Not What The Doctor Ordered
Cigarettes. Junk food. Microplastics. Cholesterol. On the list of things bad for your health, private equity may be the one item your doctor doesn’t tell you about.
The Department of Justice, Federal Trade Commission, and Department of Health & Human Services want to know more. In a comment responding to the agencies’ recent request for information on the corporate role in healthcare, AFR highlights how PE is fundamentally incompatible with the purpose of healthcare and calls for government action to stop widespread abuses. AFR also joined 96 other organizations and individuals in a joint comment highlighting the harmful impact of consolidation. Said AFR’s Robert Seifert:
“Health care professionals and institutions should be concerned above all with their patients’ well-being and the nation’s health, but they are too often treated as financial instruments, to be bought and sold, mortgaged and plundered, for investors to reap huge profits. These business practices have further preyed on low-income patients, people with disabilities, and communities of color who have long been shut out of our healthcare system.”
Specifically, the groups call for: increased scrutiny of private equity’s practice of “roll-ups,” in which firms consolidate markets by purchasing competitors; new reporting requirements on beneficial ownership; the adjustment and monitoring of Medicare incentives, of which private equity often takes outsized advantage; the curbing of anticompetitive practices; the prosecution of healthcare fraud and cessation of contracting with PE firms; and the encouragement of providers to come forward with more allegations of substandard care; among other recommendations.
The habitually abusive asset-flippers of Wall Street, private equity games the system against doctors and patients alike as it reaps billions in profits. The Wall Street Journal recently launched a three-parter scrutinizing how the industry’s involvement in the sector has led to unstable hospital systems, overconsolidation, higher costs for patients, and shuttered facilities. A salient example: the crisis of the ailing Steward Health Care System, victim of the private equity firm Cerberus.
One bright light: Compared to Q1 2023, private equity investment in healthcare declined by 20% in Q1 2024, driven by increased antitrust scrutiny of the private equity model in the sector.
BANKING AND FINANCIAL STABILITY: Capital One/Discover – FDIC Nomination – A Bank’s Rare Bank Account
CONSUMER: Revenge of the Fifth – Repeat Corporate Offenders – Open Banking – Protecting Servicemembers – Read the Fine Print
CAPITAL MARKETS: Private Fund Advisers
PRIVATE MARKETS: Public Pensions and PE – Private Credit – PE Destroys Joshua Trees – Don’t Text and PE – PE and Sports – PE and Bankruptcy Law – Other Private Markets News
CRYPTO: Ether ETFs – Legislation Timing
HOUSING: Behind the Curtain – An FBI Raid – Decades of Disinvestment –Financial Hardship – Silent Second Mortgage – Renters
CLIMATE AND FINANCE: Corporate Climate Consequences – Solar Loan Fraud
POLITICS AND MONEY: Blackstone Backtrack
Feedback? Reach us at afrnews@ourfinancialsecurity.org
BANKING AND FINANCIAL STABILITY
Capital One/Discover.
AFR called on the OCC and Fed to block the proposed mega-merger between financial services companies Capital One and Discover, an anticompetitive transaction that would create the nation’s largest credit card issuer.
The proposed Capital One-Discover merger would have significant anti-competitive impacts that would harm consumers and communities (as AFR documented in a brief that was filed in April). The merger also fails to meet the requirements and conditions of the Bank Merger Act and Bank Holding Company Act.
The proposed merger fails to meet the convenience and needs of communities by raising consumer credit card costs, having a record of misleading marketing and aggressive debt collection, and closing two-thirds of its branches over the past 15 years. It has a highly checkered record of regulatory compliance and consumer protections, including a massive data breach and flawed anti-money laundering guardrails. And the merger would pose a significant threat to financial stability by concentrating high-risk credit card loan assets that would be vulnerable to macroeconomic shocks that could sideline critical credit card and debit transaction functions
FDIC Nomination.
AFR, Public Citizen, and other allies urged President Biden to nominate a strong progressive leader to head the Federal Deposit Insurance Corporation (FDIC) at the critical juncture following the pending resignation of Chairman Gruenberg. “The FDIC is now weighing important rules and actions including bank capital standards, banker pay reform, and bank merger review updates, along with its important continuing roles addressing safety and soundness in the face of challenges like crypto risks and climate-related financial risks,” they wrote. “Each of these measures and others demand steady leadership.”
A Bank’s Rare Bank Account.
Tier 3 institutions – state-chartered banks that are not backed by the FDIC – are usually denied Fed master accounts, which provide access to the central bank’s liquidity facilities. Recently, however, Numisma, a Tier 3 bank co-founded by Trump Fed Vice Chair Randy Quarles, was conditionally approved for a master account.
CONSUMER
Revenge of the Fifth.
Recently, U.S District Judge Mark Pittman kicked the industry case against the CFPB’s $8 cap on credit card late fees to Washington, D.C., and the Fifth Circuit dragged it back. Last week, Pittman again attempted to transfer the lawsuit back to Washington. The Fifth Circuit blocked the ruling.
Repeat Corporate Offenders.
The Consumer Financial Protection Bureau finalized a rule to create a repeat corporate offenders registry, allowing the agency to “detect and deter corporate offenders that have broken consumer laws and are subject to federal, state, or local government or court orders.” The registry works by tracking orders from other government agencies and courts, which while publicly available, were not comprehensively tracked. Said AFR’s Christine Zinner:
“Nonbank financial companies that repeatedly violate consumer protection laws will no longer get to hide behind fragmented reporting systems and misconduct will be easily searchable in one central location for consumers, investors, and regulators at every level of government. This database is bad news for repeat offenders, but good news for the rest of us.”
Open Banking.
The CFPB established a new rule for entities to become standard-setting bodies in the up-and-coming open banking sector, a paradigm shift toward consumer control over data and financial rights spearheaded by the agency.
Protecting Servicemembers.
Since the founding of the CFPB, the agency has reported over 400,000 complaints submitted by servicemembers. Complaints increased 27 percent from 2022 and 98 percent compared to 2021, a stark trend that shows the financial issues many families can face despite military service. While servicemembers can receive numerous benefits under the Servicemembers Civil Relief Act, the CFPB reports many have trouble receiving them – for example, lower rates on loans. The CFPB’s enforcement actions in 42 cases involving harm to servicemembers and veterans has delivered $183 million in redress to victims.
Read the Fine Print.
The CFPB warns against companies using “unlawful or unenforceable terms and conditions in contracts for consumer financial products or services.” Businesses risk violating consumer protection laws when they stuff rights waivers into the fine print.
CAPITAL MARKETS
Private Fund Advisers.
The Fifth Circuit, reliable ally of industry lobbies that it is, sided with Wall Street this week when it overturned the SEC’s private fund adviser rule.
Said AFR’s Andrew Park:
"The Fifth Circuit has sided with Wall Street and private equity billionaires by issuing an extreme and unfounded decision that blocks needed protections for workers saving for retirement and for the public interest. We expect the SEC will appeal this decision, which should be overturned as soon as possible.”
AFR noted that the impacts of this ruling go much further than private funds. In holding that the SEC’s statutory antifraud powers don't authorize it to require specific disclosures or reporting, the Fifth Circuit also called into question many other mandatory SEC disclosure rules, including for public markets.
“The Fifth Circuit is dragging us down a slippery slope that everyone should fear. The implications of this ruling would undermine the basic investor protections that are a backbone of the confidence investors have in the largest capital market in the world.”
PRIVATE MARKETS
Public Pensions and PE.
Pensions take public money – the retirement dollars squirreled away by teachers, firefighters, utility workers and other workers – and push it into private equity, among other investments, in the hopes that the pile grows bigger. Randi Weingarten of the American Federation of Teachers and Sean McGarvey of North America’s Building Trades Unions say that, since together they control the pensions of 4.7mn Americans, they have a responsibility to demand greater transparency, fairer fees and a more equitable business model from private equity. PE firms have a track record of worker abuse, union busting, child labor, and dismantling companies, including in low-wage industries with high concentrations of people of color, the two note.
Private Credit.
Banks have been in competition with the $1.7trn private credit market, a risky industry held up by an opaque cluster of shadow banks and private equity firms. But even as the likes of Jaime Dimon fret over the asset class gaining prominence, traditional banks – including Dimon’s own JPMorgan Chase – are trying to get a piece of the private credit pie. This week, FT reported that Goldman Sachs raised more than $20bn to invest in private credit.
PE Destroys Joshua Trees.
The Aratina Solar Project is slated for construction on private land owned by a California-based company called Avantus. Avantus is mostly owned by KKR. The development will destroy the thousands of protected Joshua trees that form a habitat for endangered tortoises, just outside of two Kern County towns where the poverty rate is double the state’s average. But the power from Aratina will be transmitted to wealthy communities on the coast. If you need a primer on KKR’s disparate climate impact, despite its greenwashed image, see this report from AFR and Global Energy Monitor.
Don’t Text and PE.
Private equity megafirms Blackstone, Carlyle and TPG said they’ve been cooperating with the SEC over record-keeping investigations related to their employees’ texting practices. Financial firms are required to preserve and monitor their workers’ shop talk in order to create a paper trail for regulators. But employees at some firms, generally, use prohibited messaging platforms like WhatsApp.
PE and Sports.
As AFR previously noted, American private equity firms have been active in buying English soccer teams, much to fan frustration. The proposed sale of Everton FC fell through when the American PE group couldn’t meet the requirements to complete the deal.
As the NFL and its team owners consider allowing private equity to buy stakes in ownership, fans and sports media continue to raise concerns over the proposition. Fans fear the negative influence private equity has on other industries will leak into the sport, and that the approval of private equity in the NFL might spread to other major North American sports.
Related: Arctos Partners LP, a private equity firm that owns a stake in several sports teams, unveiled what it calls a new index to measure financial benchmarks for North American sports.
PE and Bankruptcy Law.
Private equity firms maintain close ties to large law firms, some of whom have turned their PE clients into a “pipeline of bankruptcy work.” When a PE firm’s investment sours, a law firm might apply to represent the crumbling portfolio company in proceedings. Usually, this means taking a position against their own client, so the attorney calls on another firm to serve as conflicts counsel. The arrangement typically clears with only the occasional, unenforced claim of a conflict of interest. In a break from the norm, however, one bankruptcy judge recently refused to allow the law firm Vinson & Elkins to represent wood pellet manufacturer Enviva in bankruptcy court, because the latter’s largest shareholder, the PE firm Riverstone, is one of V&E’s biggest clients.
Other Private Markets News.
Healthcare. An op-ed in JAMA Internal Medicine by rheumatologist Jason Liebowitz calls for the closure of loopholes exploited by private equity to acquire competing groups.
Hedge Fund Hits. A new report from Bain found that hedge funds are now struggling to raise money, as institutional investors lack the cash to give them. The lack of PE involvement with them is making them more hesitant to invest in hedge funds.
CVS Seeks PE. The pharmacy chain CVS has been searching for a private equity partner to help grow Oak Street Health, a primary care provider it bought out last year.
Comms. Private equity has started taking a greater interest in strategic communications firms, reports Axios, “as client demands expand into culture wars, geopolitical unrest, fragmented media, heightened regulatory scrutiny and the rise of artificial intelligence.”
CRYPTO
Ether ETFs.
With Bitcoin offerings already on the market, ETFs tracking the price of another crypto token, Ether, are vying for approval. Though the agency had previously given no signs of green-lighting investment products for yet another volatile cryptocurrency, the SEC recently approved a rule change allowing Nasdaq, CBOE and NYSE to list Ether ETFs. Issuers were asked to fine-tune their applications to offer the funds, which could mean weeks or months until the products make it to market.
Legislation Timing
Senate Democrats are telegraphing that there will be no big Senate package of crypto legislation after the House passed, with the help of 71 Democrats, McHenry’s bill. Sen. Wyden: “it’s getting pretty late in the session.” A crypto kingpin, Mike Novogratz, predicted Senate action could still happen and that Sen. Schumer told him: “if a decent bill happens . . . he will push it to a vote and President Biden won’t veto it.” Still no word on the fate of the stablecoin legislation that McHenry and Waters have been working on.
HOUSING
Behind the Curtain.
AFR, in partnership with Capital Strategies for the Common Good, the Private Equity Stakeholder Project, and Bargaining for the Common Good, have produced a report highlighting how, in recent decades, housing has become increasingly commodified and financialized, while tenants in communities across the country are being crushed under unsustainable rent burdens and a shortage of affordable housing. The report further sheds light on the money behind the political influence that has distorted the politics of housing in favor of wealthy interests, partly in response to a recent surge in tenant organizing at local, state, and federal levels that has begun to challenge the status quo. Said AFR’s Dustin Duong:
“Corporate landlords do not merely profit off of the housing crisis to the tune of billions of dollars. They then plow that money into lobbying efforts that stall or bury efforts to relieve the crisis. It is a vicious circle of money, politics, and industry influence.”
An FBI Raid.
This week, the FBI raided the corporate landlord giant Cortland Management as part of the agency’s investigation into the company’s alleged involvement in the algorithmic rent-fixing cartel propped up by software platform RealPage. For those that need a refresher: RealPage, a property technology company owned by private equity firm Thoma Bravo, stands accused of helping a cadre of massive corporate landlords across the nation engage in price-fixing that’s driven up the cost of housing.
Decades of Disinvestment.
A report from the National Community Reinvestment Coalition exposes decades of disinvestment, tracing historical redlining to current lending discrimination. Even though Congress outlawed the use of discriminatory maps to dictate mortgage lending (redlining) 55 years ago, race-based exclusion from housing still happens, and a new HMDA Longitudinal Dataset shows that the structural discrimination of the past led to the conditions of today. NCRC calls for strong, enforceable policy measures, such as recent enhancements to the Community Reinvestment Act and the yet-to-be-finalized Affirmatively Furthering Fair Housing rules.
Related: While the gap between Black and white homeownership rates closed slightly during the pandemic, the Black homeownership rate is still down from its peak…in 2004. Nearly 25% of Black mortgage applicants are denied – most commonly on the basis of credit history – compared to 10% of white mortgage applicants.
Financial Hardship.
The Federal Housing Finance Agency announced enhancements to Freddie and Fannie Mac’s Flex Modification policies, a program that helps low income homeowners retain their homes during hardship. The enhancements will allow “more borrowers facing longer-term hardships to achieve meaningful payment reductions.” The policy also promotes reducing the borrower’s interest and extending the mortgage term, among other provisions.
Silent Second Mortgage.
One of the largest US mortgage lenders has launched a program allowing first-time homebuyers making at or below 80 percent of an area's median income to purchase with a 0% down payment. The program, while theoretically helpful to home buyers, is similar to programs that led to the 2008 housing crisis, consumer advocates warned. The programs involve a second, “silent” mortgage and a “balloon payment.”
Renters.
Rent has a huge impact on tenants’ personal situations, but few younger voters and renters hear politicians talk about housing affordability and rent, according to a poll commissioned by the Center for Popular Democracy. Related: Tenants are staying in their rentals longer as the prospect of homeownership drifts further away. In 2022, 16.6% of renters had reported being in their current homes for 10 years or more, up from 13.9% in 2012.
CLIMATE and FINANCE
Corporate Climate Consequences.
Exxon held their shareholders meeting, coming on the heels of a lawsuit against two of their own shareholders to avoid having to deal with a proposal focused on carbon emissions. The lawsuit is a Strategic Lawsuits Against Public Participation (SLAPP), which big corporations bring against smaller players who cannot afford to defend themselves in court, bullying them into backing down. Said AFR’s Natalia Renta, expressing opposition to H.R.s 4655 and 4767.
“Lawmakers – and not only corporate directors and officers – should heed this message and stop trying to do legislatively what Exxon is trying to achieve through the courts: insulate directors and executives of public companies from shareholder input and accountability.”
Solar Loan Fraud.
Some fintechs make it easy to secure a loan to install solar panels – almost too easy. With same-day sales facilitated over iPhones, the vetting process can often skip important steps to verify the borrowers’ identity. These lackluster protocols have caused some innocent homeowners to fall victim to synthetic identity fraud, a scheme that other companies would otherwise be able to sniff out with a simple credit check. In the case of two New Orleans homeowners, a fraudster used their real names and addresses with fake Social Security numbers and emails to secure hundreds of thousands of dollars in loans usually made payable to contractors installing the solar panels.
POLITICS and MONEY
Blackstone Backtrack.
Two weeks ago, Stephen Schwarzman, the billionaire co-founder of private equity megafirm Blackstone and a Republican megadonor, said he’d back Trump during the election. The endorsement came just days before the former President was convicted of 34 felony charges, and only a couple of years after Schwarzman called for a change of guard in the political elite.