HR-10595-119
Referred to the Committee on Ways and Means, and in addition to the Committees on Financial Services, the Judiciary, and Education and 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.
Sponsored by Mark Pocan (D-WI)
What it does
The bill would make a private fund that gains control of a company, and people holding active interests in the fund, jointly and severally liable for all of that company's liabilities, including debts, government penalties, pension and layoff-notice liabilities. It would bar most dividends and buybacks for 4 years after an acquisition and limit later ones, and it would bar offshoring after a mass layoff. It would also create a surtax on certain payments to investment firms, limit interest deductions for some fund-owned firms, change bankruptcy priorities for worker pay and severance, tax certain partnership "carried interest" as ordinary income, and add disclosure, fiduciary and risk-retention rules. Venture capital funds, limited partners who do not take part in management, and certain pension funds are excluded from the liability provisions; other limits apply.
Who benefits
Employees of companies bought by private funds, who would gain higher bankruptcy priority for wages and severance, protection from permanent replacement during strikes, and added claims for lost pay. Pension plans and the Pension Benefit Guaranty Corporation, which could collect unfunded liabilities from funds. Creditors, vendors and gift card holders of acquired firms. Fund investors, who would receive more fee and return disclosure. Federal and state governments that could collect penalties and the new surtax.
Who is hurt
Private equity funds and their managers and general partners, who would face open-ended liability for portfolio company debts and a surtax on certain payments. Individuals with governance rights in funds, who could be personally liable. Acquired companies, which would face limits on dividends and on the debt-financed deals the bill targets. Lenders to leveraged buyouts, who may see higher costs or less credit. Employers facing new limits on lockouts and replacement of strikers. Real estate investment trusts and health care operators using them, which would lose tax and Medicare/Medicaid payment flexibility. Pension funds and other investors may see lower returns if buyout activity declines.
Supporters argue
Supporters argue that funds now collect fees and dividends while leaving workers, pensioners and creditors with losses when buyout targets fail, and that making funds liable aligns risk with reward. They cite the bankruptcies of retailers such as Toys "R" Us and Sears, where workers lost severance and benefits. They contend that limits on early payouts, higher worker bankruptcy priority and carried interest tax changes would deter asset stripping and treat fund managers' income like other pay.
Opponents argue
Opponents argue that unlimited joint and several liability overrides the limited liability structure that lets funds pool capital, and that it would sharply reduce funding for buyouts that rescue struggling firms. They cite research that private equity-owned firms employ millions of workers and that many deals preserve jobs. They contend that the payout bans, 15-year lookbacks and surtax would raise borrowing costs, harm pension fund returns, and reach well beyond abusive deals to ordinary transactions.
Constitutional context
Congress relies on the Commerce Clause and its bankruptcy power (Art. I, §8, cl. 4) and taxing power (Art. I, §8, cl. 1), but retroactive-style liability and voiding of contracts, including indemnification, raise Contract Clause-adjacent and Fifth Amendment Due Process and Takings questions; Eastern Enterprises v. Apfel (1998) is the closest analogue on imposing new liabilities tied to past business relationships. Piercing limited liability by statute and the narrow scope of bankruptcy uniformity are also likely subjects of challenge.
Checks and balances
Congress would impose new liabilities and tax rules, with the SEC, Treasury, Labor Department and courts gaining implementation and enforcement roles; courts would review the rules, and private creditors and employees would gain direct rights to sue.
Historical precedent
Earlier versions of the Stop Wall Street Looting Act were introduced in prior Congresses (2019 and 2021) but were not enacted.