(Bloomberg) -- Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez are asking executives at Sun Capital Partners Inc., the private equity firm that owned department store Shopko until its liquidation this year, to explain what they’re doing about severance pay for workers who lost their jobs.
In a letter sent Friday to co-Chief Executive Officers Marc Leder and Rodger Krouse, the lawmakers asked whether Sun Capital is breaking its promise to provide the extra pay. The two Democrats sought copies of documents Shopko Stores Inc. distributed to employees earlier this year promising retention or severance pay for those who continued to work throughout the store closings.
“Your company reaped millions of dollars in profits from your Shopko acquisition, but the decisions you made ultimately led to the company’s liquidation,” read the letter, signed by Warren and Ocasio-Cortez. “As a result, more than 14,000 Americans lost their jobs and may lose their severance payments.”
A representative for Sun Capital said the firm declined to comment.
It’s another sign that Wall Street’s private equity firms may find themselves in the center of a political storm over treatment of workers at bankrupt companies. The issue gained momentum after the collapse Toys “R” Us Inc. and the bankruptcy of Sears Holdings Corp.
Warren, the Massachusetts senator who’s seeking the Democratic Party’s presidential nomination, is familiar with the issues from her years as a bankruptcy professor at Harvard. The letter blamed Sun Capital for saddling Shopko with high fees and rents, asset sales and dividend payments.
“This model of financial engineering is all too common in the private equity industry, and marks an especially shameful end to your disastrous management of the company,” the lawmakers wrote.Sun Capital said in a June statement to Bloomberg that funds totaling $15.5 million reserved for administrative claims in the bankruptcy process would cover severance pay. But court documents indicate those funds will be available only if any money is left over after secured creditors of Shopko are paid.
Home State
In June, Senator Tammy Baldwin asked Sun Capital to establish a separate fund for unpaid worker claims, and former Shopko employees did the same in their own June letter to the private equity firm. Baldwin, a Democrat, is a senator from Wisconsin, the home state of Green Bay-based Shopko. Ocasio-Cortez is from New York.
“Many of us have been left jobless and struggling to survive without severance for our years of service, and we are writing to you to demand accountability for Sun Capital’s actions,” the employees wrote.
Legislators are doing more than just admonishing firms. Warren is a co-sponsor of a bill introduced Thursday that would prioritize worker severance and jobs in bankruptcy and limit payouts that private-equity owners could receive from troubled companies.
Private equity investors contend that criticism of individual companies ignores the they create by bringing capital and expertise to make businesses grow. In some cases, they’ve said, their efforts stave off collapses and keep ailing companies alive and people employed.
Critics of the U.S. bankruptcy process say the system offers rich compensation to the executives and advisers in charge of dismantling a company, but little to rank-and-file workers who stay on to assist in winding down operations.
Late last month, a group of Toys “R” Us workers who lost their jobs as the company went bankrupt were awarded $2 million of the estate’s remaining cash to make up for severance pay that they were denied during the court case.
KKR & Co., which came under fire for its role at Toys “R” Us, pushed proactively in February to include raises and severance at Things Remembered for everyone who stayed on through the bankrupt chain’s liquidation.
©2019 Bloomberg L.P.
RECOMMENDED FOR YOU
POPULAR