Sec. 2. Unjust enrichment clawback authority and criminal penalty
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Chapter 31 of title 18, United States Code, is amended by adding at the end the following: In this section, the terms covered party , target firm, and triggering event have the meanings given those terms in section 674(b). Any covered party whose actions contributed to a triggering event that results in the death or injury of a patient or patients under the care of the target firm, shall be punished in accordance with sections 672 and 673. Whoever violates section 671(b) shall be imprisoned for not less than 1 year or greater than 6 years.
Whoever violates section 671(b) shall be subject to a civil penalty in an amount of not more than 5 times the amount of any clawback authorized under section 674. Any amount of civil penalty collected under this section shall be deposited as miscellaneous receipts in the Treasury of the United States. It shall be unlawful for any covered party to acquire from a target firm covered compensation by unjust enrichment, and any such covered party shall be subject to the penalties described in sections 672 and 673 in addition to the required clawbacks under this section.
If a target firm experiences a triggering event, the Attorney General or a State attorney general may claw back all or part of the covered compensation received by the covered party that is obtained from the target firm during the preceding or succeeding 10 years. Except as provided in clause (ii), the Attorney General may enforce this section. Nothing in this section shall be construed to limit the authority of the Attorney General under any provision of law. In an action brought by the Attorney General to enforce this section and the regulations promulgated under this section, a covered party shall be liable for all or part of the covered compensation received by the covered party that is obtained from the target firm during the preceding or succeeding 10 years.
If an attorney general of a State has reason to believe that a triggering event has harmed the residents of that State, the attorney general of the State may, as parens patriae, bring a civil action on behalf of the residents of the State in an appropriate district court of the United States to recover all or part of the covered compensation received by the covered party that is obtained from the target firm during the preceding or succeeding 10 years. Except as provided in subitem (CC), the attorney general of a State shall notify the Attorney General in writing that the attorney general of the State intends to bring a civil action under subclause
(I)not later than 10 days before initiating the civil action. The notification required under subitem
(AA)with respect to a civil action shall include a copy of the complaint to be filed to initiate the civil action. If it is not feasible for the attorney general of a State to provide the notification required by subitem
(AA)before initiating an action under subclause (I), the attorney general of the State shall notify the Attorney General immediately upon instituting the civil action. The Attorney General may— intervene in any action brought by the attorney general of a State under subclause (I); and upon intervening under subitem (AA), be heard on all matters arising in the civil action and file petitions for appeal of a decision in the action. If the Attorney General institutes an action under clause
(i)with respect to a triggering event, a State may not, during the pendency of that action, institute an action under clause
(ii)against any defendant named in the complaint in the action instituted by the Attorney General based on the same set of facts giving rise to the triggering event with respect to which the Attorney General instituted the action. It shall be an affirmative defense in an action under this section if the applicable covered party shows by clear and convincing evidence that the covered party could not prevent the triggering event. Subject to clause (ii), any covered compensation clawed back in an action under this section shall be deposited in a fund created by the Attorney General and distributed by the Attorney General, in the interests of justice— to cover shortfalls in the salaries, employee benefit plans, or other benefits owed to current or past employees of the target firm negatively affected by the behavior that is the basis of the action; and to be put to use in the interest of serving the health care needs of the harmed community. Notwithstanding any other provision of law, if the entry of an order for relief under title 11 or the commencement of any other insolvency proceeding is the triggering event that a target firm experiences, the Attorney General shall prioritize covering funding shortfalls in any pension funds benefitting harmed current or past employees of the target firm. In this section: The term affiliate means— a person that directly or indirectly owns, controls, or holds with power to vote, 5 percent or more of the outstanding voting securities of another entity, other than a person that holds such securities— in a fiduciary or agency capacity without sole discretionary power to vote such securities; or solely to secure a debt, if such entity has not in fact exercised such power to vote; a corporation 10 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by another entity (referred to in this subparagraph as a covered entity ), or by an entity that directly or indirectly owns, controls, or holds with power to vote, 10 percent or more of the outstanding voting securities of the covered entity, other than an entity that holds such securities— in a fiduciary or agency capacity without sole discretionary power to vote such securities; or solely to secure a debt, if such entity has not in fact exercised such power to vote; a person whose business is operated under a lease or operating agreement by another entity, or person substantially all of whose property is operated under an operating agreement with that other entity; or an entity that operates the business or substantially all of the property of another entity under a lease or operating agreement. The term change in control means a change in a legal right with respect to— the power to vote more than 50 per centum of any class of voting securities of a corporation that engages in interstate commerce; or any lesser per centum of any class of voting securities of a corporation that engages in interstate commerce that is sufficient to make the acquirer of such an interest a person that has the ability to direct the actions of that corporation. The term control person — means— a person— that directly or indirectly owns, controls, or holds with power to vote, including through coordination with other persons, 10 percent or more of the outstanding voting interests of a corporation; or that operates the business or substantially all of the property of a corporation under a lease or an operating or management agreement; a corporation, other than a target firm, that has 10 percent or more of its outstanding voting interests directly or indirectly owned, controlled, or held with power to vote by a person that directly or indirectly owns, controls, or holds with power to vote, including through coordination with other persons, 10 percent or more of the outstanding voting interests of another corporation; or a person that otherwise has the ability to direct the actions of a corporation; and does not include a person that— is a limited partner with respect to a controlling private fund that is a partnership; does not participate in the direction of the management or policy of a corporation; and is not an insider with respect to the controlling private fund described in subclause (I); is a pension fund or employee welfare benefit plan, if neither the fund nor plan (as applicable), nor any beneficiary or affiliate of the benefit or plan, is an insider with respect to a controlling private fund; or holds the voting interests of a corporation solely— in a fiduciary or agency capacity without sole discretionary power to vote the securities; or to secure a debt, if the person has not— exercised the power to vote; or exercised any other governance rights with respect to the corporation. The term controlling private fund means a private fund that, directly or through an affiliate, becomes a control person with respect to a target firm through the change in control transaction with respect to the target firm. The term corporation means— a joint-stock company; a company or partnership association organized under a law that makes only the capital subscribed or callable up to a specified amount responsible for the debts of the association, including a limited partnership and a limited liability company; a trust; and an association having a power or privilege that a private corporation, but not an individual or a partnership, possesses. The term covered compensation means— salary; any bonus; any compensation that is granted, earned, or vested based wholly or in part upon the attainment of any financial reporting measure or other performance metric; equity-based compensation; time- or service-based awards; awards based on nonfinancial metrics; any monitoring fees, management fees, advisory fees, accelerated monitoring fees, transaction fees, or fees for services not rendered; any profits realized from the buying or selling of securities or assets, including any real property; any severance pay; any golden parachute benefit; or any other transaction similar to a transaction described in subparagraph
(H)or (I). The term covered party means— any current or former director, officer, or control person of, or agent for, a private equity firm or target firm; any current or former shareholder or joint venture partner that participates in the conduct of the affairs of a target firm; or any private fund. The term employee welfare benefit plan has the meaning given the term in section 3 of the Employee Retirement Income Security Act of 1974 ( 29 U.S.C. 1002 ). The term insider means any— director of a corporation; officer of a corporation; managing agent of a corporation; control person with respect to a corporation; affiliate of a corporation; general partner of a corporation that is a partnership; consultant or contractor retained by a corporation; affiliate, relative, or agent of a person described in any of subparagraphs
(A)through (F); or affiliate, relative, or agent of a person described in subparagraph (H). The term interest coverage means the revenue of the target firm less the expenses of the target firm, excluding tax and interest, during the most recent fiscal year of the target firm. The term pension fund has the meaning given the term pension plan in section 3 of the Employee Retirement Security Act of 1974 ( 29 U.S.C. 1002 ). The term private fund means a corporation that— would be considered an investment company under section 3 of the Investment Company Act of 1940 ( 15 U.S.C. 80a–3 ) but for the application of paragraph
(1)or
(7)of subsection
(c)of that section; is not a venture capital fund, as defined in section 275.203(l)–1 of title 17, Code of Federal Regulations, as in effect on the date of enactment of this Act; and is not an institution selected under section 107 of the Community Development Banking and Financial Institutions Act of 1994 ( 12 U.S.C. 4706 ). The term relative means an individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree. The term security has the meaning given the term in section 2(a) of the Securities Act of 1933 ( 15 U.S.C. 77b(a) ). The term target firm means a health care corporation that is acquired in a change in control transaction. The term triggering event means— any time at which a target firm is behind on salary payments greater than 25 percent of the total workforce of the target firm for a period of more than 90 days; closure of the target firm; if the target firm is behind on rent payments for a period of more than 90 days; if the target firm defaults on a loan for a period of more than 90 days; or the entry of an order for relief under title 11 on behalf of the target firm or the commencement of any other insolvency proceeding. The term unjust enrichment means the acquisition of covered compensation by a covered party from the target firm during the 10-year period preceding or succeeding a triggering event if any of the following aggravating circumstances are established: The covered compensation was obtained through a dividend recapitalization, a sale-leaseback of real estate or equipment, or a related person transaction, as set forth in section 229.404 of title 17, Code of Federal Regulations. The covered party has been implicated in any white-collar crime, as defined in section 901 of title I of the Omnibus Crime Control and Safe Streets Act of 1968 ( 34 U.S.C. 10251 ), committed in the course of the current or former employment of the covered party. The covered party has charged the target firm accelerated monitoring fees or fees for services not rendered. At the time of the issuance of the covered compensation, or as the result of the issuance of the covered compensation, the target firm had an interest coverage in excess of 100 percent. . The table of sections for chapter 31 of title 18, United States Code, is amended by adding at the end the following: 671. Unjust enrichment clawback and criminal penalty. 672. Criminal penalty. 673. Civil penalty. 674. Clawback. .
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- 15 USC 80a–3
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Sec. 2
Unjust enrichment clawback authority and criminal penalty
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