[Congressional Record Volume 157, Number 166 (Wednesday, November 2, 2011)]
[House]
[Pages H7229-H7232]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
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SMALL COMPANY CAPITAL FORMATION ACT OF 2011
Mr. BACHUS. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 1070) to amend the Securities Act of 1933 to authorize the
Securities and Exchange Commission to exempt a certain class of
securities from such Act, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 1070
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 Company Capital
Formation Act of 2011''.
SEC. 2. AUTHORITY TO EXEMPT CERTAIN SECURITIES.
(a) In General.--Section 3(b) of the Securities Act of 1933
(15 U.S.C. 77c(b)) is amended--
(1) by striking ``(b) The Commission'' and inserting the
following:
``(b) Additional Exemptions.--
``(1) Small issues exemptive authority.--The Commission'';
and
(2) by adding at the end the following:
``(2) Additional issues.--The Commission shall by rule or
regulation add a class of securities to the securities
exempted pursuant
[[Page H7230]]
to this section in accordance with the following terms and
conditions:
``(A) The aggregate offering amount of all securities
offered and sold within the prior 12-month period in reliance
on the exemption added in accordance with this paragraph
shall not exceed $50,000,000.
``(B) The securities may be offered and sold publicly.
``(C) The securities shall not be restricted securities
within the meaning of the Federal securities laws and the
regulations promulgated thereunder.
``(D) The civil liability provision in section 12(a)(2)
shall apply to any person offering or selling such
securities.
``(E) The issuer may solicit interest in the offering prior
to filing any offering statement, on such terms and
conditions as the Commission may prescribe in the public
interest or for the protection of investors.
``(F) The Commission shall require the issuer to file
audited financial statements with the Commission annually.
``(G) Such other terms, conditions, or requirements as the
Commission may determine necessary in the public interest and
for the protection of investors, which may include--
``(i) a requirement that the issuer prepare and
electronically file with the Commission and distribute to
prospective investors an offering statement, and any related
documents, in such form and with such content as prescribed
by the Commission, including audited financial statements, a
description of the issuer's business operations, its
financial condition, its corporate governance principles, its
use of investor funds, and other appropriate matters; and
``(ii) disqualification provisions under which the
exemption shall not be available to the issuer or its
predecessors, affiliates, officers, directors, underwriters,
or other related persons, which shall be substantially
similar to the disqualification provisions contained in the
regulations adopted in accordance with section 926 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (15
U.S.C. 77d note).
``(3) Limitation.--Only the following types of securities
may be exempted under a rule or regulation adopted pursuant
to paragraph (2): equity securities, debt securities, and
debt securities convertible or exchangeable to equity
interests, including any guarantees of such securities.
``(4) Periodic disclosures.--Upon such terms and conditions
as the Commission determines necessary in the public interest
and for the protection of investors, the Commission by rule
or regulation may require an issuer of a class of securities
exempted under paragraph (2) to make available to investors
and file with the Commission periodic disclosures regarding
the issuer, its business operations, its financial condition,
its corporate governance principles, its use of investor
funds, and other appropriate matters, and also may provide
for the suspension and termination of such a requirement with
respect to that issuer.
``(5) Adjustment.--Not later than 2 years after the date of
enactment of the Small Company Capital Formation Act of 2011
and every 2 years thereafter, the Commission shall review the
offering amount limitation described in paragraph (2)(A) and
shall increase such amount as the Commission determines
appropriate. If the Commission determines not to increase
such amount, it shall report to the Committee on Financial
Services of the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate on its
reasons for not increasing the amount.''.
(b) Treatment as Covered Securities for Purposes of
NSMIA.--Section 18(b)(4) of the Securities Act of 1933 (15
U.S.C. 77r(b)(4)) is amended--
(1) in subparagraph (C), by striking ``; or'' at the end
and inserting a semicolon; and
(2) by redesignating subparagraph (D) as subparagraph (E),
and inserting after subparagraph (C) the following:
``(D) a rule or regulation adopted pursuant to section
3(b)(2) and such security is--
``(i) offered or sold on a national securities exchange; or
``(ii) offered or sold to a qualified purchaser, as defined
by the Commission pursuant to paragraph (3) with respect to
that purchase or sale.''.
(c) Conforming Amendment.--Section 4(5) of the Securities
Act of 1933 is amended by striking ``section 3(b)'' and
inserting ``section 3(b)(1)''.
SEC. 3. STUDY ON THE IMPACT OF STATE BLUE SKY LAWS ON
REGULATION A OFFERINGS.
The Comptroller General shall conduct a study on the impact
of State laws regulating securities offerings, or ``Blue Sky
laws'', on offerings made under Regulation A (17 C.F.R.
230.251 et seq.). The Comptroller General shall transmit a
report on the findings of the study to the Committee on
Financial Services of the House of Representatives, and the
Committee on Banking, Housing, and Urban Affairs of the
Senate not later than 3 months after the date of enactment of
this Act.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Alabama (Mr. Bachus) and the gentleman from Michigan (Mr. Peters) each
will control 20 minutes.
The Chair recognizes the gentleman from Alabama.
General Leave
Mr. BACHUS. Mr. Speaker, I ask unanimous consent that all Members
have 5 legislative days in which to revise and extend their remarks and
to add extraneous materials on the bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Alabama?
There was no objection.
Mr. BACHUS. At this time I would like to yield such time as he may
consume to the gentleman from Arizona (Mr. Schweikert), the main
sponsor of this bill.
Mr. SCHWEIKERT. Mr. Speaker, first, I would like to start this with a
heartfelt thank you to both Spencer Bachus of Alabama, the chairman of
the Financial Services Committee, for both his kindness to me as a
freshman and also for the guidance he has provided me, and to the
gentlewoman from California, who I hope will speak next, who partially
helped spearhead this idea and helped us move it forward.
One of the reasons I stand here right now with these boards is just
to sort of help get through the concept of this piece of legislation,
H.R. 1070. So often around here, we refer to it as the reg A bill. But
what does that mean to people? Well, to try to make it as simple as
possible, it is when a company has an opportunity to do a filing with
the Securities and Exchange Commission for a simplified process to go
public. The problem is, in today's world, that's limited to $5 million.
Well, no one is going public at $5 million.
And we can actually see some of our history of this. This was
actually first done in 1933 when at that time, in the Securities
Exchange Act, it was understood that there needed to be a path to go
public. Well, at that time, it was $100,000, and I think 1992 is when
it was moved up to $5 million.
Well, in 19 years, the world has changed a lot. But one of the
changes that I consider almost a crisis is the number of our companies
that aren't going public anymore. And you're going to see on a couple
of these boards here that the fact of the matter is we actually have
fewer, substantially fewer companies that are publicly traded today
than we did even a decade ago.
Now, the first slide here is somewhat simple. It is just sort of
trying to demonstrate how many years we have been sitting here at this
$5 million level, and it's been 19 years. But as we go on to the next
board--and I know this is a little busy to try to read. The staff got a
little colorful on this one. But what we were trying to point out is
that the number of IPOs that are less than $50 million today are almost
nothing.
My understanding is last year we had only three companies--only three
companies in the entire country take a look at filing in that $5
million and under space. And if you actually look from 1995 to 2004,
some of the latest data I was able to find from that entire time frame,
I think there were only 78 companies that actually pursued this
process. Well, in a country our size, this is a crisis, particularly if
we're looking for that path of equity, that path of financing, that
path of raising capital for these growing companies. This is one of the
reasons we stand here with this reg A bill, H.R. 1070.
Let's go on to this next board. And I know this is a little busy. But
this is also to try to make the point of what's going on from a
competitive standpoint when you look around the world. All those lines,
those are other companies that are listing on exchanges, that are
becoming publicly traded, that are reaching out to the world and
raising capital. Well, you will happen to notice a small problem: the
line with the dots, that's us. That's our country. We actually are
going in the other direction.
If I remember my numbers here, we actually today have 5,091 publicly
traded companies on the big exchanges. So we've got 5,000-some today.
In 1997, we had 8,823. Does anyone see the real problem there?
Literally in a little over a decade, we've gone down dramatically in
the number of publicly listed companies. And my great hope here is, by
raising this limit from the $5 million up to $50 million--which $50
million is chosen for quite a reason. That is the minimum threshold for
a couple of the large exchanges to be publicly traded. And that's why
we're doing this, because we're trying to create jobs, we're trying to
move equity, and we're trying to be competitive around the world.
Mr. PETERS. Mr. Speaker, I yield myself such time as I may consume.
[[Page H7231]]
The American people need to see our Congress taking meaningful action
to help grow our economy. America is tired of too much partisanship out
of Washington, and they want to see Republicans and Democrats working
together on bipartisan solutions to create jobs and grow American
businesses. As Chairman Bachus said earlier today, this is exactly what
we are doing.
But before I go any further, I would like to thank the gentleman from
Arizona (Mr. Schweikert) for introducing H.R. 1070, the Small Company
Capital Formation Act, and I would also like to thank the gentleman
from Arizona for working across the aisle to ensure that the concerns
of both Republicans and Democrats were met in this very commonsense
bill.
Mr. Speaker, this bill would permit a small company to raise up to
$50 million through a security offering process that balances both
streamlined registration with adequate investor protections. As of
right now, the current exemption under the SEC's regulation A is little
used due to the small size of issuances permitted. As a result, there
were only three offerings last year.
The current offering limit of $5 million hasn't been raised since
1992, almost 20 years; and it's long past time for us to do something
about it. In the last Congress, Democrats sent a letter to the SEC
recommending that it raise the exemption limits. Today we can fix this
problem by passing this bill.
Additionally, H.R. 1070 would also provide small and medium companies
with the ability to offer securities of up to $50 million publicly
without the full cost of a registered offering, potentially expanding
their access to capital beyond private offerings that many use.
In the spirit of bipartisanship, Democrats also added important
investor protections to this bill, such as requiring companies to
provide investors with audited financial statements annually. In
addition, Democrats offered investors legal recourse for misstatements
companies make in their prospectus documents in order to prevent
potential abuses.
Finally, the gentleman from Arizona has also worked with Democrats on
the remaining issue of contention, and that was the preemption of State
law. The gentleman from Arizona's substitute amendment to H.R. 1070
removes the exemption from State level review that was previously
provided to an issuer using a broker-dealer to distribute and issue.
Regulation A securities can be high-risk offerings that may also be
susceptible to fraud, making protections provided by the State
regulators an essential future.
Mr. Speaker, it's clear that we must pass this bipartisan legislation
to help our small companies grow and create jobs. I urge adoption of
this bill.
I reserve the balance of my time.
Mr. BACHUS. I yield 2 minutes to the gentlelady from Illinois (Mrs.
Biggert).
Mrs. BIGGERT. I thank the gentleman for yielding.
Mr. Speaker, small businesses are the engine of the American economy,
and our legislation will help to provide the boost that they need to
create jobs. When I talk to small business leaders in my district, they
consistently site burdensome government regulations, restrictions, and
their difficulty accessing capital as the primary barriers to growth.
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Currently, outdated Federal rules dampen both innovation and
investment because the cost of regulatory compliance is just too high
for the up-and-coming firms. H.R. 1070, the Small Company Capital
Formation Act, will help change that.
The subject of this bill, regulation A, was enacted during the Great
Depression to help small businesses access financing. However, these
rules have not been properly adjusted over time to reflect the rising
cost associated with taking a small company public. As a result,
regulation A prohibits smaller companies from taking advantage of a
crucial capital-raising vehicle.
H.R. 1070 will reopen the capital markets for small businesses,
allowing them to invest and hire new employees. This legislation will
jump-start the IPO market and revitalize public capital-raising
opportunities that have been severely suppressed over the last decade.
At a time when capital is harder to find than ever, this bipartisan,
commonsense proposal will make our financial system work to the benefit
of small businesses and promote greater competition in the marketplace.
I thank the gentleman from Arizona for his hard work on this
legislation, and I ask my colleagues for their support.
Mr. BACHUS. Mr. Speaker, I yield myself 1 minute.
Earlier I said that the American citizens, our American citizens,
would like to see Republicans and Democrats work together to tackle the
challenges facing our country, and this bill is a great example of
that. Congresswoman Anna Eshoo from California introduced this bill,
along with my colleague Mr. Schweikert from Arizona, and they are
meeting that challenge. As I said, it's a bipartisan effort. I know she
deserves much credit for this legislation.
I reserve the balance of my time.
Mr. PETERS. I certainly appreciate the comments of the chairman.
Mr. Speaker, I yield 2 minutes to the gentlelady from California (Ms.
Eshoo), who has been an incredible leader on this issue.
Ms. ESHOO. I thank the gentleman from Michigan for yielding time, and
I want to thank my Republican colleagues for both what they are doing
today on the floor and for what you have said.
These are really difficult economic times for the people in our
country, and that's why it's so critical for Congress to bolster
American innovation. That, in my view, is really what this legislation
is about. It's an important way to facilitate capital formation, which
is really one of the important pillars of our national economy, capital
formation. I know how important this is for small businesses because my
congressional district, which is Silicon Valley, is the innovation hub
of our Nation and it thrives on capital formation.
In December of last year, almost a year ago, I came to the Financial
Services Committee at the invitation of then-Chairman Barney Frank, and
I want to recognize and thank him today for what he did then, as well
as the present chairman, Chairman Bachus, urging the committee to
renovate essentially regulation A, which was created, as others have
said, during the Great Depression to facilitate the flow of capital
into small businesses. It's really quite extraordinary that FDR and
Members of Congress in 1933 recognized the importance of capital
formation at that time, and we have honored that since then.
Now, reg A was established as a part of the 1933 Securities Act, and
it was designed to provide regulatory relief for small firms that want
to sell shares of company stock.
The SPEAKER pro tempore. The time of the gentlewoman has expired.
Mr. PETERS. I yield the gentlelady 1 additional minute.
Ms. ESHOO. These many offerings have been used to help small
companies raise capital and test the waters for IPOs, initial public
offerings. Unfortunately, the regulation A threshold became stuck, as
others said, at a 1992 level of $5 million. At that low level, the
benefit of a regulation A offering is extremely limited. In fact, only
three companies, as has been said this afternoon, have taken advantage
of it in 2010. So this threshold, the $5 million threshold, falls far
short of what companies need to develop the cutting-edge technologies
in today's economy. It's outdated. It fails to serve its intended
purpose, and it's why this legislation is needed and why I'm so pleased
that, on a bipartisan basis, we are taking action today.
We need to raise the initial public offering limit to help provide
capital to small businesses.
The SPEAKER pro tempore. The time of the gentlewoman has again
expired.
Mr. PETERS. I yield the gentlelady an additional minute.
Ms. ESHOO. Very importantly, we look forward to spurring hiring and
business development. That's what we are here for, and I think it's
what the American people want us to do.
I'm proud to be a cosponsor of H.R. 1070, to raise the regulation
offering limit from $5 million to $50 million, once again creating a
meaningful offering limit. What better time than now when our economy
needs this important boost.
[[Page H7232]]
So I thank the chairman of the full committee. I thank the ranking
member. I thank my colleague from Michigan, and I thank the gentleman
from Arizona for his very kind words, and I urge all of our colleagues
to support this. I think when we do later on today, it will be a source
of pride and encouragement to the American people.
Mr. BACHUS. Mr. Speaker, I yield myself the balance of my time.
You've heard from a member of the Commerce Committee, Ms. Eshoo, who
I think said it well when she said that we're modernizing, we're
updating a rule which had come to restrict job growth.
Secondly, she mentioned technology. We know that small businesses are
the innovators. In fact, you look at Google, you look at Apple, you
look at Facebook, these companies just in the past two or three decades
started off as small businesses and they were able to grow. With the
passage of this legislation, we believe that path will be an easier
path. Sixty-five percent of the jobs created over the last 15 years
have been in small business. As every speaker has acknowledged, if
there is a time to encourage job creation and capital formation, that
time is here.
I urge the Members to vote in favor of this legislation, and I yield
back the balance of my time.
Mr. PETERS. Mr. Speaker, I want to thank my friends Mr. Schweikert
and Ms. Eshoo for their work on this bipartisan bill to help small
companies grow and expand. As we all know, the American people want to
see Congress working together to strengthen our economy and to create
jobs. This bill will help companies access the capital they need to
pull our Nation out from these tough economic times and put Americans
back to work.
Additionally, this bill provides the necessary protections investors
need to have in order to ensure that they will not be subjected to
potential abuses.
Mr. Speaker, I urge my colleagues to vote for H.R. 1070, a
commonsense, bipartisan bill to improve our economy, and I yield back
the balance of my time.
Mr. GEORGE MILLER of California. Mr. Speaker, I rise in support of
the Small Company Capital Formation Act, which will help restore the
purpose of the ``Regulation A'' exemption that was designed to make it
easier for growing small businesses to access capital.
It is critical that we ensure that innovative, growing small
companies have access to the capital that they need to continue to grow
and hire, because these companies play such an important role in our
economy.
Regulation A offers these small companies a unique chance to raise
money through small offerings under a streamlined and less costly
registration process. This opportunity is especially important in
today's economy, in which access to capital has been greatly reduced as
many banks hesitate to lend.
Unfortunately, in recent years, few companies have been able to take
advantage of the Regulation A exemption because the offering limit of
$5 million is too low and has not been updated in the last 30 years.
In fact, there have only been an average of eight filings per year
under the exemption in recent years.
By increasing the offering limit, this bill will ensure that more
growing companies can take advantage of Regulation A in order to access
the capital that they need to expand and thrive.
I'm glad that this bill has come to the floor in a bipartisan way.
This proposal is an important component of President Obama's American
Jobs Act and has the potential to benefit small businesses across the
country. It is the sort of commonsense solution that both parties
should be able to agree on.
I particularly want to thank the rest of the San Francisco Bay Area
delegation, as we have been working since early last year to enact this
long-needed change.
Once again, I urge my colleagues to support this bill.
Mr. DINGELL. Mr. Speaker, I rise in opposition to H.R. 1070, the
Small Company Capital Formation Act, and H.R. 1965, the Increase
Shareholder Threshold for SEC Registration Act. While I applaud the
bipartisan efforts of my colleagues to help small businesses grow and
create jobs, the sting of the effects of financial deregulation is
still too strong to allow me to support these bills.
With respect to H.R. 1070, I note that Congress has raised the
Securities and Exchange Commission's Regulation A threshold five times.
Each time, however, was a modest increase that was in my mind relative
to the rate of inflation and the purchasing power of the dollar. H.R.
1070 would mandate an unprecedented tenfold increase in the current
threshold of $5 million to $50 million. Such an increase strikes me as
grotesquely large, especially since inflation has risen only 165
percent since 1980, and in my view constitutes a tremendous incitement
to perpetrate fraud on investors.
I take a dimmer view of H.R. 1965, which increases the number of
shareholders a bank can have before having to register with the SEC.
Under current law, that number is 500, and H.R. 1965 would increase it
four times to 2,000. I am not at all satisfied this increase is
justified and furthermore consider it a sly way to skirt federal
reporting requirements that are in place to protect the American
public.
Mr. Speaker, I share my colleagues' concern that not enough jobs are
being created and that Congress must take swift action. Where I part
ways with them is voting for seemingly innocuous measures like these
that unfortunately will decrease transparency for investors and create
incentives for all manner of financial rascality.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Alabama (Mr. Bachus) that the House suspend the rules
and pass the bill, H.R. 1070, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. BACHUS. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this question will be postponed.
____________________