[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





 THE JOBS ACT IN ACTION: OVERSEEING EFFECTIVE IMPLEMENTATION THAT CAN 
                           GROW AMERICAN JOBS

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON TARP, FINANCIAL SERVICES
              AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 26, 2012

                               __________

                           Serial No. 112-168

                               __________

Printed for the use of the Committee on Oversight and Government Reform









         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform
                                _____

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

  Subcommittee on TARP, Financial Services and Bailouts of Public and 
                            Private Programs

              PATRICK T. McHENRY, North Carolina, Chairman
FRANK C. GUINTA, New Hampshire,      MIKE QUIGLEY, Illinois, Ranking 
    Vice Chairman                        Minority Member
ANN MARIE BUERKLE, New York          CAROLYN B. MALONEY, New York
JUSTIN AMASH, Michigan               PETER WELCH, Vermont
PATRICK MEEHAN, Pennsylvania         JOHN A. YARMUTH, Kentucky
JOE WALSH, Illinois                  JACKIE SPEIER, California
TREY GOWDY, South Carolina           JIM COOPER, Tennessee
DENNIS A. ROSS, Florida


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 26, 2012....................................     1

                               WITNESSES

Mr. Brian G. Cartwright, Ph.D., Scholar-in-Residence, Marshall 
  School of Business, University of Southern California, and 
  Senior Advisor, Patomak Global Partners, LLC
    Oral Statement...............................................     4
    Written Statement............................................     6
Mr. Alon Hillel-Tuch, Co-founder and CFO, RocketHub
    Oral Statement...............................................    19
    Written Statement............................................    21
Mr. C. Steven Bradford, J.D., Professor of Law, University of 
  Nebraska School of Law
    Oral Statement...............................................    24
    Written Statement............................................    26
Mr. John C. Coffee, Jr., Professor of Law, Columbia University 
  Law School
    Oral Statement...............................................    44
    Written Statement............................................    46

                                APPENDIX

The Honorable Patrick McHenry, a Member of Congress from the 
  State of North Carolina, Opening Statement.....................    84
Redrawing the Boundaries: JOBS Act's Impact on the Crowdfunding 
  Phenomenon and the Regulatory Framework of the Restricted 
  Securities Market, Aaron J. Horn...............................    86

 
 THE JOBS ACT IN ACTION: OVERSEEING EFFECTIVE IMPLEMENTATION THAT CAN 
                           GROW AMERICAN JOBS

                              ----------                              


                         Tuesday, June 26, 2012

                  House of Representatives,
     Subcommittee on TARP, Financial Services, and 
           Bailouts of Public and Private Programs,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 2154, Rayburn House Office Building, Hon. Patrick T. 
McHenry [chairman of the subcommittee] presiding.
    Present: Representatives McHenry, Guinta, and Quigley.
    Staff Present: Ali Ahmad, Deputy Press Secretary; Will L. 
Boyington, Staff Assistant; John Cuaderes, Deputy Staff 
Director; Linda Good, Chief Clerk; Peter Haller, Senior 
Counsel; Christopher Hixon, Deputy Chief Counsel, Oversight; 
and Cheyenne Steel; Jaron Bourke, Minority Director of 
Administration; Jennifer Hoffman, Minority Press Secretary; 
Adam Koshkin, Minority Staff Assistant; Jason Powell, Minority 
Senior Counsel; Brian Quinn, Minority Counsel; and Davida 
Walsh, Minority Counsel.
    Mr. McHenry. Good afternoon, and thank you all for being 
here today. This is the Subcommittee on TARP, Financial 
Services and Bailouts of Public and Private Programs, and our 
hearing today is: The JOBS Act in Action: Overseeing Effective 
Implementation that Can Grow American Jobs.
    I will start today's hearing as we always do, as by reading 
the Oversight and Government Reform Committee's mission 
statement. The Oversight Committee mission statement: We exist 
to secure two fundamental principles. First, Americans have a 
right to know that the money Washington takes from them is well 
spent; and second, Americans deserve an efficient, effective 
government that works for them. Our duty on the Oversight and 
Government Reform Committee is to protect these rights. Our 
solemn responsibility is to hold government accountable to 
taxpayers, because taxpayers have a right to know what they get 
from their government. We will work tirelessly in partnership 
with citizen watchdogs to deliver the facts to the American 
people and bring genuine reform to the Federal bureaucracy.
    This is the mission of the Oversight and Government Reform 
Committee.
    I will now recognize myself for 5 minutes for the purposes 
of an opening statement.
    Approximately 3 years into our economic recovery, America's 
labor and capital markets continue to face unprecedented 
challenges. The U.S. unemployment rate has now been above 8 
percent for 40 consecutive months and nearly 24 million 
Americans are either out of work or underemployed despite 
various government-driven initiatives. To make matters worse, 
outdated and even oftentimes new government regulations 
continue to limit the ability of small businesses to access 
capital, which is the lifeblood of our economy. Repairing and 
strengthening our markets will not occur overnight, nor will it 
be accomplished by more government regulation.
    In an effort to address these challenges, the focus of 
today's oversight hearing is on a bipartisan bill signed into 
law this past April, meant to promote capital formation for 
small businesses by relaxing various securities laws. Titled 
the Jumpstart Our Business Startups Act, it is commonly 
referred to as the JOBS Act.
    Let me first say that the JOBS Act is a significant victory 
for capital formation and entrepreneurship here in the United 
States. I am particularly proud that the efforts by this 
committee, initiated by Chairman Darrell Issa back in March of 
2011, his letter to the Securities and Exchange Commission 
Chairwoman, Mary Schapiro, helped develop the JOBS Act and 
modernize our securities laws.
    For instance, elimination of the ban on general 
solicitation, a rule that has been in place since the 
Securities Act of 1933, will improve the ability of small 
private businesses to communicate with investors and raise 
capital. Increasing the private shareholder cap from 500 to 
2,000 that a company may have before registering with the SEC 
has been welcomed as a logical adjustment. It simply reduces 
the number of instances a company is forced to endure a 
complicated SEC filing process, merely because it attracted too 
many accredited or institutional investors.
    Now, Title III of the JOBS Act, based off legislation that 
I authored, creates a new federal securities exemption to 
permit equity-based crowdfunding. After introducing the first 
crowdfunding bill in Congress, I reached out to my colleagues 
on the other side of the aisle to build a bipartisan coalition 
so that we can actually enact this bill to address these 
concerns of the interested parties.
    Specifically, I want to commend Congresswoman Carolyn 
Maloney, who serves on this subcommittee, as well as Oversight 
and Government Reform Committee at large, and also serves with 
me on the Financial Services Committee. Now, Carolyn and I 
don't often see eye to eye on matters of public policy, but in 
this instance we collaborated and worked together to take the 
legislation I introduced to improve it. Now, Carolyn had a 
number of concerns about fraud and a number of investor 
protection ideas, and we worked very diligently, very 
diligently to craft a very balanced bill that we were able to 
pass not just out of committee, but on the House floor.
    And before it came to a vote on the House floor, President 
Obama put forward a statement of administrative policy that he 
endorsed and would sign the bill. Well, unfortunately, due to a 
few Senators who I think misinterpreted the spirit and promise 
of crowdfunding, the Senate inserted imperfect--we will just 
call them imperfect provisions that jeopardize the vitality of 
equity-based crowdfunding and complicated SEC rulemaking.
    As the SEC considers comments regarding crowdfunding, the 
crowdfunding title of the JOBS Act, it is clear that the 
Senate's eleventh-hour changes have unnecessarily made sections 
of the JOBS Act ambiguous and inconsistent.
    Today's hearing serves as an opportunity for Congress to 
hear from knowledgeable folks that either participate in the 
arena of crowdfunding as it now exists. It is not equity-based. 
It is not on the investorside, but crowdfunding as it now 
exists market participants, and academic experts about these 
provisions of the JOBS Act, and I want to get their thoughts, 
and that is really what this is about.
    Our intention is for Congress, interested parties, and the 
SEC to work together to ensure that effective rules and 
policies are promulgated that will allow crowdfunding to 
flourish. And if crowdfunding flourishes, I think our small 
businesses have another opportunity to flourish.
    I thank the witnesses for making the trip here and I want 
to thank the ranking member, Mr. Quigley, for his involvement 
on this area of public policy, as well as many others. And with 
that I recognize ranking member for 5 minutes.
    Mr. Quigley. Thank you, Mr. Chairman. I want to thank the 
chairman for holding this hearing to examine the implementation 
of the JOBS Act. The JOBS Act, as you know, was passed with 
bipartisan support and signed into law by the President on 
April 5th of this year. The act alters Federal securities laws 
and regulations to make it easier for small businesses and 
startups to raise capital. For example, the act will create a 
unique status for emerging growth companies that will allow 
these companies greater flexibility in testing the IPO waters.
    The act will also lift restrictions on the ability of the 
startup companies to raise capital. Startups, if they survive 
their earliest years, make an outsized contribution to 
sustainable job growth. Under Title III of the JOBS Act 
startups will now be able to raise capital they need through 
crowdfunding. This is a welcome step forward, and I commend the 
President who endorsed the idea in his 2012 State of the Union 
Address and the chairman of the subcommittee who sponsored the 
original crowdfunding legislation for working together on this 
issue.
    At the same time, the regulatory restrictions that were 
rolled back by the JOBS Act were originally put in place for a 
reason. There are legitimate concerns that exempting this type 
of activity from securities regulation would open or expand 
opportunities for fraud. Just as clean water standards keep our 
water safe to drink, financial regulations protect us against 
unsafe financial products.
    While Congress judged, correctly in my view, that there 
were too many hurdles to raising capital, the SEC's mission is 
still to protect investors and maintain fair, orderly, and 
efficient markets. New rulemaking under the JOBS Act should 
follow the same process and procedures as in the past. There is 
no reason the JOBS Act should be prioritized in front of 
pending Dodd-Frank rulemakings, which have been delayed as a 
result of intense scrutiny from Congress and the courts. The 
same standard should apply equally to all of the SEC's 
rulemaking that are required by law.
    I also believe that Dodd-Frank and the JOBS Act are two 
sides of the same coin. Before and during the financial crisis 
our financial regulations were deficient. As banks collapsed 
and the housing market bottomed out, investors lost their 
savings, homeowners lost their homes and millions of Americans 
lost their jobs. By passing and implementing Dodd-Frank, we 
will ensure that the next generation of Americans is not so 
vulnerable to financial catastrophe.
    At the same time we can also recognize that not all 
regulations are necessary and that some may inhibit job growth 
more than protect it. That's why I was proud to support the 
JOBS Act.
    Going forward, I am eager to work with the SEC and both 
sides of the aisle to ensure that these two acts of Congress 
are implemented in a timely and responsible fashion.
    Thank you, Mr. Chairman, and I yield back.
    Mr. McHenry. I thank the ranking member. Members will have 
7 days to submit opening statements for the record. We will now 
recognize our panel.
    Mr. Brian Cartwright is a scholar, is a Scholar-in-
Residence of Marshall School of Business, University of 
Southern California, a Senior Advisor at Patomak Global 
Partners, and former General Counsel of the Securities and 
Exchange Commission. Thank you for being here.
    Mr. Alon Hillel-Tuch--did I say that correctly?--is the Co-
Founder and Chief Financial Officer of RocketHub Incorporated, 
and for those of you who are not familiar, it is a fantastic 
crowdfunding site doing exciting things.
    Mr. C. Steven Bradford is a Professor of Law at the 
University of Nebraska College of Law, and has written numerous 
works on crowdfunding.
    Mr. John Coffee, Jr., is a Professor of Law at Columbia 
University Law School.
    It is the policy of this committee that all witnesses be 
sworn in before they testify. So if you will please stand and 
raise your right arm--right hand, actually. Do you solemnly 
swear or affirm that the testimony you are about to give will 
be the truth, the whole truth, and nothing but the truth?
    All right, thanks. You may be seated. Let the record 
reflect that the witnesses answered in the affirmative.
    In order to allow time for discussion, we have the lights 
set up for you. We are Members of Congress so they are very 
simple, right? Red means stop. Yellow means hurry up and 
finish. Green means go. So we will give you 5 minutes to 
summarize your opening statements. Your opening statements--
your written statements will be in as a part of the record. And 
so we will begin.
    Mr. Cartwright, you are recognized for 5 minutes.

                       WITNESS STATEMENTS

                STATEMENT OF BRIAN G. CARTWRIGHT

    Mr. Cartwright. Well, Chairman McHenry, Ranking Member 
Quigley, members of the subcommittee, you have honored me with 
your invitation to appear before you today and I thank you for 
having me. You have my written testimony, and I won't try to 
rehearse that testimony again here in these brief introductory 
remarks. Instead, I want to frame the questions and discussions 
to follow by offering my perspective on why the JOBS Act was 
passed with the support of the administration by overwhelming 
votes in both Houses of Congress and why I think we are here 
today.
    I believe the JOBS Act was passed because there is a 
widespread, fully bipartisan understanding that something has 
gone quite wrong in the world of American public companies, 
particularly the newer up and coming companies. After all, the 
number of public companies, exchange listed companies has 
declined dramatically. In the roughest of numbers, we have gone 
from having somewhere around 8,000 exchange-listed companies to 
something in the vicinity of 5,000. That's a dramatic drop. 
It's happened because not enough companies are signing up to go 
public to replace those who drop out. The number of initial 
public offerings has trended down far below previous levels.
    But the most alarming development of all may be this, and I 
know this from my days in practice. Back in the day, venture 
capitalists would take a successful, innovative new company 
public and many of those companies would then blossom and grow 
and produce countless jobs, and we know that most of the jobs 
actually come after a company goes public.
    That's what used to happen upwards of 80 percent of the 
time. But today that number has flipped. Today, over 80 
percent, approaching 90 percent of successful venture-backed 
companies are acquired rather than taken public. And that makes 
all the difference in the world, because we know that 
acquisitions rather than growing jobs often subtract jobs, 
because the acquirer seeks to achieve efficiencies, as the 
press release will euphemistically refer to it.
    So I ask you to just imagine what the world would be like 
today if Microsoft had been managed to make it as attractive as 
possible to its most likely potential acquirer, IBM and IBM had 
in fact then acquired it. And I submit to you that if that had 
happened Seattle would be a very different city today. And 
replicate that hundreds of times over, and the U.S. would be a 
very different country today.
    Public companies that were originally ventured back are 
estimated by some to contribute something like 20 percent of 
our current GDP. Imagine the problems we would be facing if we 
didn't have that 20 percent today.
    I think those are illustrative of the developments that I 
believe led to the JOBS Act, which in my view makes only quite 
modest, incremental tweaks to the existing system. Time will 
tell, but those modest incremental tweaks may well prove 
insufficient to get us where we need to be, and maybe some of 
your questions you will be asking will be directed that way. 
But the JOBS Act is a welcome, broadly bipartisan attempt to 
move us in the right direction. And of course, even those 
modest steps have been resisted by the defenders of the status 
quo.
    So the SEC needs to be encouraged to move with all 
deliberate speed to implement the JOBS Act promptly and 
faithfully. And I thank you very much, and I eagerly look 
forward to your questions on this important topic.
    [Prepared statement of Mr. Cartwright follows:]
    





    
    Mr. McHenry. Mr. Hillel-Tuch.

                 STATEMENT OF ALON HILLEL-TUCH

    Mr. Hillel-Tuch. So Mr. Chairman McHenry, Ranking Member 
Quigley, and members of the committee who are able to attend. 
My name is Alon Hillel-Tuch. I am a Co-Founder and CFO of 
RocketHub, and I thank you guys for the opportunity to provide 
testimony on implementation of the JOBS Act and the proper 
elimination of government barriers to small business capital 
formation.
    Background on RocketHub. RocketHub is an established 
crowdfunding website, one of the largest in the world, and we 
have provided a platform for the launch of over 8,000 campaigns 
so far since 2010 and raised over $2 million to support 
entrepreneurs and small businesses. These successful campaigns 
have provided funding to businesses of all types from a local 
bakery to a startup developer of medical devices to enabling 
the financing of a film production.
    Crowdfunding really is the application of new technology to 
an old idea. People have always sought support in their 
community to help raise money for new business. The advent of 
web-based social networking allows people to expand their 
community to their online friends and to benefit from the lower 
costs of the web-based platform.
    Thanks to Title III of the JOBS Act, crowdfunding in the 
U.S. Will soon expand to permit the sale of stock by these 
entrepreneurs to their supporters. And we at RocketHub look 
forward to this development, and we intend to register as a 
crowdfunding portal as provided in the JOBS Act.
    While I believe that the JOBS Act will benefit small 
businesses in the U.S., I also believe that its impact can be 
improved for the proper use of the Securities and Exchange 
Commission's discretion in rulemaking, and through certain 
amendments to the act as well.
    I see three areas for improvement. I want to try to fit it 
into the time I have.
    In the JOBS Act, Congress provided that issuers utilizing 
crowdfunding platforms must provide investors with certain 
information, including audited financial statements where the 
issuer seeks to raise more than $500,000 or such other amount 
as the Commission may establish. I believe that this $500,000 
threshold is too low and that the audited financial statement 
should not be required unless the issuer seeks to raise $1 
million. Crowdfunding typically attracts startup companies and 
small businesses, and audited historical financial statements 
of these types of companies, which may have little or no 
operations or relevance. They do not provide investors with 
more meaningful information as compared to unaudited financial 
statements, yet they impose a significant cost on the 
entrepreneur which might really kill this. Making this change 
could save small businesses tens of thousands of dollars for 
opening up the opportunity for them to take full advantage of 
the platform.
    A second area where the Commission should exercise its 
discretion in rulemaking is really by minimizing upfront 
expenses to the entrepreneurs and small businesses that seek to 
crowdfund. Crowdfunding platforms usually charge fees for 
successful projects. This allows small businesses to access 
crowdfunding at a minimal initial cost, which is critical. If 
they attract support for their projects, then they have the 
funds to pay fees. If their idea does not attract support, 
their costs are minimal and no support is charged and the 
entrepreneur can come back in the future with a new idea.
    In implementing the JOBS Act, it is important that the 
Commission considers and is careful around preserving the fee 
structure. The platform should be able to charge fees on 
successful projects while not imposing costs on projects that 
do not attract funding. This structure allows more small 
companies to use crowdfunding while reducing their risk if they 
are unable to attract financing.
    One area that Congress should address the JOBS Act is to 
raise the crowdfunding exemption to $5 million from $1 million. 
The higher amount will allow more small businesses who need 
capital to utilize the cost-effective crowdfunding methods. 
Currently, a company that seeks more than $1 million is unable 
to use crowdfunding and must still rely on traditional venture 
capital, angel investors, credit card debt, or small business 
loans. These sources may not be available to all businesses, 
especially startups, women and minority-led businesses, and 
those additional small businesses that fall outside the high 
tech model. Raising this limit will allow crowdfunding to more 
effectively compete as a source of funds through venture 
capital and banks and giving small businesses more options to 
drive down financing costs.
    Crowdfunding can be an important economic tool to help 
small businesses grow and drive job creation. I believe that 
raising the aggregate limit for crowdfunding to $5 million, 
limiting the costs associated with audited financials to raises 
above $1 million and aligning the interests of companies, 
investors, and platforms with a success fee structure, we can 
increase the economic benefit provided by crowdfunding.
    These reforms will increase the number and type of 
companies that choose to raise capital and expand the role of 
crowdfunding in small business finance. We also expand the 
opportunity and benefits to crowdfunding investors, allowing 
these small investors the ability to participate in the growth 
and success of a wider range of companies, including those in 
their communities.
    So I'm going to quickly close with a quick response to two 
common questions. First is: Will crowdfunding lead to a lot of 
fraud by issuers? No, it won't. In fact, crowdfunding 
structures help minimize risk. Crowdfunding is highly 
transparent and there is substantial feedback from community 
participants. The crowd helps police players and keeps them 
honest, and crowdfunding portals and regulators are able to 
drive standardized understandable terms across offerings.
    I thank you for your time and I'm looking forward to 
questions.
    [Prepared statement of Mr. Hillel-Tuch follows:]





    Mr. McHenry. Thank you. Thank you so much. Professor 
Bradford.

                STATEMENT OF C. STEVEN BRADFORD

    Mr. Bradford. Chairman McHenry, Ranking Member Quigley, 
members of the subcommittee, good afternoon. My name is Steve 
Bradford. I am a Professor of Law at the University of 
Nebraska. Much of my work focuses on small business capital 
formation under Federal securities law, and it is an honor to 
be able to address you on that subject today.
    I have recently written two articles on crowdfunding, and I 
would like to focus my comments on the crowdfunding provisions 
of the JOBS Act. I believe that crowdfunding could spark a 
revolution in small business financing, opening up much needed 
new sources of startup capital, but whether that happens 
depends in good part on the regulatory burden. Those small 
offerings will be possible only if the cost of complying with 
securities regulation doesn't consume a large portion of the 
offering proceeds.
    The new Federal securities law crowdfunding exemption 
created by the JOBS Act is an important first step, but that 
exemption isn't complete until the SEC enacts implementing 
regulations. The usefulness of the crowdfunding exemption will 
depend in part on how the Commission exercises its rather 
substantial regulatory authority.
    My written statement includes a number of specific 
recommendations concerning the crowdfunding rules, and I would 
be happy to discuss any of those with the members of the 
committee. But in the time available, I want to limit myself to 
four important points:
    First, cost is a critical consideration for the very small 
offerings that crowdfunding facilitates. Because of that, I 
believe the SEC crowdfunding regulations should be as light-
handed and unobtrusive as possible. In the name of investor 
protection, the statute already imposes significant regulatory 
requirements on both crowdfunding issuers, and on the brokers 
and funding portals who will act as intermediaries in 
crowdfunded offerings. Adding additional layers of regulation 
on top of those requirements would increase the cost of using 
the exemption without much additional benefit, and would also 
be inconsistent with the thrust of the JOBS Act to reduce the 
regulatory burden on small business capital formation.
    Second, to the extent that any additional regulation is 
required, it should be imposed on crowdfunding intermediaries, 
brokers and funding portals, rather than on the entrepreneurs 
raising funds. Crowdfunding intermediaries will be more 
sophisticated and more heavily capitalized than the small 
business issuers engaging in crowdfunding. Those brokers and 
funding portals can afford securities counsel to guide them 
through the regulations. There will also be repeat players so 
they can spread any regulatory costs over a large number of 
offerings. Because of that, I think it makes sense to center 
the regulation on those intermediaries rather than on the 
companies raising money.
    Third, the SEC crowdfunding regulation should be clear, 
concise, and written in plain English. The SEC requires 
corporate disclosures to meet those requirements in order to 
facilitate understanding by investors. In drafting the 
crowdfunding rules, the Commission should follow its own plain 
English standard in order to facilitate understanding and 
compliance by crowdfunding issuers. Many of the small business 
issuers using the crowdfunding exemption will be legally and 
financially unsophisticated. If the regulations are dense and 
legally complex, those businesses will need sophisticated 
securities counsel to guide them through the regulations. That 
would significantly increase the cost of the offering, and for 
these small offerings cost is all important. That leaves 
issuers with two alternatives, either they try to navigate the 
complex rules on their own, in which case violations are 
likely, or they would simply not use the exemption in which 
case the promise of crowdfunding won't be realized. The best 
way to deal with the issue is to write the rules so that small 
business entrepreneurs can understand them without hiring 
expensive attorneys.
    Fourth and finally, the SEC should adopt a substantial 
compliance rule to protect issuers and crowdfunding 
intermediaries who inadvertently violate some of the 
requirements of the exemption. The exemption contains a lot of 
detail and, as I have said, the issuers using it will not be 
particularly sophisticated. Because of that, the possibility of 
an inadvertent violation is high, and the consequences of even 
a minor, immaterial technical violation are drastic: Loss of 
the exemption, violation of the Securities Act, and liability 
to return all of the money to every single purchaser.
    Other Securities Act exemptions protect issuers who 
substantially comply with the requirements of the exemption, or 
who reasonably believe the requirements of the exemption are 
met even if it turns out they aren't, and the SEC should 
include similar rules in the crowdfunding regulation.
    My written statement includes a number of other specific 
recommendations, but my time is just about up so let me just 
thank you again for the opportunity to talk to you today.
    [Prepared statement of Mr. Bradford follows:]





    Mr. McHenry. I certainly appreciate it, and we will now 
recognize Mr. Coffee.

                STATEMENT OF JOHN C. COFFEE, JR.

    Mr. Coffee. Thank you, Chairman McHenry, Ranking Member 
Quigley, members of the subcommittee. My name is Jack Coffee 
and I have been working in the field of securities regulation 
and initial public offerings for over 40 years. Let me make 
three basic points all briefly.
    First, I believe the greatest enemy of job creation today 
is not overregulation, but the loss of investor confidence. 
Today, American investors have lost confidence in the IPO 
marketplace. This is evidenced by the Facebook fiasco, the 
drying up of the IPO pipeline, and the low trading price of 
most of the recent social media initial public offerings, all 
of which are trading below their offering price. This erosion 
in confidence probably goes all the way back to the burst of 
the Internet bubble in 2001, and confidence has not been 
restored.
    But more recently, there has been a new focus. Investors 
are again and again complaining about the prevalence of 
selective disclosure in IPOs, as issuers, underwriters and 
analysts seem to be tipping, as seems to have occurred in 
Facebook, projections and forecasts to preferred institutional 
investors. I think there are a number of problems with the IPO 
marketplace today, and I agree with many of the comments made 
by Oversight Committee Chairman Issa in his recent letter to 
the SEC, particularly his views that there should be greater 
attention given to the role of auctions in this process.
    But in the oversight and overviewing the IPO process, I 
would point you particularly to the problem of selective 
disclosure. There is no efficiency in selective disclosure. 
This is an issue of fairness, and I think there are ways in 
which is JOBS Act actually compounds this problem, as I set 
forth in my written testimony.
    Let me move now to my second point. The JOBS Act on 
virtually every page requires the SEC to adopt new rules to 
implement the JOBS Act, and it imposes fairly tight timetables. 
And the first of those deadlines expires on July 4th with 
respect to crowdfunding.
    Under recent decisions of the D.C. Circuit Court of 
Appeals, these proposed rules that the SEC must adopt shortly 
are vulnerable to judicial second guessing. Either the D.C. 
Circuit might find some costs to be overstated, or it might 
find some benefit to be understated, or it might even say that 
the empirical studies done by others that the agency is relying 
upon are just not reliable. All this has happened repeatedly in 
recent decisions. As a result, the SEC stands at risk that its 
rules could be found to be arbitrary, capricious, as has 
happened on three or four recent occasions. As a result, 
virtually everyone affected by SEC rules today under the JOBS 
Act has an incentive to sue. If they are not happy, they are 
going to find an attorney and many are going to go to court. 
This will result in continuing uncertainty, confusion, and 
delay in the implementation process. Even if the SEC makes a 
superhuman effort, litigation is still predictable because 
someone who is not happy with the rule now has a fair option of 
going to court and suing.
    Third point, which relates to the second, I reviewed the 
Commission's most recent policy statements, including the 
statement dated March 16, 2012, setting forth its ``current 
guidelines on economic analysis and SEC rulemaking.'' I believe 
these new guidelines properly integrate economic analysis with 
the rulemaking process. They do require the Commission to 
consider economically reasonable alternatives to the rule being 
proposed, and they do require the careful matching of costs and 
benefits. Of course, I cannot tell you that the Commission will 
always follow these principles and rules that have not yet been 
proposed or formulated, but I can tell you that whatever the 
Commission does, whatever heroic effort it may make, there is 
still a real prospect that the D.C. Circuit could disagree and 
substitute its judgment for the Commission's judgment. If that 
happens, I cannot tell you that a Federal Court has a better 
judgment or greater expertise than the Securities and Exchange 
Commission. It is not more expert. It is not more sensitive to 
the market. Thus, I do not think we will come out with better 
rules through that process.
    My bottom line here is that the SEC is today caught between 
the rock and the hard place. It has been asked to expedite 
rules and it is trying to do so, but it faces a somewhat 
unsympathetic bench that is quite skeptical of rulemaking in 
general. I could give you some specific examples and might like 
to do so if we have questions. For example, the SEC has to 
adopt rules both on the use of audited financial statements, on 
the use of follow-up periodic disclosure after an offering. 
This is true both under Section 3(b) and under the new 
crowdfunding exemption.
    I think in all of those areas the Commission is doing what 
Congress has told them to do, but I think we are going to see a 
long battle because I predict that those unhappy with these 
rules are going to try to exercise the judicial option. 
Ultimately, the danger here is that we can be led back to the 
Lochner era of the 1930s, when courts could substitute their 
analysis and their preferences for those of the agency by 
saying that it interfered with freedom of contract. Today 
instead they will be saying it interferes with proper cost-
benefit analysis. There is a danger that looms here, and I will 
stop at that point.
    [Prepared statement of Mr. Coffee follows:]





    
    Mr. McHenry. Well, I thank the panel for their testimony, 
and your written testimony will be in the record. I will now 
recognize myself for 5 minutes.
    Now, securities regulation, you know, we have a foundation 
of 1933 and 1934 for the essence of our securities regulations. 
That is still the foundation of what we deal with today. And at 
the time, we were, Congress was acting to deal with a 
challenge, which was the folks standing on the street corners 
hawking securities. Right? Times have changed. We now have the 
Internet. What we have found and what I have said multiple 
times before is that under the mentality of the SEC, the 
website eBay would not be able to exist. Because the SEC would 
not be there to root out folks that have lower net worth from 
purchasing products. Instead, we know that eBay sells, you 
know, billions of dollars on a yearly basis between people that 
don't know each other, two individuals of average means that 
don't know each other. But under the SEC mentality, that simply 
would not be able to take place without massive fraud. But then 
we have the SEC, and we have known the very large failures of 
the SEC to root out fraud among regulated entities that they 
oversee, and that is unfortunate. We don't want that. We don't 
want any fraud in this, in the crowdfunding space or in 
securities at all.
    So there is a question of how we root this out. Mr. Hillel-
Tuch, you mentioned that you believe that fraud could be, in 
essence, rooted out through the power of the crowd. Can you 
explain why you believe that?
    Mr. Hillel-Tuch. Yeah, absolutely, not a problem. 
Crowdfunding is very transparent. As I mentioned earlier, there 
is a lot of feedback from community participants. In essence, 
the crowd basically polices players. It keeps them honest. The 
beauty about crowdfunding is you have a centralized location, 
which is the portal, and it allows for communication by 
potential investors to analyze and share their views on 
offerings, and web-based structure also allows portals and 
regulations to provide risk disclosure and investor education.
    We definitely expect portals and their operators to 
undertake a gatekeeping role in authenticating issue identity 
and require minimum standards. But what we have noticed, 
historically, both on our platform and others, is the crowd is 
extremely wise in assessing potential risk. On top of that, 
looking at 1930, for example, you didn't have the access to 
information you have now. I am able to go on to Google, for 
example, and research a company to see their track history, see 
their online presence as well as off-line. I am able to pull of 
a credit score. I am able to research individuals all from the 
comfort of my home. This is something that every investor is 
able to do now that simply did not exist before the computers 
and before the Internet. The access to information to an 
individual now is at a level that is unheard of. We are just 
not utilizing it for fraud prevention, which is very 
unfortunate.
    Mr. McHenry. So fraud prevention. Professor Bradford, you 
mention in your writings, you mention also in your testimony 
today that imposing additional layers of mandatory disclosure 
on the issuer rather than the portal is not the best way to 
root out fraud. Can you flesh that out for us?
    Mr. Bradford. Well, it is mostly because the entrepreneurs 
that are going to be using this, and these are relatively small 
offerings, relatively inexperienced entrepreneurs, simply can't 
bear the cost of that burden. If I'm making a $200,000 
offering, it doesn't take much cost before I simply can't do 
it. Every dollar that is paid for regulatory cost, every dollar 
that is paid to the intermediaries is a dollar that I don't get 
to use for my business.
    And therefore, it makes more sense to try and do it 
structurally through the entrepreneurs and protect fraud that 
way than imposing a whole bunch of complicated disclosure 
requirements that these people probably aren't going to fully 
understand in any event without having to hire securities 
counsel, which is another expense.
    Mr. McHenry. So do the 50 States as it stands now have the 
ability to root out fraud?
    Mr. Bradford. Well, the 50 States and the SEC. I mean, 
nobody was talking about taking away the antifraud rules. The 
States under the JOBS Act still have the ability to enforce 
their fraud restrictions. That's not preempted. The SEC has the 
existing antifraud rules plus an additional antifraud rule in 
the crowdfunding provisions. And that is the best way to attack 
fraud because that only imposes costs on the fraudsters. The 
problem with expensive mandatory disclosure requirements is you 
are imposing costing on everyone that wants to raise money, 
most of whom, at least I believe, are honest entrepreneurs and 
acting in good faith to raise money for their business, and 
everything that we impose on them in the name of fraud 
protection is going to be borne mostly by honest people.
    Mr. McHenry. Well, thank you for your testimony. We expect 
a second round of questions. So I will now recognize Mr. 
Quigley for 5 minutes.
    Mr. Quigley. Well, the same two gentlemen, just for the 
sake of argument, you recognize a little bit of the difference 
of most of the transactions that take place on eBay. Most 
people know when they are buying a bike on eBay what a bike 
should be, right? But some of these investments, Mr. Hillel-
Tuch, you acknowledged that there is a little more 
sophistication involved here, and I supported this act, but 
just for the sake of argument let's talk about how we implement 
it.
    At least some sense of protecting those, because of the 
level of sophistication that is involved with this, and the 
concerns that are--that can take place with people who aren't 
as practiced. You acknowledge that. They are not as practiced 
at investing in the first place.
    Mr. Hillel-Tuch. That's actually a great position we can 
discuss. What is very critical what a portal provides over any 
other kind of real structure is standardization of a lot of the 
requirements and the education that absolutely is necessary to 
the different levels of sophistication. Granted, assuming an 
accredited investor is sophisticated is ludicrous in itself. 
That said, through a portal, what you are able to provide is, 
and we completely agree with Professor Bradford, it is critical 
to make it as seamless and low friction as possible, and cost 
is the decisive factor. The SEC can very easily make this cost 
prohibitive when that is completely unnecessary.
    Fraud and investor education go very much hand in hand. One 
of the things we have noticed with crowdfunding right now is a 
lot of the net worth comes from individuals who are in your 
neighborhood. I mean, we have an example right now of a tea 
shop in Shelbyville, Kentucky, trying to raise funds. It did so 
last year. And they raised it from within their community. 
Their community knows that shop. The community raises funds 
together to help that shop succeed. And those are the kinds of 
businesses that are not venture backable right now, but they do 
have members in their community who believe in that business, 
want to support that business, and are right now not permitted 
to do so.
    And the education level is different. They don't have the 
interest of getting a short-term return on their investment. 
They are looking at the long-term strategy.
    Mr. Quigley. Professor Bradford?
    Mr. Bradford. I'm perfectly willing to concede that what is 
sold on eBay is different from securities, and that securities 
are without a doubt more sophisticated than most of the 
products that are sold on eBay. But I do think that what eBay 
has learned through their platform about preventing fraud, is 
useful to crowdfunding. For a fraudster, if I get money it's 
money. It doesn't matter whether I am pretending to sell people 
securities or whether I am pretending to sell them goods that I 
don't eventually deliver. And I think the experience with eBay 
shows a couple of things.
    Number one, it shows that we can use an Internet platform 
to sell things. We can have fraud protection techniques in 
place to help prevent fraud. But having said that, I wouldn't, 
I'm not going so far as to say that securities crowdfunding 
ought to be unregulated. I think some of the things we have in 
the exemption, a limit on how much people can invest that you 
don't see when people are buying goods on eBay; some disclosure 
about what is going on, what the entrepreneur is going to do. 
Clearly, there ought to be more regulation of crowdfunding than 
there is of eBay. No dispute about that.
    Mr. Quigley. Mr. Cartwright, if you want to weigh in.
    Mr. Cartwright. Yes, thank you. We are talking about fraud 
in small offerings. And I would like to start with the baseline 
of where we stand today because--and I feel very passionate 
about this. If you spend most of your career in a large law 
firm where you are too expensive to work with small offerings, 
you don't really see much of this. But when you go to work at 
the SEC, you discover that there is an alarming, shocking 
amount of low-level fraud. I call it security street fraud. It 
is guys who make up completely fraudulent press releases in 
pump and dump schemes that claim that the company has achieved 
a major contract with some Chinese company or a big 
technological breakthrough that has commercial advantage. 
Totally made up. I mean, this is hard core securities fraud, 
hard core wire fraud. This is hard core criminal behavior, or 
they exploit an affinity group, the members of their house of 
worship, or if they are of an ethnic background, recent 
immigrants who are trying to make their way in America and 
struggling. And there is way too much of it and it is 
disgusting. And they are doing that under the existing law. And 
they are using--sometimes most of them don't even care about 
the exemption from Section 5. I mean, if you are willing to 
blow through the most fundamental fraud provisions in the 
criminal law, you are not worried about whether you have an 
exemption from the otherwise applicable provisions of Section 5 
of the Securities Act.
    But if they are, they are claiming 504, typically, Rule 
504, typically erroneously. The way to address this, and it is 
a problem, because it is left to the SEC to address, and the 
SEC doesn't have the tools. And we talk about the SEC being the 
cop on Wall Street, but it is not a cop. That's hype. It has a 
civil jurisdiction. It can't do search warrants. It can't do 
wiretaps. It can't do stings, and most importantly, it can't go 
into Federal Court and bring a case that ends up with a 
conviction that puts people in jail. That's under the 
Department of Justice. But the U.S. Attorneys offices around 
the company who are responsible, they have got a lot on their 
plate, and this stuff is pretty small time.
    At the SEC, the enforcement attorneys used to refer it to 
dismissively as little cases. They don't get much press. But 
small people who are innocent are harmed. I think the way to 
boot out fraud as it exists under existing law and under 
crowdfunding or any other change in the law is to direct 
resources in an efficient fashion to bring criminal cases 
against these people. Very frustrating for SEC enforcement 
lawyers. They know these guys shrug off a civil case from the 
SEC. It is a cost of doing business. It is a risk. They don't 
mind when they are taking the proceeds from an offering and 
spending it on sports cars and speed boats instead of what they 
claimed.
    We need something like, and maybe there is other ways to do 
this, but something like a National Task Force in Justice. 
National, so it has the scope and scale to develop the 
expertise and the efficiency to root these people out. And the 
U.S. Attorneys offices around the country can refer those small 
cases for criminal prosecution. The SEC can refer those small 
cases. If we started putting these people in jail the way we 
should, they would pretty soon, there would be a lot less of 
them. I think that's what we ought to do.
    Mr. McHenry. Thank you for your comments and to that point, 
we have retained State fraud prevention and prosecution within 
the law that currently exists for crowdfunding. That way you 
have, you know, your county prosecutors and State prosecutors 
that can actually go after these quote ``small fraudsters,'' 
and I appreciate your explanation.
    Mr. Cartwright. And State law, as you say, Mr. Chairman, 
State law enforcement is critical here, because they do, at 
least in some jurisdictions, they are prepared to handle 
matters that are somewhat smaller than the Federal authorities 
will. But I frankly, I think we still need more.
    Mr. McHenry. Absolutely, thank you.
    With that, we will now recognize the vice chairman of the 
committee, Mr. Guinta of New Hampshire, for 5 minutes.
    Mr. Guinta. Thank you, Mr. Chairman. Thank you all for 
testifying today. I wanted to address my first remarks to 
Professor Coffee. Thank you for being here.
    You had mentioned in your testimony the arbitrary and 
capricious findings by the courts. I'm assuming you are aware 
of the fact that the SEC recently instituted new and stronger 
cost-benefit analysis policy.
    Mr. Coffee. That is in the March 19th statement from the 
SEC.
    Mr. McHenry. If you will put on your mic. Turn your mic on. 
Thank you.
    Mr. Coffee. Sure, I understand that and I was referring to 
their new guidelines as of March 19, 2012.
    Mr. Guinta. Well, I guess my--okay, I appreciate that. My 
question would be, just by the fact that there is going to be a 
greater effort now put into cost-benefit analysis, wouldn't 
that necessarily reduce the amount of risk of any arbitrary and 
capricious finding?
    Mr. Coffee. Well, I hope that we have a better 
understanding and we have a workable accommodation between the 
SEC, one of our best Federal agencies, and the D.C. Circuit 
Court of Appeals. Only time will tell. Because right now, the 
ease with which these prior findings were overturned creates a 
strong litigation incentive. Someone will always feel injured 
by a new SEC rule, and there is a strong incentive to sue. I 
hope there is an understanding that is quickly reached, though.
    Mr. Guinta. Would you say that the SEC in the past has put 
a lot of effort and energy into performing legitimate and 
serious economic analysis?
    Mr. Coffee. I think that I would agree with maybe your 
subtext and say sometimes it has been pro forma. I think, 
however, the burden cannot be overstated. If you look just at 
the crowdfunding provision in the JOBS Act, I count eight 
different sets of rules that Congress has directed the SEC to 
promulgate just under Section 4(a). So they have a burden and 
they have very short time limits. It is hard to do everything 
overnight.
    Mr. Guinta. Mr. Cartwright, can you comment on that? I 
happen to think that cost-benefit analysis should be performed. 
I think that the SEC can perform a valuable commodity here for 
just about everybody, but I wanted to hear your comment on it.
    Mr. Cartwright. Well, the law requires it. The SEC is 
required to consider efficiency, competition, and capital 
formation in most of its rulemaking activities, and it's been 
required to do that for quite some time. I think too often in 
the past, and I hope this is changing, too often in the past it 
was an afterthought. Someone decided that there ought to be a 
rule, the Chairman, the Division Director or whatever. They get 
a rule writing team going writing it. They write the rule, and 
then at the end of the process, in the past at least, someone 
would say oh, my goodness. You know, there is that cost-benefit 
analysis, the efficiency competition and capital formation we 
have got to do that was kind of a compliance exercise. And it 
was done at the end. The SEC is a lawyer-dominated agency and 
the expertise that is really required here is more in the 
economics and the economist regime, and those people were 
typically often not consulted at all or, if they were, 
peremptorily.
    So I frankly think that it is wonderful here in America 
that if you believe that an agency has exceeded its authority 
or acted arbitrarily or capriciously, you do have a chance to 
get into court and question the agency's exercise of its 
jurisdiction. That historically didn't happen at the SEC very 
often, but other agencies have had this experience. The EPA, 
almost every matter they do is litigated by one side or 
another, and you get better at it I think as an agency if you 
have to respond to these legal requirements.
    I applaud the March statement. I think it's a very good 
statement. And I think that it's a huge step forward. The real 
question is whether this is going to be implemented in a way 
that gets the economists and people who are asking these 
questions in up front at the very beginning, so the design of 
the rule is shaped in part by these considerations that the law 
requires rather than creating a rule and then trying to justify 
it, basically a lawyer, do a brief at the end to try to justify 
what you have done in any event.
    Mr. Guinta. And quickly, on a different subject matter, can 
you quickly describe the changes to the 500 shareholder cap in 
the JOBS Act, and what benefits you would foresee?
    Mr. Cartwright. Are you asking me?
    Mr. Guinta. Yes.
    Mr. Cartwright. Yeah, sure. As the law exists today, prior 
to the JOBS Act, let's say, rather, prior to the JOBS Act, if a 
company had $10 million in assets, which is a very small amount 
for a company of any size, so almost always that test is 
satisfied, and 500 record holders, then it is required to 
basically become a company, a public company. It has to 
register with the SEC. And it is an unfortunate development 
that today many of the most successful entrepreneurs no longer 
want to have their companies go public.
    When I started practice every entrepreneur, that was the 
holy grail. Let's see if we can go public and do it fast, and 
the sooner the better. Now, some of the most successful 
companies, the most successful business leaders try to keep 
their companies private as long as possible because the 
disadvantages and burdens of being public are too great. So the 
JOBS Act and the title in question increases the threshold to 
2,000 holders, provided that no more than 500 are accredited--
unaccredited.
    Mr. Guinta. So did you just say that you think people are 
keeping their companies private for a longer period of time 
because of the challenges of bringing it public, correct?
    Mr. Cartwright. Well, it's the challenges of, in part, the 
challenges--there's two things. First----
    Mr. Guinta. I guess my question is, is it investor 
confidence or is it overregulation?
    Mr. Cartwright. No, I think it is not a question of 
investor confidence. This is coming from the company side. It 
has two aspects to it. The first is, companies that, let's say 
15 or 20 years ago were of a scale where a public offering was 
feasible and the burdens of being public were not so costly, 
those companies would go public. Today, there is a band of 
companies in size and scale that no longer can swallow the 
overhead costs of operating as a public company and maybe of 
becoming a public company. So they have to wait longer until 
they grow bigger in order to become public. But what's really 
surprising is that even when they have gotten big enough so 
they could meet the requirements, the most successful 
entrepreneurs today, and if you hang out in Silicon Valley lots 
and lots of people will tell you this, they want to keep their 
companies private as long as they can because they believe even 
once they are big enough to go public the burdens are greater 
than the benefits, and you can see that. Google, for example, 
some years ago, 2004, I think if I have got that right, they 
held on longer than they could have. They picked up an SEC 
enforcement action against themselves and their General Counsel 
for going too long. I think some of the recent IPOs, if you 
just look what happened you can see that they held out until 
the last possible moment, and that's one of the reasons why we 
have this--there is in the Economist, I don't know if you saw 
it. The Economist magazine, thought by many to be the 
preeminent financial weekly, had on its cover story a few weeks 
ago the vanishing public company. And it showed on the cover, 
the cover art was sort of a scruffy paleolithic band rushing 
the mastodons over the cliff. And they are--the mastodons were 
all Inc's. They are the public companies. So we got a problem 
here and it has completely reversed since the early years of my 
career.
    Mr. Guinta. Thank you, Mr. Chairman, for the additional 
time.
    Mr. McHenry. Well, thank you so much. The questions have 
been very good, and we will start with a second round of 
questions. And I will recognize myself for 5 minutes.
    For the whole panel, from your review of the crowdfunding 
provisions of the JOBS Act, do you all agree that SEC holds a 
great deal of discretion over the implementation of this 
section?
    Mr. Cartwright. Start with me?
    Mr. McHenry. Just say briefly.
    Mr. Cartwright. Yeah. I will be brief. I understand I can 
sometimes not be so brief.
    Mr. McHenry. No, thank you. Mr. Hillel-Tuch. We will come 
back. I promise.
    Mr. Cartwright. Clearly true.
    Mr. McHenry. Okay.
    Mr. Hillel-Tuch. Yes.
    Mr. McHenry. Thanks.
    Mr. Hillel-Tuch. It's that simple. I mention in my 
testimony one example is audited financials. It is at their 
discretion to change it.
    Mr. McHenry. Okay, Professor Bradford.
    Mr. Bradford. Yes, although I believe that discretion goes 
more in the direction of adding additional regulation than it 
does in the direction of cutting some of the existing 
requirements.
    Mr. Coffee. You want an answer, and the answer would be 
yes. But it is largely because Congress has delegated in every 
provision of the JOBS Act rulemaking discretion to the SEC. The 
SEC can't duck this. They were told to consider rules.
    Mr. McHenry. Right. So the legislation we passed, there 
were 400 votes that I authored here the House with the help of 
Carolyn Maloney, was a different construct. So does this 
discretion, Professor Bradford, place at risk the viability of 
crowdfunding to actually take place in the real world? Does 
that--you know, even if the SEC acts counter to the bipartisan 
support of this provision and the idea and even the President 
and the same party as the majority of the SEC Commissioners.
    Mr. Bradford. Well, as I said, for these small offerings, 
cost is an extremely important consideration. The more 
regulation the SEC adds, the stronger that regulation, the 
greater the cost of, number one, understanding what the 
requirements are and, number two, complying with that 
regulation. And at some point if the statute itself hasn't 
already reached that point, we reach a point where the 
regulatory cost makes use of the crowdfunding exemption 
infeasible.
    Mr. McHenry. So what are the areas of greatest concern for 
you, Professor Bradford, in how the law is actually written 
dealing with crowdfunding? What are the number one through--
what are your top-level concerns, you know, number them and 
tell me the level of importance.
    Mr. Bradford. Are you talking about in the way the law is 
written or the regulations the SEC has to add to it?
    Mr. McHenry. Yes.
    Mr. Bradford. Oh.
    Mr. McHenry. And I'm giving you a rare opportunity. 
Oftentimes before these panels you don't get a chance to 
answer, but I'm giving you the rare opportunity to school 
Congress, so----
    Mr. Bradford. My greatest concern is in the disclosure 
requirements imposed on issuers, particularly some of the 
accounting disclosure, audited financial statements for 
companies raising a relatively small amount of money, and even 
for really small offerings, financial statements required of 
all issuers, even, for say, a $10,000 offering.
    That, and then there are some disclosure provisions in the 
statute that are relatively difficult to understand. For 
example, issuers have to describe the risk to investors 
associated with possible future deals that the company might 
do. I'm not using the exact language, and so that requires 
these relatively unsophisticated entrepreneurs to think about 
future buyouts, mergers, IPOs, whatever, to predict what the 
effect of that could be on these crowdfunding investors, and 
try to disclose it subject to a liability provision that makes 
them liable if they are negligent in doing so, in failing to 
disclose properly.
    And so that portion of the crowdfunding act is probably my 
primary concern. I guess my secondary concern is a general one 
that I sort of mentioned in my opening statement, and that is 
just the lack of clarity, the complexity, the need for 
entrepreneurs and intermediaries to understand various 
provisions in the act. For example, I mentioned in my written 
statement, the prohibition on solicitation. Solicitation as 
interpreted by the SEC is a very broad concept, and people like 
Mr. Hillel-Tuch--did I get that right?
    Mr. Hillel-Tuch. Yes.
    Mr. Bradford. --need to know exactly what they may or may 
not do in terms of advertising their site.
    Mr. McHenry. So the concern I had with the Senate provision 
from the get-go was as simple as the origin of Congress' 
action--and I can say the origin of Congress' action because I 
filed the first bill. And the reason why I filed the first bill 
was because of PBR. Right? And many of you have heard this 
story, but you had an advertising guy who put up, he tweeted, 
said, ``Let's buy a beer company.'' Pabst Blue Ribbon was 
putting themselves up for sale or they were going to close. And 
it was this sort of idea on a whim until he had Federal agents 
visit him. Right? And he realized he was--he was then told that 
he was breaking Federal securities law because he tweeted that 
he wanted to buy a beer company--well, later he put up a Web 
site.
    So, you know, the idea of crowds buying their favorite beer 
company. I don't think these individuals were pledging money 
because they thought they were going to make a million off of 
it. They wanted to support the brand that they liked.
    So this is what I see on crowdfunding sites as they exist 
now, is you have an idea that you like. Could be your local 
coffee shop, could be your favorite cupcake. And you invest in 
it because you believe in the product, not because you are 
going to make a million. It is the same reason why a lady I 
know, her father was a fan of the Boston Celtics. He invested 
in the Boston Celtics so he could say he owned a piece of the 
team. He is an Irish immigrant, of course. He loved that. 
Right?
    So it is not--it is a slightly different idea and 
motivation to this point. And so the disclosure piece is 
important whether or not the expense of that is too great to 
bear for small issuances.
    Mr. Hillel-Tuch, you talk about your current platform that 
you have, and that is, on the charitable side, you can preorder 
a product, you can get a T-shirt, you can do a number of 
things. What are your offerings? What is the smallest offering 
you have had on your site, roughly?
    Mr. Hillel-Tuch. We have had offerings as small as $500, 
but----
    Mr. McHenry. And how large? What was your biggest?
    Mr. Hillel-Tuch. They go over $100,000. It really depends 
on your community.
    Mr. McHenry. Okay. So in that range from $500, which--
getting financials on that would make it a little unworthwhile, 
right?
    Mr. Hillel-Tuch. ``Ludicrous'' is a mild way of putting it. 
You know, you are asking, for example, in an offering for a new 
company to put up historicals on a timeline of zero. It just 
doesn't make sense.
    I mean, it is an education issue. I think what happened 
is--and I read your original bill, and I have seen all the 
changes. A lot of the changes that happened were due to 
educational issues, where we are trying to approach this from 
an old-world perspective while--you are spot-on in your 
statement, is not everybody's looking for the million-dollar 
return. It is just not what this is about.
    We are really democratizing access to capital in a way that 
didn't exist before. And that is allowing your cupcake store, 
your T-shirt shop to get financing that is not debt. They don't 
have to run a credit card debt. They don't have to run a 
mortgage, which we saw--we saw what happened with that a few 
years ago. And this is completely different. You are getting 
support from a whole other side of your community that wants to 
invest in you and is simply not allowed to do so right now.
    Mr. McHenry. Well, Mr. Cartwright, to that end, this cost 
of going public, at what point under current regulations does 
it just--under what point of money that you have to raise going 
public does it simply make it not possible to go public, is it 
not economical to go public? Is that----
    Mr. Cartwright. That is an investment banking question, and 
I am not sure----
    Mr. McHenry. I know, but, you know, you are a good lawyer, 
you are willing to venture off into areas you don't know--no, I 
am kidding, kidding.
    Mr. Cartwright. I would say almost a hundred million, and 
these days it is probably larger than that. And what is sad is, 
so often, companies that might meet that threshold cannot--
don't want to go public even then.
    Mr. McHenry. Okay. So you are talking about a much higher 
threshold?
    Mr. Cartwright. A vastly higher threshold.
    Mr. McHenry. Different world.
    Mr. Cartwright. A different world. A different world. 
    Mr. McHenry. So the idea of having light-touch regulation 
on the intermediary and regulate this security in a very 
different way, is that something that could be done, that we 
could do in a--speaking from your former hat as an SEC----
    Mr. Cartwright. Yeah, I think the original idea behind 
crowdfunding was to have a quite different mode available, now 
that the Internet, among other things, makes communication so 
easy, to raise quite modest sums for entrepreneurial purposes. 
And what has happened is we have overlain on that original idea 
the model of a big offer. So you need lawyers and accountants 
and financial intermediaries, and they all need compliance 
infrastructures, and you need financials that are in accordance 
with--I mean, all these additional requirements, which are the 
model of a big-dollar offering, but it doesn't work if you are 
raising $40,000 for a company that is going to make cases for 
iPads.
    Mr. McHenry. Uh-huh. Well, thank you for your testimony.
    I will now recognize the ranking member, Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    Mr. Chairman, as to your earlier point about Pabst Blue 
Ribbon, I want you to know we are in total agreement about 
purchasing beer. I have served here 3 years now. The longer I 
serve, the more I support purchasing beer.
    In a letter to the SEC on May 24th of this year, Professor 
Coffee, the Consumer Federation of America, Consumer Action, 
and several others wrote the following, and I quote, ``We are 
concerned that the SEC's slow pace on Dodd-Frank, while 
investing resources in other lower-priority initiatives and 
testifying to its prompt efforts to implement the JOBS Act, 
creates at least the appearance of bowing to political 
expediency. We believe that leapfrogging rulemakings whose 
deadlines are months away ahead of rulemakings whose deadlines 
are months passed and, in some cases, cherry-picking which 
congressional mandates the Commission will even choose to 
follow violates both the spirit and the letter of the law and 
is inconsistent with the SEC's duty to protect investors and 
facilitate capital formation.''
    Obviously, the question gets to how important it is for 
Dodd-Frank to be implemented. But in your view, as well, is 
there any reason that the implementation of JOBS should be 
prioritized over the implementation of Dodd-Frank?
    Mr. Coffee. I am not sure I would call it a priority 
because Dodd-Frank was passed in 2010, and it was 2 years ahead 
of the line.
    What I would tell you in the simplest terms is that the 
biggest problems in our financial economy are the problems 
associated with systemic risk. We have not yet solved those 
problems--issues like the Volcker Rule and how you can keep 
banks that are too big to fail from taking on risk that could 
cause them to fail; or the problems with the money market 
funds, where there could be a bank run on money market funds. 
Those are huge, difficult problems. They affect not only 
investors, they affect everyone in the United States, because a 
major failure will push us back into a depression.
    Therefore, I would say the problems associated with 
systemic risk deserve a priority. I do agree, however, the 
problems with small issue offerings, access to capital for 
smaller companies, are quite important and they should be 
pursued.
    Mr. Quigley. You see no reason to leapfrog one set of 
priorities over the other, in terms of time?
    Mr. Coffee. I think one is enormously important: systemic 
risk. All of the future of our economy depends upon being able 
to solve in a credible fashion the problems of major bank 
failure. And we all are under the shadow of what could happen 
in Europe within a matter of weeks.
    Mr. Quigley. Thank you, Mr. Chairman. I yield back.
    Mr. McHenry. I certainly appreciate it. I have a few final 
clean-up questions if the panel doesn't mind and if the ranking 
member doesn't mind.
    Professor Coffee, to your comment, I am grateful for you 
saying this, that the SEC prioritized their rulemaking. For 
instance, they spent enormous resources trying to write a rule 
on conflict minerals that was in Dodd-Frank. That certainly 
isn't systemically important, especially in light of the whole 
world we are going through. Your point is exactly right, and I 
do appreciate that.
    Now, we also have the general solicitation--the change and 
relief of the ban on general solicitation contained in the JOBS 
Act. And they had to write very, you know, very basic rules, I 
would foresee, seeing as it is a lifting of something. It is 
supposed to be done by July 4th.
    Now, what do you foresee as the consequences of them not 
doing this by the timeline?
    Mr. Coffee? Mr. Cartwright? This is your stock in trade. We 
will start with you, Mr. Coffee.
    Mr. Coffee. The simplest rules are those associated with 
private placements.
    What I would tell you, which I think I have to tell you to 
add a little reality to this discussion, is that if any 
entrepreneur advised by any of the great majority of securities 
lawyers were to consider what is the most feasible option today 
to raise capital for a small business, they would basically 
choose between the new liberalized private placement and the 
new expanded 3(b) small-issue exemption. They are much more 
attractive and more feasible than a still novel and still very 
esoteric crowdfunding exemption. And you usually issue----
    Mr. McHenry. Well, crowdfunding is still not allowed 
because we are still waiting for the SEC to write regs by the 
end of the year, so----
    Mr. Coffee. Even if they write those regs, they have to 
address so many different things, that it is simpler using the 
very time-honored, established clear path through private 
placements with a general solicitation. I think that will be 
very feasible. I testified in favor of it in December. I still 
think it will work. And I think those are easy to write.
    Mr. McHenry. To take that to the next step, is it because 
you think that crowdfunding, as was written into law, is too 
cumbersome, too complicated, too complex?
    Mr. Coffee. Remember that the ceiling is low. The amount 
you can sell any investor is $10,000, if they are fairly 
wealthy. They are restricted securities, and they come with a 
negligence-based liability regime. An issuer hears that and 
says, the alternative is a private placement to accredited 
investors who are numerous, and to sue me you have to prove 
intent to defraud. I would think most issuers would say, 
regardless of the SEC rules, I want that way which I can't get 
sued and I can sell unlimited amounts.
    Mr. McHenry. Well, you have made Professor Bradford's point 
on the liability provision within crowdfunding.
    Mr. Coffee. --Congress is not the SEC.
    Mr. McHenry. Oh, no. I know. I know. And it is my 
colleagues, my good friends on the other side of this 
institution that put in imperfect language that, if you read 
it, you realize that they did not reconcile their differences 
between paragraphs. Ah, the wisdom of the great debating 
society of the Senate. No offense. This is not a partisan 
matter, because we can agree the Senate is the true enemy. No 
division between parties there.
    Mr. Quigley. A cul-de-sac, not an enemy.
    Mr. McHenry. Ah, that is a better point. Absolutely.
    So, to your point, that provision, that liability 
provision, is higher than what you would have in private 
placement?
    Mr. Coffee. Yes.
    Mr. McHenry. Okay. Yes.
    Mr. Coffee. It just affects the choice that an issuer will 
make.
    Mr. McHenry. Okay. Well, this is fantastic. You know, we 
have a bipartisan--you know, a whole variety of views on this 
panel, but there is consensus here.
    Mr. Coffee. I would add, too, I agree with my colleague on 
one other thing stated slightly differently. There is a rule 
known as Rule 508 in Regulation D, the Private Placement Rule. 
It is known to most lawyers as the innocent and immaterial 
exemption. And it says, even if you screw up under private 
placement, if your mistake is innocent, immaterial, and it is 
not intentional, the offering, at least to those people, or at 
least to most people, will still be good.
    I think that rule could be generalized for both 3(b) and 
crowdfunding, as well. And right now it is totally ambiguous 
what these standards will be.
    Mr. McHenry. Okay. Wow. Thank you. That is amazing.
    Mr. Cartwright, the ban on general solicitation, this 
removal--the SEC is supposed to write regs by July 4th. If they 
fail to do that, what are the consequences to the marketplace?
    Mr. Cartwright. And I will just, you know, second much of 
what was just said.
    And with respect to general solicitation, as has been said, 
those rules should be relatively easy to write, so we shouldn't 
have to wait too long for them, I don't think. And if they are 
not written, then the existing regime will continue, which is 
an impediment, makes it harder to raise sufficient funds to 
reach enough investors. Lots of offerings are completed 
nonetheless, but presumably at the margins. It is slowing down 
capital formation, and at this time in our economic history, we 
could use more.
    So I think the SEC ought to be urged to promulgate those 
forthwith.
    Mr. McHenry. Mr. Hillel-Tuch, you mentioned that you desire 
to become a crowdfunding portal for equities. So this provision 
that the JOBS Act opens up, you desire and your firm desires to 
do that, to become a portal.
    So, as the law is currently written, how can you compete 
against broker-dealers, given the disadvantages the law imposes 
on portals? Is that a distinct challenge?
    Mr. Hillel-Tuch. The way the JOBS Act is written right now, 
we are still at a place where, if the SEC is given the 
education, awareness, and the proper nudging, it could fall out 
in a way that we can actually become an equity-based platform.
    That said, there is a risk that if they make it too tight, 
they add additional requirements, we will not do it. And the 
reason is we don't think it will serve the issuer or the 
investor properly.
    When it comes to, you know, making this actually happen and 
what is their motivation to do so, we believe that you need to 
be able to offer both perks and equity and makes sense for 
different individuals.
    One of the things that we haven't really addressed here and 
I was hoping to bring up is the concept surrounding job 
creation. And what we are actually trying to accomplish here is 
allowing small businesses, who are one of the largest job 
creators out there, to actually access capital in a way that is 
easier than what a broker-dealer can do.
    By making it basically transparent and providing clear 
communication, which is our intent--and we hope the SEC is 
going to let us do so--is very empowering to individuals right 
now who are dependent on very costly access forms of capital. 
Broker-dealers are not the world's cheapest people out there. 
And if they are licensed, they can charge up-front fees, they 
can charge back-end fees. And for a small business, the ones 
who actually create some of the largest job-growth numbers out 
there, they are looking for $30,000, $50,000 sometimes, maybe 
$100,000, maybe $200,000.
    A broker-dealer is an extremely expensive way to access 
capital. And you are putting your faith in another person's 
hands to guide you throughout that process, and you are not 
able to get support from your community.
    Mr. McHenry. So, under section 304, that undermines a 
portal's ability to truly act as an intermediary between the 
issuers and investors. And, specifically, the Commission 
prevents portals from offering investment advice and 
recommendations, soliciting sales and offers, and holding, 
managing, or possessing investor's funds or securities.
    And, additionally, the Commission--or, well, National 
Securities Association, presumably--we presume FINRA, may 
exercise very broad discretion over portals. That seems to me 
to be disproportionately affecting portals to the benefit of, 
well, the existing regime or broker-dealers. Is that how you 
see it?
    Mr. Hillel-Tuch. In part, we do. And what we did in order 
to try to combat that--and a lot of that is education. We 
produced a white paper, ourselves, back in May. And the SEC and 
FINRA both have a copy of it, and we met with both groups, as 
well, to discuss it to some extent.
    This--the requirements out there and, you know, offer 
investment advice and recommendations and things of that 
nature--is way more strict than some of the Reg D things out 
there. The level of oversight that they are providing here is 
sometimes excessive, sometimes right; you do have to find a 
right balance. We are probably leaning more toward the stricter 
end than the end that might allow looseness.
    Mr. McHenry. Stricter or more costly?
    Mr. Hillel-Tuch. They go hand-in-hand. And it is an issue 
where--going back to what is the easiest way to access capital, 
I don't want it to be private placement, because while that is 
the traditional form of access, it is expensive, and we have to 
recognize that fact. That should not be your cheapest option 
when there are other means to do so.
    Mr. McHenry. Okay.
    So, Mr. Coffee, how would you fix the provisions within the 
crowdfunding title of the JOBS Act so that it could work, it 
could function, and do so in a costly manner with as minimal 
amount of fraud as possible?
    Mr. Coffee. I do not think the Senate bill is nearly as bad 
as everyone else seems to think. I have to say the Senate has--
--
    Mr. McHenry. Well, we are starting with you.
    Mr. Coffee. Okay. But I would say what I was trying to say 
earlier. Right now, if you were to make one sale to an 
unqualified person because they didn't get the right 
disclosure, they didn't get the right investor education 
materials that Congress has mandated, or they didn't answer 
questions that proved they understood them, there would be an 
issue of whether the whole offering was bad.
    I think what you need is this ``innocent and immaterial'' 
exemption, which is what we have under private placements. And 
I think it might as well be applied to 3(b), as well, so that 
mistakes that do not have any suggestion that they were 
intentional and were not widespread should not cost the 
offering.
    Mr. McHenry. Must that be done--must that be done 
legislatively?
    Mr. Coffee. No. 
    Mr. McHenry. Or can the Commission act----
    Mr. Coffee. 508 is not based on legislation of Regulation 
D. The SEC can do in one context what it has done in others.
    Mr. McHenry. Well, we are hopeful that the SEC is either 
watching this--and if so, hello----
    Mr. Coffee. I will get angry emails if they are.
    Mr. McHenry. --and if not, we would hope they would read 
the transcripts. And if not, we have Chairman Schapiro in on 
Thursday morning, and I will read her the transcript. It should 
be for a very entertaining and maybe lengthy hearing.
    Mr. Cartwright, same question. How would you improve this 
crowdfunding section of the JOBS Act so that this offering, 
these low-dollar offerings, can actually occur in an affordable 
fashion.
    Mr. Cartwright. Well, I think the simplest way to say that 
in very general terms is to move it back in the direction of 
the bill that came out of the House.
    What we have done is overlaid the model for big offerings 
with lots of intermediaries and gatekeepers, who are very 
expensive, on an original idea that was not designed for small-
dollar offerings by entrepreneurs for small-scale businesses 
with a very different model. And they really are incompatible.
    So there are probably lots of places where you could move 
things back in the direction of the original idea that would be 
helpful. And you probably need to do a number of those before 
you get to the point where there has been enough change to make 
this approach viable.
    I think that, as it is currently written, it may well have 
been strangled in its crib, just because there has been so much 
added to it, that it will be, at least for the lower end of the 
range, the $100,000, $200,000 end of the range, the costs will 
be prohibitive.
    And I suggested in my written testimony that when the SEC 
does do rulemaking, it ought to carefully evaluate what those 
costs will be. And if in the SEC's judgment after rigorous cost 
analysis it turns out that all of that layering is going to 
consume the proceeds and more, then the SEC ought to say that 
in their release so that Congress can then be aware and take 
whatever action Congress feels is appropriate under that 
circumstance.
    Mr. McHenry. Mr. Hillel-Tuch, the same question.
    Mr. Hillel-Tuch. I saw the original bill, and, personally, 
naturally, I favored that one a lot. Of course, I understand 
that intervention was necessary in order to get it passed, and 
it did so with bipartisan support. It is a tough one for us, 
because we come from experience, having done this for several 
years already, and we understand how people behave and what the 
cost structures are.
    Going back to the example mentioned to you before, that 
$500 raise came at a cost to that individual of only $20. That 
is not expensive. It just simply isn't. We do a lot now already 
on the back end that you don't even get with Carnes' Reg D 
exemption work. I am able to check an individual with OFAC, for 
example. That is simply not done otherwise. I am able to track 
funds and how they are moved, how they are handled, how they 
are spent, whether there is fulfillment, what is the 
performance. The oversight I am able to perform with a Web-
based platform is so much more significant than the paper-based 
trail from the 1930s which we are still using. It is mind-
boggling to me that we are not adopting the modern 
perspectives.
    And, naturally, if the SEC is listening, I would love to 
explain to them how crowdfunding works. We have tried it in the 
past, and we have had some opportunities. But one of the issues 
right now is there is a big difference in education. When 
people don't grasp something, they tend to move back to the 
older roots of understanding. And laying the investment banking 
fold over this thing is not going to work. We are in a 
different era right now, and we need to be able to strive for 
it and drive innovation.
    When other countries are already effectively implementing 
equity crowdfunding, we are one of the last developed nations 
out there not doing so. And, you know, that, for me, is 
personally very troubling, considering we have a huge 
opportunity here and entrepreneurship really was born in this 
country.
    Mr. McHenry. Professor Bradford, same question, final word.
    Mr. Bradford. It is hard to answer that question quickly 
because I have written a 60-page article basically talking 
about the problems with the act and what I would change.
    Mr. McHenry. Yeah. I have it right here.
    Mr. Bradford. I assumed you did.
    Mr. McHenry. And for those of you who are watching or 
listening to this, Professor Bradford has, in essence, written 
the bible on crowdfunding, something that my whole staff has 
read and I have read as well.
    But, for the record, if you could outline those items.
    Mr. Bradford. Absolutely.
    If I could boil it down to two things, number one, 
something we really haven't talked about a lot here today, the 
first thing I would do is clear up the ambiguities and the 
drafting errors in the bill. There are a lot of problems. There 
are a lot of things that are unclear in exactly what the 
meanings of the language is. There are inconsistencies that 
need to be cleaned up even if we don't change any of the 
regulation.
    And then, second, to echo what many people have said today, 
I would just generally reduce the regulatory burden, 
particularly for the--if I had to limit it, I would say 
particularly for the smaller offerings. The burden is--the 
exemption is simply too expensive.
    Mr. McHenry. So the ambiguity you are mentioning, one of 
which, as I recall, is the distinction between how much you 
make and how much you are worth, your net worth versus your 
income. In the drafting, it doesn't distinguish between either, 
nor does it give any indication which one should be the one you 
look to if somebody's net worth is under the amount that they 
make or their net worth is over the amount that they make.
    Mr. Bradford. Yeah, the exemption creates three categories 
of individual investment limits. And the middle category, where 
somebody's annual income or net worth is over $100,000 and the 
other of those two figures is below $100,000, both limits apply 
to that middle category. I mean, obviously you can't have two 
limits applying to one investor.
    And then there is also, for higher-end investors, it is 
unclear whether it is the greater of 10 percent of their annual 
income and net worth or the lesser of those two numbers.
    Mr. McHenry. Interesting. Well, you know, the ambiguities 
need to be resolved, obviously. There is some consensus in 
terms of what is material as opposed to incidental errors or 
omissions in this offering. And I think we have had a very 
informative panel today.
    Mr. Quigley, do you have any final----
    Mr. Quigley. No. Thank you.
    Mr. McHenry. Okay. Thank you.
    And I want to thank the panel. I thank you for the 
opportunity to ask questions of you. You have been very 
generous with your time and very instructive in terms of your 
words and your explanation. I thank you. We hope that this 
furthers the cause of helping small businesses, especially, get 
the capital they need to grow or to survive. And we certainly 
appreciate your willingness to engage in this exchange. Thank 
you for your time.
    This hearing is now adjourned.
    [Whereupon, at 3:30 p.m., the subcommittee was adjourned.]





    
                                 
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