[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 1791 Introduced in Senate (IS)]

112th CONGRESS
  1st Session
                                S. 1791

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 2, 2011

  Mr. Brown of Massachusetts introduced the following bill; which was 
read twice and referred to the Committee on Banking, Housing, and Urban 
                                Affairs

_______________________________________________________________________

                                 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,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Democratizing Access to Capital Act 
of 2011''.

SEC. 2. CROWDFUNDING EXEMPTION.

    Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is 
amended--
            (1) in paragraph (2), by inserting before the period at the 
        end ``, other than as provided in paragraph (6)'';
            (2) by striking ``The provisions'' and inserting the 
        following:
    ``(a) In General.--The provisions''; and
            (3) by adding at the end the following:
            ``(6) subject to subsection (b), transactions involving the 
        issuance of securities through a crowdfunding intermediary, 
        whether or not the transaction involves a public offering, for 
        which--
                    ``(A) the aggregate annual amount raised through 
                the issue of the securities is $1,000,000 or less 
                during any 12-month period, by any incorporated entity 
                formed under and subject to the law of any State; and
                    ``(B) individual investments in the securities are 
                limited to an aggregate annual amount of not more than 
                $1,000.
    ``(b) Certain Crowdfunding Exemption Criteria.--
            ``(1) In general.--In order to qualify for the exemption 
        under subsection (a)(6), the issuer shall--
                    ``(A) disclose to investors all rights of 
                investors, including complete information about the 
                risks, obligations, benefits, history, and costs of 
                offering;
                    ``(B) be an incorporated entity formed under and 
                subject to the law of a State; and
                    ``(C) file such notice with the Commission as the 
                Commission shall prescribe.
            ``(2) Disqualification.--Not later than 90 days after the 
        date of enactment of this Act, the Commission shall, by rule or 
        regulation, establish disqualification provisions under which a 
        person shall not be eligible to utilize the exemption under 
        subsection (a)(6), or to participate in the affairs of a 
        crowdfunding 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 (1512 U.S.C. 77d 
        note).
            ``(3) Restricted securities.--Securities issued under a 
        transaction described in subsection (a)(6) shall be considered 
        restricted securities, subject to a one-year holding period.''.

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 ``For the purposes'' and inserting:
                    ``(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(a)(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 subparagraph (C) as subparagraph (D); 
        and
            (2) by inserting after subparagraph (B) the following:
                    ``(C) section 4(a)(6);''.

SEC. 5. 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 crowdfunding intermediaries''.

SEC. 6. NOTICE FILINGS PERMITTED.

    Section 18(c)(2) of the Securities Act of 1933 (15 U.S.C. 
77r(c)(2)) is amended by inserting after subsection (D) the following:
                    ``(E) 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)(C), 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 issuer's 
                State of organization, or any State in which purchasers 
                of 50 percent or greater of the aggregate amount of the 
                issue are a residents.''.

SEC. 7. BROKER AND DEALER EXEMPTIONS.

    (a) Brokers.--Section 3(a)(4) of the Securities Exchange Act of 
1934 (15 U.S.C. 780c(a)(4)) is amended by adding at the end the 
following:
                    ``(G) Exemption for crowdfunding intermediaries.--
                            ``(i) In general.--The term `broker' does 
                        not include any crowdfunding intermediary.
                            ``(ii) Definition.--For purposes of this 
                        paragraph, the term `crowdfunding intermediary' 
                        means any intermediary that--
                                    ``(I) is open to and accessible by 
                                the general public;
                                    ``(II) provides public 
                                communication portals for investors and 
                                potential investors;
                                    ``(III) warns investors of the 
                                speculative nature generally applicable 
                                to investments in startups, emerging 
                                businesses, and small issuers, 
                                including risks in the secondary market 
                                related to illiquidity;
                                    ``(IV) warns investors that they 
                                are subject to a 1-year restriction on 
                                sales of securities issued;
                                    ``(V) takes reasonable measures to 
                                reduce the risk of fraud with respect 
                                to such transaction;
                                    ``(VI) prohibits its employees from 
                                investing in the offerings made through 
                                the crowdfunding intermediary, or to 
                                have any financial interest in the 
                                companies posting offerings through the 
                                crowdfunding intermediary;
                                    ``(VII) does not offer investment 
                                advice or recommendations;
                                    ``(VIII) provides to the 
                                Commission--
                                            ``(aa) the crowdfunding 
                                        intermediary's physical 
                                        address, website address, and 
                                        the names of the crowdfunding 
                                        intermediary and employees of 
                                        the crowdfunding intermediary, 
                                        keeping such information up-to-
                                        date; and
                                            ``(bb) continuous investor-
                                        level access to the 
                                        intermediary's website;
                                    ``(IX) requires each potential 
                                investor to answer questions 
                                demonstrating competency in--
                                            ``(aa) recognition of the 
                                        level of risk generally 
                                        applicable to investments in 
                                        startups, emerging businesses, 
                                        and small issuers;
                                            ``(bb) risk of illiquidity; 
                                        and
                                            ``(cc) such other areas as 
                                        the Commission may determine 
                                        appropriate;
                                    ``(X) 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 not less than 
                                60 percent of the target offering 
                                amount;
                                    ``(XI) carries out a background 
                                check on the issuer's principals;
                                    ``(XII) provides the Commission 
                                with basic notice of the offering, not 
                                later than the first day on which funds 
                                are solicited from potential investors, 
                                including--
                                            ``(aa) the issuer's name, 
                                        legal status, physical address, 
                                        and website address;
                                            ``(bb) the names of the 
                                        issuer's principals;
                                            ``(cc) the stated purpose 
                                        and intended use of the capital 
                                        formation funds sought by the 
                                        issuer; and
                                            ``(dd) the target offering 
                                        amount;
                                    ``(XIII) outsources cash-management 
                                functions to a qualified third-party 
                                custodian, such as a traditional broker 
                                or dealer or insured depository 
                                institution;
                                    ``(XIV) maintains such books and 
                                records as the Commission determines 
                                appropriate; and
                                    ``(XV) defines and makes available 
                                the process for raising and resolving a 
                                complaint, including alternatives 
                                available to investors if the 
                                crowdfunding intermediary is unable to 
                                resolve a dispute to the satisfaction 
                                of the investor.''.
    (b) Dealers.--Section 3(a)(5) of the Securities Exchange Act of 
1934 (15 U.S.C. 780c(a)(4)) is amended by adding at the end the 
following:
                    ``(D) Exemption for crowdfunding intermediaries.--
                The term `dealer' does not include any crowdfunding 
                intermediary described in paragraph (4)(G).''.

SEC. 8. CONFORMING AMENDMENTS.

    (a) Securities Act of 1933.--The Securities Act of 1933 (15 U.S.C. 
77a et seq.) is amended by striking ``section 4'' each place that term 
appears (other than in the amendments made by sections 1 through 4 of 
this Act) and inserting ``section 4(a)''.
    (b) Securities Exchange Act of 1934.--Section 28(f)(5)(E) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E)) is amended by 
striking ``section 4(2)'' and inserting ``section 4(a)(2)''.
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