[Congressional Record Volume 147, Number 158 (Thursday, November 15, 2001)]
[Senate]
[Pages S11923-S11926]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        SMALL BUSINESS INVESTMENT COMPANY AMENDMENTS ACT OF 2001

  Mr. REID. Mr. President, I ask unanimous consent the Senate proceed 
to the consideration of Calendar No. 143, S. 1196.
  The PRESIDING OFFICER. The clerk will report the bill by title.
  The legislative clerk read as follows:

       A bill (S. 1196) to amend the Small Business Investment Act 
     of 1958 and for other purposes.

  There being no objection, the Senate proceeded to consider the bill.
  Mr. REID. I ask unanimous consent the Bond and Kerry amendment which 
is at the desk be agreed to, the bill, as amended, be read a third 
time, passed, the motion to reconsider be laid upon the table, and any 
statements relating to the bill be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment (No. 2160) was agreed to, as follows:

       (Purpose: To amend the bill with respect to subsidy fees)

       On page 2, lines 8 and 16, strike ``1.28'' each place it 
     appears and insert ``1.38''.

  Mr. KERRY. Mr. President, it is very important that we pass S. 1196, 
the Small Business Investment Company Amendments Act of 2001, today. 
Until this legislation is enacted, the SBA cannot provide any leverage 
to the SBICs to make investments. We need to vote, send it to the House 
and on to the President's desk for signature.
  I joined Senator Bond in introducing this bill in July and all 19 
members of our committee have agreed unanimously in favor of its 
passage. Why does it enjoy so much support? For anyone who missed the 
article in the Washington Post on November 1, let me talk about the 
track record of SBA's venture capital program and the role it plays in 
our economy.
  Last year, the Agency financed 4,600 venture capital deals, investing 
$5.6 billion in our fastest-growing small businesses. Over the last 5 
years, investing by SBIC-licensed firms has accounted for half of all 
venture-financing deals. Since its inception, the program has also 
returned $700 million directly to Federal coffers. Despite this 
impressive track record, the President's budget eliminated funding for 
the SBIC participating securities program and reduced the program level 
for the debenture program, which requires no appropriations. With 
venture capital having all but dried up, this is no time to eliminate 
funding and restrict activity for the SBIC programs. As I have said so 
many times, the programs at the SBA are a bargain. For very little, 
taxpayers leverage their money to help thousands of small businesses 
every year and fuel the economy.
  In the SBIC participating securities program last year, taxpayers 
spent $1.31 for every $100 leveraged for investment in our fastest-
growing companies--companies like Staples, Callaway Golf, Federal 
Express, and Apple Computer.
  The main purpose of this act is to adjust the fees charged to 
Participating Security SBICs from 1 percent to 1.38 percent. The change 
is necessary because, at the President's request, all funding for this 
program was eliminated. I disagree with that. I preferred to show 
fiscal responsibility by level funding the program and then increasing 
the fees only as much as necessary to raise the program level from $2 
billion to $3.5 billion. Consistent with that opinion, as my colleagues 
may remember, Senator Bond and I offered an amendment to the Budget 
Resolution, Amendment No. 183, that did just that. It was agreed to in 
the Senate by voice vote in April and retained in the final budget 
resolution. Unfortunately, the appropriators had very tough decisions 
to make and the funding agreed to in our budget amendment was not 
included in the appropriations process. Despite my disagreement, I am 
supporting S. 1196 and joining Senator Bond in offering this amendment 
because if we want to continue this program, it must be funded entirely 
through fees, which forces us to authorize the fee change.
  For the record, let me state that the National Association of Small 
Business

[[Page S11924]]

Investment Companies testified before both the Senate and House 
Committees on Small Business in favor of increasing the program level 
from $2 billion to $3.5 billion. As I just explained, this legislation 
makes that possible.
  The other modifications strengthen the oversight and authority of the 
SBA to take action against bad actors, protect the integrity of the 
program, and streamline operations.
  Mr. BOND. Mr. President, I rise today to urge my colleagues in the 
Senate to pass the ``Small Business Investment Company Amendments Act 
of 2001,'' S. 1196. This bill is important for one simple reason: once 
enacted it paves the way for more investment capital to be available 
for more small businesses that are seeking to grow and hire new 
employees.
  There has been a significant growth in the small business sector of 
the U.S. economy over the past two decades. Today, small businesses 
make up over \1/2\ of the entire U.S. economy. Over 99 percent of all 
employers in the United States are small businesses. They employ over 
50 percent of workers and provide 75 percent of the net new jobs each 
year. Small businesses generate 51 percent of the Nation's private 
sector output. In light of the ongoing dip in the U.S. economy with the 
accompanying retrenchment by many businesses, both large and small, S. 
1196 will serve as part of the solution to move us toward a recovery.
  Before voting on S. 1196, I will offer an amendment that will permit 
the Small Business Administration to increase fees paid by Small 
Business Investment Companies up to 1.38 percent. When the Committee on 
Small Business unanimously approved the bill on July 19, 2001, the 
Committee adopted a fee increase from 1.0 percent to 1.28 percent. At 
that time, some members of the committee believed they could obtain an 
appropriation for the SBIC Participating Securities Program that would 
offset part of the fee increase. At this time, it appears unlikely that 
the Conferees on the Commerce Justice State Appropriations bill will 
approve any funds for the SBIC program. Consequently, it is critical 
that the Senate approve a fee increase to 1.38 percent, as required by 
the Federal Credit Reform Act of 1990; otherwise, the SBIC 
Participating Securities Program will be shut down.
  In 1958, Congress created the SBIC program to assist small business 
owners in obtaining investment capital. Forty years later, small 
businesses continue to experience difficulty in obtaining investment 
capital from banks and traditional investment sources. Although 
investment capital is readily available to large businesses from 
traditional Wall Street investment firms, small businesses seeking 
investments in the range of $500,000-$3 million have to look elsewhere. 
SBICs are frequently the only sources of investment capital for growing 
small businesses.
  Often we are reminded that the SBIC program has helped some of our 
Nations best known companies. It has provided a financial boost at 
critical points in the early growth period for many companies that are 
familiar to all of us. For example, Federal Express received a needed 
infusion of capital from two SBA-licensed SBICs at a critical juncture 
in its development stage. The SBIC program also helped other well-known 
companies, when they were not so well-known, such as Intel, Outback 
Steakhouse, America Online, and Callaway Golf.
  What is not well known is the extraordinary help the SBIC program 
provides to Main Street America small businesses. These are companies 
we know from home towns all over the United States. Main Street 
companies provide both stability and growth in our local business 
communities. A good example of a Main Street company is Steelweld 
Equipment Company, founded in 1932, which designs and manufacturers 
utility truck bodies in St. Clair, Missouri. The truck bodies are 
mounted on chassis made by Chrysler, Ford, and General Motors. 
Steelweld provides truck bodies for Southwestern Bell Telephone Co., 
Texas Utilities, Paragon Cable, GTE, and GE Capital Fleet.
  Steelweld is a privately held, woman-owned corporation. The owner, 
Elaine Hunter, went to work for Steelweld in 1966 as a billing clerk 
right out of high school. She rose through the ranks of the company and 
was selected to serve on the board of directors. In December 1995, 
following the death of Steelweld's founder and owner, Ms. Hunter 
received financing from a Missouri-based SBIC, Capital for Business, 
CFB, Venture Fund II, to help her complete the acquisition of 
Steelweld. CFB provided $500,000 in subordinated debt. Senior bank debt 
and seller debt were also used in the acquisition.
  Since Ms. Hunter acquired Steelweld, its manufacturing process was 
redesigned to make the company run more efficiently. By 1997, 
Steelweld's profitability had doubled, with annual sales of $10 million 
and 115 employees. SBIC program success stories like Ms. Hunter's 
experience at Steelweld occur regularly throughout the United States.
  In 1991, the SBIC program was experiencing major losses, and the 
future of the program was in doubt. Consequently, in 1992 and 1996, the 
Committee on Small Business worked closely with the Small Business 
Administration to correct deficiencies in the law in order to ensure 
the future of the program.
  Today, the SBIC Program is expanding rapidly in an effort to meet the 
growing demands of small business owners for debt and equity investment 
capital. And it is important to focus on the significant role that is 
played by the SBIC program in support of growing small businesses. When 
Fortune Small Business compiled its list of 100 fastest growing small 
companies in 2000, 6 of the top 12 businesses on the list received SBIC 
financing during their critical growth years.
  The ``Small Business Investment Company Amendments Act of 2001,'' as 
amended, would permit the annual interest fee paid by Participating 
Securities SBICs to increase from 1.0 percent to no more than 1.38 
percent. In addition, the bill would make three technical changes to 
the Small Business Investment Act of 1958 (`58 Act) that are intended 
to make improvements in the day-to-day operation of the SBIC program.
  Projected demand for the Participating Securities SBIC program for FY 
2002 is $3.5 billion, a significant increase over the FY 2001 program 
level of $2.5 billion. It is imperative that Congress approve this 
relatively small increase in the annual interest charge paid by the 
Participating Securities SBICs before the end of the fiscal year. The 
fee increase included in the bill, 1.38 percent, will allow the program 
to operate at its authorized level--$3.5 billion--an amount needed to 
help support small businesses as they help lead out country to an 
economic recovery.

  The ``Small Business Investment Company Amendments Act of 2001'' 
would also make some relatively technical changes the `58 Act that are 
drafted to improve the operations of the SBIC program. Section 3 would 
remove the requirement that the SBA take out local advertisements when 
it seeks to determine if a conflict of interest exists involving an 
SBIC. This section has been recommended by the SBA, that has informed 
me that it has never received a response to a local advertisement and 
believes the requirement is unnecessary.
  The bill would amend Title 12 and Title 18 of the United States Code 
to insure that false statements made to the SBA under the SBIC program 
would have the same penalty as making false statements to an SBIC. This 
section would make it clear that a false statement to SBA or to an SBIC 
for the purpose of influencing their respective actions taken under the 
`58 Act would be a criminal violation. The courts could then assess 
civil and criminal penalties for such violations.
  Section 5 of the bill would amend Section 313 of the `58 Act to 
permit the SBA to remove or suspend key management officials of an SBIC 
when they have willfully and knowingly committed a substantial 
violation of the `58 Act, any regulation issued by the SBA under the 
Act, a cease-and-desist order that has become final, or committed or 
engaged in any act, omission or practice that constitutes a substantial 
breach of a fiduciary duty of that person as a management official.
  The amendment expands the definition of persons covered by Section 
313 to be ``management officials,'' which includes officers, directors, 
general partners, managers, employees, agents or other participants in 
the management or conduct of the SBIC. At the time Section 313 if the 
`58 Act was enacted in November 1966, an SBIC was organized as a 
corporation. Since that

[[Page S11925]]

time, SBIC has been organized as partnerships and Limited Liability 
Companies (LLCs), and this amendment would take into account those 
organizations.
  Time is of the essence. We need to act promptly and pass the Small 
Business Investment Company Act of 2001 today, so that the House of 
Representatives has time to act before the Congress adjourns in the 
coming weeks.
  The bill was read the third time and passed, as follows:

                                S. 1196

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Investment 
     Company Amendments Act of 2001''.

     SEC. 2. SUBSIDY FEES.

       (a) In General.--Section 303 of the Small Business 
     Investment Act of 1958 (15 U.S.C. 683) is amended--
       (1) in subsection (b)--
       (A) by striking ``of not more than 1 percent per year'';
       (B) by inserting ``which amount may not exceed 1.38 percent 
     per year, and'' before ``which shall be paid''; and
       (C) by striking ``September 30, 2000'' and inserting 
     ``September 30, 2001''; and
       (2) in subsection (g)(2)--
       (A) by striking ``of not more than 1 percent per year'';
       (B) by inserting ``which amount may not exceed 1.38 percent 
     per year, and'' before ``which shall be paid''; and
       (C) by striking ``September 30, 2000'' and inserting 
     ``September 30, 2001''.
       (b) Effective Date.--The amendments made by this section 
     shall become effective on October 1, 2001.

     SEC. 3. CONFLICTS OF INTEREST.

       Section 312 of the Small Business Investment Act of 1958 
     (15 U.S.C. 687d) is amended by striking ``(including 
     disclosure in the locality most directly affected by the 
     transaction)''.

     SEC. 4. PENALTIES FOR FALSE STATEMENTS.

       (a) Criminal Penalties.--Section 1014 of title 18, United 
     States Code, is amended by inserting ``, as defined in 
     section 103 of the Small Business Investment Act of 1958 (15 
     U.S.C. 662), or the Small Business Administration in 
     connection with any provision of that Act'' after ``small 
     business investment company''.
       (b) Civil Penalties.--Section 951 of the Financial 
     Institutions Reform, Recovery, and Enforcement Act of 1989 
     (12 U.S.C. 1833a) is amended--
       (1) by redesignating subsections (d) through (g) as 
     subsections (e) through (h), respectively; and
       (2) in subsection (c)--
       (A) in paragraph (1), by striking ``or'' at the end;
       (B) in paragraph (2)--
       (i) by striking ``1341;'' and inserting ``1341''; and
       (ii) by striking ``institution.'' and inserting 
     ``institution; or'';
       (C) by inserting immediately after paragraph (2) the 
     following:
       ``(3) section 16(a) of the Small Business Act (15 U.S.C. 
     645(a)).''; and
       (D) by striking ``This section shall'' and inserting the 
     following:
       ``(d) Effective Date.--This section shall''.

     SEC. 5. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

       Section 313 of the Small Business Investment Act of 1958 
     (15 U.S.C. 687e) is amended to read as follows:

     ``SEC. 313. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

       ``(a) Definition of `Management Official'.--In this 
     section, the term `management official' means an officer, 
     director, general partner, manager, employee, agent, or other 
     participant in the management or conduct of the affairs of a 
     licensee.
       ``(b) Removal of Management Officials.--
       ``(1) Notice of removal.--The Administrator may serve upon 
     any management official a written notice of its intention to 
     remove that management official whenever, in the opinion of 
     the Administrator--
       ``(A) such management official--
       ``(i) has willfully and knowingly committed any substantial 
     violation of--

       ``(I) this Act;
       ``(II) any regulation issued under this Act; or
       ``(III) a cease-and-desist order which has become final; or

       ``(ii) has willfully and knowingly committed or engaged in 
     any act, omission, or practice which constitutes a 
     substantial breach of a fiduciary duty of that person as a 
     management official; and
       ``(B) the violation or breach of fiduciary duty is one 
     involving personal dishonesty on the part of such management 
     official.
       ``(2) Contents of notice.--A notice of intention to remove 
     a management official, as provided in paragraph (1), shall 
     contain a statement of the facts constituting grounds 
     therefor, and shall fix a time and place at which a hearing 
     will be held thereon.
       ``(3) Hearings.--
       ``(A) Timing.--A hearing described in paragraph (2) shall 
     be fixed for a date not earlier than 30 days nor later than 
     60 days after the date of service of notice of the hearing, 
     unless an earlier or a later date is set by the Administrator 
     at the request of--
       ``(i) the management official, and for good cause shown; or
       ``(ii) the Attorney General of the United States.
       ``(B) Consent.--Unless the management official shall appear 
     at a hearing described in this paragraph in person or by a 
     duly authorized representative, that management official 
     shall be deemed to have consented to the issuance of an order 
     of removal under paragraph (1).
       ``(4) Issuance of order of removal.--
       ``(A) In general.--In the event of consent under paragraph 
     (3)(B), or if upon the record made at a hearing described in 
     this subsection, the Administrator finds that any of the 
     grounds specified in the notice of removal has been 
     established, the Administrator may issue such orders of 
     removal from office as the Administrator deems appropriate.
       ``(B) Effectiveness.--An order under subparagraph (A) 
     shall--
       ``(i) become effective at the expiration of 30 days after 
     the date of service upon the subject licensee and the 
     management official concerned (except in the case of an order 
     issued upon consent as described in paragraph (3)(B), which 
     shall become effective at the time specified in such order); 
     and
       ``(ii) remain effective and enforceable, except to such 
     extent as it is stayed, modified, terminated, or set aside by 
     action of the Administrator or a reviewing court in 
     accordance with this section.
       ``(c) Authority to Suspend or Prohibit Participation.--
       ``(1) In general.--The Administrator may, if the 
     Administrator deems it necessary for the protection of the 
     licensee or the interests of the Administration, suspend from 
     office or prohibit from further participation in any manner 
     in the management or conduct of the affairs of the licensee, 
     or both, any management official referred to in subsection 
     (b)(1), by written notice to such effect served upon the 
     management official.
       ``(2) Effectiveness.--A suspension or prohibition under 
     paragraph (1)--
       ``(A) shall become effective upon service of notice under 
     paragraph (1); and
       ``(B) unless stayed by a court in proceedings authorized by 
     paragraph (3), shall remain in effect--
       ``(i) pending the completion of the administrative 
     proceedings pursuant to a notice of intention to remove 
     served under subsection (b); and
       ``(ii) until such time as the Administrator shall dismiss 
     the charges specified in the notice, or, if an order of 
     removal or prohibition is issued against the management 
     official, until the effective date of any such order.
       ``(3) Judicial review.--Not later than 10 days after any 
     management official has been suspended from office or 
     prohibited from participation in the management or conduct of 
     the affairs of a licensee, or both, under paragraph (1), that 
     management official may apply to the United States district 
     court for the judicial district in which the home office of 
     the licensee is located, or the United States District Court 
     for the District of Columbia, for a stay of the suspension or 
     prohibition pending the completion of the administrative 
     proceedings pursuant to a notice of intent to remove served 
     upon the management official under subsection (b), and such 
     court shall have jurisdiction to stay such action.
       ``(d) Authority To Suspend on Criminal Charges.--
       ``(1) In general.--Whenever a management official is 
     charged in any information, indictment, or complaint 
     authorized by a United States attorney, with the commission 
     of or participation in a felony involving dishonesty or 
     breach of trust, the Administrator may, by written notice 
     served upon that management official, suspend that management 
     official from office or prohibit that management official 
     from further participation in any manner in the management or 
     conduct of the affairs of the licensee, or both.
       ``(2) Effectiveness.--A suspension or prohibition under 
     paragraph (1) shall remain in effect until the subject 
     information, indictment, or complaint is finally disposed of, 
     or until terminated by the Administrator.
       ``(3) Authority upon conviction.--If a judgment of 
     conviction with respect to an offense described in paragraph 
     (1) is entered against a management official, then at such 
     time as the judgment is not subject to further appellate 
     review, the Administrator may issue and serve upon the 
     management official an order removing that management 
     official, which removal shall become effective upon service 
     of a copy of the order upon the licensee.
       ``(4) Authority upon dismissal or other disposition.--A 
     finding of not guilty or other disposition of charges 
     described in paragraph (1) shall not preclude the 
     Administrator from thereafter instituting proceedings to 
     suspend or remove the management official from office, or to 
     prohibit the management official from participation in the 
     management or conduct of the affairs of the licensee, or 
     both, pursuant to subsection (b) or (c).
       ``(e) Notification to Licensees.--Copies of each notice 
     required to be served on a management official under this 
     section shall also be served upon the interested licensee.
       ``(f) Procedural Provisions; Judicial Review.--
       ``(1) Hearing venue.--Any hearing provided for in this 
     section shall be--
       ``(A) held in the Federal judicial district or in the 
     territory in which the principal office

[[Page S11926]]

     of the licensee is located, unless the party afforded the 
     hearing consents to another place; and
       ``(B) conducted in accordance with the provisions of 
     chapter 5 of title 5, United States Code.
       ``(2) Issuance of orders.--After a hearing provided for in 
     this section, and not later than 90 days after the 
     Administrator has notified the parties that the case has been 
     submitted for final decision, the Administrator shall render 
     a decision in the matter (which shall include findings of 
     fact upon which its decision is predicated), and shall issue 
     and cause to be served upon each party to the proceeding an 
     order or orders consistent with the provisions of this 
     section.
       ``(3) Authority to modify orders.--The Administrator may 
     modify, terminate, or set aside any order issued under this 
     section--
       ``(A) at any time, upon such notice, and in such manner as 
     the Administrator deems proper, unless a petition for review 
     is timely filed in a court of appeals of the United States, 
     as provided in paragraph (4)(B), and thereafter until the 
     record in the proceeding has been filed in accordance with 
     paragraph (4)(C); and
       ``(B) upon such filing of the record, with permission of 
     the court.
       ``(4) Judicial review.--
       ``(A) In general.--Judicial review of an order issued under 
     this section shall be exclusively as provided in this 
     subsection.
       ``(B) Petition for review.--Any party to a hearing provided 
     for in this section may obtain a review of any order issued 
     pursuant to paragraph (2) (other than an order issued with 
     the consent of the management official concerned, or an order 
     issued under subsection (d)), by filing in the court of 
     appeals of the United States for the circuit in which the 
     principal office of the licensee is located, or in the United 
     States Court of Appeals for the District of Columbia Circuit, 
     not later than 30 days after the date of service of such 
     order, a written petition praying that the order of the 
     Administrator be modified, terminated, or set aside.
       ``(C) Notification to administration.--A copy of a petition 
     filed under subparagraph (B) shall be forthwith transmitted 
     by the clerk of the court to the Administrator, and thereupon 
     the Administrator shall file in the court the record in the 
     proceeding, as provided in section 2112 of title 28, United 
     States Code.
       ``(D) Court jurisdiction.--Upon the filing of a petition 
     under subparagraph (A)--
       ``(i) the court shall have jurisdiction, which, upon the 
     filing of the record under subparagraph (C), shall be 
     exclusive, to affirm, modify, terminate, or set aside, in 
     whole or in part, the order of the Administrator, except as 
     provided in the last sentence of paragraph (3)(B);
       ``(ii) review of such proceedings shall be had as provided 
     in chapter 7 of title 5, United States Code; and
       ``(iii) the judgment and decree of the court shall be 
     final, except that the judgment and decree shall be subject 
     to review by the Supreme Court of the United States upon 
     certiorari, as provided in section 1254 of title 28, United 
     States Code.
       ``(E) Judicial review not a stay.--The commencement of 
     proceedings for judicial review under this paragraph shall 
     not, unless specifically ordered by the court, operate as a 
     stay of any order issued by the Administrator under this 
     section.''.

                          ____________________