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Obama promises veto of bill to roll back private equity rules

  • Bill would limit info PE firms put in SEC filings
  • Rep. Hurt’s bill to be considered by the House this week
  • American Investment Council, ACG offer support

President Barack Obama said he would veto a bill seeking to limit the amount of information private equity firms must provide to the SEC.

“HR 5424 would create a loophole providing a broad exemption from audit and exam requirements, leaving investors unable to verify that funds actually contain particular investments as claimed,” according to a statement released by the White House on Sept. 6. “The bill would also make it more difficult for the SEC to police the market, particularly with respect to investments in uncertificated, private securities for which advisers would not be required to keep any record.”

According to a bill summary, HR 5424 waives the application of anti-fraud prohibitions for advisers pitching funds to accredited and qualified investors. The bill also limits the amount of detail firms would put in public filings, which are available through the SEC’s website, if they already provided similar information to investors through a prospectus or private placement memo.

The bill’s proponents, including sponsor Rep. Robert Hurt (R.-Virginia), say the bill strips away several duplicative regulations and reporting requirements. Reforms ushered in by Dodd-Frank required many private equity firms to register as investment advisers with the SEC for the first time, which opened the industry to a greater degree of regulatory scrutiny.

Since then, Congress has considered several bills intended to roll back regulatory oversight of the industry. Rep. Hurt introduced bills in 2011 and 2013 that would have limited the number of private equity firms required to register with the SEC.

Hurt’s office did not respond to a request for comment.

The American Investment Council, an industry organization representing the interests of private equity firms like Blackstone Group, Carlyle Group and GTCR, lobbied in support of HR 5424.

“We consider it an excellent start to addressing a series of issues in this space. The bill would make the regulatory process more efficient and effective for both regulated entities and the regulators,” said AIC President and CEO Mike Sommers in a statement.

Other industry organizations like the Association for Corporate Growth, Investment Adviser Association and Small Business Investor Alliance also support the bill.

The House of Representatives will likely vote on the bill at some point this week. GovTrack.us, an independent website that uses open data to track congressional activity, slated the likelihood of HR 5424’s enactment at 15 percent.

Action Item: To read the full text of HR 5424, visit www.govtrack.us/congress/bills/114/hr5424

U.S. President Barack Obama (left) and Vice President Joe Biden appear at an event in Biden’s home town of Scranton, Pennsylvania. Photo courtesy Reuters/Jason Reed