[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2930 Reported in House (RH)]

                                                 Union Calendar No. 175
112th CONGRESS
  1st Session
                                H. R. 2930

                          [Report No. 112-262]

To amend the securities laws to provide for registration exemptions for 
        certain crowdfunded securities, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 14, 2011

 Mr. McHenry introduced the following bill; which was referred to the 
                    Committee on Financial Services

                            October 31, 2011

Additional sponsors: Mr. Schweikert, Mr. Dold, Mr. Duffy, Mrs. Schmidt, 
                         and Mr. Brady of Texas

                            October 31, 2011

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]


_______________________________________________________________________

                                 A BILL


 
To amend the securities laws to provide for registration exemptions for 
        certain crowdfunded securities, and for other purposes.


 


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

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Entrepreneur Access to 
Capital Act''.</DELETED>

<DELETED>SEC. 2. CROWDFUNDING EXEMPTION.</DELETED>

<DELETED>    (a) Securities Act of 1933.--Section 4 of the Securities 
Act of 1933 (15 U.S.C. 77d) is amended by adding at the end the 
following:</DELETED>
        <DELETED>    ``(6) transactions involving the issuance of 
        securities for which--</DELETED>
                <DELETED>    ``(A) the aggregate annual amount raised 
                through the issue of the securities is $5,000,000 or 
                less; and</DELETED>
                <DELETED>    ``(B) individual investments in the 
                securities are limited to an aggregate annual amount 
                equal to the lesser of--</DELETED>
                        <DELETED>    ``(i) $10,000; and</DELETED>
                        <DELETED>    ``(ii) 10 percent of the 
                        investor's annual income.''.</DELETED>
<DELETED>    (b) Verification of Income.--For purposes of section 4(6) 
of the Securities Act of 1933, an issuer may rely on certifications 
provided by investors.</DELETED>

<DELETED>SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER 
              CAP.</DELETED>

<DELETED>    Section 12(g)(5) of the Securities Exchange Act of 1934 
(15 U.S.C. 78l(g)(5)) is amended--</DELETED>
        <DELETED>    (1) by striking ``For the purposes'' and 
        inserting:</DELETED>
                <DELETED>    ``(A) In general.--For the purposes''; 
                and</DELETED>
        <DELETED>    (2) by adding at the end the following:</DELETED>
                <DELETED>    ``(B) Exclusion for persons holding 
                certain securities.--For purposes of this subsection, 
                the term `held of record' shall not include holders of 
                securities issued pursuant to transactions described 
                under section 4(6) of the Securities Act of 
                1933.''.</DELETED>

<DELETED>SEC. 4. PREEMPTION OF STATE LAW.</DELETED>

<DELETED>    Section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 
77r(b)(4)) is amended--</DELETED>
        <DELETED>    (1) by redesignating subparagraphs (C) and (D) as 
        (D) and (E), respectively; and</DELETED>
        <DELETED>    (2) by inserting after subparagraph (B) the 
        following:</DELETED>
                <DELETED>    ``(C) section 4(6);''.</DELETED>

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Entrepreneur Access to Capital 
Act''.

SEC. 2. CROWDFUNDING EXEMPTION.

    (a) Securities Act of 1933.--Section 4 of the Securities Act of 
1933 (15 U.S.C. 77d) is amended by adding at the end the following:
            ``(6) transactions involving the issuance of securities for 
        which--
                    ``(A) the aggregate annual amount raised through 
                the issue of the securities is--
                            ``(i) $1,000,000 or less; or
                            ``(ii) if the issuer provides potential 
                        investors with audited financial statements, 
                        $2,000,000 or less;
                    ``(B) individual investments in the securities are 
                limited to an aggregate annual amount equal to the 
                lesser of--
                            ``(i) $10,000; and
                            ``(ii) 10 percent of the investor's annual 
                        income;
                    ``(C) in the case of a transaction involving an 
                intermediary between the issuer and the investor, such 
                intermediary complies with the requirements under 
                section 4A(a); and
                    ``(D) in the case of a transaction not involving an 
                intermediary between the issuer and the investor, the 
                issuer complies with the requirements under section 
                4A(b).''.
    (b) Requirements to Qualify for Crowdfunding Exemption.--The 
Securities Act of 1933 is amended by inserting after section 4 the 
following:

``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.

    ``(a) Requirements on Intermediaries.--For purposes of section 
4(6), a person acting as an intermediary in a transaction involving the 
issuance of securities shall comply with the requirements of this 
subsection if the intermediary--
            ``(1) warns investors, including on the intermediary's 
        website, of the speculative nature generally applicable to 
        investments in startups, emerging businesses, and small 
        issuers, including risks in the secondary market related to 
        illiquidity;
            ``(2) warns investors that they are subject to the 
        restriction on sales requirement described under subsection 
        (e);
            ``(3) takes reasonable measures to reduce the risk of fraud 
        with respect to such transaction;
            ``(4) provides the Commission with the intermediary's 
        physical address, website address, and the names of the 
        intermediary and employees of the person, and keep such 
        information up-to-date;
            ``(5) provides the Commission with continuous investor-
        level access to the intermediary's website;
            ``(6) requires each potential investor to answer questions 
        demonstrating competency in--
                    ``(A) recognition of the level of risk generally 
                applicable to investments in startups, emerging 
                businesses, and small issuers;
                    ``(B) risk of illiquidity; and
                    ``(C) such other areas as the Commission may 
                determine appropriate;
            ``(7) requires the issuer to state a target offering amount 
        and withhold capital formation proceeds until aggregate capital 
        raised from investors other than the issuer is no less than 60 
        percent of the target offering amount;
            ``(8) carries out a background check on the issuer's 
        principals;
            ``(9) provides the Commission with basic notice of the 
        offering, not later than the first day funds are solicited from 
        potential investors, including--
                    ``(A) the issuer's name, legal status, physical 
                address, and website address;
                    ``(B) the names of the issuer's principals;
                    ``(C) the stated purpose and intended use of the 
                capital formation funds sought by the issuer; and
                    ``(D) the target offering amount;
            ``(10) outsources cash-management functions to a qualified 
        third party custodian, such as a traditional broker or dealer 
        or insured depository institution;
            ``(11) maintains such books and records as the Commission 
        determines appropriate;
            ``(12) makes available on the intermediary's website a 
        method of communication that permits the issuer and investors 
        to communicate with one another; and
            ``(13) does not offer investment advice.
    ``(b) Requirements on Issuers if No Intermediary.--For purposes of 
section 4(6), an issuer who offers securities without an intermediary 
shall comply with the requirements of this subsection if the issuer--
            ``(1) warns investors, including on the issuer's website, 
        of the speculative nature generally applicable to investments 
        in startups, emerging businesses, and small issuers, including 
        risks in the secondary market related to illiquidity;
            ``(2) warns investors that they are subject to the 
        restriction on sales requirement described under subsection 
        (e);
            ``(3) takes reasonable measures to reduce the risk of fraud 
        with respect to such transaction;
            ``(4) provides the Commission with the issuer's physical 
        address, website address, and the names of the principals and 
        employees of the issuers, and keeps such information up-to-
        date;
            ``(5) provides the Commission with continuous investor-
        level access to the issuer's website;
            ``(6) requires each potential investor to answer questions 
        demonstrating competency in--
                    ``(A) recognition of the level of risk generally 
                applicable to investments in startups, emerging 
                businesses, and small issuers;
                    ``(B) risk of illiquidity; and
                    ``(C) such other areas as the Commission may 
                determine appropriate;
            ``(7) states a target offering amount and withholds capital 
        formation proceeds until the aggregate capital raised from 
        investors other than the issuer is no less than 60 percent of 
        the target offering amount;
            ``(8) provides the Commission with basic notice of the 
        offering, not later than the first day funds are solicited from 
        potential investors, including--
                    ``(A) the stated purpose and intended use of the 
                capital formation funds sought by the issuer; and
                    ``(B) the target offering amount;
            ``(9) outsources cash-management functions to a qualified 
        third party custodian, such as a traditional broker or dealer 
        or insured depository institution;
            ``(10) maintains such books and records as the Commission 
        determines appropriate;
            ``(11) makes available on the issuer's website a method of 
        communication that permits the issuer and investors to 
        communicate with one another;
            ``(12) does not offer investment advice; and
            ``(13) discloses to potential investors, on the issuer's 
        website, that the issuer has an interest in the issuance.
    ``(c) Verification of Income.--For purposes of section 4(6), an 
issuer or intermediary may rely on certifications provided by an 
investor to verify the investor's income.
    ``(d) Information Available to States.--The Commission shall make 
the notices described under subsections (a)(9) and (b)(8) and the 
information described under subsections (a)(4) and (b)(4) available to 
the States.
    ``(e) Restriction on Sales.--With respect to a transaction 
involving the issuance of securities described under section 4(6), an 
investor may not sell such securities during the 1-year period 
beginning on the date of purchase, unless such securities are sold to--
            ``(1) the issuer of such securities; or
            ``(2) an accredited investor.
    ``(f) Construction.--
            ``(1) No treatment as broker.--With respect to a 
        transaction described under section 4(6) involving an 
        intermediary, such intermediary shall not be treated as a 
        broker under the securities laws solely by reason of 
        participation in such transaction.
            ``(2) No preclusion of other capital raising.--Nothing in 
        this section or section 4(6) shall be construed as preventing 
        an issuer from raising capital through methods not described 
        under section 4(6).''.
    (c) Rulemaking.--Not later than 90 days after the date of the 
enactment of this Act, the Securities and Exchange Commission shall 
issue such rules as may be necessary to carry out section 4A of the 
Securities Act of 1933. In issuing such rules, the Commission shall 
carry out the cost-benefit analysis required under section 2(b) of such 
Act.
    (d) Disqualification.--Not later than 90 days after the date of the 
enactment of this Act, the Securities and Exchange Commission shall by 
rule or regulation establish disqualification provisions under which a 
person shall not be eligible to utilize the exemption under section 
4(6) of the Securities Act of 1933 or to participate in the affairs of 
an intermediary facilitating the use of that exemption. Such provisions 
shall be substantially similar to the disqualification provisions 
contained in the regulations adopted in accordance with section 926 of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 
U.S.C. 77d note).

SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER CAP.

    Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 
78l(g)(5)) is amended--
            (1) by striking ``(5) For the purposes'' and inserting:
            ``(5) Definitions.--
                    ``(A) In general.--For the purposes''; and
            (2) by adding at the end the following:
                    ``(B) Exclusion for persons holding certain 
                securities.--For purposes of this subsection, the term 
                `held of record' shall not include holders of 
                securities issued pursuant to transactions described 
                under section 4(6) of the Securities Act of 1933.''.

SEC. 4. PREEMPTION OF STATE LAW.

    Section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 
77r(b)(4)) is amended--
            (1) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (D) and (E), respectively; and
            (2) by inserting after subparagraph (B) the following:
                    ``(C) section 4(6);''.
                                                 Union Calendar No. 175

112th CONGRESS

  1st Session

                               H. R. 2930

                          [Report No. 112-262]

_______________________________________________________________________

                                 A BILL

To amend the securities laws to provide for registration exemptions for 
        certain crowdfunded securities, and for other purposes.

_______________________________________________________________________

                            October 31, 2011

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed