who must report complete information on their leverage and holdings on a confidential form (Form PF) used to track risks to the financial system. Finally, the bill exempts private equity firms and hedge funds from having to provide independent confirmation that they own the securities they claim to own – a change that could open the door to the next Madoff-style Ponzi schemes.
This dangerous deregulation would put at risk the retirement savings of teachers, firefighters, police officers, and other public servants who rely on the one-quarter of funding from private equity funds in public pensions. We expect this bill will be considered by the full House of Representatives this Friday, September 9th.
The SEC has found serious investor protection issues at over half of the private equity funds they have examined. And private equity funds have come under additional scrutiny by the agency in recent weeks for disclosure violations and possible illegal fee practices. Yet the H.R. 5424 seeks to take away the very tools the SEC uses to oversee these funds.
Two of the country’s largest pension funds, CalPERS and CalSTRS, oppose the bill, as does the Council of Institutional Investors, an association of corporate, public and union employee benefit funds and endowments. Americans for Financial Reform has also publicly opposed the bill, as has the AFL-CIO and UNITE HERE.
We have compiled below letters of opposition to this dangerous bill, along with recent press stories highlighting investigations into and abuses by the private equity industry.
Opposition letters and other documents discussing H.R. 5424:
- AFL-CIO Opposition Letter | September 8, 2016
- AFR, AFSCME, AFT, CFA, CWA, U.S. PIRG opposition letter | September 7, 2016
- UNITE HERE opposition letter | September 7, 2016
- Council of Institutional Investors opposition letter | September 7, 2016
- Institutional Limited Partners Association | September 6, 2016
- Public Citizen | September 1, 2016
- North American Securities Administrators Association, Inc | June 15, 2016
- CalPERS | June 10, 2016
- CalSTRS | June 10, 2016
- The Council of Institutional Investors (CII), “House Committee Clears Worrisome Bills for Investors” | June 16, 2016
- AFR Statement on H.R. 5424 | June 16, 2016
- Testimony of Jennifer Taub of the University of Vermont before the House Financial Services Committee | May 17, 2016
Recent press coverage on investigations and abuses in the private eduqity and hedge fund industry:
Three-part NYTimes series on Private Equity:
- When You Dial 911 and Wall Street Answers | NY Times | June 25, 2016
- How Housing’s New Players Spiraled Into Banks’ Old Mistakes | NY Times | June 27, 2016
- How Private Equity Found Power and Profit in State Capitols | N.Y. Times | July 14, 2016
Private Equity Tries to Chip Away at Dodd-Frank With House Bill | NYTimes | September 8, 2016
Apollo to pay SEC $52.7 million for disclosure violations | PoliticoPro | August 23, 2016
SEC Probes Silver Lake Over Fees | WSJ | August 19, 2016
Platinum [Partner]’s California Oil Fields Said to Be Subject of Probe | Bloomberg | August 11, 2016
This Is Your Life, Brought to You by Private Equity | NYTimes | August 1, 2016
Private Equity Funds Balk at Disclosure, and Public Risk Grows | NY Times (Gretchen Morgenson) | July 1, 2016
HR 5424, “Investment Advisers Modernization Act,” a “Get Out of Madoff and Other Frauds for Free” Bill, Passes Financial Services Committee | Naked Capitalism | June 17, 2016
Past AFR letters regarding abuses at private equity firms:
- AFR Calls on SEC to Investigate Potential Unregistered Broker-Dealer Activity at Private Equity Firms | August 1, 2016
- AFR and 7 allies call for crackdown on another private equity tax dodge | May 11, 2016