Date: 2016-09-09
Speaker: MAXINE WATERS (democrat)
Chamber: H
State: California

Mr. Speaker. I yield myself such time as I may consume. Mr. Speaker. after general debate. my colleague from Illinois will offer an amendment to eliminate two toxic provisions of this bill. While I am supportive of his effort. I am concerned that his amendment does not go far enough. I am going to describe the six provisions Mr. FOSTERs amendment leaves intact but that are still harmful to investors and threatens the ability of the SEC to oversee private equity funds and hedge funds. As such. even if the amendment is adopted. I urge all Members to oppose final passage of H.R. The first reason to vote against final passage is that H.R. 5424 would still remove systemic risk reporting requirements for private equity funds. Congress created the Financial Stability Oversight Council when it passed the DoddFrank Act to look for risks across the entire financial system. including those within shadow banks like private equity funds. Democrats understood that one of the most important lessons of the crisis was the value of sunshine into all of the dark corners of our markets. We do not want another AIG to make enough risky financial bets to take down the entire economy without anyone knowing until it is too late. H.R. 5424. however. would repeal the requirement that large private equity firms provide certain information about their portfolio companies and their leverage. The second reason to vote "no" on an amended H.R. 5424 is that the bill still would prohibit the SEC from applying the antifraud guidance related to advertising materials of mutual funds to private equity funds and hedge funds. This is a basic investor protection. Private equity funds should not be able to selectively use performance data to dupe investors into buying their funds. It works for mutual funds and it will work for other funds similarly. Reason number three to oppose H.R. 5424 is that the amended bill would remove the brightline test for fraudulent and misleading advertising materials. thereby allowing private equity advisers to use testimonials and past recommendations to create a false perception of the advisers performance. This provision will enable private equity funds to more easily sell key securities to unsuspecting investors. Reason number four to vote "no" is the bill would still remove the requirement that fund advisers notify investors of ownership changes. This would allow an adviser to sell its business or the fund it manages to anyone. raising the concern that an unacceptable party would suddenly be managing a pensions invested money without their consent. The public pension plans have a right to know if the star manager has been replaced with an underachiever. An amended H.R. 5424 also would repeal disclosures of proxy voting procedures for handling conflicts of interest. Namely. the bill eliminates a requirement that advisers to private equity funds and hedge funds have policies and procedures in place to dictate how and when the adviser will vote a proxy and how it will mitigate any conflicts of interest. Because these policies and procedures inform investors and the SEC to whether an adviser is meeting some of its fiduciary responsibilities. I find it hard to understand how Democrats who stood up to protect the fiduciary obligations of everyday Americans can now support weakening it for the funds investing on behalf of those Americans. Finally. even though the Foster amendment preserves the audit requirement for certificated securities. the bill would remove the audit requirement under the SECs custody rules for private. uncertificated securities for which advisers would not have to keep any record. Although such securities may not be common in the private space. this distinction between two types of securities has all the trappings of a loophole in the making and would create a terrible incentive. So I would urge all Members to oppose H.R. 5424 even if the Foster amendment is adopted. I reserve the balance of my time.