Congress could regulate private equity
Congress could regulate private equityUnions said pressure from Congress on private-equity funds could lead to higher pay and more benefits and could spur more unionization. In a May 16 hearing, House Financial Services Committee Chairman Barney Frank, D-Mass., said he was looking at unspecified legislation that would put tighter controls on the funds. "When a small number of individuals benefit from a particular deal in the tens and sometimes hundreds of millions of dollars, and concurrently, workers are laid off, we have a situation which [is] wrong," Frank said.
Congress hints at regulating private equityBy Sara Hansard
May 29, 2007
WASHINGTON — Unions are hoping that pressure from Congress on private-equity funds will lead to better pay and benefits for workers, including more unionization.
“We’re in the early stages of starting a national debate about income inequality in this country, and the special responsibility that private equity has [is] to address greater opportunity for workers in this country,” Stephen Lerner, assistant to the president of the Service Employees International Union in Washington, said in an interview last week. He is the director of the 1.8-million-member union’s private-equity campaign.
House Financial Services Committee Chairman Barney Frank, D-Mass., made clear at a hearing held by his committee May 16 that he is looking at unspecified legislation to regulate private-equity funds more stringently.
“When a small number of individuals benefit from a particular deal in the tens and sometimes hundreds of millions of dollars, and concurrently, workers are laid off, we have a situation which [is] wrong,” he said at the hearing, which dealt with private equity’s effects on workers and firms.
Mr. Frank cited as an example a news report that $19-an-hour union janitors at the Tommy Hilfiger Corp. recently were replaced with $8-an-hour non-union janitors as a consequence of the $1.6 billion buyout of the company last year by private-equity firm Apax Partners Inc.
Both companies are based in New York.
The laid-off workers later were rehired by a different contractor.
Company founder Tommy Hilfiger will receive at least $14 million a year through 2010 from the sale, “while workers in their 40s and 50s have been laid off with one day’s notice,” Mr. Frank said.
“If we have a situation in private equity where enormous values are created, and the workers are either no better off or worse off, then from the public-policy standpoint, that seems to me to be undesirable,” Mr. Frank said.
The committee is focusing on whether there is such a pattern and whether the government should do something about it, he said, adding: “It could have [an] effect on policies involving unionization [and] taxation.”
‘No specifics’
Committee spokesman Steve Adamske said in an interview that “there are no specifics” on what legislation the committee might consider.
But a Republican staff aide, who asked not to be identified, suggested that “one of the issues they might look at is disclosure,” specifically more disclosure required for investors by the Securities and Exchange Commission.
Congress also is looking at changing the way hedge fund and private-equity fund managers are taxed.
At a meeting with reporters in Washington this month, Senate Finance Committee Chairman Max Baucus, D-Mont., said that he and the committee’s ranking minority member, Sen. Charles Grassley, R-Iowa, are looking at such changes.
Blackstone not representative
“The fundamental question is the degree to which income gain is ordinary income or cap gains,” Mr. Baucus said.
The issue that members of the Senate committee are trying to determine, he said, is how performance fees charged by private-equity and hedge fund managers should be taxed.
Currently, they are taxed at lower capital gains rates.
Although large firms such as The Blackstone Group LP of New York have attracted much public attention, “they’re not representative of the typical private-equity firm,” Jeffrey Jay, the managing partner of Great Point Partners LLC of Greenwich, Conn., said in an interview.
“The typical private-equity firm is providing growth capital for businesses, not involved in massive cost-cutting and debt-pay-down-type strategies,” he said. Individual investors and advisers who work with high-net-worth clients and family offices have “always been meaningful players in private equity and venture capital,” Mr. Jay said.
The AFL-CIO in Washington recently asked the SEC to require Blackstone, a private-equity and hedge fund group, to register as a mutual fund in light of the company’s offering its shares as a publicly traded limited partnership. Blackstone’s offering is one of the first major public offerings by a private-equity and hedge fund firm, and the SEC is reviewing it.
“If Blackstone LP can avoid coverage under the Investment Company Act of 1940, it appears to us only a matter of time before other investment companies rely upon the devices used by Blackstone LP to avoid regulation under the act,” AFL-CIO secretary treasurer Richard Trunka wrote in a May 15 letter to Andrew “Buddy” Donohue, director of the SEC’s division of investment management, and John White, director of its division of corporation finance.
Although officials associated with private-equity management firms argue that most of their profits go to institutional investors such as mutual funds and public pension funds, as well as financial advisers who serve wealthy clients, some advisers say that such investments may not be appropriate for investment advisory firms.
“In many of these cases, [advisers who invest in private-equity funds] are breaching their fiduciary duty by using some of these funds, because they are so non-transparent,” said Charles Stanley, a certified financial planner and chartered financial consultant with Capital Financial Advisors LLC of San Diego.
“There’s no way of knowing really what it is that they are doing with clients’ money when they put it into some of these funds,” he said. “That’s very questionable activity to be doing as a fiduciary adviser.”
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SEC changes SarBox
SEC unanimously passes changes to Sarbanes-OxleyOn Wednesday, the five members of the Securities and Exchange Commission unanimously passed changes to the Sarbanes-Oxley Act that aim to make it easier for businesses to check their financial records. The changes refer to Section 404 of the law, which now allows firms to comply with the law by forgoing extensive checks and instead identifying the largest risks to their books.
S.E.C. Revises Its Standards for Corporate AuditsBy
ERIC DASHThe Securities and Exchange Commission approved new guidelines yesterday that try to balance the need for tighter financial controls with the cost of complying with them. It said the new procedures will make it less costly for smaller companies to assess the state of their internal financial controls.
The new standards call for public companies to focus on the areas most prone to potential fraud, streamlining an auditing process that many have called excessive and burdensome.
While big public companies had previously adhered to more rigorous standards, the unanimous vote by the commission’s five members paves the way for this more relaxed set of guidelines to be imposed on the smaller companies that make up the vast majority of American businesses, those with a market value of less than $75 million.
Small companies will have to adhere to the new guidelines starting on Dec. 15 for the 2007 calendar year. The commission had previously delayed the effective date amid complaints that complying with the rules would be too costly for small companies.
The S.E.C. also introduced six rule proposals yesterday aimed at making it easier for small businesses to raise capital.
Federal regulators have been under pressure from business groups and lawmakers to ease the requirements of the internal controls provision of the Sarbanes-Oxley Act of 2002, which was introduced after the Enron and WorldCom scandals.
Section 404, which requires public companies to assess the controls they have put in place in order to certify that their reports are reliable, was intended to discourage fraud and financial manipulation. Its critics, however, say its stringent requirements impose unnecessary costs on small companies and have caused United States financial markets to lose ground.
Congress left it up to regulators to determine how thoroughly auditors had to conduct their exams.
The commission’s action yesterday was the culmination of a fierce lobbying battle between accounting firms, which have reaped huge profits from the tighter standards, and an influential coalition of small public companies, which has called for relief for years.
The regulator of auditors, the
Public Company Accounting Oversight Board, is expected to vote today on new rules for auditors, which reflect a similar emphasis on end results over process.
The S.E.C.’s new guidelines largely resemble those it proposed late last year, accounting experts say. They call on corporate managers to use a “top down” approach to identify the areas where fraud or errors are most likely and a “risk based” approach that allows room to avoid unnecessary testing. This contrasts with a more prescriptive approach that auditors had employed.
Among the most concrete changes is that the S.E.C. will now require a company to get an outside auditor’s formal opinion on whether its financial controls are working. Previously, companies were required to have outside auditors evaluate the quality of the assessment process as well. Accounting experts said this could lower a typical audit’s cost by 10 to 20 percent.
Among the rule proposals on the raising of capital, the S.E.C. has recommended changing its Rule 144 in a move that would allow investors in PIPEs — private investments in public equity — and other restricted securities to sell their positions six months earlier.
Currently, those investors must hold the securities for at least a year. Those who are shorting the stock — betting its price will fall — will still have to hold it for a year.
The S.E.C. also proposed expanding the number of small companies that would qualify for less stringent disclosure requirements and be able to take advantage of so-called shelf registration. While both areas are prone to abuse, regulators are seeking a balance between making it easier for small companies to raise capital and ensuring investor protection.
The commission will solicit comments on the proposals over the next 60 days.
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SEC suspends trading for 35 companies in spamming crackdown
SEC suspends trading for 35 companies in spamming crackdownThe SEC's "Operation Spamalot" has suspended trading for 35 companies whose shares were heralded in an e-mail spamming campaign. "We are ... committed to tracking down those who prey on investors with false or misleading information," said Linda Thomsen, the agency's enforcement director.
Full storyspam, OTC, bulletin board, SEC,Labels: bulletin board, OTC, SEC, spam
SEC suspends trading for 35 companies in spamming crackdown
SEC suspends trading for 35 companies in spamming crackdownThe SEC's "Operation Spamalot" has suspended trading for 35 companies whose shares were heralded in an e-mail spamming campaign. "We are ... committed to tracking down those who prey on investors with false or misleading information," said Linda Thomsen, the agency's enforcement director.
Full storyspam, OTC, bulletin board, SEC,Labels: bulletin board, OTC, SEC, spam
SEC mulls policy change on foreign investment
SEC mulls policy change on foreign investmentA proposed shift in SEC policy would allow foreign stock exchanges and brokers to service U.S. investors with being regulated by the SEC. The policy change comes amid mounting U.S. interest in foreign securities, increases in trading technology and cross-border exchange consolidation.
full storyforeign investment, US, SEC, global markets, trading, technology, exchangesLabels: exchanges, foreign investment, global markets, SEC, technology, trading, US
Municipal markets face tighter scrutiny from SECThe Securities and Exchange Commission has announced plans to re-evaluate the Tower amendment, as the agency looks to step up its enforcement and disclosure procedures in the municipal securities market, according to an interview in Bond Buyer.
Read the article.SEC, munipal bonds, municipal securities, muni derivativesLabels: muni derivatives, municipal securities, munipal bonds, SEC
Congressional hearing likely to lead to new rules on 401(k) fees
Congressional hearing likely to lead to new rules on 401(k) feesCongress began hearings into the 401(k) industry as Democrats issued a call for more transparency in the fees charged in the retirement plans. "We have to ask whether all these fees are necessary and we have to examine whether they are undermining workers' retirement security," said Rep. George Miller, a Democrat from California and chairman of the House Education and Labor Committee. "There's a lot of people who are putting their hands into that money." Miller also said it was a "fair assumption" the committee would create legislation to force more disclosure.
Read this articleretirement, 401k, fees, investments, SEC
Labels: 401k, fees, investments, retirement, SEC
Fraud ring prompts concerns on Wall Street
Fraud ring prompts concerns on Wall Street:The accusation that more than a dozen people were involved in a fraud ring on Wall Street illustrates why regulators and lawmakers are concerned about the Street's relationship with hedge funds. "Incidents like this strengthen the hands of those who are urging greater scrutiny of hedge-fund activities and their sources of information," said a former SEC general counsel now in private practice.
full story hedge funds, risk, fraud, compliance, insider trading, regulation, SECLabels: compliance, fraud, hedge funds, insider trading, regulation, risk, SEC
Is keeping America as center of financial world is good for all?
Is keeping America as center of financial world is good for all?
America's position as the center of the finance world is in peril, according to this author, and expenses associated with regulations such as the Sarbanes-Oxley Act are partly responsible. Joseph B. Fuller, chief executive officer of advisory firm The Monitor Group, wrote in an op-ed piece that America's preeminence in the field is worth defending, and "what we all should realize is that, despite its many shortcomings, the U.S. regime contributed mightily to growing global prosperity."
full articleUS, american regulations, FED, SEC, NYSE, NASD, market leadership, global marketsLabels: american regulations, FED, global markets, market leadership, NASD, NYSE, SEC, US
Fed's crisis manager Geithner has eye on hedge funds
Fed's crisis manager Geithner has eye on hedge fundsNew York Fed President Timothy Geithner has had some luck in getting the credit-derivatives industry to take steps to avoid a potential meltdown. Now he's turned his attention to hedge funds -- an industry that seems not to share his concern nor welcome his interest.
Read this articlehedge funds, asset management, regulatory risk FED, SECLabels: asset management, hedge funds, regulatory risk FED, SEC
SEC voices concern over mutual funds' securities-lending practices
SEC voices concern over mutual funds' securities-lending practicesThe Securities and Exchange Commission says some mutual fund companies are failing to follow the rules when lending securities. The agency has sent deficiency letters to funds it says aren't complying with proper procedures, but the regulator declined to name the companies in question.
Read this articleLabels: mutual funds, SEC, securities lending
