[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2806 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 2806

   To amend the Small Business Investment Act of 1958 to create the 
Venture Capital Marketing Association, to transfer certain functions of 
  the Small Business Administration to the Association, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

            December 18 (legislative day, December 15), 1995

Mr. Torkildsen introduced the following bill; which was referred to the 
   Committee on Small Business, and in addition to the Committees on 
    Commerce and Banking and Financial Services, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
   To amend the Small Business Investment Act of 1958 to create the 
Venture Capital Marketing Association, to transfer certain functions of 
  the Small Business Administration to the Association, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Venture Capital Marketing 
Association Charter Act''.

SEC. 2. AMENDMENT TO TABLE OF CONTENTS; CONFORMING AMENDMENT.

    (a) Amendment to Table of Contents.--The table of contents 
contained in section 101 of the Small Business Investment Act of 1958 
(15 U.S.C. 661 note) is amended by inserting after the item relating to 
section 322 the following:

            ``Part B--Venture Capital Marketing Association

``Sec. 351. Purposes.
``Sec. 352. Venture Capital Marketing Association.
``Sec. 353. Common and preferred stock.
``Sec. 354. Obligations and securities.
``Sec. 355. Legal investments and exempt securities.
``Sec. 356. Loan and investment operations.
``Sec. 357. Servicing guaranteed securities and assets in liquidation.
``Sec. 358. Qualification of small business investment companies.
``Sec. 359. Operations of small business investment companies.
``Sec. 360. Leverage formula.
``Sec. 361. Audits of the Corporation.
``Sec. 362. Regulation of financial safety and soundness.
``Sec. 363. Government oversight and reports.
``Sec. 364. Books and records.''.
    (b) Conforming Amendment.--The Small Business Investment Act of 
1958 (15 U.S.C. 661 et seq.) is amended by inserting before section 301 
the following:

                    ``PART A--GENERAL PROVISIONS''.

SEC. 3. VENTURE CAPITAL MARKETING ASSOCIATION.

    Title III of the Small Business Investment Act of 1958 (15 U.S.C. 
681-687m) is amended by adding at the end the following:

            ``PART B--VENTURE CAPITAL MARKETING ASSOCIATION

``SEC. 351. PURPOSES.

    ``Congress hereby declares that the purposes of this part are--
            ``(1) to establish a Government-sponsored private 
        corporation which will serve as a source of private capital and 
        a secondary market and warehousing facility for loans and 
        investments in small business investment companies, and will 
        provide liquidity for small business loans and investments;
            ``(2) to stimulate and supplement the orderly and necessary 
        flow of private equity capital and long-term loan funds to 
        improve the availability of investment capital for small 
        business concerns;
            ``(3) to encourage the formation of new small business 
        investment companies; and
            ``(4) to provide for an orderly transfer of certain 
        functions of, and securities and assets guaranteed or owned by, 
        the Administration to the Venture Capital Marketing Association 
        as constituted under this part.

``SEC. 352. VENTURE CAPITAL MARKETING ASSOCIATION.

    ``(a) Establishment.--There is a hereby created a body corporate to 
be known as the Venture Capital Marketing Association (hereinafter in 
this part referred to as the `Corporation'). The Corporation shall have 
succession until dissolved. The Corporation shall establish and 
maintain its principal office in the Washington, D.C., metropolitan 
area and shall be deemed, for purposes of venue and jurisdiction in 
civil actions, to be a resident and citizen of the jurisdiction of 
which it establishes its principal office. Offices may be established 
by the Corporation in such other place or places as it may deem 
necessary or appropriate for the conduct of its business.
    ``(b) Tax Status.--The Corporation, including its franchise, 
capital, reserves, surplus, mortgages, and other security holdings and 
income, shall be exempt from all taxation now or hereafter imposed by 
any State, or by any county, municipality, or local taxing authority, 
except that any real property of the Corporation shall be subject to 
State, county, municipal, or local taxation to the same extent 
according to its value as other real property is taxed.
    ``(c) Interim Board of Directors.--Not later than 60 days after the 
effective date of this part, the President shall appoint an interim 
Board of Directors of the Corporation, one of whom the President shall 
designate as the interim Chairman. The interim Board shall consist of 5 
members, one of whom shall be a representative of small business, 3 of 
whom shall be representatives of small business investment companies, 
and one of whom shall be a representative of the Administration. The 
interim Board shall arrange for an initial offering of voting common 
stock solely to small business investment companies and take whatever 
other actions are necessary to proceed with the operations of the 
Corporation.
    ``(d) Permanent Board of Directors.--The Corporation shall have a 
permanent Board of Directors which shall consist of 15 members. When 
small business investment companies have purchased and fully paid for 
$20,000,000 of common stock of the Corporation, the Board shall be 
constituted as follows:
            ``(1) The holders of common stock shall elect 10 members to 
        the Board of Directors.
            ``(2) The President shall appoint, with the advice and 
        consent of the Senate, the remaining 5 directors within 60 days 
        of the stock purchase specified in this subsection.
    ``(e) Transition.--Upon the election of the 10 members of the Board 
of Directors by the holders of common stock of the Corporation, the 
interim Board shall turn over the affairs of the Corporation to the 
permanent Board of Directors, but the members of the interim Board 
shall continue to serve in an interim capacity as the Presidential 
appointees to the permanent Board until such time as the permanent 
Presidential appointees are confirmed by the Senate.
    ``(f) Terms.--(1) The members of the Board of Directors elected by 
the common shareholders shall be elected for a term ending on the date 
of the next annual meeting of the common shareholders of the 
Corporation, and shall serve until their successors have been elected 
and have qualified. Any vacancy which occurs after the annual election 
of the members shall be filled by the Board, but only for the unexpired 
portion of the term.
    ``(2) The members of the Board of Directors appointed by the 
President shall serve until their successors have been appointed and 
have qualified. The terms of such members shall be staggered as 
follows: one member shall serve an initial term of one year, one member 
shall serve an initial term of 2 years, one member shall serve an 
initial term of 3 years, one member shall serve an initial term of 4 
years, and one member shall serve an initial term of 5 years. All 
subsequent appointments shall be for a term of 5 years, except that any 
vacancy shall be filled for the unexpired term of the vacancy. Such 
members shall be removed only for cause. Of the Presidential 
appointees, at least 2 members shall be representatives of small 
business.
    ``(g) Operations; Executive Officers.--The Board shall determine 
the general policies which will govern the operations of the 
Corporation. The Board shall select, appoint, and compensate qualified 
persons to fill such offices as may be provided for in the bylaws, with 
such executive functions, powers, and duties as may be prescribed by 
the bylaws or by the Board of Directors, and such persons shall be the 
executive officers of the Corporation and shall discharge all such 
executive functions, powers, and duties.
    ``(h) General Powers.--The Corporation shall have the power--
            ``(1) to sue and be sued, complain and defend, in its 
        corporate name and through its own counsel;
            ``(2) to adopt, alter, and use a corporate seal, which 
        shall be judicially noticed;
            ``(3) to adopt, amend, and repeal by its Board of 
        Directors, such bylaws, rules, and regulations as may be 
        necessary for the conduct of its business;
            ``(4) to conduct its business, carry out its operations, 
        and have officers and exercise the powers granted by this 
        section in any State without regard to any qualification, 
        licensing, or similar law in any State;
            ``(5) to lease, purchase, or otherwise acquire, own, hold, 
        improve, use, or otherwise deal in and with any property, real, 
        personal, or mixed, or any interest therein, wherever situated;
            ``(6) to accept gifts or donations of services, or of 
        property, real, personal, or mixed, tangible or intangible, in 
        aid of any of the purposes of the Corporation;
            ``(7) to sell, convey, mortgage, pledge, lease, exchange, 
        and otherwise dispose of its property and assets;
            ``(8) to appoint such attorneys, officers, employees, and 
        agents as may be required, determine their qualifications, 
        define their duties, fix their compensation, require bonds for 
        them and fix the penalty thereof; and
            ``(9) to enter into contracts, to execute instruments, to 
        incur liabilities, and to do all things as are necessary or 
        incidental to the proper management of its affairs and the 
        proper conduct of its business.
    ``(i) Notice.--When the permanent Board of Directors is duly 
constituted and the Corporation is ready to conduct business, it shall 
so notify the Administration and the Secretary of the Treasury.

``SEC. 353. COMMON AND PREFERRED STOCK.

    ``(a) Voting Common Stock.--(1) The Corporation shall have voting 
common stock with such par value as may be fixed by its Board of 
Directors from time to time. Each share of voting common stock shall be 
vested with all voting rights, each share being entitled to one vote 
with rights of cumulative voting at all elections of directors.
    ``(2) The initial number of shares of voting common stock that the 
Corporation may issue and have outstanding shall be established by the 
interim Board of Directors. The number of shares of voting common stock 
may be increased or decreased by the affirmative vote of the holders of 
at least a majority of the total outstanding shares.
    ``(3) The holders of the voting common stock shall not have 
preemptive rights.
    ``(4) Such dividends as may be declared by the Board of Directors 
in its discretion shall be paid by the Corporation to the holders of 
its voting common stock.
    ``(5) In order to accumulate funds for its capital surplus account 
from small business investment companies--
            ``(A) the Corporation shall require each small business 
        investment company to make payments of nonrefundable capital 
        contributions to the Corporation equal to 1 percent of the 
        private capital of each such company;
            ``(B) the Corporation may require each small business 
        investment company to make payments of nonrefundable capital 
        contributions to the Corporation not to exceed 1 percent of any 
        increases in the private capital of such company;
            ``(C) the Corporation also may require each small business 
        investment company which issues a small business investment 
        security to the Corporation to make, or commit to make, a 
        nonrefundable capital contribution to the Corporation not to 
        exceed 1 percent of the unpaid principal balance or unredeemed 
        original issue amount of such security;
            ``(D) the Corporation, from time to time, shall issue to 
        each small business investment company voting common stock 
        evidencing any capital contributions made pursuant to this 
        subsection;
            ``(E) such voting common stock shall be retained by such 
        companies in accordance with such rules as may be established 
        by the Corporation: Provided, That subject to any stock 
        retention requirements established by the Corporation, such 
        voting common stock may be transferred to another small 
        business investment company, and such transferred stock may be 
        used to meet the capital contribution requirements of paragraph 
        (4) of this subsection: Provided further, That subject to any 
        stock retention requirements established by the Corporation, 
        such voting common stock may be freely transferred if there is 
        a bona fide public market for such stock on a nationally 
        recognized stock exchange.
    ``(6) In order to accumulate additional funds for its capital 
surplus account--
            ``(A) subject to approval by a majority of the voting 
        shareholders and approval by a majority of the Board of 
        Directors, including not less than a majority of the members 
        appointed by the President and confirmed by the Senate, the 
        Corporation may obtain nonrefundable capital contributions to 
        the Corporation by issuing voting common stock to private 
        investors other than small business investment companies;
            ``(B) the Corporation, from time to time, shall issue to 
        such investors voting common stock evidencing any capital 
        contributions made pursuant to this subsection;
            ``(C) such voting common stock shall be retained by such 
        investors in accordance with such rules as may be established 
        by the Corporation: Provided, That subject to any stock 
        retention requirements established by the Corporation, such 
        voting common stock may be freely transferred if there is a 
        bona fide public market for such stock on a nationally 
        recognized stock exchange.
    ``(b) Nonvoting Common Stock.--(1) The voting shareholders of the 
Corporation also may authorize the issuance of nonvoting common stock 
having such par value as may be fixed by its Board of Directors from 
time to time.
    ``(2) The maximum number of shares of nonvoting common stock may be 
established and increased or decreased by the affirmative vote of the 
holders of at least a majority of the total outstanding voting shares.
    ``(3) The holders of the nonvoting common stock shall not have 
preemptive rights.
    ``(4) Such dividends as may be declared by the Board of Directors 
in its discretion shall be paid by the Corporation to the holders of 
its nonvoting common stock.
    ``(5) Any nonvoting common share issued shall be fully 
transferable, except that, as to the Corporation, it shall be 
transferable only on the books of the Corporation.
    ``(c) Nonvoting Preferred Stock.--(1) The voting shareholders of 
the Corporation also may authorize the issuance of nonvoting preferred 
stock, having such par value as may be fixed by its Board of Directors 
from time to time.
    ``(2) The maximum number of shares of preferred stock may be 
established and increased or decreased by the affirmative vote of the 
holders of at least a majority of the total outstanding voting shares.
    ``(3) The holders of the preferred shares shall be entitled to such 
rate of dividends and such shares shall be subject to such redemption 
or other conversion provisions as may be provided for at the time of 
issuance. No dividends shall be payable on any share of common stock at 
any time when any dividend is due on any share of preferred stock and 
has not been paid. The voting shareholders of the Corporation may 
prescribe that any class of preferred stock of the Corporation may be 
converted into voting or nonvoting common stock of the Corporation.
    ``(4) Any preferred share issued shall be freely transferable, 
except that, as to the Corporation, it shall be transferable only on 
the books of the Corporation.
    ``(5) In the event of any liquidation, dissolution, or winding up 
of the Corporation's business, the holders of any outstanding preferred 
shares shall be paid in full at par value thereof, plus all accrued 
dividends, before the holders of the common shares receive any payment.
    ``(d) Depository Institutions.--Notwithstanding any other provision 
of law, any depository institution, as defined in section 19(b)(1)(A) 
of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)), shall be 
authorized to make payments to the Corporation of the capital 
contributions referred to in this section, to receive stock of the 
Corporation evidencing such capital contributions, and to dispose of 
such stock, subject to the provisions of this title.

``SEC. 354. OBLIGATIONS AND SECURITIES.

    ``(a) Issuance of Obligations.--The Corporation is authorized to 
issue and have outstanding obligations having such maturities and 
bearing such rate or rates of interest as may be determined by a 
majority vote of the Board of Directors. Such obligations shall be 
issued at such times, bear interest at such rates, and contain such 
terms and conditions as the Corporation shall determine, with the 
approval of the Secretary of the Treasury. Such obligations may be 
redeemable at the option of the Corporation before maturity in such 
manner as may be stipulated therein. The Corporation shall insert 
appropriate language in each of its obligations issued under this 
section and under section 356 clearly indicating that such obligations, 
together with the interest thereon, are not guaranteed by the United 
States and do not constitute a debt or obligation of the United States 
or any agency or instrumentality thereof other than the Corporation. 
The Corporation is authorized to purchase in the open market any of its 
obligations outstanding under this subsection at any time and at any 
price. Any obligation or security of the Corporation may be issued and 
sold in definitive form, in book entry form or in such other form, with 
or without delivery of physical evidence or ownership, as shall be 
prescribed by the Corporation.
    ``(b) Issuance of Subordinated Obligations.--For the purposes of 
this section, the Corporation is authorized to issue obligations which 
are subordinated to any or all other obligations of the Corporation, 
including subsequent obligations. Any of such obligations may be 
convertible into shares of common stock in such manner, at such price 
or prices, and such time or times as may be stipulated therein.
    ``(c) Purchase and Sale of Obligations by Secretary of the 
Treasury.--(1) The Secretary of the Treasury, in the Secretary's 
discretion, may purchase any obligation issued by the Corporation 
pursuant to subsection (a) of this section as now or hereafter in force 
and for such purpose of the Secretary of the Treasury is authorized to 
use as a public debt transaction the proceeds of the sale of any 
securities hereafter issued under chapter 31 of title 31, United States 
Code, as now or hereafter in force, and the purposes for which 
securities may be issued under chapter 31 of title 31, United States 
Code, as now or hereafter in force, are extended to include such 
purchases. The authorities provided to the Secretary of the Treasury by 
the preceding sentence shall be available only to such extent and in 
such amounts as are provided in advance in appropriations Acts. The 
Secretary of the Treasury shall not at any time purchase any 
obligations under this subsection if such purchase would increase the 
aggregate principal amount of the Secretary's then outstanding holdings 
of such obligations under this subsection to an amount greater than 
$1,000,000,000. Any purchase of obligations by the Secretary of the 
Treasury under this subsection shall be made solely to prevent or to 
enable the Corporation to correct an inability of the Corporation to 
pay amounts required to be paid on account of obligations or securities 
issued or guaranteed by the Corporation. Any purchase of obligations by 
the Secretary of the Treasury under this subsection shall be on such 
terms and conditions as shall be determined by the Secretary of the 
Treasury. Each such purchase of obligations by the Secretary of the 
Treasury under this subsection shall take into consideration the 
current average rate on outstanding marketable obligations of the 
United States of comparable maturities as of the last day of the month 
preceding the making of such purchase.
    ``(2) The Secretary of the Treasury may, at any time, sell on such 
terms and conditions and at such price or prices as the Secretary may 
determine any of the obligations acquired by the Secretary under this 
section. All redemptions, purchases, and sales by the Secretary of the 
Treasury of such obligations under this section shall be treated as 
public debt transactions of the United States.

``SEC. 355. LEGAL INVESTMENTS AND EXEMPT SECURITIES.

    ``(a) Lawful Investments.--All obligations issued by the 
Corporation pursuant to sections 354 and 356, all nonvoting common 
stock issued by the Corporation pursuant to section 353(b), all 
preferred stock issued by the Corporation pursuant to section 353(c), 
and all obligations guaranteed by the Corporation pursuant to section 
356 shall be lawful investments, and may be acceptable as security for 
all fiduciary, trust, and public funds, the investment or deposit of 
which shall be under authority or control of the United States or of 
any officer or officers thereof.
    ``(b) Treatment of Corporation Under Federal Reserve Act.--The 
Corporation shall, for the purposes of section 14(b)(2) of the Federal 
Reserve Act (12 U.S.C. 355(b)(2)), be deemed to be an agency of the 
United States.
    ``(c) Treatment of Obligations Under Title 31.--The obligations of 
the Corporation shall be deemed to be obligations of the United States 
for purposes of section 3124 of title 31, United States Code.
    ``(d) Treatment of Corporation Under Title 11.--For the purpose of 
section 101(27) of title 11, United States Code, the Corporation shall 
be deemed to be an agency of the United States; however, for the 
purpose of section 101(41) of title 11, United States Code, the 
Corporation shall not be deemed to be a governmental unit, but instead 
shall be deemed to be a corporation.

``SEC. 356. LOAN AND INVESTMENT OPERATIONS.

    ``(a) Small Business Investment Securities.--After the permanent 
Board of Directors has been duly constituted, the Corporation is 
authorized, subject to the provisions of this section, pursuant to 
commitments or otherwise, to make advances on the security of, purchase 
or repurchase, service, sell or resell, offer participations or pooled 
interests in, act as an issuer or guarantor of, or otherwise deal in, 
at prices and on terms and conditions determined by the Corporation, 
small business investment securities.
    ``(b) Requirements.--The Corporation is authorized to issue and 
guarantee securities based on the small business investment securities 
specified under subsection (a) of this section. Securities issued or 
guaranteed by the Corporation pursuant to this subsection may be in the 
form of debt obligations secured by pools of small business investment 
securities, trust certificates of beneficial ownership in such pools of 
small business investment securities, or equity securities based on 
such small business investment securities or any combination thereof. 
Small business investment securities set aside pursuant to the issuance 
or guarantee of such debt obligations, trust certificates, or equity 
securities shall at all times provide for payments that, in the 
reasonable judgment of the Corporation, are adequate to ensure payment 
of the obligations on such securities.
    ``(c) Perfection of Security Interests.--Notwithstanding the 
provisions of any State law to the contrary, including the Uniform 
Commercial Code as in effect in any State, a security or ownership 
interest in small business investment securities created by the 
Corporation or by any eligible small business investment company may be 
perfected either through the taking of possession of such securities or 
by the filing of notice of such interest in such securities in the 
manner provided by such State law for perfection of security or 
ownership interests in accounts.

``SEC. 357. SERVICING GUARANTEED SECURITIES AND ASSETS IN LIQUIDATION.

    ``(a) In General.--To carry out the purposes set forth in section 
351, and notwithstanding any law, rule, or regulation, the 
Administration is authorized and directed to enter into a contract with 
the Corporation under which the Corporation will manage and service all 
small business investment company securities and commitments 
outstanding on the effective date of this part and all assets in 
default or in liquidation status held by the Administration on such 
effective date, or managed by any third party on the Administration's 
behalf, as the result of default or liquidation proceedings by the 
Administration involving small business investment companies. Such 
outstanding small business investment company securities shall include, 
but are not limited to, all debentures and participating securities 
guaranteed or owned by the Administration and all preferred stock 
issued to the Administration.
    ``(b) Deadline.--The Administration and the Corporation shall enter 
into a contract under subsection (a) no later than 30 days following 
the appointment of the interim Board of Directors under section 352(c).
    ``(c) Terms and Conditions.--The contract under subsection (a) 
shall provide for the following:
            ``(1) All such outstanding securities, commitments, and 
        assets, together with all of the documentation, files, and 
        books and records pertaining thereto, shall be transferred from 
        the Administration to the Corporation which shall act solely as 
        the managing and servicing agent on behalf of the 
        Administration for all such securities, commitments, and 
        assets.
            ``(2) All of the obligations for which the Administration 
        is responsible on all securities which are transferred to the 
        Corporation for management and servicing shall remain in full 
        force and effect as obligations of the Administration, 
        including, but not limited to, guarantees of or commitments to 
        debentures or participating securities, or guarantees of 
        certificates of interest, or contracts for the purchase of 
        debentures or preferred stock.
            ``(3) Except as provided in paragraph (6), all of the 
        benefits to which the Administration is entitled on all 
        securities which are transferred to the Corporation for 
        management and servicing shall remain in full force and effect, 
        including, but not limited to, payments of principal and 
        interest of debentures, payments of priority payments and 
        profit participations on, and redemptions of, participating 
        securities, and payments of dividends and redemptions on 
        preferred stock.
            ``(4) For purposes of managing and servicing all such 
        securities, commitments, and assets the Corporation shall be 
        considered the successor entity to the Administration under all 
        trust agreements, contracts, and any other agreements relating 
        to such securities, commitments, and assets.
            ``(5) All payments received by the Corporation on the 
        outstanding portfolio transferred to the Corporation and all 
        receipts from the liquidation of assets transferred to the 
        Corporation, net of management and servicing fees, shall be 
        immediately paid to the Administration.
            ``(6) Notwithstanding section 4(c)(5) of the Small Business 
        Act (15 U.S.C. 633(c)(5)), the following fees shall be paid to 
        the Corporation for managing and servicing the transferred 
        securities, commitments, and assets:
                    ``(A) On the portfolio of outstanding securities 
                and commitments, a fee equal to 2 percent per fiscal 
                year of the aggregate balance outstanding on the 
                effective date of this part, and 2 percent per fiscal 
                year of the remaining aggregate balance outstanding at 
                the beginning of each fiscal year thereafter. This fee 
                shall be paid in advance upon determination of the 
                aggregate balance outstanding at the beginning of each 
                period.
                    ``(B) On the portfolio of assets in default or in 
                liquidation, an incentive fee equal to 10 percent of 
                the aggregate amount collected during each fiscal year. 
                This fee shall be deducted from the amount collected by 
                the Corporation as such assets are liquidated.
            ``(7) Notwithstanding section 4(c)(5) of the Small Business 
        Act (15 U.S.C. 633(c)(5)), control over the outstanding balance 
        in the fund established under section 303(g)(2) of the Small 
        Business Investment Act (15 U.S.C. 683(g)(2)) shall be 
        transferred from the Administration to the Corporation for use 
        in carrying out the Corporation's management and servicing 
        functions.
    ``(d) Report to Congress.--Not later than 60 days after executing 
the contract to manage and service the securities, commitments, and 
assets in default of liquidation, the Corporation shall submit to the 
Committees on Small Business of the Senate and the House of 
Representatives a report describing the activities of the 
Administration, the Corporation, and their representatives under this 
section.

``SEC. 358. QUALIFICATION OF SMALL BUSINESS INVESTMENT COMPANIES.

    ``(a) Establishment of Criteria.--The Corporation shall establish 
appropriate criteria for the qualification of small business investment 
companies to conduct business with the Corporation, and shall 
redetermine the qualifications of any small business investment company 
upon a change of control due to a transfer of ownership. Such criteria 
may include, among other things, the general business reputation and 
character of the owners and management of the small business investment 
company, and the probability of successful operations of such small 
business investment company, including adequate profitability and 
financial soundness. Licensees in good standing which make capital 
contributions and acquire common stock of the Corporation pursuant to 
section 353(a), contract with the Corporation pursuant to the 
provisions of section 359(a), and authorize the release of records to 
the Corporation pursuant to section 323(d) shall be deemed to be 
qualified under this section.
    ``(b) Minimum Amount of Private Capital.--Each small business 
investment company authorized to operate under the authority of this 
part shall have private capital of not less than $5,000,000, except 
that this provision shall not apply to licensees in good standing as of 
the date the Administration receives notice pursuant to section 352(i). 
In all cases, such private capital shall be in an amount determined by 
the Corporation to be adequate to assure a reasonable prospect that the 
company will be operated soundly and profitably, and managed actively 
and prudently.
    ``(c) Bank Purchases of Ownership Interests in Small Business 
Investment Companies.--Notwithstanding the provisions of section 23A of 
the Federal Reserve Act (12 U.S.C. 371c), ownership interests in small 
business investment companies shall be eligible for purchase by 
national banks of the Federal Reserve System and nonmember insured 
banks to the extent permitted under applicable State law, except that 
in no event may any such bank acquire ownership interests in any small 
business investment company if, upon the making of that acquisition, 
the aggregate amount of ownership interest in small business investment 
companies then held by the bank would exceed 5 percent of its capital 
and surplus.
    ``(d) Powers of Small Business Investment Companies.--Each small 
business investment company shall have authority to purchase stock 
issued by the Corporation and to borrow money and to issue debentures 
and other obligations or securities under such conditions and subject 
to such rules as the Corporation may prescribe.
    ``(e) Inapplicability of Certain Provisions to Small Business 
Investment Companies.--Thirty days after the Administration receives 
notice from the Corporation pursuant section 352(i), the provisions of 
sections 301 through 306, sections 308 through 318, and sections 320 
through 322 shall not apply to small business investment companies 
which qualify under section 358(a).
    ``(f) References.--All specific references to small business 
investment companies operating under the Small Business Investment Act 
of 1958 in any law of the United States, or regulations promulgated 
thereunder by any agency of the United States Government, or any law of 
any State in effect on the effective date of this part, shall be deemed 
to refer to and include small business investment companies operating 
under the provisions of this part.

``SEC. 359. OPERATIONS OF SMALL BUSINESS INVESTMENT COMPANIES.

    ``(a) Rules.--The Corporation shall contract with small business 
investment companies qualified under section 358 governing the 
operations of such companies in accordance with the provisions and 
purposes of this title. The Corporation shall adopt rules effectuating 
the provisions of subsections (c) through (o) of this section and such 
rules, or changes therein, shall be approved by a majority vote of the 
members of the Board of Directors, including not less than a majority 
of the members appointed by the President and confirmed by the Senate.
    ``(b) Provision of Equity Capital and Loans.--Each small business 
investment company is authorized to provide equity capital and loans to 
small business concerns in such manner and under such terms as the 
small business investment company may fix in accordance with the rules 
of the Corporation. Equity investments and loans made under this 
section may be made directly or in cooperation with other investors or 
lenders on a participation or guaranteed basis. Each small business 
investment company may provide consulting and advisory services on a 
fee basis and have on its staff persons competent to provide such 
services.
    ``(c) Prohibition of Certain Activities.--Small business investment 
companies shall engage only in lawful activities and those which are 
contemplated by this title and in no other activities and the 
Corporation shall adopt rules to so provide.
    ``(d) Conflicts.--For the purpose of eliminating conflicts of 
interest which may be detrimental to small business concerns, to small 
business investment companies, to the shareholders or partners of 
either, to the Corporation, or to the purposes of this part, the 
Corporation shall adopt rules to govern transactions with any person or 
concern, whether direct or indirect, financial or otherwise, involving 
any small business investment company, or any officer, director, 
shareholder, or partner of any small business investment company, which 
would cause such detrimental conflict of interest.
    ``(e) Restriction on Control of Small Business Concerns.--The 
Corporation shall adopt rules which shall provide that small business 
investment companies, either singularly or jointly, shall not be 
permitted to assume control over small business concerns except on a 
temporary basis if reasonably necessary for the protection of its 
investment and then only under rules adopted by the Corporation.
    ``(f) Investment in Small Business Concerns.--Except as otherwise 
provided by rules adopted by the Corporation and approved by the 
Administration, small business investment companies shall only invest 
in a small business concern which, together with its affiliates, is 
independently owned and operated, is not dominant, in its field of 
operations, and--
            ``(1) does not have a net worth in excess of $18,000,000, 
        and does not have average net income after Federal income taxes 
        (excluding any carry-over losses) for the preceding 2 completed 
        fiscal years in excess of $6,000,000; or
            ``(2) otherwise qualifies under size standards for 
        financial assistance established by the Administration under 
        the Small Business Act.
    ``(g) Minimum Period of Financings.--Except as otherwise provided 
by rules adopted by the Corporation, financings of small business 
concerns by small business investment companies shall be for a minimum 
period of 5 years.
    ``(h) Limitation on Amount of Obligations and Securities for Single 
Enterprise.--Except as otherwise provided by rules adopted by the 
Corporation, the aggregate amount of obligations and securities 
acquired and for which commitments may be issued by any small business 
investment company under the provisions of this title for any single 
enterprise shall not exceed 20 percent of the private capital of such 
company.
    ``(i) Prohibition on Financing of Certain Activities.--Except as 
otherwise provided by rules adopted by the Corporation, small business 
investment companies shall not provide financing to a small business 
concern for relending, foreign investments, passive investments, or for 
the acquisition of real estate.
    ``(j) Determination of Value of Investments.--The Board of 
Directors, including not less than a majority of the members appointed 
by the President, shall adopt rules to require each small business 
investment company to adopt written guidelines for determination of the 
value of investments made by such company. The board of directors of 
corporations and the general partners of partnerships shall have the 
sole responsibility for making a good faith determination of the fair 
market value of the investments made by such company. Determinations 
shall be made and reported to the Corporation not less than 
semiannually or at more frequent intervals as the Corporation 
determines appropriate: Provided, That any company which does not have 
outstanding financial assistance from the Administration or under the 
provisions of this title shall be required to make such determinations 
and reports to the Corporation annually, unless the Corporation, in its 
discretion, determines otherwise.
    ``(k) Minimization of Risk of Loss.--The Board of Directors, 
including not less than a majority of the members appointed by the 
President, shall adopt rules to minimize the risk of loss to the 
Corporation on the total amount of securities issued by any individual 
small business investment company or by small business investment 
companies under common control.
    ``(l) Financial Audit.--Each small business investment company 
shall have a financial audit conducted by an independent certified 
public accountant certified or licensed by a regulatory authority of a 
State or other political subdivision of the United States at least 
annually and at such other times as may be required by the Corporation.
    ``(m) Compliance Audit.--At least once every 2 years, each small 
business investment company shall have an audit of such company's 
compliance with the rules of the Corporation conducted by an 
independent certified public accountant selected by the Corporation or, 
in the discretion of the Corporation, such audit may be conducted by 
employees or agents of the Corporation.
    ``(n) Other Reports.--Each small business investment company also 
shall make such other reports to the Corporation at such times and in 
such form as the Corporation may require.
    ``(o) Measures To Ensure Compliance.--The Corporation shall adopt 
appropriate measures to ensure compliance by small business investment 
companies with the provisions of this section. Failure of a small 
business investment company to comply with the provisions of this 
section shall entitle the Corporation to take corrective action 
warranted under the circumstances which shall include, but is not 
limited to--
            ``(1) loss of qualification by such company to do business 
        with the Corporation;
            ``(2) suspension or termination of agreements between the 
        Corporation and such company;
            ``(3) assessment of penalties against such company or its 
        officers, directors, or general partners;
            ``(4) removal or suspension of officers, directors, or 
        general partners of such company; and
            ``(5) assumption of control and operations of such company 
        by the Corporation.
In appropriate cases, the Corporation is authorized, in its discretion, 
to refer violations of law to the Administration for investigation or 
to refer such violations to the United States Attorney in the 
jurisdiction in which such violations may have occurred or in which the 
small business investment company, or its officers, directors, or 
general partners, are located.
    ``(p) State Laws.--In order to facilitate the orderly and necessary 
flow of long-term loans and equity funds from small business investment 
companies to small business concerns, the provisions of the 
Constitution or the laws of any State expressly limiting the rate or 
amount of interest, discount points, finance charges, or other charges 
which may be charged, taken, received, or reserved by lenders shall not 
apply to any business loan made by a small business investment company 
pursuant to provisions of this part. This subsection shall apply to 
business loans made by a small business investment company in any State 
on or after the effective date of this part, unless such State adopts a 
law or certifies that the voters of such State have voted in favor of 
any provision, constitutional or otherwise, which states explicitly and 
by its terms that such State does not want the provisions of this 
subsection to apply to business loans made in such State. In any case 
in which a State takes an action described in this subsection, such 
State law or constitutional or other provision shall not apply to any 
business loan made by a small business investment company pursuant to a 
commitment to make such loan which was entered into on or after the 
effective date of this part and prior to the date on which such action 
was taken.

``SEC. 360. LEVERAGE FORMULA.

    ``(a) In General.--The total amount of leverage that may be 
provided by the Corporation to a small business investment company 
shall not exceed 300 percent of the private capital of such company: 
Provided, That nothing in this subsection shall require any such 
company that on the effective date of this part has outstanding 
leverage in excess of 300 percent of its private capital to prepay such 
excess.
    ``(b) Formula.--After the effective date of this part, the maximum 
amount of outstanding leverage made available to a small business 
investment company by the Corporation shall be determined by the amount 
of such company's private capital--
            ``(1) if the company has private capital of not more than 
        $15,000,000, the total amount of leverage shall not exceed 300 
        percent of private capital;
            ``(2) if the company has private capital of more than 
        $15,000,000 but not more than $30,000,000, the total amount of 
        leverage shall not exceed $45,000,000 plus 200 percent of the 
        amount of private capital over $15,000,000; and
            ``(3) if the company has private capital of more than 
        $30,000,000, the total amount of leverage shall not exceed 
        $75,000,000 plus 100 percent of the amount of private capital 
        over $30,000,000 but not to exceed an additional $15,000,000.
    ``(c) Debt and Equity Type Securities.--Subject to the foregoing 
dollar and percentage limits, a small business investment company may 
issue to the Corporation both debt and equity type securities: 
Provided, That the total amount of equity type securities issued to the 
Corporation shall not exceed 200 percent of the company's private 
capital.
    ``(d) Maximum Amount of Outstanding Leverage.--In no event shall 
the aggregate amount of outstanding leverage of any such company or 
companies which are commonly controlled as determined by the 
Corporation exceed $90,000,000, unless the Corporation determines on a 
case by case basis to permit a higher amount for companies under common 
control and imposes such additional terms and conditions as it 
determines appropriate to minimize the risk of loss to the Corporation.

``SEC. 361. AUDITS OF THE CORPORATION.

    ``(a) Annual Audit.--The accounts of the Corporation shall be 
audited annually. Such audits shall be conducted in accordance with 
generally accepted auditing standards by independent certified public 
accountants who are certified or licensed by a regulatory authority of 
a State or other political subdivision of the United States. A report 
of each such audit shall be furnished to the Office of Investment 
Oversight. The audit shall be conducted at the place or places where 
the accounts are normally kept. The representatives of the Office of 
Investment Oversight shall have access to all books and records of the 
Corporation, and they shall be afforded full facilities for verifying 
transactions with the balance or securities held by depositories, 
fiscal agents, and custodians.
    ``(b) Reports by Office of Investment Oversight.--A report of each 
such audit for a fiscal year shall be made by the Office of Investment 
Oversight to the President and to the Committees on Small Business of 
the Senate and the House of Representatives not later than 6 months 
following the close of such fiscal year. The report shall set forth the 
scope of the audit and shall include a statement of assets and 
liabilities, capital and surplus or deficit, a statement of surplus or 
deficit analysis, a statement of income and expense, a statement of 
sources and application of funds, and comments and information as may 
be deemed necessary to keep the President and the Congress informed of 
the operations and financial condition of the Corporation, together 
with such recommendations with respect thereto as the Office of 
Investment Oversight may deem advisable, including a report of any 
impairment of capital or lack of sufficient capital noted in the audit. 
A copy of each such report shall be furnished to the Corporation at the 
same time it is submitted to the President.

``SEC. 362. REGULATION OF FINANCIAL SAFETY AND SOUNDNESS.

    ``(a) Establishment of Office of Investment Oversight.--There is 
hereby established in the Small Business Administration an Office to be 
known as the Office of Investment Oversight, which shall have 
responsibility for reviewing the regulatory and financial performance 
of the Corporation as provided herein. The Office shall be headed by a 
Director who shall be appointed by the Administrator, and shall receive 
compensation at the rate provided by law for Associate Administrators 
of the Small Business Administration.
    ``(b) Definitions.--For purposes of this section, the following 
definitions apply:
            ``(1) The term `core capital' means, with respect to the 
        Corporation, the sum of the following (as determined in 
        accordance with generally accepted accounting principles):
                    ``(A) The par value of outstanding common stock.
                    ``(B) The par value of outstanding preferred stock.
                    ``(C) Paid-in capital.
                    ``(D) Retained earnings.
            ``(2) The term `regulatory capital' means, with respect to 
        the Corporation, the core capital of the Corporation plus an 
        allowance for losses, as determined in accordance with 
        generally accepted accounting principles.
    ``(c) Risk-Based Capital Test.--Not later than 2 years after the 
effective date of this part, the Director of the Office of Investment 
Oversight shall, by regulation, establish a risk-based capital test 
under this section for the Corporation. When applied to the 
Corporation, the risk-based capital test shall determine the amount of 
regulatory capital for the Corporation that is sufficient for the 
Corporation to maintain positive capital during a 10-year period in 
which both of the following circumstances occur:
            ``(1) Credit risk.--With respect to securities representing 
        an interest in, or obligations backed by, a pool of qualified 
        loans owned or guaranteed by the Corporation and other 
        obligations of the Corporation, losses on the underlying 
        qualified loans occur throughout the United States at a rate of 
        default and severity (based on any measurements of default 
        reasonably related to prevailing industry practice in 
        determining capital adequacy) reasonably related to the rate 
        and severity that occurred in contiguous areas of the United 
        States containing an aggregate of not less than 5 percent of 
        the total population of the United States that, for a period of 
        not less than 2 years (as established by the Director), 
        experienced the highest rates of default and severity of 
        venture investing losses in other such areas for any period of 
        such duration, as determined by the Director.
            ``(2) Interest rate risk.--Interest rates on Treasury 
        obligations of varying terms increase or decrease over the 
        first 12 months of such 10-year period by not more than the 
        lesser of (A) 50 percent (with respect to the average interest 
        rates on such obligations during the 12-month period preceding 
        the 10-year period), or (B) 600 basis points, and remain at 
        such level for the remainder of the period. This paragraph may 
        not be construed to require the Director to determine interest 
        rate risk under this paragraph based on the interest rates for 
        various long-term and short-term obligations all increasing or 
        all decreasing concurrently.
    ``(d) Considerations in Establishment of the Test.--In establishing 
the risk based capital test under subsection (c)--
            ``(1) the Director shall take into account appropriate 
        distinctions based on various types of venture investing 
        products, varying terms of Treasury obligations, and any other 
        factors the Director considers appropriate;
            ``(2) the Director shall conform loan and investment data 
        used in determining credit risk to the minimum diversification 
        standards applicable to pools of qualified loans;
            ``(3) the Director shall take into account any retained 
        subordinated participating interests held by the Corporation;
            ``(4) the Director may take into account other methods or 
        tests to determine credit risk developed by the Corporation; 
        and
            ``(5) the Director shall consider any other information 
        submitted by the Corporation in writing.
    ``(e) Revising the Test.--Upon the expiration of the 6-year period 
beginning on the effective date of this part, the Director shall 
examine the risk-based capital test under subsection (c) and may revise 
the test. In making revisions under this subsection, the Director shall 
take into account that, before the effective date of this part, the 
Corporation did not issue or guarantee securities based on pools of 
qualified loans and investments. To the extent that the revision of the 
risk-based capital test causes a change in the classification of the 
corporation within the enforcement levels established under subsection 
(k), the Director shall waive the applicability of any additional 
enforcement actions available because of such change for a reasonable 
period of time, to permit the Corporation to increase the amount of 
regulatory capital of the Corporation accordingly.
    ``(f) Risk Based Capital Level.--For purposes of this section, the 
risk-based capital level for the Corporation shall be equal to the sum 
of the following amounts:
            ``(1) Credit and interest rate risk.--The amount of the 
        regulatory capital determined by applying the risk-based 
        capital test under subsection (c) to the Corporation, adjusted 
        to account for foreign exchange risk.
            ``(2) Management and operations risk.--To provide for 
        management and operations risk, 30 percent of the amount of 
        regulatory capital determined by applying the risk-based 
        capital test under subsection (c) to the Corporation.
    ``(g) Regulations.--The regulations establishing the risk-based 
capital test under this section shall contain specific requirements, 
definitions, methods, variables, and parameters used under the risk-
based capital test and in implementing the test (such as loan loss 
severity, float income, loan-to-value ratios, taxes, yield curve 
slopes, default experience, prepayment rates, and performance of pools 
of qualified loans and investments). The regulations shall be 
sufficiently specific to permit an individual other than the Director 
to apply the test in the same manner as the Director.
    ``(h) Availability of Statistical Model.--The Director shall make 
copies of the statistical model or models used to implement the risk-
based capital test under this section available for public acquisition 
and may charge a reasonable fee for such copies.
    ``(i) Minimum Capital Level.--For purposes of this section, after 
the 6th year following the effective date of this part the minimum 
capital level for the Corporation shall be an amount of core capital 
equal to the sum of--
            ``(1) 2.00 percent of the aggregate on-balance sheet assets 
        of the Corporation, as determined in accordance with generally 
        accepted accounting principles; and
            ``(2) 0.30 percent of the unpaid principal balance of 
        outstanding securities issued by the Corporation and backed by 
        pools of qualified loans and investments and substantially 
        equivalent instruments issued or guaranteed by the Corporation, 
        and other off-balance sheet obligations of the corporation.
    ``(j) Critical Capital Level.--For the purposes of this section, 
the critical capital level for the Corporation shall be an amount of 
core capital equal to the sum of--
            ``(1) 1.25 percent of the aggregate on-balance sheet assets 
        of the Corporation, as determined in accordance with generally 
        accepted accounting principles; and
            ``(2) 0.20 percent of the unpaid balance of outstanding 
        securities guaranteed by the Corporation and backed by pools of 
        qualified loans and investments and substantially equivalent 
        instruments issued or guaranteed by the Corporation, and other 
        off-balance sheet obligations of the Corporation.
    ``(k) Enforcement Levels.--The Director shall classify the 
Corporation, for purposes of this section, according to the following 
enforcement levels:
            ``(1) Level i.--The Corporation shall be classified as 
        within level I if the Corporation--
                    ``(A) maintains an amount of regulatory capital 
                that is equal to or exceeds the risk-based capital 
                level established under section (c); and
                    ``(B) equals or exceeds the minimum capital level 
                established under subsection (i).
            ``(2) Level ii.--The Corporation shall be classified as 
        within level II if the Corporation--
                    ``(A)(i) maintains an amount or regulatory capital 
                that is less than the risk-based capital level; and
                    ``(ii) equals or exceeds the minimum capital level; 
                or
                    ``(B) is otherwise classified as within level II 
                under subsection (b)
            ``(3) Level iii.--The Corporation shall be classified as 
        within level III if the Corporation--
                    ``(A)(i) does not equal or exceed the minimum 
                capital level; and
                    ``(ii) equals or exceeds the critical capital level 
                established under subsection (j); or
                    ``(B) is otherwise classified as within level III 
                under subsection (b).
            ``(4) Level iv.--The Corporation shall be classified as 
        within level IV if the Corporation--
                    ``(A) does not equal or exceed the critical capital 
                level; or
                    ``(B) is otherwise classified as within level IV 
                under subsection (b).
    ``(l) Discretionary Classification.--If, at any time, the Director 
determines in writing (and provides written notification to the 
Corporation and the Administration) that the Corporation is taking any 
action not approved by the Director that could result in a rapid 
depletion of core capital or that the value of the property securitized 
by the Corporation or subject to underlying securities guaranteed by 
the Corporation has decreased significantly, the Director may classify 
the Corporation--
            ``(1) as within level II, if the Corporation is otherwise 
        within level I;
            ``(2) as within level III, if the Corporation is otherwise 
        within level II; or
            ``(3) as within level IV, if the Corporation is otherwise 
        within level III.
    ``(m) Semi-Annual Determination.--After the 6th year following the 
effective date of this part, the Director shall determine the 
classification of the Corporation for purposes of this part on not less 
than a semi-annual basis.
    ``(n) Notice.--Upon determining under subsection (c) or (i) that 
the Corporation is within level II or III, the Director shall provide 
written notice to the Congress and to the Corporation--
            ``(1) that the Corporation is within such level;
            ``(2) that the Corporation is subject to the provisions of 
        subsection (o) or (q), as applicable; and
            ``(3) stating the reasons for the classification of the 
        Corporation within such level.
    ``(o) Mandatory Actions Applicable to Level II.--If the Corporation 
is classified as within level II, the Corporation shall--
            ``(1) within the time period determined by the Director, 
        submit to the Director a capital restoration plan and, after 
        approval, carry out the plan; and
            ``(2) not make any payment of dividends that would result 
        in the Corporation being reclassified as within level III or 
        IV.
    ``(p) Reclassification From Level II to Level III.--The Director 
shall immediately reclassify the Corporation as within level III (and 
the Corporation shall be subject to the provisions of section (q)) if--
            ``(1) the Corporation is within level II; and
            ``(2)(A) the Corporation does not submit a capital 
        restoration plan that is approved by the Director; or
            ``(B) the Director determines that the Corporation has 
        failed to make, in good faith, reasonable efforts necessary to 
        comply with such a capital restoration plan and fulfill the 
        schedule for the plan approved by the Director.
    ``(q) Supervisory Actions Applicable to Level III.--If the 
Corporation is classified as within level III--
            ``(1) the Corporation shall, within the time period 
        determined by the Director, submit to the Director a capital 
        restoration plan and, after approval, carry out the plan; and
            ``(2) the Corporation shall not make any payment of 
        dividends that would result in the Corporation being 
        reclassified as within level IV or make any other payment of 
        dividends unless the Director approves the payment before it is 
        made.
            ``(3) the Director may approve a payment of dividends by 
        the Corporation only if the Director determines that the 
        payment--
                    ``(A) will enhance the ability of the Corporation 
                to meet the risk-based capital level and the minimum 
                capital level promptly;
                    ``(B) will contribute to the long-term safety and 
                soundness of the Corporation; or
                    ``(C) is otherwise in the public interest.
    ``(r) Reclassification From Level III to Level IV.--The Director 
shall immediately reclassify the Corporation as within level IV if--
            ``(1) the Corporation is classified as within level III; 
        and
            ``(2)(A) the Corporation does not submit a capital 
        restoration plan that is approved by the Director; or
            ``(B) the Director determines that the Corporation has 
        failed to make, in good faith, reasonable efforts necessary to 
        comply with such a capital restoration plan and fulfill the 
        schedule for the plan approved by the Director.
    ``(s) Discretionary Supervisory Actions.--In addition to any other 
actions taken by the Director (including actions under subsection (q)), 
the Director may, at any time, take any of the following actions if the 
Corporation is classified as within level III:
            ``(1) Limit any increase in, or order the reduction of, any 
        obligations of the Corporation, including off-balance sheet 
        obligations.
            ``(2) Limit or prohibit the growth of the assets of the 
        Corporation or require contraction of the assets of the 
        Corporation.
            ``(3) Prohibit the Corporation from making any payment of 
        dividends.
            ``(4) Require the Corporation to acquire new capital in any 
        form and in any amount sufficient to provide for the 
        reclassification of the Corporation as within level II.
            ``(5) Require the Corporation to terminate, reduce, or 
        modify any activity that the Director determines creates 
        excessive risk to the Corporation.
            ``(6) Appoint a conservator for the Corporation consistent 
        with this Act.

``SEC. 363. GOVERNMENT OVERSIGHT AND REPORTS.

    ``(a) Committees on Small Business.--In order to conduct 
legislative oversight of the Corporation's activities, the Committees 
on Small Business of the Senate and the House of Representatives shall 
have access to the books and records of the Corporation at any time.
    ``(b) General Accounting Office.--At the request of either the 
Committee on Small Business of the Senate or the House of 
Representatives, the books and records of the Corporation shall be 
subject to examination by the General Accounting Office.
    ``(c) Office of Investment Oversight.--In order to ensure that the 
public purposes of this part are carried out, the Office of Investment 
Oversight shall have authority to review the Corporation's criteria for 
the qualification of small business investment companies to conduct 
business with the Corporation and the Corporation's rules governing the 
operations of small business investment companies. The Office of 
Investment Oversight may examine the books and records of the 
Corporation and may require the Corporation to make such reports as the 
Administration deems desirable. Not later than January 31st of each 
year, the Office of Investment Oversight shall submit to the Committees 
on Small Business of the Senate and the House of Representatives a 
report containing findings made by the Office under this section.
    ``(d) Annual Report by Corporation.--The Corporation shall, as soon 
as practicable after the end of each fiscal year, transmit to the 
President, the Committees on Small Business of the Senate and the House 
of Representatives, and the Administration a report on its operations 
and activities for such fiscal year.
    ``(e) Report by General Accounting Office.--Not later than 7 years 
after the effective date of this part, the General Accounting Office 
shall prepare a report to be transmitted to the Committees on Small 
Business of the Senate and the House of Representatives. The report 
shall review the impact that the Corporation has had in achieving the 
purposes of the Venture Capital Marketing Association Charter Act, 
including but not limited to an assessment of the impact on small 
business concerns receiving funding through the Corporation's 
activities and the impact on small business investment companies as a 
result of the Corporation's activities. In preparing this report, the 
General Accounting Office shall have access to the books and records of 
the Corporation.

``SEC. 364. BOOKS AND RECORDS.

    ``The Administration shall furnish to the Corporation all books and 
records of the Administration necessary to carry out the provisions of 
this title within 30 days after written request by the Corporation. Any 
such information received by the Corporation shall be kept confidential 
by the Corporation, its officers, agents, and employees under the same 
provisions which would have been applicable if it had been retained by 
the Administration.''.

SEC. 4. TRANSFER AND PHASE-OUT.

    (a) In General.--Title III of the Small Business Investment Act of 
1958 is amended by inserting after section 322 the following:

``SEC. 323. TRANSFER AND PHASE-OUT.

    ``(a) Deadline.--A licensee in good standing shall have a period of 
3 months from the date the Administration receives notice under section 
352(i) in which to qualify under section 358(a).
    ``(b) Issuance of Regulations.--Within 6 months after receiving 
notice under section 352(i), the Administration shall promulgate final 
rules and regulations to effect the orderly termination of operations 
of any license in good standing which has not qualified under section 
358(a), and the Administration shall enter into a contractual agreement 
with the Corporation which provides for the administration of such 
rules and regulations by the Corporation.
    ``(c) Requirements for Regulations.--The final rules and 
regulations adopted by the Administration for termination of the 
operations of any licensee under subsection (b) of this section shall, 
among other things, suspend such licensees's authority to obtain 
financial assistance from the Administration and shall require 
revocation of the license of any such licensee effective within 2 years 
after the publication of such rules and regulations, except that the 
license revocation for any such licensee which has outstanding 
debentures shall be within 2 years after such debentures are due or 
paid, whether voluntarily or otherwise.''.
    (b) Conforming Amendment.--The table of contents contained in 
section 101 of the Small Business Investment Act of 1958 (15 U.S.C. 661 
note), as amended by section 2(a) of this Act, is further amended by 
inserting after the item relating to section 322 the following:

``Sec. 323. Transfer and phase-out.''.

SEC. 5. DEFINITIONS.

    Section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 
662) is amended--
            (1) by inserting before the semicolon in paragraph (3) the 
        following: ``or a company qualified to conduct business with 
        the Corporation under section 358'';
            (2) by striking paragraph (9) and inserting the following:
            ``(9) notwithstanding any other provision of law, the term 
        `private capital' means the combined private paid-in capital 
        and paid-in surplus of a corporate small business investment 
        company, or the private partnership capital of an 
        unincorporated small business investment company, inclusive of 
        (A) any funds invested in the small business investment company 
        by a public or private pension fund, (B) any funds invested in 
        the small business investment company by State or local 
        government entities, to the extent that such investment does 
        not exceed 33 percent of a small business investment company's 
        total private capital and otherwise meets criteria established 
        by the Corporation, and (C) unfunded commitments from 
        institutional or individual investors that meet criteria 
        established by the Corporation, but it excludes any funds which 
        are borrowed by the small business investment company from any 
        source or which are obtained or derived, directly or 
        indirectly, from any Federal source, including the 
        Administration: Provided, That no unfunded commitment from an 
        investor may be used for the purpose of meeting the minimum 
        amount of private capital required by this Act or as the basis 
        for the Corporation to issue obligations or securities to 
        provide financing to small business investment companies;'';
            (3) by striking the period at the end of paragraph (10) and 
        inserting a semicolon; and
            (4) by adding at the end the following:
            ``(11) the term `Corporation' means the Venture Capital 
        Marketing Association, as constituted under this Act;
            ``(12) the term `Board of Directors' means the Board of 
        Directors of the Corporation;
            ``(13) the term `law' includes any law of the United States 
        or any State (including any rule of law or of equity);
            ``(14) the term `organization' means any corporation, 
        partnership, association, business trust, or other business 
        entity;
            ``(15) the term `security' has the meaning given such term 
        by section 2(l) of the Securities Act of 1933 (15 U.S.C. 
        77b(l);
            ``(16) the term `small business investment security' 
        includes--
                    ``(A) debentures, bonds, promissory notes, 
                obligations or equity securities issued by small 
                business investment companies; and
                    ``(B) such other small business investment company 
                securities as determined by the Corporation;
            ``(17) the term `licensee in good standing' means a small 
        business investment company which was approved by the 
        Administration to operate under the provisions of this Act and 
        was issued a license as provided in section 301, unless such 
        licensee (A) is in default under Debentures issued to the 
        Administration and such Debentures have been declared due and 
        payable by the Administration, (B) has engaged in events which 
        the Administration has determined to be in violation of 
        provisions of Participating Securities or Preferred Securities, 
        or (C) has been placed in liquidation status by the 
        Administration; and
            ``(18) the term `books and records of the Corporation' 
        means the books and records of the Venture Capital Marketing 
        Association, including but not limited to books, accounts, 
        financial records, reports, files, all memoranda and documents 
        obtained by employees or agents of the Corporation or by 
        independent certified public accountants during audits of small 
        business investment companies and all reports and information 
        from such companies to the Corporation, and all other papers, 
        things or property belonging to or in use by the Corporation.

SEC. 6. AMENDMENT TO SMALL BUSINESS ACT.

    Section 5(b)(2) of the Small Business Act (15 U.S.C. 634(b)(2)) is 
amended by striking ``collection;'' and by inserting ``collection: 
Provided, That nothing in this Act nor any other law shall authorize 
the Administration to sell, hypothecate, pledge, or in any way encumber 
small business investment securities made or issued by such 
Administration except as authorized by section 357 of the Small 
Business Investment Act of 1958;''.

SEC. 7. AMENDMENT TO REVISED STATUTES.

    The 6th sentence of the 7th paragraph of section 5136 of the 
Revised Statutes of the United States (12 U.S.C. 24) is amended by 
inserting after ``Student Loan Marketing Association,'' the following: 
``or obligations or other instruments or securities of the Venture 
Capital Marketing Association,''.

SEC. 8. EFFECT ON OTHER LAWS.

    Except as otherwise provided by this Act, or as otherwise provided 
by the Corporation or by the laws hereafter enacted by the Congress 
expressly in limitations of provisions of this Act, the powers and 
functions of the Corporation and of the Board of Directors shall be 
exercisable, and the provisions of this Act shall be applicable and 
effective, without regard to any other law.

SEC. 9. APPLICABILITY TO STATES, TERRITORIES, AND POSSESSIONS.

    Notwithstanding any other law, this Act and the amendments made by 
this Act shall be applicable to the several States, the District of 
Columbia, and Commonwealth of Puerto Rico, and the territories and 
possessions of the United States.

SEC. 10. AMENDMENT TO TITLE 18.

    Section 1006 of title 18, United States Code, is amended by 
inserting before ``or any Small Business Investment Company,'' the 
following: ``, the Venture Capital Marketing Association,''.

SEC. 11. EFFECTIVE DATE.

    This Act and the amendments made by this Act shall become effective 
on the date of the enactment of this Act.
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