Sen. Tammy Baldwin Gets a Victory in the Fight Against Hedge Fund Vulturism

Prompted by the closure of the paper mill in Brokaw a decade ago, the SEC plans to tighten rules on secret stock positions.

It’s been a little more than 10 years since Wausau Paper Co. closed its mill in the Marathon County community of Brokaw, putting 450 out of work and bringing new attention to how activist hedge funds can invade, infect, and incapacitate a hometown company. Now a Wisconsin senator has helped convince the US Securities and Exchange Commission (SEC) to tighten rules and reduce the likelihood that what happened to Brokaw could happen elsewhere.

Democratic Sen. Tammy Baldwin announced the SEC is seeking to add transparency to the way hedge funds have been secretly accumulating stock in a company, sometimes as “wolf packs” of multiple hedge funds that coordinate as a single group but buy shares individually in order to not trigger required disclosures.

Baldwin first introduced the measures as a bill in 2016, five years after a hedge fund started buying shares in Wausau Paper and was able to exert control on the board of directors, insisting on drastic cuts that included closing the Brokaw mill after more than 100 years of operation—a move that led the community to dissolve into a neighboring village after losing half its tax base.

When the proposed legislation was held up in Congress, Baldwin turned her attention to holding up nominations to the SEC until she received assurances that they were committed to containing actions often described as vulture capitalism. 

“I introduced legislation that would update outdated rules to address the financial abuses being carried out by activist hedge funds who promote short-term gains at the expense of workers, taxpayers and local communities,” said Baldwin. “I applaud the SEC for taking action to increase transparency and strengthen oversight of predatory hedge funds. These reforms will help rewrite the rules for Wall Street so the playing field works better for our Main Street economy.”

Currently, hedge funds can withhold information about their stock purchases for 10 days once they reach a 5% stake in a company. The proposed new SEC rules cut that window to five days so that other shareholders aren’t left in the dark. They also clarify the circumstances under which two or more people have formed a group that would be subject to reporting requirements as if they were a single entity reaching the 5% threshold.