[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3606 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
March 22, 2012.
Resolved, That the bill from the House of Representatives (H.R.
3606) entitled ``An Act to increase American job creation and economic
growth by improving access to the public capital markets for emerging
growth companies.'', do pass with the following
AMENDMENT:
Strike title III and insert the following:
TITLE III--CROWDFUNDING
SEC. 301. SHORT TITLE.
This title may be cited as the ``Capital Raising Online While
Deterring Fraud and Unethical Non-Disclosure Act of 2012'' or the
``CROWDFUND Act''.
SEC. 302. 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 offer or sale of
securities by an issuer (including all entities controlled by
or under common control with the issuer), provided that--
``(A) the aggregate amount sold to all investors by
the issuer, including any amount sold in reliance on
the exemption provided under this paragraph during the
12-month period preceding the date of such transaction,
is not more than $1,000,000;
``(B) the aggregate amount sold to any investor by
an issuer, including any amount sold in reliance on the
exemption provided under this paragraph during the 12-
month period preceding the date of such transaction,
does not exceed--
``(i) the greater of $2,000 or 5 percent of
the annual income or net worth of such
investor, as applicable, if either the annual
income or the net worth of the investor is less
than $100,000; and
``(ii) 10 percent of the annual income or
net worth of such investor, as applicable, not
to exceed a maximum aggregate amount sold of
$100,000, if either the annual income or net
worth of the investor is equal to or more than
$100,000;
``(C) the transaction is conducted through a broker
or funding portal that complies with the requirements
of section 4A(a); and
``(D) the issuer complies with the requirements of
section 4A(b).''.
(b) Requirements To Qualify for Crowdfunding Exemption.--The
Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended by inserting
after section 4 the following:
``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.
``(a) Requirements on Intermediaries.--A person acting as an
intermediary in a transaction involving the offer or sale of securities
for the account of others pursuant to section 4(6) shall--
``(1) register with the Commission as--
``(A) a broker; or
``(B) a funding portal (as defined in section
3(a)(80) of the Securities Exchange Act of 1934);
``(2) register with any applicable self-regulatory
organization (as defined in section 3(a)(26) of the Securities
Exchange Act of 1934);
``(3) provide such disclosures, including disclosures
related to risks and other investor education materials, as the
Commission shall, by rule, determine appropriate;
``(4) ensure that each investor--
``(A) reviews investor-education information, in
accordance with standards established by the
Commission, by rule;
``(B) positively affirms that the investor
understands that the investor is risking the loss of
the entire investment, and that the investor could bear
such a loss; and
``(C) answers questions demonstrating--
``(i) an understanding of the level of risk
generally applicable to investments in
startups, emerging businesses, and small
issuers;
``(ii) an understanding of the risk of
illiquidity; and
``(iii) an understanding of such other
matters as the Commission determines
appropriate, by rule;
``(5) take such measures to reduce the risk of fraud with
respect to such transactions, as established by the Commission,
by rule, including obtaining a background and securities
enforcement regulatory history check on each officer, director,
and person holding more than 20 percent of the outstanding
equity of every issuer whose securities are offered by such
person;
``(6) not later than 21 days prior to the first day on
which securities are sold to any investor (or such other period
as the Commission may establish), make available to the
Commission and to potential investors any information provided
by the issuer pursuant to subsection (b);
``(7) ensure that all offering proceeds are only provided
to the issuer when the aggregate capital raised from all
investors is equal to or greater than a target offering amount,
and allow all investors to cancel their commitments to invest,
as the Commission shall, by rule, determine appropriate;
``(8) make such efforts as the Commission determines
appropriate, by rule, to ensure that no investor in a 12-month
period has purchased securities offered pursuant to section
4(6) that, in the aggregate, from all issuers, exceed the
investment limits set forth in section 4(6)(B);
``(9) take such steps to protect the privacy of information
collected from investors as the Commission shall, by rule,
determine appropriate;
``(10) not compensate promoters, finders, or lead
generators for providing the broker or funding portal with the
personal identifying information of any potential investor;
``(11) prohibit its directors, officers, or partners (or
any person occupying a similar status or performing a similar
function) from having any financial interest in an issuer using
its services; and
``(12) meet such other requirements as the Commission may,
by rule, prescribe, for the protection of investors and in the
public interest.
``(b) Requirements for Issuers.--For purposes of section 4(6), an
issuer who offers or sells securities shall--
``(1) file with the Commission and provide to investors and
the relevant broker or funding portal, and make available to
potential investors--
``(A) the name, legal status, physical address, and
website address of the issuer;
``(B) the names of the directors and officers (and
any persons occupying a similar status or performing a
similar function), and each person holding more than 20
percent of the shares of the issuer;
``(C) a description of the business of the issuer
and the anticipated business plan of the issuer;
``(D) a description of the financial condition of
the issuer, including, for offerings that, together
with all other offerings of the issuer under section
4(6) within the preceding 12-month period, have, in the
aggregate, target offering amounts of--
``(i) $100,000 or less--
``(I) the income tax returns filed
by the issuer for the most recently
completed year (if any); and
``(II) financial statements of the
issuer, which shall be certified by the
principal executive officer of the
issuer to be true and complete in all
material respects;
``(ii) more than $100,000, but not more
than $500,000, financial statements reviewed by
a public accountant who is independent of the
issuer, using professional standards and
procedures for such review or standards and
procedures established by the Commission, by
rule, for such purpose; and
``(iii) more than $500,000 (or such other
amount as the Commission may establish, by
rule), audited financial statements;
``(E) a description of the stated purpose and
intended use of the proceeds of the offering sought by
the issuer with respect to the target offering amount;
``(F) the target offering amount, the deadline to
reach the target offering amount, and regular updates
regarding the progress of the issuer in meeting the
target offering amount;
``(G) the price to the public of the securities or
the method for determining the price, provided that,
prior to sale, each investor shall be provided in
writing the final price and all required disclosures,
with a reasonable opportunity to rescind the commitment
to purchase the securities;
``(H) a description of the ownership and capital
structure of the issuer, including--
``(i) terms of the securities of the issuer
being offered and each other class of security
of the issuer, including how such terms may be
modified, and a summary of the differences
between such securities, including how the
rights of the securities being offered may be
materially limited, diluted, or qualified by
the rights of any other class of security of
the issuer;
``(ii) a description of how the exercise of
the rights held by the principal shareholders
of the issuer could negatively impact the
purchasers of the securities being offered;
``(iii) the name and ownership level of
each existing shareholder who owns more than 20
percent of any class of the securities of the
issuer;
``(iv) how the securities being offered are
being valued, and examples of methods for how
such securities may be valued by the issuer in
the future, including during subsequent
corporate actions; and
``(v) the risks to purchasers of the
securities relating to minority ownership in
the issuer, the risks associated with corporate
actions, including additional issuances of
shares, a sale of the issuer or of assets of
the issuer, or transactions with related
parties; and
``(I) such other information as the Commission may,
by rule, prescribe, for the protection of investors and
in the public interest;
``(2) not advertise the terms of the offering, except for
notices which direct investors to the funding portal or broker;
``(3) not compensate or commit to compensate, directly or
indirectly, any person to promote its offerings through
communication channels provided by a broker or funding portal,
without taking such steps as the Commission shall, by rule,
require to ensure that such person clearly discloses the
receipt, past or prospective, of such compensation, upon each
instance of such promotional communication;
``(4) not less than annually, file with the Commission and
provide to investors reports of the results of operations and
financial statements of the issuer, as the Commission shall, by
rule, determine appropriate, subject to such exceptions and
termination dates as the Commission may establish, by rule; and
``(5) comply with such other requirements as the Commission
may, by rule, prescribe, for the protection of investors and in
the public interest.
``(c) Liability for Material Misstatements and Omissions.--
``(1) Actions authorized.--
``(A) In general.--Subject to paragraph (2), a
person who purchases a security in a transaction
exempted by the provisions of section 4(6) may bring an
action against an issuer described in paragraph (2),
either at law or in equity in any court of competent
jurisdiction, to recover the consideration paid for
such security with interest thereon, less the amount of
any income received thereon, upon the tender of such
security, or for damages if such person no longer owns
the security.
``(B) Liability.--An action brought under this
paragraph shall be subject to the provisions of section
12(b) and section 13, as if the liability were created
under section 12(a)(2).
``(2) Applicability.--An issuer shall be liable in an
action under paragraph (1), if the issuer--
``(A) by the use of any means or instruments of
transportation or communication in interstate commerce
or of the mails, by any means of any written or oral
communication, in the offering or sale of a security in
a transaction exempted by the provisions of section
4(6), makes an untrue statement of a material fact or
omits to state a material fact required to be stated or
necessary in order to make the statements, in the light
of the circumstances under which they were made, not
misleading, provided that the purchaser did not know of
such untruth or omission; and
``(B) does not sustain the burden of proof that
such issuer did not know, and in the exercise of
reasonable care could not have known, of such untruth
or omission.
``(3) Definition.--As used in this subsection, the term
`issuer' includes any person who is a director or partner of
the issuer, and the principal executive officer or officers,
principal financial officer, and controller or principal
accounting officer of the issuer (and any person occupying a
similar status or performing a similar function) that offers or
sells a security in a transaction exempted by the provisions of
section 4(6), and any person who offers or sells the security
in such offering.
``(d) Information Available to States.--The Commission shall make,
or shall cause to be made by the relevant broker or funding portal, the
information described in subsection (b) and such other information as
the Commission, by rule, determines appropriate, available to the
securities commission (or any agency or office performing like
functions) of each State and territory of the United States and the
District of Columbia.
``(e) Restrictions on Sales.--Securities issued pursuant to a
transaction described in section 4(6)--
``(1) may not be transferred by the purchaser of such
securities during the 1-year period beginning on the date of
purchase, unless such securities are transferred--
``(A) to the issuer of the securities;
``(B) to an accredited investor;
``(C) as part of an offering registered with the
Commission; or
``(D) to a member of the family of the purchaser or
the equivalent, or in connection with the death or
divorce of the purchaser or other similar circumstance,
in the discretion of the Commission; and
``(2) shall be subject to such other limitations as the
Commission shall, by rule, establish.
``(f) Applicability.--Section 4(6) shall not apply to transactions
involving the offer or sale of securities by any issuer that--
``(1) is not organized under and subject to the laws of a
State or territory of the United States or the District of
Columbia;
``(2) is subject to the requirement to file reports
pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934;
``(3) is an investment company, as defined in section 3 of
the Investment Company Act of 1940, or is excluded from the
definition of investment company by section 3(b) or section
3(c) of that Act; or
``(4) the Commission, by rule or regulation, determines
appropriate.
``(g) Rule of Construction.--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).
``(h) Certain Calculations.--
``(1) Dollar amounts.--Dollar amounts in section 4(6) and
subsection (b) of this section shall be adjusted by the
Commission not less frequently than once every 5 years, by
notice published in the Federal Register to reflect any change
in the Consumer Price Index for All Urban Consumers published
by the Bureau of Labor Statistics.
``(2) Income and net worth.--The income and net worth of a
natural person under section 4(6)(B) shall be calculated in
accordance with any rules of the Commission under this title
regarding the calculation of the income and net worth,
respectively, of an accredited investor.''.
(c) Rulemaking.--Not later than 270 days after the date of
enactment of this Act, the Securities and Exchange Commission (in this
title referred to as the ``Commission'') shall issue such rules as the
Commission determines may be necessary or appropriate for the
protection of investors to carry out sections 4(6) and section 4A of
the Securities Act of 1933, as added by this title. In carrying out
this section, the Commission shall consult with any securities
commission (or any agency or office performing like functions) of the
States, any territory of the United States, and the District of
Columbia, which seeks to consult with the Commission, and with any
applicable national securities association.
(d) Disqualification.--
(1) In general.--Not later than 270 days after the date of
enactment of this Act, the Commission shall, by rule, establish
disqualification provisions under which--
(A) an issuer shall not be eligible to offer
securities pursuant to section 4(6) of the Securities
Act of 1933, as added by this title; and
(B) a broker or funding portal shall not be
eligible to effect or participate in transactions
pursuant to that section 4(6).
(2) Inclusions.--Disqualification provisions required by
this subsection shall--
(A) be substantially similar to the provisions of
section 230.262 of title 17, Code of Federal
Regulations (or any successor thereto); and
(B) disqualify any offering or sale of securities
by a person that--
(i) is subject to a final order of a State
securities commission (or an agency or officer
of a State performing like functions), a State
authority that supervises or examines banks,
savings associations, or credit unions, a State
insurance commission (or an agency or officer
of a State performing like functions), an
appropriate Federal banking agency, or the
National Credit Union Administration, that--
(I) bars the person from--
(aa) association with an
entity regulated by such
commission, authority, agency,
or officer;
(bb) engaging in the
business of securities,
insurance, or banking; or
(cc) engaging in savings
association or credit union
activities; or
(II) constitutes a final order
based on a violation of any law or
regulation that prohibits fraudulent,
manipulative, or deceptive conduct
within the 10-year period ending on the
date of the filing of the offer or
sale; or
(ii) has been convicted of any felony or
misdemeanor in connection with the purchase or
sale of any security or involving the making of
any false filing with the Commission.
SEC. 303. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER CAP.
(a) Exemption.--Section 12(g) of the Securities Exchange Act of
1934 (15 U.S.C. 78l(g)) is amended by adding at the end the following:
``(6) Exclusion for persons holding certain securities.--
The Commission shall, by rule, exempt, conditionally or
unconditionally, securities acquired pursuant to an offering
made under section 4(6) of the Securities Act of 1933 from the
provisions of this subsection.''.
(b) Rulemaking.--The Commission shall issue a rule to carry out
section 12(g)(6) of the Securities Exchange Act of 1934 (15 U.S.C.
78c), as added by this section, not later than 270 days after the date
of enactment of this Act.
SEC. 304. FUNDING PORTAL REGULATION.
(a) Exemption.--
(1) In general.--Section 3 of the Securities Exchange Act
of 1934 (15 U.S.C. 78c) is amended by adding at the end the
following:
``(h) Limited Exemption for Funding Portals.--
``(1) In general.--The Commission shall, by rule, exempt,
conditionally or unconditionally, a registered funding portal
from the requirement to register as a broker or dealer under
section 15(a)(1), provided that such funding portal--
``(A) remains subject to the examination,
enforcement, and other rulemaking authority of the
Commission;
``(B) is a member of a national securities
association registered under section 15A; and
``(C) is subject to such other requirements under
this title as the Commission determines appropriate
under such rule.
``(2) National securities association membership.--For
purposes of sections 15(b)(8) and 15A, the term `broker or
dealer' includes a funding portal and the term `registered
broker or dealer' includes a registered funding portal, except
to the extent that the Commission, by rule, determines
otherwise, provided that a national securities association
shall only examine for and enforce against a registered funding
portal rules of such national securities association written
specifically for registered funding portals.''.
(2) Rulemaking.--The Commission shall issue a rule to carry
out section 3(h) of the Securities Exchange Act of 1934 (15
U.S.C. 78c), as added by this subsection, not later than 270
days after the date of enactment of this Act.
(b) Definition.--Section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following:
``(80) Funding portal.--The term `funding portal' means any
person acting as an intermediary in a transaction involving the
offer or sale of securities for the account of others, solely
pursuant to section 4(6) of the Securities Act of 1933 (15
U.S.C. 77d(6)), that does not--
``(A) offer investment advice or recommendations;
``(B) solicit purchases, sales, or offers to buy
the securities offered or displayed on its website or
portal;
``(C) compensate employees, agents, or other
persons for such solicitation or based on the sale of
securities displayed or referenced on its website or
portal;
``(D) hold, manage, possess, or otherwise handle
investor funds or securities; or
``(E) engage in such other activities as the
Commission, by rule, determines appropriate.''.
SEC. 305. RELATIONSHIP WITH STATE LAW.
(a) In General.--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);''.
(b) Clarification of the Preservation of State Enforcement
Authority.--
(1) In general.--The amendments made by subsection (a)
relate solely to State registration, documentation, and
offering requirements, as described under section 18(a) of
Securities Act of 1933 (15 U.S.C. 77r(a)), and shall have no
impact or limitation on other State authority to take
enforcement action with regard to an issuer, funding portal, or
any other person or entity using the exemption from
registration provided by section 4(6) of that Act.
(2) Clarification of state jurisdiction over unlawful
conduct of funding portals and issuers.--Section 18(c)(1) of
the Securities Act of 1933 (15 U.S.C. 77r(c)(1)) is amended by
striking ``with respect to fraud or deceit, or unlawful conduct
by a broker or dealer, in connection with securities or
securities transactions.'' and inserting the following: ``, in
connection with securities or securities transactions
``(A) with respect to--
``(i) fraud or deceit; or
``(ii) unlawful conduct by a broker or
dealer; and
``(B) in connection to a transaction described
under section 4(6), with respect to--
``(i) fraud or deceit; or
``(ii) unlawful conduct by a broker,
dealer, funding portal, or issuer.''.
(c) Notice Filings Permitted.--Section 18(c)(2) of the Securities
Act of 1933 (15 U.S.C. 77r(c)(2)) is amended by adding at the end the
following:
``(F) Fees not permitted on crowdfunded
securities.--Notwithstanding subparagraphs (A), (B),
and (C), no filing or fee may be required with respect
to any security that is a covered security pursuant to
subsection (b)(4)(B), or will be such a covered
security upon completion of the transaction, except for
the securities commission (or any agency or office
performing like functions) of the State of the
principal place of business of the issuer, or any State
in which purchasers of 50 percent or greater of the
aggregate amount of the issue are residents, provided
that for purposes of this subparagraph, the term
`State' includes the District of Columbia and the
territories of the United States.''.
(d) Funding Portals.--
(1) State exemptions and oversight.--Section 15(i) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(i)) is amended--
(A) by redesignating paragraphs (2) and (3) as
paragraphs (3) and (4), respectively; and
(B) by inserting after paragraph (1) the following:
``(2) Funding portals.--
``(A) Limitation on state laws.--Except as provided
in subparagraph (B), no State or political subdivision
thereof may enforce any law, rule, regulation, or other
administrative action against a registered funding
portal with respect to its business as such.
``(B) Examination and enforcement authority.--
Subparagraph (A) does not apply with respect to the
examination and enforcement of any law, rule,
regulation, or administrative action of a State or
political subdivision thereof in which the principal
place of business of a registered funding portal is
located, provided that such law, rule, regulation, or
administrative action is not in addition to or
different from the requirements for registered funding
portals established by the Commission.
``(C) Definition.--For purposes of this paragraph,
the term `State' includes the District of Columbia and
the territories of the United States.''.
(2) State fraud authority.--Section 18(c)(1) of the
Securities Act of 1933 (15 U.S.C. 77r(c)(1)) is amended by
striking ``or dealer'' and inserting ``, dealer, or funding
portal''.
Attest:
Secretary.
112th CONGRESS
2d Session
H.R. 3606
_______________________________________________________________________
AMENDMENT