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AFL-CIO Urges SEC to Enforce Law on Blackstone |
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The AFL-CIO is strongly urging the U.S. Securities and Exchange Commission (SEC) to enforce the Investment Company Act of 1940 and require The Blackstone Group L.P. to register as an investment company regulated under the act. The SEC is reviewing a public offering of units by Blackstone, a private investment fund and one of the world’s largest hedge fund and private equity companies.
Under the Investment Act, companies such as mutual funds and other investment companies that sell shares to the public are subject to strict rules that limit leverage and fees and require corporate governance provisions intended to protect investors.
But Blackstone is trying to have it both ways, AFL-CIO Secretary-Treasurer Richard Trumka said in a 14-page letter to the SEC:
Blackstone wants to book profits on investment assets like an investment company and claim the tax benefits of an investment company, but refuses to comply with the laws governing investment companies. That’s unacceptable, and the SEC should step in and enforce the law.
(To read the full letter, click here.)
Further, Trumka says the unique management structure chosen by Blackstone’s senior executives for the public offering of Blackstone
serves no practical purpose aside from creating a mechanism for Blackstone Group to sell its shares to the public without being regulated by the [Securities and Exchange] Commission.
Trumka warned that if Blackstone can avoid SEC regulation, it is only a matter of time before mutual funds, hedge funds and other investment pools use similar strategies to avoid regulation and disclosure requirements while selling securities to the general public.
The AFL-CIO has a strong interest in ensuring that investment companies abide by laws to protect investors and the public. Millions of union members are investors, both individually and through benefit plans. Union members participate in benefit plans with more than $5 trillion in assets, and union-sponsored pension plans hold approximately $400 billion in assets. Mutual funds make up a big part of working families’ retirement security.
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This is a great move by the AFL-CIO. These giant PE firms are buying and selling companies like trading cards. Often their only plan is to come in, cut wages, lay off workers, turn a profitable quarter, and spin the company off for twice what its worth.
Under Trumka’s leadership, organized labor has done well to develop relationships with major public investment houses and build serious leverage there. It’s high time that the house of labor take a look at this new trend.
The SEIU recently published a great report on the private equity economy entitled “Behind the Buyouts.” It’s available on their website at http://www.behindthebuyouts.org/