SPONSORED:

Dem senators take aim at hedge fund 'wolf packs'

A pair of Senate Democrats have set their sights on hedge fund “wolf packs” they say take over businesses to kill them and reap a profit.

Sens. Tammy BaldwinTammy Suzanne BaldwinOvernight Health Care: Takeaways on the Supreme Court's Obamacare decision | COVID-19 cost 5.5 million years of American life | Biden administration investing billions in antiviral pills for COVID-19 Democratic senators press PhRMA over COVID-19 lobbying efforts  To reverse the teaching shortage in low-income communities, give educators incentive to stay MORE (D-Wis.) and Jeff MerkleyJeff MerkleySchumer vows to only pass infrastructure package that is 'a strong, bold climate bill' Joe Manchin keeps Democrats guessing on sweeping election bill Tensions grow between liberals and centrists on infrastructure MORE (D-Ore.) unveiled the bill Thursday, which they say will make it harder for activist hedge funds to take over a business, make deep cuts to its operations to reap a short-term profit and then unload it for failure.

ADVERTISEMENT

The bill marks the latest attempt to crack down on Wall Street by Democratic lawmakers, and is also backed by Sens. Bernie SandersBernie SandersOVERNIGHT ENERGY:  EPA announces new clean air advisors after firing Trump appointees |  Senate confirms Biden pick for No. 2 role at Interior | Watchdog: Bureau of Land Management saw messaging failures, understaffing during pandemic Overnight Health Care: Takeaways on the Supreme Court's Obamacare decision | COVID-19 cost 5.5 million years of American life | Biden administration investing billions in antiviral pills for COVID-19 Democratic senators press PhRMA over COVID-19 lobbying efforts  MORE (I-Vt.) and Elizabeth WarrenElizabeth WarrenOvernight Health Care: Takeaways on the Supreme Court's Obamacare decision | COVID-19 cost 5.5 million years of American life | Biden administration investing billions in antiviral pills for COVID-19 Democratic senators press PhRMA over COVID-19 lobbying efforts  Schumer vows to only pass infrastructure package that is 'a strong, bold climate bill' MORE (D-Mass.), two of that sector’s biggest critics.

The measure primarily boosts disclosure requirements for hedge funds investing in other companies, making it more difficult for a group of funds to team up to buy out a company and take it over without anyone noticing.

The legislation is dubbed the “Brokaw Act,” after a town in Wisconsin that saw its paper mill go out of business after hedge funds stepped in as investors. Hundreds of people lost their jobs, and critics charge investors demanded short-term gains like stock buybacks ahead of long-term company growth.

“We cannot allow our economy to be hijacked by a small group of investors who seek only to enrich themselves at the expense of workers, taxpayers and communities,” said Baldwin.

One of the main thrusts of the bill is to make it more difficult for investment firms to form loose allies, or “wolf packs,” to swoop in and effectively take over a company by buying up that company’s shares.

Under the bill, companies that make significant investments in other companies would have to more quickly disclose those investments — the lawmakers argue that quicker disclosure would prevent investors from “tipping” each other to the opportunity and building up an alliance.

Another change under the bill is aimed at rooting out these packs. Under current law, a person or group only has to disclose an investment in a company if it exceeds 5 percent of total shares. But the senators charge that informal investor groups can invest significantly more in a company as a group, but with individual investments that fall below the disclosure requirement. Their bill would treat that group’s investment as a single investment, requiring public disclosure.

And the bill would also boost disclosure requirements around derivatives, in an effort to prevent investors from buying into a company and making secret side investments that that company’s value would fall, allowing them to turn a profit by worsening the company they invested in.