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)any transaction 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 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, is not more than $1,000,000, as such amount is adjusted by the Commission by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics; (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 the greater of— (i)$500, as such amount is adjusted by the Commission by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics; or (ii)if the investor has an annual income of— (I)greater than $50,000 but less than $100,000 (as such amounts are adjusted by the Commission by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics), 1 percent of the annual income of such investor; or (II)greater than $100,000 (as such amount is adjusted by the Commission by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics), 2 percent of the annual income of such investor; (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:

4A.

Requirements with respect to certain small transactions

(a)

Requirements on intermediaries

A person engaged in the business of effecting transactions in 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 potential investor— (A)reviews investor-education information, in line 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 rule of the Commission, including obtaining a criminal background check and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the shares of every issuer whose securities are offered by such person; (6)not later than 1 month prior to the first day on which securities are offered to any potential investor (or such other period as the Commission may establish), provide in writing to the Commission and each potential investor 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 the target offering amount, and allow all investors to cancel their commitments to invest, as the Commission, by rule, shall determine appropriate; (8)make such efforts as the Commission determines appropriate, by rule, to ensure that, for any offering made pursuant to section 4(6), that no investor exceeds the investment limits set forth in section 4(6)(B); (9)make such efforts as the Commission determines appropriate, by rule, to ensure that no investor has purchased securities offered pursuant to section 4(6), that in the aggregate from all issuers, exceed the greater of— (A)$2,000 (as such amount is adjusted by the Commission, by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics); or (B)if the investor has an annual income of— (i)greater than $50,000 but not more than $100,000 (as such amounts are adjusted by the Commission, by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics), 4 percent of the annual income of such investor; or (ii)greater than $100,000 (as such amount is adjusted by the Commission by notice published in the Federal Register to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics), 8 percent of the annual income of such investor; (10)takes such steps to protect the privacy of information collected from investors as the Commission shall, by rule, determine appropriate; (11)not compensate promoters, finders, lead generators, or other persons to attract or provide the personal information of any potential investor; (12)prohibit its directors, officers, partners, or employees (or any person occupying a similar status or performing a similar function) from having any financial interest in an issuer using its services; and (13)meet such other requirements as the Commission may, by rule, prescribe. (b)

Requirements for issuers

For purposes of section 4(6), an issuer who offers or sells securities shall— (1)be organized under and subject to the laws of a State; (2)file with the Commission and provide to actual and potential investors and the relevant broker or funding portal— (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— (i)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 rule of the Commission for such purpose; or (ii)for offerings seeking to raise more than $500,000 (or such other amount as may be established by the Commission, 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; (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 at which the securities will be offered for a given ownership stake; (H)a description of the ownership and capital structure of the issuer, how the securities being offered are being valued, what the rights of the securities are, and how rights may be exercised by the issuer and shareholders; and (I)such other information as the Commission may, by rule, prescribe; (3)not advertise the specific details of the offering, except for notices which direct investors to the funding portal or broker; (4)file with the Commission and provide to investors quarterly reports of the results of operations and financial statements, 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 prescribe, by rule. (c)

Liability for misstatements

The issuer and any person who is a director or officer (or any person occupying a similar status or performing a similar function) or partner in the issuer shall be liable to any person acquiring such security that was subject to an offering pursuant to section 4(6) for any untrue statement of a material fact or omission to state a material fact required to be stated in connection with any offering made pursuant to section 4(6). (d)

Information available to States

The Commission shall make the information described in subsection (b) and such other information as the Commission, by rule, determines appropriate, available to the appropriate securities regulatory authority of each State. (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 2-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 of the purchaser; and (2)shall be subject to such other limitations as the Commission shall establish, by rule. (f)

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).

(c)

Rulemaking

Not later than 1 year after the date of enactment of this Act, the Securities and Exchange Commission (in this Act referred to as the Commission) shall issue such rules as may be necessary to carry out section 4(6) and section 4A of the Securities Act of 1933, as added by this Act. (d)

Disqualification

Not later than 1 year after the date of enactment of this Act, the Commission shall, by rule, establish disqualification provisions that are 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)— (1)under which an issuer shall not be eligible to offer securities pursuant to section 4(6) of the Securities Act of 1933, as added by this Act; and (2)under which a funding portal or broker shall not be eligible to effect transactions for the account of others pursuant to section 4(6) of the Securities Act of 1933, as added by this Act.