U.S. Senators Tammy Baldwin (D-WI) and Jeff Merkley (D-OR) introduced legislation to increase transparency and strengthen oversight of activist hedge funds. According to the bill’s authors, the Brokaw Act is named for a small Wisconsin town that went bankrupt after an out-of-state hedge fund closed a paper mill that had provided good jobs to the town for over 100 years. The authors believe the activist hedge fund bought up the legendary Wausau Paper Company, forced out its executives and demanded short-term returns like buybacks at the expense of the company’s long-term future.

Principal changes of the Brokaw Act include requiring the SEC to revise its rules to:

  • Shorten the period for filing an initial Schedule 13D from 10 days to two business days.
  • Require short positions of over 5% to be disclosed.
  • Provide that beneficial ownership will include a pecuniary or indirect interest in shares.
  • Define “person” to include those engaged in coordinating actions.