WHEN A COMPANY BECOMES A CASH MACHINE, WHO GETS CRUSHED IN THE GEARS?

VAULT · DEFEATING THE EPSTEIN CLASS

Published by Langhorne P. Breedlove

MONDAY, NOVEMBER 9, 2026 · 1:58 AM ET

Tags: Private Equity · Leveraged Buyouts · Corporate Ownership · Antitrust · Workers · Healthcare

Dear fellow American proletariat: Imagine buying the neighborhood bakery, borrowing against the bakery to finance the purchase, charging the bakery fees for the privilege of being owned, and then congratulating yourself on your genius when its ovens are sold. This is not how every private-equity transaction works. But the possibility that owners can extract value while workers, creditors, customers and communities shoulder the consequences deserves considerably more scrutiny than a glossy investor presentation.

This VAULT essay asks what abolishing private-equity companies would legally mean, how these funds acquire and finance businesses, when their practices create measurable harm, and what alternatives could address those harms. American Proletariat's provocative title is a proposal to investigate—not a finding that every private fund is illegal, every investor corrupt, or every acquired business worse off.

WHAT IS PRIVATE EQUITY, EXACTLY?

Private-equity funds pool capital from eligible investors and typically buy controlling interests in operating companies, often with an eye toward restructuring and eventually selling the investment. Investors may include pension funds, insurance companies, endowments, other institutions and wealthy individuals. The Congressional Research Service explains that funds differ in investment strategy, leverage and corporate control; private equity is not synonymous with every privately held business or with venture capital (Source 01).

A leveraged buyout commonly uses both investor equity and borrowed funds to acquire a company. Debt may be placed at the acquired company, limiting its flexibility and adding interest expense, but transaction structures vary. Private equity can supply management expertise and growth capital; it can also create incentives to cut costs, sell assets, increase leverage or prioritize an exit over long-term continuity. The economic effect depends on the deal, sector, financing and operating decisions (Sources 01, 02).

Private equity is an ownership and investment arrangement, not a single corporate charter that Congress can strike from a registry. 'Abolish' could mean prohibiting certain funds, prohibiting leveraged acquisitions, restricting controlling ownership of essential providers, banning specified financial extractions, or replacing particular structures with employee or community ownership. Those are very different policies with different constitutional, financial and enforcement questions.

HOW DID THE RULES DEVELOP?

The Investment Company Act and Investment Advisers Act of 1940 established major securities-law frameworks. Private funds commonly use statutory exclusions from investment-company registration, while many private-fund advisers face SEC or state registration, fiduciary and reporting obligations. Dodd-Frank narrowed exemptions for private-fund advisers, requiring additional oversight of many managers (Sources 01, 03). Exemption from some public-fund rules does not mean exemption from all securities or antitrust law.

The SEC adopted additional private-fund adviser rules in August 2023 concerning disclosures, audits, preferential treatment and other activities. On June 5, 2024, the Fifth Circuit vacated those rules; the SEC confirmed in October 2024 that the newly adopted requirements were no longer effective (Source 04). A modern reform proposal must work from the rules currently in force rather than describe a vacated regulation as an operative safeguard.

WHAT HAPPENS TO THE PEOPLE WORKING THERE?

Research does not support the claim that every private-equity buyout destroys employment. A large study of thousands of U.S. buyouts found that, relative to comparable companies, employment at firms taken private from the stock market fell about 12% over two years, whereas employment at previously private targets grew about 15%. Productivity gains were observed on average, with outcomes varying across sponsors, deal types and economic conditions (Source 02). Those figures describe studied historical transactions, not a universal prediction for every acquisition in 2026.

A separate American Economic Review study of buyouts between 1980 and 2005 found modest net job losses alongside much greater creation, elimination and reallocation of jobs within acquired companies (Source 05). That matters because the public has legitimate interests in economic productivity and in worker security. A restructuring that creates durable productive jobs and one that strips a local employer for parts should not receive identical treatment simply because both were financed through a fund.

WHEN A BUSINESS IS A HOSPITAL, THE STAKES CHANGE

Healthcare raises questions that cannot be answered by measuring shareholder returns alone. A peer-reviewed study of U.S. nursing homes estimated an 11% increase in mortality attributable to private-equity ownership for the patient group identified by its research design; it also described declines in staffing and other care-quality measures (Source 06). The estimate is specific to the study and method, not evidence that every private-equity-owned nursing home causes an 11% mortality increase.

In March 2024, the FTC, Justice Department and Health and Human Services Department launched a joint inquiry into corporate control of healthcare markets, including private-equity acquisitions and their potential effects on patients, workers and prices (Source 07). The agencies were seeking evidence, not announcing that the entire investment model had been found criminal.

One concrete enforcement dispute concerned U.S. Anesthesia Partners and private-equity firm Welsh Carson. The FTC alleged that serial purchases of Texas anesthesia practices harmed competition and raised prices. In January 2025, the FTC announced a proposed settlement restricting specified Welsh Carson investments and involvement; a subsequent final order addressed the firm's conduct (Source 08). The allegations and settlement are specific to that investigation. They do not establish that every private-equity investor engaged in identical conduct.

FOLLOW THE DEBT, FEES & EXIT

A rigorous ownership audit should examine acquisition debt, dividends financed through borrowing, advisory and monitoring fees, related-party transactions, property sale-and-leasebacks, management incentives, and the timing of distributions. The question is whether value was created through better products, operations and investment—or transferred away while employees, creditors and essential-service users absorbed risks.

Pension funds complicate the story. Some retirement institutions invest in private funds seeking returns for teachers, public employees and other beneficiaries (Source 01). An abrupt prohibition that destroyed investments without a transition could impose losses on people who never approved the underlying corporate strategy. An investigation into private equity must therefore examine who profits, who bears the risk, and who indirectly owns the investments.

COULD CONGRESS ACTUALLY ABOLISH IT?

Congress possesses powers to regulate interstate commerce, securities and anticompetitive conduct, but a blanket prohibition would need a precise statutory definition, transition rules and review of constitutional challenges. Enforcement agencies would have to distinguish private equity from ordinary private ownership, family firms, venture capital, investment partnerships and employee buyouts. Existing contracts, pension interests, creditor rights and property claims cannot be wished away with a revolutionary press release.

Narrower options include stronger ownership disclosure, transaction aggregation for antitrust review, limits on debt-funded distributions in essential services, lender and operator accountability, pension transparency, increased worker protections, and targeted restrictions on ownership of healthcare or other regulated services. Other proposals might prohibit certain controlling fund structures entirely. The VAULT should examine the tradeoffs; the Justice policy must spell out what Congress would actually enact.

THE ONE-YEAR & TEN-YEAR TEST

A policy evaluation must compare the present baseline—existing SEC oversight, competition enforcement, business taxation and labor law—with the incremental costs of new reporting, transaction review, staffing, litigation, compliance, monitoring and possible ownership transitions. Gross revenues from fines or divestitures should not be counted as guaranteed government receipts. Costs to private firms, pensions and workers must be disclosed separately from the federal budget.

Illustrative arithmetic only: suppose a hypothetical federal ownership and acquisition audit required $80 million in its first year, with $30 million each subsequent year for enforcement and monitoring. Its undiscounted ten-year public cost would be $350 million: $80 million plus nine years at $30 million. These figures are assumed inputs, not a federal estimate, not AP's approved spending plan and not evidence that the program would generate savings.

A genuine ten-year forecast would require annual transaction volumes, compliance and enforcement costs, market and pension impacts, litigation, changes in investment and capital formation, transition financing, business failures or rescues, and any credible tax or recovery receipts. The effects of a total prohibition must be modeled separately from a targeted healthcare or antitrust reform. Without those assumptions, nobody can honestly promise that abolition pays for itself.

WHAT COULD GO WRONG?

A blanket ban could reduce sources of financing for some businesses, disrupt pension investments or push similar transactions into less transparent structures. Very restrictive rules could also protect inefficient incumbents from competition. On the other hand, weak rules may permit serial acquisitions, excessive leverage and extraction of value from essential services. A narrowly worded prohibition could be evaded simply by renaming the financing vehicle.

Supporters of stronger restrictions point to cases of harmful consolidation, financial extraction, patient risks and weak accountability. Opponents emphasize access to investment capital, the possibility of improved operations, and the mixed economic evidence. The question is which particular structures create unacceptable risks and which legal controls can reduce them without generating worse outcomes.

WHAT WOULD COUNT AS PROOF?

Measure ownership concentration, leverage, fees and distributions, employment and wage changes, business survival, product and service prices, patient safety where relevant, bankruptcy outcomes, pension returns, capital availability, enforcement costs and compliance. Compare acquired firms with meaningful controls by sector, ownership type, size and time period. A dramatic corporate bankruptcy is a fact to investigate, not a statistical sample of an entire industry.

America should not be required to accept every extraction scheme merely because lawyers can draw the ownership chart. Nor should it ban every private investment because some owners behaved badly. The task is to investigate whether economic power is being used to build businesses or hollow them out—and to write rules precise enough that the wrongdoer cannot escape by changing the nameplate on the office door.

RELATED JUSTICE MANDATES

Break Up Concentrated Corporate Power addresses competition remedies. Reform Corporate Charters & Interstate Operations concerns the legal organization of business. Modern Worker Voice & Bargaining examines employee protections, while Ten-Year Fiscal Accountability requires credible modeling rather than speculative savings.

SOURCES & FURTHER READING

01 · Congressional Research Service — Private Equity and Capital Markets Policy, R47053; March 28, 2022.

https://www.everycrsreport.com/reports/R47053.html

02 · Davis, Haltiwanger, Handley, Lipsius, Lerner & Miranda — The (Heterogeneous) Economic Effects of Private Equity Buyouts, Management Science; published March 25, 2025.

https://pubsonline.informs.org/doi/10.1287/mnsc.2021.03890

03 · U.S. Securities and Exchange Commission — Private Fund Adviser Overview; October 11, 2017.

https://www.sec.gov/about/divisions-offices/division-investment-management/private-fund-adviser-overview

04 · U.S. Securities and Exchange Commission — Announcement Regarding the Private Fund Advisers Rules; October 31, 2024.

https://www.sec.gov/announcement-regarding-private-fund-advisers-rules

05 · Davis et al. — Private Equity, Jobs, and Productivity, American Economic Review 104(12); December 2014.

https://www.aeaweb.org/articles?id=10.1257/aer.104.12.3956

06 · Gupta, Howell, Yannelis & Gupta — Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes, Review of Financial Studies 37(4); 2024.

https://doi.org/10.1093/rfs/hhad082

07 · Federal Trade Commission, Department of Justice & HHS — Cross-Government Inquiry Into Corporate Control of Healthcare; March 5, 2024.

https://www.ftc.gov/news-events/news/press-releases/2024/03/federal-trade-commission-department-justice-department-health-human-services-launch-cross-government

08 · Federal Trade Commission — FTC Secures Settlement with Private Equity Firm in Antitrust Roll-Up Scheme Case; January 17, 2025.

https://www.ftc.gov/news-events/news/press-releases/2025/01/ftc-secures-settlement-private-equity-firm-antitrust-roll-scheme-case

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