During general debate on H.R. 5424 on the House floor today, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, led opposition to the measure, which would roll back Dodd-Frank’s much-needed oversight and transparency measures for private equity funds, hedge funds, and others in the shadow banking industry.
In her remarks, Waters lamented that the Republican-led House is focusing on protecting “Wall Street profits,” rather than working in a bipartisan manner to address critical issues such as “helping the people of Baton Rouge, ending the crisis of homelessness in America, or preventing senseless gun violence.”
The top Democrat went on to underscore the harmful aspects of H.R. 5424, as it would scale back protections that would allow Wall Street to turn a profit at the expense of investors, consumers, and retirees. Finally, Waters highlighted the widespread opposition to the bill, not only from the White House, which threatened a veto, but from consumer and investor advocates, state securities regulators, institutional investors, and labor unions.
The full text of the remarks, as prepared for delivery, is as follows:
Mr. Chairman, we stand here today, after an extraordinarily long recess, and Republicans’ first order of business is to protect Wall Street profits instead of dealing with a host of critical issues facing the American public. I recently visited Baton Rouge, Louisiana, where thousands of residents are still without homes and communities are struggling to recover in the wake of last month’s historic, devastating flooding. There is so much that we need to do as Members of Congress to help our constituents in the short amount of time we have left in session, whether it’s helping the people of Baton Rouge, ending the crisis of homelessness in America, or preventing senseless gun violence.
However, rather than working together to pass sensible legislation to address these issues, we are debating H.R. 5424, a bad bill that would put Americans’ savings and investments at risk by opening the door to further abuses in the private equity industry. This is an industry that touches all of us. Because it’s not just private businesses looking to these funds to raise capital – one quarter of the investments held by private equity firms comes from our public pensions funds, that are holding our teachers’ and firefighters’ retirement savings. And it’s not just our public pensions that are on the line – it’s also our emergency services and mortgage and consumer lending markets, where private equity funds are increasing their presence. That is why it is so important to have adequate oversight of this industry. We must ensure that Wall Street does not turn a profit at the expense of investors, consumers, and retirees.
Unfortunately, H.R. 5424 would roll back Dodd-Frank’s much-needed oversight and transparency measures for the shadow banking industry. Dodd-Frank required advisers to private equity funds and hedge funds with more than $150 million in assets under management to register with the SEC and comply with important reporting and audit requirements. In addition, it required newly registered advisers to file systemic risk reports with the Financial Stability Oversight Council (FSOC), because we had insufficient information on the risks that private funds could pose to our economy as a whole. Thanks to this new oversight, the Securities and Exchange Commission (SEC) has been able to examine and, where appropriate, bring enforcement actions against private fund advisers.
In fact, the SEC has brought numerous enforcement actions against private fund advisers for a variety of transgressions in the past few years. In 2013, the SEC identified violations or weaknesses in more than 50 percent of cases where it had examined how fees and expenses are handled by advisers. And recently, the SEC’s Director of Enforcement urged greater transparency in this area and said the Commission “will continue to aggressively bring impactful cases in this space.”
All of this comes on top of recent news reports showing how private equity firms are investing in our fire departments, ambulance services, and mortgage and consumer lending markets. Their profit-driven tactics have resulted in slower reaction times at our emergency services, exorbitant interest rates, and the same sort of foreclosure abuses that we witnessed before and during the financial crisis.
So when it comes to private equity funds and hedge funds, it is clear that more regulation is needed, not less. Yet this bill takes us in the wrong direction. For example, advisers would no longer have to notify clients of a change in ownership or provide them with information on their procedures for handling conflicts of interests in voting proxies. Additionally, they would not have to disclose information on large funds to the FSOC – making it harder to monitor and detect systemic risk. Also troubling is that the bill would create a Bernie Madoff loophole by providing a broad exemption from an annual audit requirement for funds whose investors may have a relationship with the adviser and for funds invested in private, uncertificated securities.
I must note that despite efforts by my colleagues to amend this bill and remove some of its harmful provisions, there are still too many problematic provisions in this bill that would put investors, retirees, and consumers at risk. That’s why it’s opposed by consumer and investor advocates, state securities regulators, institutional investors, and labor unions representing workers whose pensions could be affected. Moreover, the White House has threatened to veto the bill, saying it “would enable private fund advisers to slip back into the shadows” and “unnecessarily put working and middle-class families at risk while benefiting Wall Street and other narrow special interests.”
I therefore strongly urge my colleagues to oppose H.R. 5424. I reserve the balance of my time.