Stop Wall Street Looting Act
- Sponsor
- Rep. Pocan, Mark [D-WI-2]
- Committees
- Judiciary Committee (primary)
- Last action
- Sep 24, 2026
Bottom line
The Stop Wall Street Looting Act aims to curb perceived predatory practices by private equity firms by increasing their financial accountability for portfolio companies, strengthening worker rights, and closing tax advantages, thereby shifting risk and responsibility back to the investment funds.
What it actually does
This bill fundamentally alters the regulatory landscape for private equity funds by imposing joint and several liability on controlling private funds and their active interest holders for the debts and liabilities of acquired firms. It restricts post-acquisition financial maneuvers like dividends and buybacks, extends the look-back period for fraudulent transfers, and introduces new taxes on investment firms. Additionally, it significantly enhances worker protections in bankruptcy, closes specific tax loopholes related to carried interest and real estate investment trusts (REITs), mandates extensive disclosures for private funds, and establishes risk retention requirements for securitized corporate debt.
Proponents argue
Proponents argue that the bill is essential to protect workers, consumers, and communities from the destructive practices of private equity, which they contend often burden viable companies with excessive debt, strip assets, and lead to bankruptcies, job losses, and unpaid wages. They assert it ensures private funds bear the full financial risks of their investments, preventing them from externalizing losses onto employees, creditors, and the public while fund managers profit regardless of company performance. The bill is presented as a necessary measure to restore corporate responsibility and prevent economic instability caused by unchecked financial engineering.
Opponents contend
Opponents would likely contend that this bill would severely stifle investment, particularly in struggling companies that private equity often acquires and attempts to turn around. They might argue that imposing joint and several liability and restricting financial flexibility would make private equity investments too risky and unattractive, leading to a reduction in capital available for businesses, hindering job creation, and ultimately harming economic growth. Critics could also argue that the extensive new regulations and tax changes represent an overreach of government into private markets, potentially driving investment overseas and making U.S. companies less competitive.
The bill is 29 pages long and highly technical, amending multiple complex statutes. An informed reader would need significant time to fully grasp its implications, especially the intricate tax and bankruptcy code changes. The estimated reading time is appropriate for a thorough review.
Sec. 101, Title I
Joint and Several Liability for Controlling Private Funds
This provision makes controlling private funds and anyone holding an 'active interest' in them jointly and severally liable for all liabilities of any target firm they acquire and control, as well as its affiliates. This includes debts, civil penalties, consumer restitution, Worker Adjustment and Retraining Notification Act (WARN Act) violations, and unfunded pension liabilities. It explicitly overrides any other law or contract to ensure this liability.
Supporters argue
Supporters argue this provision is central to preventing 'looting' by ensuring that private equity firms cannot externalize the risks of their investments onto workers, creditors, and the public. It holds fund managers directly accountable for the financial health and legal compliance of the companies they control, incentivizing responsible stewardship and preventing asset stripping that often precedes bankruptcy.
Critics contend
Critics would contend that this provision introduces an unprecedented level of liability that would deter private equity investment, especially in distressed companies. They might argue it makes it too risky to acquire and restructure struggling businesses, leading to fewer turnarounds, more liquidations, and ultimately greater job losses. This could also be seen as an unfair burden on investors who are typically shielded by limited liability structures.
Tradeoffs
The provision balances the goal of increased accountability for private equity firms with the potential for reduced investment in companies that could benefit from private capital. It aims to protect stakeholders from financial distress caused by private equity practices, but could also make private equity less willing to take on risky ventures.
Sec. 102, Title I
Indemnification Void as Against Public Policy
This section declares that any agreement for a target firm or its affiliate to indemnify a controlling private fund or its active interest holders for liabilities under Section 101 (joint and several liability) is void. This means target companies cannot be forced to cover the legal costs or damages incurred by their private equity owners due to the new liability rules.
Sec. 201, Title II
Limitations on Post-Acquisition Financial Distributions and Outsourcing
This section prohibits target firms, after being acquired by a controlling private fund, from making capital distributions (like dividends, share repurchases, or buybacks) for a 4-year period. It also limits capital distributions to no more than 10% of the firm's financial obligations in any given year and prevents commitments to future distributions exceeding this limit. Additionally, it prohibits target firms from ordering plant closings or mass layoffs and relocating operations outside the U.S. after acquisition.
Sec. 202, Title II
Prevention of Fraudulent Transfers and Extended Look-Back Period
This section significantly amends bankruptcy law by limiting 'safe harbors' for certain transfers in connection with change-in-control transactions or during a 'protected period' (15 years post-acquisition or until a public offering). It creates a presumption of insolvency for transfers made to control persons, affiliates, or insiders during this protected period, making it easier for a trustee to void such transfers. It also extends the statute of limitations for avoiding fraudulent transfers to 15 years for those related to change-in-control transactions or during the protected period, and grants creditors' committees exclusive rights to pursue such actions against insiders.
Sec. 203, Title II
Surtax on Certain Amounts Received by Investment Firms
This section imposes a surtax on 'applicable payments' received by 'applicable controlling entities' (investment firms) from 'applicable entities' (controlled target firms). The surtax rate is 100% minus the highest corporate or individual income tax rate, effectively taxing these payments at the highest marginal rate. Applicable payments include various fees and charges, but exclude interest and distributions of property with respect to stock. This aims to tax management fees and other financial engineering payments at a higher rate.
Sec. 204, Title II
Limitation on Deduction for Business Interest of Certain Businesses Owned by Private Funds
This section modifies the existing limitation on business interest deductions for 'applicable entities' (target firms) controlled by 'applicable controlling entities' (private funds). If such a target firm's debt-to-equity ratio exceeds 1, its business interest deduction limitation (currently 30% of adjusted taxable income) will be replaced with a lower percentage determined by the Secretary of the Treasury. Additionally, these firms are prohibited from electing to treat their real property trade or business as an 'electing real property trade or business,' which would exempt them from the interest deduction limitation, and any existing such elections are revoked.
Sec. 205, Title II
Guardrails Around Accessing Public Funds
This section requires any private fund that receives funds from a Federal or State agency to publicly disclose detailed information, including total funds received, workforce demographics, use of proceeds, jobs saved, loans forgiven, beneficial owners, and the pay ratio between the CEO and median employee. Furthermore, for a 2-year period after receiving public funds, the private fund is prohibited from acquiring any other company or making any distributions to its shareholders.
Sec. 206, Title II
Prohibiting Payments from Federal Health Care Programs to Entities Affiliated with REITs
This section adds a new category to the list of individuals and entities excluded from participation in Federal health care programs. Specifically, it excludes any individual or entity that, on or after the date of enactment, sells any assets to, or newly pledges any assets as collateral for a loan with, a real estate investment trust (REIT). An exception is made for agreements to pledge assets that existed prior to the enactment date.
Sec. 209, Title II
Protections for Striking Workers
This section amends the National Labor Relations Act to make it an unfair labor practice for an employer to permanently replace striking workers, discriminate against employees who supported a strike, or lock out employees to influence collective bargaining prior to a strike. It also prohibits employers from requiring or coercing employees to attend campaign activities unrelated to their job duties and mandates that employers maintain current wages, hours, and terms of employment during collective bargaining pending an agreement. It also repeals certain provisions related to jurisdictional disputes and secondary boycotts.
Sec. 301, Title III
Increased Priority for Wages in Bankruptcy
This section amends the Bankruptcy Code to increase the priority for certain unsecured claims for wages, salaries, and commissions. It raises the cap on such priority claims from $10,000 to $20,000 per individual and removes the '180 days before the date of the filing of the petition or the date of the cessation of the debtor’s business' time limit, making all earned wages eligible for priority. It also clarifies that severance pay is deemed earned in full upon layoff or termination.
Sec. 304, Title III
Limitation on Executive Compensation Enhancements in Bankruptcy
This section tightens restrictions on executive compensation in bankruptcy cases. It expands the scope of individuals subject to these limitations to include senior executive officers, the 20 next most highly compensated employees, department/division managers, and consultants. It requires 'clear and convincing evidence' that retention payments or performance bonuses are essential for the debtor's survival or orderly liquidation, and that incentive programs are generally applicable to the non-management workforce. It also mandates that such compensation be reasonable, not excessive, and not disproportionate to economic losses incurred by the non-management workforce.
Sec. 309, Title III
Protection for Employees in a Sale of Assets in Bankruptcy
This section requires bankruptcy courts, when approving asset sales or leases, to give 'substantial weight' to how a prospective purchaser or lessee will preserve jobs and maintain terms and conditions of employment. If multiple offers are comparable, the court must approve the one that best preserves jobs and employment terms. Purchasers must represent to the court the effect of the transaction on jobs and employment terms, and the court retains jurisdiction to enforce these representations, imposing remedies for noncompliance.
Sec. 402, Title IV
Partnership Interests Transferred in Connection with Performance of Services
This section modifies the tax treatment of partnership interests received for services. It generally treats the fair market value of such an interest as the amount a partner would receive if the partnership sold all its assets at fair market value and distributed the proceeds in liquidation. Unless an election is made otherwise, the person receiving the interest is treated as having immediately included its value in gross income, effectively taxing 'carried interest' at the time of transfer rather than deferring it. This aims to close a loophole where some partnership interests received for services were not immediately taxed.
Sec. 403, Title IV
Special Rules for Partners Providing Investment Management Services (Carried Interest)
This section introduces extensive new rules for 'investment services partnership interests,' which are interests in investment partnerships held by persons providing investment management services. It recharacterizes net capital gain from such interests as ordinary income, subject to certain limitations for losses. It also treats gain on the disposition of such interests as ordinary income and applies special rules for dividends and qualified small business stock. It defines 'investment partnership' and 'specified asset' broadly and includes anti-abuse rules. It also applies a 40% penalty for underpayments due to avoidance of these rules and includes such income in net earnings from self-employment.
Sec. 501, Title V
Disclosure of Fees and Returns for Private Funds
This section mandates that the Securities and Exchange Commission (SEC) issue rules requiring controlling private funds to annually report extensive information. This includes fund name, vintage year, general and limited partners, equity interests owned, regulatory and net assets under management, debt information, gross performance, 'performance net of fees,' annual financial statements, debt-to-equity ratios of target firms, number of defaults and bankruptcies among target firms, equity ownership breakdown, aggregate fees and expenses collected (categorized by type and purpose), total carried interest, material changes in risk factors (including ESG), human capital management practices (workforce demographics, diversity, harassment/safety incidents), political activity expenditures, and total federal support received. This information must be made publicly available.
Sec. 502, Title V
Fiduciary Obligations for Private Fund Managers and Prohibition Against Waiving Duties
This section clarifies that for ERISA plans investing in private funds, the assets of the private fund are considered 'plan assets,' and the manager of such a private fund is considered a 'fiduciary' under ERISA. It also directs the SEC to promulgate rules prohibiting investment advisers from requiring any person, including pension plans, to waive a fiduciary duty as a condition of receiving investment advice. Additionally, it prohibits general partners of controlling private funds from providing any term or benefit to some limited partners unless it is provided to all limited partners.
Sec. 601, Title VI
Risk Retention Requirements for Securitization of Corporate Debt
This section amends the Securities Exchange Act of 1934 to expand risk retention requirements for securitizers of corporate debt. It adds 'a manager of a collateralized debt obligation' (CDO) to the definition of a 'securitizer.' For such CDO managers, any provision requiring them to retain a portion of credit risk for an asset they don't hold must be construed as requiring them to obtain that credit risk and retain it directly or through a wholly-owned affiliate. This ensures that CDO managers, who package and sell corporate debt, retain a financial stake in the performance of the underlying assets.
Sec. 701, Title VII
Anti-Evasion Clause
This section makes it unlawful to conduct any activity, including entering into agreements, engaging in transactions, or structuring entities, with the willful intent to evade or attempt to evade any provision of this Act or its amendments. This is a broad anti-abuse clause designed to prevent circumvention of the bill's new regulations and liabilities.
The definition of 'control person' includes anyone who 'otherwise has the ability to direct the actions of a corporation,' and 'holder of an active interest' includes anyone with 'the right to participate in the governance of a controlling private fund, without regard to the form or source of that right.'
Sec. 3(6)(A)(iii) and Sec. 3(10)(A)(i)
Why it matters:This broad language is likely intended to be comprehensive and prevent circumvention by capturing various forms of de facto control or influence that might not be evident through direct ownership percentages. It's a standard legislative technique to ensure broad applicability.
Case for: This broad definition is crucial for preventing private funds from structuring their ownership or governance to avoid the new joint and several liability. It ensures that those who truly exert control or influence are held accountable, regardless of the formal legal structure.
Case against: Critics might argue that such broad and subjective definitions create legal uncertainty, making it difficult for private funds and their investors to know precisely when they cross the threshold into 'control' or 'active interest' that triggers significant new liabilities. This ambiguity could deter investment.
Estimated impact: Potentially expands the scope of joint and several liability to a wider range of individuals and entities associated with private funds, beyond direct owners or formal board members.
For purposes of fraudulent transfer analysis, a court 'shall, in analyzing related transactions, link together as a single transaction any interrelated yet formally distinct steps in an integrated transaction (commonly known as the 'step transaction doctrine').'
Sec. 202(b)(3), Title II
Why it matters:This is a technical legal clarification, but it has significant practical implications. Its inclusion ensures that complex financial maneuvers involving multiple steps cannot be used to evade fraudulent transfer rules, which is a common tactic in private equity transactions. It's a standard legislative technique to codify judicial principles.
Case for: This codification prevents sophisticated financial actors from structuring transactions in a series of steps to avoid fraudulent transfer claims. It ensures that the substance of a transaction, rather than its form, dictates its legal treatment, making it harder to shield assets from creditors.
Case against: Critics might argue that explicitly codifying and mandating the step transaction doctrine in this context could lead to excessive judicial scrutiny of legitimate, multi-step business transactions. They might contend it could create uncertainty and make it harder to plan complex deals, as individual steps could be recharacterized years later.
Estimated impact: Significantly strengthens the ability of bankruptcy trustees and creditors to unwind complex private equity transactions that are deemed fraudulent, potentially increasing recoveries for the estate.
An investment services partnership interest shall not be treated as a qualified capital interest to the extent it's acquired with proceeds of any loan or advance made or guaranteed, directly or indirectly, by any other partner or the partnership (or related person).
Sec. 403(d)(8)(A), Title IV
Why it matters:This is a targeted anti-abuse provision designed to prevent investment managers from artificially inflating their 'qualified capital interest' (which receives more favorable tax treatment) by using loans from the partnership or other partners. It's a technical detail to ensure the integrity of the broader carried interest reform.
Case for: This provision prevents a clear loophole where managers could borrow from their own funds or partners to create a 'capital interest' that would then receive preferential tax treatment, undermining the intent of the carried interest reforms. It ensures that only genuine capital contributions qualify for the exception.
Case against: Critics might argue that this provision is overly broad and could inadvertently capture legitimate financing arrangements, making it harder for some managers to participate in funds. They might contend it adds unnecessary complexity to an already intricate tax regime.
Estimated impact: Prevents a specific form of tax avoidance related to carried interest, potentially increasing the tax base for investment managers.