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bankruptcy
Democrats Renew Effort to End Private Equity Looting
"Union-busting, pollution, and bankruptcy aren't side effects of the private equity model: They are the model," said one campaigner backing the bill. "It's a smash-and-grab, plain and simple."
Oct 10, 2024
Less than a month away from the U.S. general election, over a dozen congressional Democrats on Thursday renewed their fight to "fundamentally reform the private equity industry" with a bill that Rep. Mark Pocan said "will finally hold these predatory firms accountable and protect workers from being plundered by corporate greed."
"It's long past time for billionaires and big corporations to stop gambling with hardworking Americans' and their communities' assets in service of corporate greed," declared Pocan (D-Wis.), who is leading the Stop Wall Street Looting Act with Congressional Progressive Caucus Chair Pramila Jayapal (D-Wash.) and Sen. Elizabeth Warren (D-Mass.).
"In Wisconsin, we've seen what happens when private equity firms like Sun Capital raid companies for their wealth and leave workers and communities to pick up the pieces," he noted. "When Sun Capital took over Shopko—a Wisconsin-based retail chain that had stood strong for more than 50 years—they drained it dry, buried it in debt, pushed it into bankruptcy, and abandoned roughly 14,000 workers."
"Private equity takeovers are legal looting that make a handful of Wall Street executives very rich while costing thousands of people their jobs, putting valuable companies out of business, and in the case of healthcare, is literally a matter of life and death."
Warren's state is also dealing with fallout from the industry. As The Boston Globereported Thursday, the legislation is "designed to rein in the growing power of private equity firms and limit the sort of leveraged buyout deals that led to the crisis at Steward Health Care, whose bankruptcy continues to roil communities in Massachusetts and seven other states."
The bill "was reintroduced in part as a response to the unfolding crisis at Steward, which before its bankruptcy was the nation's largest private for-profit hospital system," the newspaper noted. It follows the Senate's unanimous approval of a resolution to hold CEO Dr. Ralph de la Torre in criminal contempt of Congress for his refusal to comply with a subpoena to testify before a committee. Shortly after the vote—the first of its kind since 1971—he resigned.
"Private equity takeovers are legal looting that make a handful of Wall Street executives very rich while costing thousands of people their jobs, putting valuable companies out of business, and in the case of healthcare, is literally a matter of life and death," Warren, a former bankruptcy law professor, said Thursday. "Our bill is designed to close loopholes and end incentives for private equity pillaging—and it will make sure what happened at Steward never happens again."
As a fact sheet from the sponsors details, the bill would make private equity firms responsible for liabilities including debt, legal judgments, and pension-related obligations; limit how much money they can extract from companies; close a loophole they have used to conceal assets from bankruptcy courts; implement various protections for workers and customers; increase transparency; impose guardrails for receiving public funds; and drive real estate investment trusts out of healthcare.
"From healthcare to housing, millions of Americans are seeing private equity take over companies with the promise of improving services, only to strip them for parts and hurt both workers and working families," said Jayapal. "It's time for Congress to take action to protect Americans from the dangers of private equity and corporate greed, and that's exactly what our Stop Wall Street Looting Act will do."
The legislation is backed by Reps. Raúl Grijalva (D-Ariz.), Rick Larsen (D-Wash.), Barbara Lee (D-Calif.), Delia Ramirez (D-Ill.), Jan Schakowsky (D-Ill.), Alexandria Ocasio-Cortez (D-N.Y.), and Eleanor Holmes Norton (D-D.C.), along with Sens. Tammy Baldwin (D-Wis.), Jeff Merkley (D-Ore.), Bernie Sanders (I-Vt.), Tina Smith (D-Minn.), and Ed Markey (D-Mass.).
The bill is also endorsed by dozens of groups including the American Federation of Teachers, Americans for Financial Reform, Economic Policy Institute, Indivisible, National Employment Law Project, National Nurses United, Public Citizen, Service Employees International Union, Student Borrower Protection Center, Take on Wall Street, United for Respect, and Working Families Party.
"Union-busting, pollution, and bankruptcy aren't side effects of the private equity model: They are the model," said Porter McConnell of Take on Wall Street. "It's a smash-and-grab, plain and simple. That's why we are so pleased to see comprehensive legislation like the Stop Wall Street Looting Act introduced in Congress today. We created the loopholes in the law that allowed the private equity industry to thrive, and we can end them."
United for Respect co-executive directors Bianca Agustin and Terrysa Guerra stressed that "Wall Street private equity firms have proven themselves to be a parasite on workers, our economy, and American retailers by gutting companies for profit and driving mass layoffs. Holding billionaire profiteers accountable for the damage they do to our working families and communities is imperative to addressing growing economic inequality."
"The Stop Wall Street Looting Act will help close loopholes in our laws that for too long have allowed private equity to pillage companies and amass huge profits while workers lose their jobs and are left with nothing," they added. "United for Respect is proud to support this bill—and we need all legislators to join us in protecting workers and putting Wall Street on the hook for the havoc they reap."
While the bill is unlikely to go anywhere in the currently divided Congress, it's a clear statement from the sponsors where they stand, as early voting gets underway to determine the future of the Senate and House of Representatives as well as the next occupant of the White House—Democratic Vice President Kamala Harris or former Republican President Donald Trump.
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Markey, Warren Sound Alarm Over Private Equity Firm's Deal to Buy Doctors Group
"Selling Massachusetts doctors to another private equity firm could be a disaster," said Sen. Elizabeth Warren. "Regulators must scrutinize this deal."
Aug 13, 2024
Both of Massachusetts' Democratic U.S. senators on Tuesday expressed concern about a private equity firm striking a $245 million deal to buy the nationwide physicians network of the for-profit Steward Health Care, which filed for bankruptcy in May.
The network, Stewardship Health, has about 5,000 employees across nine states and serves around 400,000 patients, according to Steward. It is set to be acquired by Rural Healthcare Group, an affiliate of Kinderhook Industries.
"Steward also operates eight hospitals in Massachusetts," The Boston Globereported Monday. "Last month, it said it will close two of them, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, by August 31. It's currently in the final stages of negotiations to sell the other six."
Sen. Elizabeth Warren (D-Mass.), a former bankruptcy law professor, noted the planned closures in her social media post urging regulators to review the deal.
"Two Massachusetts hospitals are closing and communities are suffering because of private equity's looting of Steward," she said. "Selling Massachusetts doctors to another private equity firm could be a disaster. We can't make the same mistake again. Regulators must scrutinize this deal."
In March, Steward had confirmed plans for the Optum unit of insurer UnitedHealth to buy the network, but that was never finalized.
"As part of the ongoing Chapter 11 proceedings, following a robust and active bidding process, Steward Health Care is pleased to have reached an agreement with Rural Healthcare Group," Steward Health Care president Mark Rich said in a Monday statement. "Kinderhook has over 20 years of experience investing in mid-sized healthcare businesses that serve the nations' most vulnerable populations."
"Kinderhook's investments are focused on protecting access to high-quality healthcare in communities that are truly underserved," Rich added. "Rural Healthcare Group is a well-respected group of healthcare professionals that specifically focuses on underserved and underinsured areas. We are confident that Stewardship Health will continue its stellar treatment of the patient population as a result of this transaction."
According to the Globe:
In an attachment to an overnight filing with U.S. Bankruptcy Court in Houston, the company listed the purchase price as $245 million in cash.
That price is subject to change, the filing indicated, depending on several factors still to be determined, including whether U.S. Family Plan at Brighton Marine, a Boston health insurance agency, is included in the transaction. The filing listed the buyer as Brady Health Buyer LLC, a company set up by New York-based Kinderhook to purchase Stewardship.
The newspaper noted that "the sale to Rural Healthcare is subject to the approval of U.S. Bankruptcy Judge Christopher Lopez at a Houston hearing scheduled for Friday. It's also subject to regulatory approval in Massachusetts and other states."
As Common Dreamsreported last month, Sen. Bernie Sanders (I-Vt.), chair of the Senate Committee on Health, Education, Labor, and Pensions (HELP), led the panel in bipartisan votes to authorize a probe into the bankruptcy of Steward Health Care (20-1) and subpoena CEO Ralph de la Torre (16-4).
The same day, Sen. Ed Markey (D-Mass.), a committee member, and Rep. Pramila Jayapal (D-Wash.) introduced the Health Over Wealth Act, which would increase the powers of the U.S. Department of Health and Human Services to monitor and block private equity deals in the healthcare industry.
"Private equity firms buying up healthcare systems are simply bad news for patients, leading to worse health outcomes and higher bills," Jayapal said at the time. "We have a duty to protect patients from greedy corporations that are prioritizing their bottom line over patient care."
In response to news of the doctors group deal, Markey said Tuesday that "private equity did to Steward what it will keep doing to hospitals and physician networks across the U.S.—unless we put guardrails on them. We need to pass my Health Over Wealth Act to get corporate greed out of healthcare for good."
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Why Rudy Giuliani Can Declare Bankruptcy While Homeowners Can’t
Bankruptcy was designed so people could start over, but these days, the only ones starting over are those with enough political clout to shape bankruptcy laws to their liking.
Dec 29, 2023
Within days of a nearly $150 million judgment against former New York Mayor Rudy Giuliani for defaming Ruby Freeman and Shaye Moss, the election workers Giuliani falsely claimed stole the 2020 election in Georgia for President Joe Biden, Giuliani filed for bankruptcy.
He thereby shielded himself from having to surrender his assets to fulfill the judgment, at least in the near term.
The long term may be quite long. Freeman and Moss may not see a penny of that judgment for many years, and when they do, it’s likely to be far less than $150 million.
The prevailing myth that America has a “free market” existing outside and apart from government prevents us from understanding that the very rules by which the market runs—including the basic one about what to do when someone can’t or won’t pay what they owe—are made by lawmakers.
One of the most basic of all questions in a market economy is what to do when someone can’t pay what they owe. The U.S. Constitution (Article I, Section 8, Clause 4) authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States.”
Congress has done so repeatedly. In the last few decades, Congress’ changes have reflected the demands of the wealthy, giant corporations, and Wall Street banks, which have made it harder for average people to declare bankruptcy but easier for themselves to do it.
Many people are too broke to go bankrupt. Filing for bankruptcy costs money, as does hiring an attorney (which is the best way to make sure you actually get debt relief). Because attorney fees, like other debts, are wiped out in a bankruptcy, most bankruptcy lawyers require clients to pay in full before filing.
In an economy where nearly half of adults say that if they were hit with an emergency expense of $400, they wouldn’t have the cash on hand to cover it, large numbers of people simply can’t afford those upfront costs.
The 2005 bankruptcy bill pushed by Wall Street worsened the problem. To prevent people from cheating their lenders, the bill put new burdens on debtors and their lawyers. The extent of such abuses was questionable, but the new requirements have driven up attorney fees nationwide by about 50%. The result? Even fewer filings.
Bankruptcy was designed so people could start over. But these days, the only ones starting over are those with enough political clout to shape bankruptcy laws to their liking, and enough money to hire bankruptcy lawyers to use those laws to their full advantage.
On the opening day of Trump Plaza in Atlantic City in 1984, Donald Trump stood in a dark topcoat on the casino floor celebrating his new investment as the “finest building in the city and possibly the nation.”
Thirty years later, after the Trump Plaza folded, Trump was on Twitter praising himself for his “great timing” in getting out of the investment. He got a giant tax write-off, too.
But some 1,000 of his former employees were left holding the bag—without jobs, and with homes worth a fraction of what they paid for them. They couldn’t declare bankruptcy. Chapter 13 of the bankruptcy code—whose drafting was largely the work of the financial industry—prevents homeowners from declaring bankruptcy on mortgage loans for their primary residence.
The Granddaddy of all failures to repay occurred in September 2008 when Lehman Brothers went into the largest bankruptcy in history, with more than $691 billion of assets and far more in liabilities.
Some commentators (including yours truly) urged that the rest of Wall Street should be forced to grapple with their problems in bankruptcy, too.
But Lehman’s bankruptcy so shook the street that Henry Paulson Jr., George W. Bush’s outgoing secretary of the treasury (and, before that, head of Goldman Sachs), persuaded Congress to authorize several hundred billion dollars of funding to protect the other big banks from going bankrupt.
Paulson didn’t explicitly state that big banks were too big to fail. They were, rather, too big to be reorganized under bankruptcy—which would, in Paulson’s view, have threatened the entire financial system.
The real burden of Wall Street’s near meltdown fell on homeowners. As home prices plummeted, many found themselves owing more on their mortgages than their homes were worth and unable to refinance.
Some members of Congress tried to amend the bankruptcy law so distressed homeowners could use bankruptcy, which would have helped prevent the banks from foreclosing on their homes. But the financial industry (among the largest donors to both parties) claimed this would greatly increase the cost of home loans (no convincing evidence showed this to be the case), and the bill died.
Subsequently, more than 5 million people lost their homes.
Another group of debtors who can’t use bankruptcy to renegotiate their loans are former students laden with student debt.
Student loans are now about 10% of all debt in the United States, second only to mortgages and higher than auto loans and credit card debt. But the bankruptcy code doesn’t allow student debts to be worked out under its protection.
If graduates don’t meet their payments, the law allows lenders to garnish their paychecks. If they are still behind on student loan payments by the time they retire, lenders can even garnish their Social Security checks.
The only way graduates can reduce their student debt burdens—according to a provision enacted at the behest of the student loan industry—is to prove that repayment would impose an “undue hardship” on them and their dependents.
This is a stricter standard than bankruptcy courts apply to gamblers trying to reduce their gambling debts.
For years, Purdue Pharma, the maker of the prescription painkiller OxyContin, was entangled in civil lawsuits seeking to hold it accountable for its role in the spiraling opioid crisis.
A major settlement reached last year seemed to end thousands of those cases. It exempted members of the billionaire Sackler family, which once controlled the company, from all civil lawsuits in exchange for billions of dollars toward fighting the epidemic (although aware of OxyContin’s risk for abuse, members of the family had continued to aggressively market it).
Under the deal, the Sacklers do not have to personally declare bankruptcy and are insulated from liability even without the consent of all of those who could potentially sue them. (The Supreme Court has taken up the case.)
The prevailing myth that America has a “free market” existing outside and apart from government prevents us from understanding that the very rules by which the market runs—including the basic one about what to do when someone can’t or won’t pay what they owe—are made by lawmakers.
The real question is whose interests those lawmakers are pursuing. Are they working for the vast majority of Americans, or are they beholden to those at the top? The recent history of bankruptcy—right up to Rudy Giuliani’s use of it last week—provides a clear answer.
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