[Congressional Record Volume 158, Number 43 (Thursday, March 15, 2012)]
[Senate]
[Pages S1714-S1729]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
JUMPSTART OUR BUSINESS STARTUPS ACT--Continued
The PRESIDING OFFICER. The junior Senator from West Virginia is
recognized.
Mr. MANCHIN. Mr. President, I ask unanimous consent to speak as in
morning business.
The PRESIDING OFFICER. Without objection, it is so ordered.
Groh Nomination
Mr. MANCHIN. Mr. President, I rise to applaud the confirmation of
Judge Gina Marie Groh to the U.S. District Court for the Northern
District of West Virginia.
As then-Governor of West Virginia, I was honored to have the first
female from the Eastern Panhandle, with the highest of credentials,
Judge Groh, brought to my attention. I was so proud to appoint her to
the 23rd Judicial District in 2006, and she has served with great
distinction ever since.
I am also very pleased my colleague and friend Senator Jay
Rockefeller saw the same qualities in Judge Groh that I did and
recommended her for this prestigious position on the Federal bench. I
thank him for his steadfast support.
I wish to take this opportunity to reiterate some of Judge Gina
Groh's fine qualities and the reasons I know she will be an exceptional
judge on the U.S. District Court for the Northern District of West
Virginia.
Judge Groh is a well-respected and recognized member of her community
in the Eastern Panhandle of West Virginia, as I have known her for many
years. In addition to being the first female circuit judge to serve in
the Eastern Panhandle, Judge Groh is only the third female circuit
judge to be selected in all of West Virginia.
Prior to her circuit court appointment, Judge Groh served as
assistant prosecuting attorney at the prosecuting attorney's offices in
Berkeley County and Jefferson County, WV. During her 8 years as
prosecutor, she established a strong record of protecting her fellow
West Virginians by tirelessly pursuing convictions for such crimes as
murder, robbery, rape, child abuse, drunk driving, and drug-related
offenses.
Judge Groh has not only excelled professionally but has also risen to
become a true pillar of her community in the Eastern Panhandle of West
Virginia. She dedicates her time to countless foundations and serves on
a number of boards. For many years, she has worked for such programs as
Robes to School and the Meals with Love Ministry and has been very
involved with her alma mater, Shepherd University, serving both with
the Wellness Center and as a member of the alumni board.
Judge Groh graduated summa cum laude from Shepherd University in
1986, with a bachelor of science degree. She earned the university's
highest academic honor as a McMurran Scholar, in addition to serving as
editor-in-chief of the newspaper and vice president of her graduating
class. Judge Groh went on to earn her J.D. from West Virginia
University's College of Law in Morgantown, WV.
I believe Judge Groh's experience, intellect, leadership,
impartiality, and deep roots in the community make her a prudent choice
for the vacancy in the Northern District of West Virginia. She
exemplifies not only the qualities of a talented jurist but also the
high moral character and sense of justice necessary to make a great
judge.
I know it has been exasperating for Judge Groh and her family waiting
for this confirmation, knowing that she came out of the Senate
Judiciary Committee without any opposition. It has been very difficult
that we as a body have gotten to the point of slowing down these
nominations, and I believe very strongly our system needs to be changed
so we can get quality judges such as Judge Gina Groh on the bench as
quickly as possible so they can work to protect the people of the
United States.
Again, I thank my colleagues for confirming an exemplary candidate
for the U.S. District Court for the Northern District of West Virginia,
Judge Gina Marie Groh.
I yield the floor.
The PRESIDING OFFICER. The Senator from Rhode Island.
Mr. REED. Mr. President, the House of Representatives has just passed
H.R. 3606, which is styled as a capital formation bill, but it is
fundamentally flawed. As more and more people have looked closely at
the bill, they have found more and more problems with it--problems that
could roll back key consumer protections and dramatically decrease the
transparency of our capital markets.
One of the fundamental misconceptions in this bill is that we can
have robust capital formation without good
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investor protections. My view is we can't have one without the other;
that the strength of our market is the reliance investors have that
they will have the right information and know enough about the entity
they are investing in to make judicious, sound economic judgments. The
Cantor bill would roll back many investor protections, would deny
investors critical information that is essential to making sound
judgments, and would ultimately not lead to the proposed goal of the
bill--providing more access to capital, particularly for small,
emerging companies.
Serious concerns have been raised about the Cantor bill by current
and former regulators in the last 2 weeks: Mary Shapiro, Chairman of
the Securities and Exchange Commission; the North American Securities
Administrators Association; Arthur Levitt, former Chairman of the SEC
and head of AMEX; and Lynn Turner, former chief economist of the SEC.
Some of the largest pension plans in the entire country have been
weighing in through the Council of Institutional Investors, and these
are the entities most people want to have invest in their companies as
long-term investors. They have real concerns about the House action.
We have been getting phone calls and letters from a diverse array of
consumer groups, such as the AARP, the Consumer Federation of America,
the AFL CIO, and SAFER, the Economists' Committee for Stable,
Accountable, Fair, and Efficient Financial Reform.
Academic experts, such as Professor John Coffee of Columbia
University School of Law, for one, have called the Cantor bill the
``Boiler Room Preservation Act'' because it will mean more pump-and-
dump schemes, where people are pressured to invest in highly risky
firms and products. Two other noted securities experts from Harvard
University Law School and Business School, respectively, John Coates
and Robert Pozen, have said the bill does more than, in their words,
``trim regulatory fat; parts of it cut into muscle.'' We need to slow
down this process and get it right. H.R. 3606 can be improved and
should be improved. That is why I--together with Senators Mary
Landrieu, Carl Levin, Sherrod Brown, Jeff Merkley, Daniel Akaka,
Sheldon Whitehouse, Al Franken, Tom Harkin, and Dick Durbin--am
introducing a substitute amendment to this bill today. We hope our
legislation can serve as a base bill for the Senate to discuss and
amend as we move forward.
What are some of the most serious flaws we are trying to address in
the Cantor bill? First and foremost, this bill is unlikely to create
jobs, despite the title the House has bestowed upon it. In fact, it may
actually have the opposite effect. By weakening investor confidence, it
could actually decrease the number of IPOs and lead to fewer
investments in our capital markets.
Currently, our markets are considered the most transparent and liquid
in the world, which has been one of its great strengths--the confidence
that when an investor puts money into an American financial product and
American market, he or she has detailed information about the current
status and the prospects of that investment. Under the Cantor bill, our
markets would become less transparent and more opaque. Fewer
protections will be provided to investors. This could actually lead to
fewer investors investing in the United States, since we are in a
global economy or increasing competition with capital markets in
London, Paris, Hong Kong, and Singapore--to name just a few.
Again, one of the great hallmarks of our markets, starting in 1933
with the securities legislation of the New Deal, was the feeling that
investors would be protected, that there would be standards in place,
information would be made available to them, and they could have
confidence--as much confidence as they could get--in their investments.
If we undermine that confidence, eventually we will undermine both our
appetite and capacity to invest.
The Cantor bill has more problems. It tries to create a way that
crowdfunding can be used to raise money for small enterprises, but it
does this with very few protections for investors and would allow
unregulated Web sites to peddle stock to ordinary investors without any
meaningful oversight or liability.
Crowdfunding is a very interesting new approach to raising capital.
Our colleagues, Senators Merkley and Bennet have spent a lot of time
developing very positive legislation which balances improving small
business access to capital, by tapping into social networks and small
investors but, at the same time, gives those investors adequate
protections. The House has not taken this approach. They have
legislation that could, indeed, create a situation where crowdfunding
is plagued by fraud, by manipulation, and by people who simply want to
make a quick buck and move on, hoping they will just disappear into the
Internet.
The Craigslist or eBay model may work to enable people to sell
unwanted clothing, bikes, and other goods, but it certainly doesn't
work for a financial security that requires a much more careful
analysis than simply kicking the tires. People with more credit card
debt than savings will be tempted to put their money into these mass-
marketed, get rich schemes--money which they can't afford, in many
cases. As the economy continues to grow, stocks will rise--we have seen
some interesting and very positive developments on Wall Street over the
last several weeks--but this ride up could be accompanied by bubbles
with these types of crowdfunding schemes, where people are putting
money in for a quick return based on, perhaps, the success of one or
two companies but not having the information, not having the
appropriate controls on the intermediaries so they can make a sound,
valid investment.
There is another aspect of the House legislation, in addition to this
crowdfunding approach, which is the House IPO on-ramp provisions. An
IPO, of course, is an initial public offering. This approach, to try to
streamline access to the public markets for emerging companies, has
great merit. But once again, what has happened in the House bill is
they have done this at the expense of necessary protections for
investors.
Relaxing standards for very large, new public companies, when no
evidence supports the idea those standards stand in the way of these
IPOs and much evidence suggests the standards prevent serious
accounting problems, is not the way to go. The basic essence of their
approach--this on-ramp approach--is a very large company, with up to $1
billion in revenue, for a period of 5 years or so, can avoid some of
the now standard requirements for public companies. This is not an
targeted approach for small companies. Companies with $1 billion of
revenue are substantial economic enterprises. The protections that have
been put in place over the years not only protect the investors but
also ensure appropriate audit procedures are in place. Ensuring
appropriate managerial behavior for a company of that size should not
be indefinitely waived or waived for a period of 5 years.
We could literally roll back the clock to pre-Enron, pre-WorldCom,
where because of creative accounting, because of the lack of adequate
audit procedures within the company, real abuses occurred. The result
was Enron collapsed and their shareholders were left with virtually
nothing. One of the more tragic ironies is that many of their
shareholders were their employees who had their entire pensions
invested in the company, particularly in the case of Enron. Ultimately,
the pain to these people, caused by the lack of good standards--which
have since been put in place--was significant. If we proceed on this,
we might, once again, have a situation where we are repeating
industry--and a history we have seen already.
Again, as the economy rebounds, as stocks rise, I think there will be
a variable increase in new public offerings--IPOs. If we look at the
data, the number of IPOs goes up and down. But the most significant
factor is simply economic activity. As economic activity goes up, new
companies have opportunities, IPOs go up. In this boom, there could be
the temptation for these companies, given these new, very relaxed
standards, to ignore the problem because they do not have to disclose
them adequately or to deliberately mislead investors because there is
no real check on what is being said. The relaxed standards in the House
bill could allow companies to engage in deception, to raise and waste
more investment money more quickly.
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There is a way we can dial back this excessive legislation in a way
that will provide capital formation but will also provide protections
for investors, and I hope we can proceed in that manner. Increasing
IPOs is a valuable goal, but it should be done much more cautiously, in
my estimation, with reforms focused on much smaller companies than
those with $1 billion in annual revenue, as is indicated in the Cantor
bill.
During the course of three hearings in the Senate Banking Committee
on these issues, it has become even more clear there are problems with
the way shareholders are being counted. This is another aspect of the
House bill that is problematic. They have indicated they would like to
move beyond a number--500--which requires a company register under the
1934 Securities and Exchange Act with the SEC. This trigger is
something that should be considered in terms of present-day standards.
The House bill raises this trigger point to 2,000 very quickly, without
dealing with the so-called beneficial owners problem. If the provision
in the House bill was in force in the past, two-thirds of current
public companies would not have been required to register under the
1934 Act. Let me say that again.
If you reach a certain number of shareholders, you are required to
register and begin to give those shareholders required information on a
quarterly basis. You are required to file other forms. You are required
to be subject to other rules and regulations of the SEC.
If this new House standard of 2,000 shareholders was in place, two-
thirds of current public companies would not have to register with the
'34 Act. They would be operating in the dark. They would be operating
with whatever minimal information they might be required to divulge to
their shareholders under State corporate law or, in some cases, State
securities law. That is an astounding number of companies.
Most investors take for granted that when you reach a critical size
in the number of shareholders, et cetera, that you will begin to
report. Again, these reports are the lifeblood of the investing
community because they rely upon them for their information about what
is going on in the company, and they rely upon them for the standards
that company has to follow.
Over time, most investors as a result of registration under the '34
Act are entitled to receive regular disclosures. Again, these
provisions raising up the level to 2,000 shareholders would undermine
the other stated goal of the Cantor bill, to make it easier for
companies to go public and easier to disclose information. In fact,
some would describe this as sort of a bipolar piece of legislation.
On the one hand, they want to relax the standards for going public,
and on the other hand they want to relax the standards and allow more
companies to go private. I think we have to be careful in each instance
to ensure that investors are protected, as well as capital formation is
enhanced.
The House bill will eliminate an SEC rule on general solicitation,
allowing companies to advertise risky, less regulated, unregistered
private offerings to the public using, for example, billboards along
highways, cold calls to senior living centers, or other mass marketing
methods. It also will tear down protections that were put in place
after the late 1990s Internet stock bubble burst that prevented
conflicts of interest from tainting the quality of research about
companies.
What we found in the wake of the dot-com bubble--with many
protections in place that would be taken out by this legislation--was
there were analysts who were touting companies at the same time other
parts of their business were trying to sell those companies' shares.
This conflict of interest with someone you hope is giving an objective
opinion would be encouraged, not discouraged, under the House bill.
The Cantor bill would allow extremely large corporations to avoid SEC
oversight. It also would allow banks, with even hundreds of billions of
dollars in assets, to deregister and stop being subject to SEC
oversight and critical investor protections.
Finally, the Cantor bill actually doesn't include provisions that are
more likely to create jobs for Americans. For example, the House bill
does not include reauthorization of the Ex-Im Bank. Time is of the
essence, by the way, to get this Ex-Im Bank reauthorized. The bank's
temporary extension expires at the end of May and is close to exceeding
its operating level of $100 million by the end of this month.
Renewing the Ex-Im Bank's charter with increased lending authority is
practically the only way of countering the predatory financing
practices of other trading nations. We spend a lot of time on this
floor pointing the finger at companies that are using their sovereign
institutions to undermine American jobs, to get them overseas. Yet one
of the major institutions in our country that helps American products
to be sold overseas is literally in danger of going out of business.
That is something that will, in fact, enhance job creations, and it is
not in the House bill. In fact, it has been suggested that Ex-Im Bank
activities supports almost 300,000 jobs in the United States each year.
It also doesn't include two other programs that would result in the
creation of more jobs, and these two programs are particularly the
result of the hard and aggressive and thoughtful work of Senators
Landrieu and Snowe. One program expands the capacity of the Small
Business Investment Company program, SBIC. They have proposed
legislation that would allow another $1 billion in equity-like
financing for smaller, fast-growing firms. The other program would
extend for 1 year the SBA's 504 refi loan program to help firms
refinance commercial real estate into long-term, fixed-rate loans.
These modifications have created and saved hundreds of thousands of
American jobs at no cost to the taxpayers. These are tried and true
ways to increase jobs in America without running the risk of
undermining the information that investors need to make sound choices
about where to invest their dollars.
It is very tempting to suggest we simply have to cut a couple of
regulations and jobs will expand. That was the theme that was rampant
here during the Bush administration and, for a while, frankly, it
looked like it was working. But then, with the sudden and colossal
collapse, we knew that was not the path to long-term sustained job
creation. Sound investment based on adequate information in companies
that produce jobs in the United States is the way to proceed.
We need to listen to those individuals charged with the supervision
of our capital markets, the SEC, and now we have both the current
chairman and a former chairman saying the legislation the House
proposed is a threat to all investors in this country. The stakes are
high if we get some of these things wrong. We have been trying to focus
on these issues intensely for the last few months to bring legislation
to the floor that will balance capital formation with investor
protections. You can't get one at the expense of the other. You have to
have both.
So I encourage all my colleagues to take a close look at the Reed-
Landrieu-Levin substitute. I believe it is a substantial improvement to
the House bill. My colleague from Louisiana will speak and, once again,
I must commend her passion for protecting investors, particularly small
investors, and her passion for creating jobs through the SBA and other
organizations as remarkable, commendable, and indeed exceptional.
Madam President, I yield the floor.
The PRESIDING OFFICER (Mrs. Shaheen). The Senator from Louisiana.
Ms. LANDRIEU. Madam President, I thank Senator Reed and Senator Levin
who have helped to lead this effort to make a bill that is coming over
from the House much better and much safer for investors, as well as to
generate opportunities for more capital to flow to some of the good and
solid ideas that are out there in our marketplace to create jobs.
I am pleased to join these two Senators and about a dozen to date and
potentially dozens more of our colleagues as people learn the
differences--and they are substantial--between the House version of
what they call an IPO bill and the Senate version we have worked on
very diligently and carefully over the last 48 hours.
The three of us are prepared to vote against the House bill as it
stands now. The only hope of getting our support, and many others here,
is to try to amend the House bill. That is what our efforts are.
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We are not trying to say no to everything that is in the House bill
because there are some excellent ideas. Even the President himself and
the White House and some of the Democrats voted for that bill because
there are some good ideas in the bill, and some ideas that have come
from some of the brightest entrepreneurs in our country. We are not
trying to say no to those ideas. We are trying to say yes to those
ideas, but do it in a way that protects investors--older investors,
younger investors, sophisticated investors, and your average sort of
nonsophisticated investors because the Internet has opened a whole new
opportunity.
When these security laws were written 40 years ago, 50 years ago, 60
years ago and amended, the Internet wasn't what it is today. So that is
why this crowdfunding bill--which is, in essence, a way for the
Internet to be used to raise capital that is illegal generally today,
and there are very specific rules about how people can raise capital
for their businesses. Some of those regulations are too onerous; some
of them are right on. But this whole idea of, oh, my goodness, now the
Internet is here--look what opportunities could be. We can get our
ideas to the marketplace without having to go through middlemen. We
have a great idea, a wonderful patent. We want to be able to raise
money. We are very excited about this. But there is a right way to do
this and there is a wrong way to do this.
With the House bill, we know that we are on a little bit of rocky
ground when they don't really have a name for it. They have called it
everything from an IPO bill to a jobs bill to a capital expansion bill.
What I am calling it today--and I will have a poster made over the
weekend--is an ill-advised political opportunity bill. That is what IPO
stands for, in my mind.
It is ill-advised because the safeguards that are required to make
sure these new ideas happen the way they should are absent from their
legislation. That is why, when I found out, surprisingly, that the
Senate of the United States was getting ready to take that bill and
just adopt it whole hog, I said: Absolutely not. We have to slow this
down, try to amend it--not kill it but amend it. The reason is because
there are very respected groups out there that started sending letter
after letter after letter to the Senate urging us to do just that.
This isn't about a conservative-liberal fight. This is about the
right regulations that are necessary before we take a good idea and
mess it up. Crowdfunding is a good idea. It is an exciting idea. There
are great entrepreneurs out there. The Internet could be a very
powerful tool. But everyone knows if you enter into new territory
without caution and care, you can fall off a cliff that you didn't even
know was there. That is exactly what the House bill is going to do.
If you don't want to take my word for it, let's talk about what AARP
says about it. This is the first letter. I am going to put a dozen
letters into the Record in the next 10 minutes to try to get the
attention of the people on the other side of the aisle. This is all an
attempt to get their attention over the weekend, and I hope the press
will write about these letters so when they come back on Monday they
can say: Oh, my gosh. We have a good bill that came from the House, but
there are some real flaws and we should fix it before we create another
Wall Street debacle or before we see people ripped off again like we
just went through in the last 6 years.
How short is our memory about investors getting stripped, going
bankrupt because of exactly the same thing: just not being careful, not
having the right rules in place, not having the right enforcements in
place. This was like yesterday. That is why when the leadership said we
were just going to take up the House bill, I said: Wait a minute. No,
no, no.
This is what the AARP said, Joyce Rogers:
I am writing to reiterate our opposition to the lack of
investor protections in H.R. 3606--
Again, the House-passed, ill-advised political opportunity bill. That
is what I am calling it. That is what it is--
that soon will be considered on the floor of the Senate
floor. AARP's primary concern is that this legislation
undermines vital investor protections and threatens market
integrity.
So AARP doesn't urge the Senate to kill the bill.
AARP urges the Senate to take a more balanced approach,
recognizing both an interest in facilitating access to
capital for new and small businesses and in preserving
essential regulations. . . . We believe the amendment to be
offered by Senators Reed, Landrieu and Levin, moves closer to
achieving this balance and deserves your support.
It goes on to say that sometimes the people who are taken advantage
of are the elderly. So wake up, Senators from Florida. Wake up,
Senators from Michigan. Wake up, Senators who have big senior
populations. The AARP is against the House bill, the ill-advised
political opportunity bill.
North American Securities Administrators Association--they sent a
letter yesterday, from Jack Herstein. It is seven pages long. They go
into great detail:
On behalf of the North American Securities Administrators
Association--
I don't think this is a liberal think tank. I think this is a very
well respected, not a leftwing, regulate-everything-that-moves kind of
group. I think that is correct. He says:
I am writing to express concerns regarding several
provisions, most notably our strong concern with the
extraordinary step of pre-empting state law for
``crowdfunding'', contained in [the ill-advised political
opportunity bill which was passed by the House.]
State securities regulators support efforts by Congress to
ensure that laws facilitating the raising of capital are
modern and efficient, and that Americans are encouraged to
raise money to invest in the economy. However, it is critical
that in doing so, Congress not discard basic investor
protections.
I am going to submit this letter, without objection, I hope, to the
Record.
This is from the Council of Institutional Investors, ``a nonprofit,
nonpartisan association of public, corporate and union pension plans.''
Let me repeat, not just union pension plans but public and corporate
pension plans. They are writing with questions about the House ill-
advised political opportunity bill, and it goes into great detail. I am
putting this into the record hoping people will actually read the
Congressional Record.
Another letter to Speaker Boehner and Nancy Pelosi. This was
delivered to the House. It may be a little different from the one to
the Senate, so I would like to put that into the Record. These are very
important letters received just recently. That is why I am asking
people to wake up, pay attention.
Securities and Exchange Commission, March 13. This is to Chairman
Johnson and Ranking Member Shelby basically saying:
Last week, the House of Representatives passed H.R. 3606. .
. . As the Senate prepares to debate many of the capital
formation initiatives addressed by H.R. 3606, I want to share
with you some of my concerns on some important aspects of
this significant legislation.
That is by Mary Schapiro, Chairman, outlining a dozen of her concerns
because, of course, she thinks there is going to be a debate. She would
expect a debate on a bill of this nature and magnitude and diversion
from the ordinary. But we were not going to have a debate. We were just
going to be told to take the House bill or leave it until a few of us
said: No, slow this train down. This is no way to run a railroad.
We are not trying to kill the bill. We are not trying to delay. We
are trying to have at least a 2- or 3-day debate on an important piece
of legislation that, if it is not done right, is going to absolutely
ruin the best chance we have had in decades to actually get capital
into the hands of businesses.
Everyone here should now know me well enough as chair of the Small
Business Committee to know I have spent literally nights, days, and
weekends on the floor of this Senate trying to figure out ways to get
capital into the hands of small businesses. Why would I stand here and
try to stop that? I have spent my whole time as the Senate chairman of
the Small Business Committee trying to do that. But, again, there is a
right way to do that and a wrong way.
If we take the wrong path and fall off of a cliff, we are going to
ruin the chance we have with this new Internet tool, this very exciting
opportunity, and we are going to ruin our chance to get this done.
Who is going to suffer? The same people who suffer all the time, the
small businesses and the exciting opportunities and entrepreneurs who
need our help.
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Any bill that is a major bill can stand the scrutiny of time before
the public, and amendment. If it cannot stand that scrutiny, then I
suggest there is something terribly flawed with it. That is what we are
trying to provide, scrutiny.
This letter comes from the AFL CIO, from Jeff Hauser, an e-mail:
America needs jobs. Yet Congress cannot enact such basic
legislation as the reauthorization of the surface
transportation bill--
Which we passed, but it has not been completed. He goes on to say:
Workers' retirement savings will be in greater risk of
fraud and speculation if securities market deregulation once
again is railroaded through Congress. Once again our economy
will be at risk from the folly of policy makers promoting
financial bubbles and ignoring the needs of the real economy.
The AFL CIO calls on Congress to set aside the politics of
the 1 percent, the old game of special favors for Wall
Street.
They are very strong in their language, probably a lot stronger than
these other organizations. But I think they have reason to be. Many of
their members were taken to the cleaners by scams on Wall Street. They
have yet to recover. Their 401s have yet to recover. Even yesterday, or
last week, in the paper I saw one of the big companies that failed. I
think it was MF Global. Did you all see that in the newspaper? They
failed. Of course, it was a terrible debacle. Lots of people lost
money. But the CEO is walking away with a $7 million bonus.
People who work hard all day have a very hard time understanding how
we in the Congress can allow the CEO to walk away with a bonus of $7
million when he bankrupted thousands of people. That is a good
question. Are we going to do that again with this House bill? I hope
not.
Let's put the AFL CIO on record saying slow down.
This is the next message I want to put in from the secretaries of
state--and I want to read off who they are: the secretary from
Missouri, Robin Carnahan; the secretary from Massachusetts, William
Falvin; the secretary from New Hampshire, William Gardner; the
secretary from Mississippi--I believe is a Republican--Delbert
Hosemann; the secretary from North Carolina, secretary of state Elaine
Marshall; the secretary from Nevada, Ross Miller; the secretary of
state from Indiana, Charles White; and the secretary of state from
Illinois, Jesse White.
Jesse White says the same thing: Beware of the House bill. It is
flawed. It has some good ideas in it, but those flaws need to be
corrected.
That is what the Reed-Landrieu-Levin et al amendment does. We are not
trying to kill these wonderful, exciting ideas. We are trying to fix it
so it is better. I hope our Members on the other side will join us in
doing that, and I would like to submit this to the Record.
There are two more. Actually, I am sorry, four more--we have so many.
The next one is from my office of financial institutions from Baton
Rouge, my commissioner, banking commissioner, who wrote me. He is
generally in favor of some of the things in the House bill. But he
said:
I am writing to urge you to oppose the preemption of
Louisiana law to protect investors.
I would like to put that into the Record.
The American Sustainable Business Council. It is signed by David
Levine. Again, I don't believe this is a left-leaning group. I think it
is a pretty centrist organization. They urge us to take a hard look at
the House bill.
Finally, Madam President, I want to have printed in the Record--this
is when I got nervous: when I started receiving letters in my office
from crowdfunders themselves against the House bill. The people who
gave the idea to start up crowdfunding have now said the House bill is
flawed. Here is what they say:
I write in favor of the bipartisan compromise CROWDFUNDING
Act proposed recently by Senators Merkley, S. Brown, Bennet
and Landrieu.
That is the crowdfunding act that is in this substitute.
Yesterday evening's introduction--
This was last week--
of the first bi-partisan Senate crowdfunding bill is a big
step forward in our fight to get equity crowdfunding passed
through Congress. I have been to Washington, DC 7 times since
mid-November, discussing [this legislation]. The offices of
the Senators on the Banking Committee have been very
receptive to input from the entrepreneurial community and
have adopted many of our suggestions.
But they go on to say:
This latest bill . . . is important because, unlike
previous bills, for the first time we have a Senate bill with
bipartisan sponsorship, a balance of state oversight and
federal uniformity, industry standard investor protections,
and workable funding caps. This bill has a legitimate chance
at quieting those who were previously trumping up fears of
fraud [and] bad actors. . . . To date the main issues the
opposition raised were regarding fraud and state oversight.
What they are saying is we are the ones who helped invent this
concept. We don't think the House bill is where it should be. We are
supporting the Merkley-Bennet approach, which is in this bill.
Launcht, we hear you, and we are trying to respond.
Finally, Motaavi--again, a crowdfunder advocate. People, very
entrepreneurial, coming up with these ideas saying the same thing.
I ask unanimous consent to have those letters printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
AARP,
March 15, 2012.
Re Investor Protection, Market Integrity and the JOBS Act.
Dear Senator Landrieu: On behalf of AARP, I am writing to
reiterate our opposition to the lack of investor protections
in H.R. 3606, the House-passed JOBS bill that soon will be
considered on the Senate floor. AARP's primary concern is
that this legislation undermines vital investor protections
and threatens market integrity. The goal of facilitating
access to capital for new and small businesses is a worthy
one. However, we do not believe that the best way to create
jobs is to weaken essential regulatory protections that were
put in place to address specific marketplace problems that
otherwise would still exist.
This debate is critical to older Americans, who with a
lifetime of savings and investments are disproportionately
represented among the victims of investment fraud. We share
the concerns--raised by SEC Chair Mary Schapiro, the North
American Securities Administrators Association (NASAA), law
professors, investor advocates, and others--that absent
safeguards ensuring proper oversight and investor protection,
the various provisions in H.R. 3606 may well open the
floodgates to a repeat of the kind of penny stock and other
frauds that ensnared financially unsophisticated and other
vulnerable investors in the past. The absence of adequate
regulation in the past has undermined the integrity of the
markets and damaged investor confidence while having no
positive impact on job creation.
AARP urges the Senate to take a more balanced approach,
recognizing both an interest in facilitating access to
capital for new and small businesses and in preserving
essential regulations that protect investors from fraud and
abuse, promote the transparency on which well-functioning
markets depend, and ensure a fair and efficient marketplace.
We believe the amendment to be offered by Senators Reed,
Landrieu and Levin, moves closer to achieving this balance
and deserves your support.
We urge you to vote yes on the Reed-Landrieu-Levin
amendment.
If you have any further questions, please feel free to
contact me, or have your staff contact Mary Wallace of our
Government Affairs staff.
Sincerely,
Joyce A. Rogers,
Senior Vice President,
Government Affairs.
____
North American Securities
Administrators Association, Inc.,
Washington, DC, March 12, 2012.
Re Senate Companion to H.R. 3606
Hon. Harry M. Reid,
Majority Leader, U.S. Senate,
Washington, DC.
Hon. Mitch McConnell,
Minority Leader, U.S. Senate,
Washington, DC.
Dear Majority Leader Reid and Minority Leader McConnell: On
behalf of the North American Securities Administrators
Association (NASAA), I am writing to express concerns
regarding several provisions, most notably our strong concern
with the extraordinary step of pre-empting state law for
``crowdfunding'', contained in H.R. 3606, the Jumpstart Our
Business Startups Act, which was passed by the House of
Representatives on March 8, 2011. While NASAA applauds
Congress' desire to facilitate access to capital for new and
small businesses, the version of the bill that passed the
House is deeply flawed. The Senate must now address these
problems.
State securities regulators support efforts by Congress to
ensure that laws facilitating the raising of capital are
modern and efficient, and that Americans are encouraged to
raise money to invest in the economy. However, it is critical
that in doing so, Congress not discard basic investor
protections. Investment fraud is real, and it can be
particularly pervasive in small exempted offerings.
[[Page S1719]]
Expanded access to capital markets for startups and small
businesses can be beneficial, but only insofar as investors
can be confident that they are protected, that transparency
in the marketplace is preserved, and that investment
opportunities are legitimate. State securities regulators are
acutely aware of today's difficult economic environment, and
its effects on job growth. Small businesses are important to
job growth, and to improving the economy. However, by
weakening investor protections and placing unnecessary
restrictions on the ability of state securities regulators to
protect retail investors from the risks associated with
smaller, speculative investments, Congress is on the verge of
enacting policies that, although intended to strengthen the
economy, will in fact only make it more difficult for small
businesses to access investment capital.
The JOBS Act that was passed by the House is a repackaging
of what were originally seven bills, reorganized into a
single bill, with six distinct Titles and twenty-one
sections. While NASAA believes virtually every Title of this
bill would benefit from greater scrutiny, we will confine our
comments today to those Titles and Sections of H.R. 3606 that
pose the most urgent risk to average, ``Main Street''
investors that are NASAA's principal concern.
Title I: The Reopening American Capital Markets to Emerging Growth
Companies Act
Title I contains a number of troubling provisions. It
creates a new category of issuer referred to as an ``emerging
growth company'', defined as a company with annual gross
revenues of less than $1 billion in its most recent fiscal
year. This status continues until five years after an initial
public offering or until the issuer has an annual gross
revenue exceeding $1 billion or is designated a ``large
accelerated filer.'' Particularly troublesome to NASAA are
the exemptions applicable to such companies: for example,
they are exempted from Section 404(b) of the Sarbanes-Oxley
Act of 2002 (SOX) which requires an independent audit of an
assessment of a company's internal controls as well as the
requirement to provide three (instead of two) years of
audited financials statement in a company's registration
materials. S. 1933 also allows brokers and dealers to publish
research about emerging growth companies prior to an initial
public offering, even where they will participate in the
offering itself.
Title I would give all but the very largest companies
direct access to average, unsophisticated investors without
being required to provide the normal types of financial and
risk disclosures applicable to public reporting companies.
The typical retail investor, unlike larger business
financiers, does not have the ability to conduct an
independent investigation of an emerging growth company and
make fully informed investment decisions. Such investors rely
on published financial and research data. Section 404(b) of
SOX was enacted in response to major accounting scandals that
cost investors billions of dollars; rolling back these
requirements for companies with annual gross revenues of less
than $1 billion could, once again, have devastating
consequences.
Similarly, weakening the standards applicable to research
analysts and tearing down the Chinese walls implemented in
response to the ``Global Settlement'' scandal could create a
conflict of interest resulting in devastating losses for Main
Street investors. These barriers were put into place in
response to enforcement actions brought by a number of state
and federal regulators. Leading brokerage firms agreed to
severely limit interactions between equity research analysts
and investment bankers, due to conflicts of interest that
tainted the investment process. Recent experience teaches us
now is the time to strengthen the protection of investors,
not weaken these standards.
Title II: The Access to Capital for Job Creators Act
Section 201: Modification of Exemption
Sec. 201 of the JOBS Act would repeal the SEC's ban on
general solicitation under Regulation D Rule 506 to allow
general solicitation in transactions ``not involving any
public offering, whether or not such transaction involves
general solicitation or general advertising.''
Current law requires securities offered to the general
public to be registered with the SEC. Regulation D was built
upon the premise that certain offerings should be given
special treatment because they are non-public, or
``private.'' This means that the investment is marketed only
to people with whom the company has a preexisting
relationship. Given their knowledge of the company and its
operations, these investors are in a better position than the
general public to gauge the risks of the investment. They,
therefore, have less need for the protections that flow from
the securities registration process. This concept of giving
preferential treatment to private offerings is embedded
throughout state and federal securities law, and a reversal
of this fundamental condition of Rule 506 would have far-
reaching repercussions.
The removal of the ``general solicitation'' prohibition
contemplated by Section 201 would represent a radical change
that would dismantle important rules that govern the offering
process for securities. NASAA has repeatedly expressed its
concern to Congress about allowing general solicitation in
rule 506 (Regulation D) offerings. Since the enactment of the
National Securities Markets Improvement Act of 1996,
Regulation D, Rule 506 offerings have received virtually no
regulatory scrutiny, and have become a haven for investment
fraud. Moreover, unlike other types of Regulation D
offerings, where the size of the offering is capped, the
amount of money that an issuer can raise under Rule 506 is
unlimited, and hence the opportunity for fraud on a massive
scale is especially acute in this area. Given state
experience with Regulation D offerings, and the significant
fraud and investor losses associated with them, NASAA opposes
Section 201.
Because many states already allow issuers to use general
advertisements to attract accredited investors, NASAA does
not oppose outright the underlying goal of Title II. However,
NASAA believes such an expansion should be accomplished by
the establishment of a new exemption with provisions to
protect investors and the markets.
Section 201: Explanation of Exemption (McHenry Amendment)
During consideration of H.R. 3606 the House adopted an
amendment to Section 201, sponsored by Rep. Patrick McHenry
(R NC) that will exempt from registration as a broker or
dealer any trading-platform that serves as intermediary in an
exempted Rule 506 offering. The significance of the McHenry
Amendment is to prevent ``intermediaries'' that facilitate
the sale of securities through ``crowdfunding'' from
requirements to register or be regulated as a broker.
NASAA appreciates that the question of how crowdfunding
intermediaries may best be regulated is complex, however
categorically exempting these sellers from broker
registration requirements, in the absence of a sensible
alternative for their licensing and regulation, is foolish
and reckless. As amended, Section 201 will leave
intermediaries open to conflicts, such inducements to list,
de-list, or promote certain offerings. Moreover, as amended,
Section 201 will deny any regulator effective means to
examine or discipline these sellers.
Title III: The Entrepreneur Access to Capital Act
Title III of the JOBS Act is identical to H.R. 2930, the
Entrepreneur Access to Capital Act, which was approved by the
House last fall. Two separate ``crowdfunding'' bills have
been sponsored in the Senate: S. 1791, sponsored by Sen.
Scott Brown (R MA), and S. 1970, sponsored by Sen. Jeff
Merkley (D OR).
While intending to promote an internet-based fundraising
technique known as ``crowdfunding'' as a tool for investment,
this legislation will needlessly preempt state securities
laws and weaken important investor protections. NASAA
appreciates that the concept of crowdfunding is appealing in
many respects because it provides small, innovative
enterprises access to capital that might not otherwise be
available. Indeed, this is precisely the reason that states
are now considering adopting a model rule that would
establish a more modest exemption for crowdfunding as it is
traditionally understood.
Section 301: Individual Investment Limit
Section 301 contemplates a hard-cap on individual
crowdfunding investments that goes far beyond anything that
is being contemplated by the states, or even by the
overwhelming majority of advocates of crowdfunding. By
setting an individual investment cap of 10 percent of annual
income, or $10,000, Section 301 will create an exemption that
will expose many more American families to potentially
devastating financial harm.
NASAA recognizes that for certain very wealthy individuals,
or seasoned investors, a cap of $10,000 may make sense.
Unfortunately, Sec. 301 fails to distinguish between these
few wealthy, sophisticated investors, and the general
investing public, imposing a $10,000 cap on both groups.
Given that most U.S. households have a relatively modest
amount of savings, a loss of $10,000, in even a single case,
can be financially crippling.
NASAA believes a superior method of limiting individual
investment amounts would be a scaled approach that would cap
most investments at a modest level, but allow experienced
investors, Who can afford to sustain higher losses, to invest
up to $10,000.
Section 301: Aggregate Offering Limit
Section 301 would also permit businesses to solicit
investments of up to $2 million, in increments of $10,000 per
investment. Such a high cap on aggregate investment makes the
bill inconsistent with the expressed rationale for the
crowdfunding exception.
Registration and filing requirements at both the state and
federal level exist to protect investors. A company that is
sufficiently large to warrant the raising of $2 million in
investment capital is also a company that can afford to
comply with the applicable registration and filing
requirements at both the state and federal level.
Section 303: Preemption of State Law
Section 303 would preempt state laws requiring disclosures,
or reviewing exempted investment offerings, before they are
sold to the public. The authority to require such filings is
critical to the ability of states to get ``under the hood''
of an offering to make sure that it is what it says it is.
Moreover, as a matter of principle and policy, NASAA ardently
believes that the review of offerings of this size should
remain primarily the responsibility of the states. State
regulators are closer, more accessible, and more in
[[Page S1720]]
touch with the local and regional economic issues that affect
both the issuer and the investor in a small business
offering.
Congress would be rash to preempt states from regulating
crowdfunding. Preempting state authority is a very serious
step and not something that should be undertaken lightly or
without careful deliberation, including a thorough
examination of all available alternatives. In this case,
preemption for a very new and untested concept to raise
capital, without a demonstrable history of reliability, is
especially unwarranted, as the states have far more
experience with crowdfunding than Congress or the SEC, and as
the states have historically been the primary ``cops on the
beat'' in the regulation of all areas of small business
capital formation.
For a clear example of the dangers of preempting state
securities look no further than the effect of the National
Securities Markets Improvement Act (NSMIA). As a result of
this Congressional action, private offerings receive
virtually no regulatory scrutiny. State securities regulators
are prohibited from reviewing these offerings prior to their
sale to investors, and federal regulators lack the resources
to conduct any meaningful review, so the offerings proceed
unquestioned. Today, the exemption is being misused to steal
millions of dollars from investors through false and
misleading representations in offerings that provide the
appearance of legitimacy without any meaningful scrutiny of
regulators. In essence, the private offering provisions of
Rule 506 are being used by unscrupulous promoters to evade
review and fly under the radar of justice.
Instead of preempting states, Congress should allow the
states to take a leading role in implementing an appropriate
regulatory framework for crowdfunding. Based on the small
size of the offering, the small size of the issuer, and the
relatively small investment amounts, it is clear that the
states are the only regulators in a position to police this
new market and protect its participants. Moreover, and as has
already been noted, the states are now in the midst of
developing a Model Crowdfunding Exemption.
As the securities regulators closest to the investing
public, and in light of their distinguished record of
effective regulation, the States are the most appropriate
regulator in this area. State securities regulators are not
only capable of acting, but, indeed, are acting in this
critical area, and Congress should continue to allow the
states to do so.
Title IV: The Small Company Capital Formation Act
Title IV of the JOBS Act is identical to S. 1544, which has
been sponsored in the Senate by Sens. Jon Tester (D MT) and
Pat Toomey (R PA).
Given the risky nature of these offerings, NASAA believes
that state oversight is critically important for investor
protection. At the same time, NASAA recognizes the costs and
difficulty of the typical registration process, and the
particular burden it places upon small companies. Indeed, for
this reason the states have adopted a streamlined process for
an issuer to use in an offering under Regulation A.
NASAA had significant concerns regarding the original
version of this legislation because it stripped away investor
protection by preempting state review of Regulation A
offerings that are sold through broker-dealers. However,
Title IV of H.R. 3606 does not include the preemptive
provisions that were in the original version of the bill.
While NASAA remains concerned about the dollar amount of
potential offerings under Title IV, as well as the bill's
nonsensical requirement that the SEC automatically increase
the ceiling in the future, every two years, in perpetuity, we
believe that the states' ability to review these offerings,
along with the SEC's proper exercise of discretion in
creating reasonable reporting requirements for issuers, will
prove to achieve a proper balance of the issuers' needs with
investor protection.
Title V: The Private Company Flexibility and Growth Act
Title V of H.R. 3606 would raise the threshold for
mandatory registration under the Securities Exchange Act of
1934 (the ``Exchange Act'') from 500 shareholders to 1,000
shareholders for all companies. This bill would also exclude
accredited investors and securities held by shareholders who
received such securities under employee compensation plans
from the 1,000-shareholder threshold.
Section 12(g) of the Exchange Act requires issuers to
register equity securities with the SEC if those securities
are held by 500 or more record holders and the company has
total assets of more than $10 million. After a company
registers with the SEC under Section 12(g), it must comply
with all of the Exchange Act's reporting requirements.
The states are primarily interested in the issues related
to the regulation of small, non-public companies. We give
considerable deference to the SEC in the regulation of public
companies and secondary trading. However, we do have concerns
about drastic changes in the thresholds for reporting
companies or the information they must disclose.
The primary reason for requiring a company to be ``public''
is to facilitate secondary trading of the company's
securities by providing easily-accessible information to
potential purchasers. The principal concern for states is the
facilitation of this secondary trading market with adequate
and accurate information. It may be possible to achieve this
without full-blown Exchange Act registration and periodic
reporting, but the states are wary of changes that may lead
to the creation of less informed markets.
No matter what threshold number is chosen before a company
becomes ``public,'' it makes little sense to exclude any
investor from the count of beneficial holders. Those that
purchased from the issuer were protected by the requirements
of the Securities Act. Both the seller and the purchaser
benefit from the robust marketplace facilitated by the
Exchange Act registration. Accordingly, NASAA believes the
registration threshold should be based upon the need to
provide for a legitimate secondary trading market. Regardless
of where the threshold is set, everyone who is a potential
seller in the market should be counted. This would include
all beneficial owners, not just holders of record.
Title VI: Capital Expansion
Title VI of H.R. 3606 would raise the threshold for
mandatory registration under the Securities Exchange Act of
1934 from 500 shareholders to 2,000 shareholders for all
banks and bank holding companies, and raises the shareholder
deregistration threshold from 300 shareholders to 1,200
shareholders.
NASAA understands the purpose of Title VI is to remedy a
specific problem that is today confronting certain community
banks. Specifically, as a result of the increasing costs of
public company registration, many community banks have
determined that deregistration is in the best interests of
their shareholders. But in order to deregister, community
banks must have fewer than 300 shareholders. As a result,
community banks must often buy back shares to deregister,
which reduces the access of small banks to capital and
deprives small communities of an opportunity to invest in
local companies.
Given the narrow scope of this Title and its application to
only banks and bank holding companies, NASAA has no position
on Title VI.
Finally, in view of the significant changes that H.R. 3606
would make to our securities laws, and of the fundamentally
experimental nature of many of this bill's provisions, NASAA
urges that H.R. 3606 proceed through the Senate under regular
order, and that the bill be subject to the scrutiny of the
Senate Banking Committee and it Securities Subcommittee.
Securities regulators, legal scholars, investor advocates,
and others have cautioned the Senate about the impact H.R.
3606 could have on investors and on our capital markets. The
Senate must answer these questions and concerns, thoroughly
and to its satisfaction, before it votes on H.R. 3606 or
similar legislation.
Thank you for your consideration of these important issues.
If you have any questions, please feel free to contact
Michael Canning, Director of Policy, or Anya Coverman,
Assistant Director of Policy, at the NASAA Corporate Office.
Respectfully,
Jack E. Herstein,
NASAA President; Assistant Director, Nebraska Department of
Banking & Finance, Bureau of Securities.
____
Council of Institutional Investors,
Washington, DC, March 1, 2012.
Hon. Tim Johnson,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Hon. Richard C. Shelby,
Ranking Member, Committee on Banking, Housing, and Urban
Affairs, U.S. Senate, Washington, DC.
Dear Chairman Johnson and Ranking Member Shelby: As a
nonprofit, nonpartisan association of public corporate and
union pension plans, and other employee benefit funds,
foundations and endowments with combined assets that exceed
$3 trillion, the Council of Institutional Investors (Council)
is committed to protecting the retirement savings of millions
of American workers. With that commitment in mind, and in
anticipation of your upcoming March 6 hearing entitled
``Spurring Job Growth Through Capital Formation While
Protecting Investors, Part II,'' we would like to share with
you some of our concerns and questions about S. 1933, the
``Reopening American Capital Markets to Emerging Growth
Companies Act of 2011.''
Our questions and concerns about S. 1933 are grounded in
the Council's membership approved corporate governance best
practices. Those policies explicitly reflect our members'
view that all companies, including ``companies in the process
of going public should practice good corporate governance.''
Thus, we respectfully request that the Committee consider
changes to, or removal of, the following provisions of S.
1933:
Definitions
We question the appropriateness of the qualities defining
the term ``emerging growth company'' (EGC) as set forth in
Sec. 2(a) and 2(b).
As you are aware, under Sec. 2(a) and 2(b) a company would
qualify for special status for up to five years, so long as
it has less than $1 billion in annual revenues and not more
than $700 million in public float following its initial
public offering (IPO). The Council is concerned that those
thresholds may be too high in establishing an appropriate
balance between facilitating capital formation and protecting
investors.
For example, we note that some of the most knowledgeable
and active advocates for
[[Page S1721]]
small business capital formation have in the past agreed that
a company with more than $250 million of public float
generally has the resources and infrastructure to comply with
existing U.S. securities regulations. We, therefore, urge the
Committee to reevaluate the basis for the proposed thresholds
defining an EGC.
Disclosure Obligations
We have concerns about Sec. 3(a)(1) because it would
effectively limit shareowners' ability to voice their
concerns about executive compensation practices.
More specifically, Sec. 3(a)(1) would revoke the right of
shareowners, as owners of an EGC, to express their opinion
collectively on the appropriateness of executive pay packages
and severance agreements.
The Council's longstanding policy on advisory shareowner
votes on executive compensation calls on all companies to
``provide annually for advisory shareowner votes on the
compensation of senior executives.'' The Investors Working
Group echoed the Council's position in its July 2009 report
entitled U.S. Financial Regulatory Reform: The Investors'
Perspective.
Advisory shareowner votes on executive compensation and
golden parachutes efficiently and effectively encourage
dialogue between boards and shareowners about pay concerns
and support a culture of performance, transparency and
accountability in executive compensation. Moreover,
compensation committees looking to actively rein in executive
compensation can utilize the results of advisory shareowner
votes to defend against excessively demanding officers or
compensation consultants.
The 2011 proxy season has demonstrated the benefits of
nonbinding shareowner votes on pay. As described in Say on
Pay: Identifying Investors Concerns:
Compensation committees and boards have become much more
thoughtful about their executive pay programs and pay
decisions. Companies and boards in particular are
articulating the rationale for these decisions much better
than in the past. Some of the most egregious practices have
already waned considerably, and may even disappear entirely.
As the Committee deliberates the appropriateness of
disenfranchising certain shareowners from the right to
express their views on a company's executive compensation
package, we respectfully request that the following factors
be considered:
1. Companies are not required to change their executive
compensation programs in response to the outcome of a say on
pay or golden parachutes vote. Securities and Exchange
Commission (SEC) rules simply require that companies discuss
how the vote results affected their executive compensation
decisions.
2. The SEC approved a two-year deferral for the say on pay
rule for smaller U.S. companies. As a result, companies with
less than $75 million in market capitalization do not have to
comply with the rule until 2013, thus the rule's impact on
IPO activity is presumably unknown. We, therefore, question
whether there is a basis for the claim by some that advisory
votes on pay and golden parachutes are an impediment to
capital formation or job creation.
We also have concerns about Sec. 3(a)(2) because it would
potentially reduce the ability of investors to evaluate the
appropriateness of executive compensation.
More specifically, Sec. 3(a)(2) would exempt an EGC from
Sec. 14(i) of the Securities Exchange Act of 1934, which
would require a company to include in its proxy statement
information that shows the relationship between executive
compensation actually paid and the financial performance of
the issuer.
We note that the SEC has yet to issue proposed rules
relating to the disclosure of pay versus performance required
by Sec. 14(i). As a result, no public companies are currently
required to provide the disclosure. We, therefore, again
question whether a disclosure that has not yet even been
proposed for public comment is impeding capital formation or
job creation.
Our membership approved policies emphasize that executive
compensation is one of the most critical and visible aspects
of a company's governance. Executive pay decisions are one of
the most direct ways for shareowners to assess the
performance of the board and the compensation committee.
The Council endorses reasonable, appropriately structured
pay-for-performance programs that reward executives for
sustainable, superior performance over the long-term. It is
the job of the board of directors and the compensation
committee to ensure that executive compensation programs are
effective, reasonable and rational with respect to critical
factors such as company performance.
Transparency of executive compensation is a primary concern
of Council members. All aspects of executive compensation,
including all information necessary for shareowners to
understand how and how much executives are paid should be
clearly, comprehensively and promptly disclosed in plain
English in the annual proxy statement.
Transparency of executive pay enables shareowners to
evaluate the performance of the compensation committee and
the board in setting executive pay, to assess pay-for-
performance links and to optimize their role in overseeing
executive compensation through such means as proxy voting. It
is, after all, shareowners, not executives, whose money is at
risk.
Accounting and Auditing Standards
We have concerns about Sec. 3(c) and Sec. 5 because those
provisions would effectively impair the independence of
private sector accounting and auditing standard setting,
respectively.
More specifically, Sec. 3(c) would prohibit the independent
private sector Financial Accounting Standards Board from
exercising their own expert judgment, after a thorough public
due process in which the views of investors and other
interested parties are solicited and carefully considered, in
determining the appropriate effective date for new or revised
accounting standards applicable to EGCs.
Similarly, Sec. 5 would prohibit the independent private
sector Public Company Accounting Oversight Board from
exercising their own expert judgment, after a thorough public
due process in which the view of investors and other
interested parties are solicited and carefully considered, in
determining improvements to certain standards applicable to
the audits of EGCs.
The Council's membership ``has consistently supported the
view that the responsibility to promulgate accounting and
auditing standards should reside with independent private
sector organizations.'' Thus, the Council opposes legislative
provisions like Sec. 3(a) and Sec. 5 that override or unduly
interfere with the technical decisions and judgments
(including the timing of the implementation of standards) of
private sector standard setters.
A 2010 joint letter by the Council, the American Institute
of Certified Public Accountants, the Center for Audit
Quality, the CFA Institute, the Financial Executives
International, the Investment Company Institute, and the U.S.
Chamber of Commerce explains, in part, the basis for the
Council's strong support for the independence of private
sector standard setters:
We believe that interim and annual audited financial
statements provide investors and companies with information
that is vital to making investment and business decisions.
The accounting standards underlying such financial statements
derive their legitimacy from the confidence that they are
established, interpreted and, when necessary, modified based
on independent, objective considerations that focus on the
needs and demands of investors--the primary users of
financial statements. We believe that in order for investors,
businesses and other users to maintain this confidence, the
process by which accounting standards are developed must be
free--both in fact and appearance--of outside influences that
inappropriately benefit any particular participant or group
of participants in the financial reporting system to the
detriment of investors, business and the capital markets. We
believe political influences that dictate one particular
outcome for an accounting standard without the benefit of
public due process that considers the views of investors and
other stakeholders would have adverse impacts on investor
confidence and the quality of financial reporting, which are
of critical importance to the successful operation of the
U.S. capital markets.
Internal Controls Audit
We have concerns about Sec. 4 because that provision would,
in our view, unwisely expand the existing exemption for most
public companies from the requirement to have effective
internal controls.
More specifically, Sec. 4 would exempt an EGC from the
requirements of Section 404(b) of the Sarbanes-Oxley Act of
2002 (SOX). That section requires an independent audit of a
company's assessment of its internal controls as a component
of its financial statement audit.
The Council has long been a proponent of Section 404 of
SOX. We believe that effective internal controls are critical
to ensuring investors receive reliable financial information
from public companies.
We note that Section 989G(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank) already
exempts most public companies, including all smaller
companies, from the requirements of Section 404(b). We also
note that Section 989G(b) of Dodd-Frank required the SEC to
conduct a study on ``how the Commission could reduce the
burden of complying with section 404(b) . . . while
maintaining investor protections. . . .''
The SEC study, issued April 2011, revealed that (1) there
is strong evidence that the provisions of Section 404(b)
``improves the reliability of internal control disclosures
and financial reporting overall and is useful to investors,''
and (2) that the ``evidence does not suggest that granting an
exemption [from Section 404(b)] . . . would, by itself,
encourage companies in the United States or abroad to list
their IPOs in the United States.'' Finally, and importantly,
the study recommends explicitly against--what Sec. 4 attempts
to achieve--a further expansion of the Section 404(b)
exemption.
Availability of Information about Emerging Growth Companies
Finally, we have concerns about Sec. 6 of S. 1933 because
it appears to potentially create conflicts of interest for
financial analysts.
More specifically, we agree with the U.S. Chamber of
Commerce that the provisions of Sec. 6 as drafted ``may be a
blurring of boundaries that could create potential conflicts
of interests between the research and investment components
of broker-dealers.'' The Council membership supports the
provisions of Section 501 of SOX and the Global
[[Page S1722]]
Research Analyst Settlement. Those provisions bolstered the
transparency, independence, oversight and accountability of
research analysts.
While the Council welcomes further examination of issues,
including potential new rules, relating to research analysts
as gatekeepers, it generally does not support legislative
provisions like Sec. 6 that would appear to weaken the
aforementioned investor protections.
The Council respectfully requests that the Committee
carefully consider our questions and concerns about the
provisions of S. 1933. If you should have any questions or
require any additional information about the Council or the
contents of this letter, please feel free to contact me at
202.261.7081 or J[email protected], or Senior Analyst Laurel
Leitner at 202.658.9431 or L[email protected].
Sincerely,
Jeff Mahoney,
General Counsel.
____
U.S. Securities and
Exchange Commission,
Washington, DC, March 13, 2012.
Hon. Tim Johnson,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Hon. Richard C. Shelby,
Ranking Member, Committee on Banking, Housing, and Urban
Affairs, U.S. Senate, Washington, DC.
Dear Chairman Johnson and Ranking Member Shelby: Last week,
the House of Representatives passed H.R. 3606, the
``Jumpstart Our Business Startups Act.'' As the Senate
prepares to debate many of the capital formation initiatives
addressed by H.R. 3606, I wanted to share with you my
concerns on some important aspects of this significant
legislation.
The mission of the Securities and Exchange Commission is
three-fold: protecting investors; maintaining fair, orderly
and efficient markets; and facilitating capital formation.
Cost-effective access to capital for companies of all sizes
plays a critical role in our national economy, and companies
seeking access to capital should not be hindered by
unnecessary or overly burdensome regulations. At the same
time, we must balance our responsibility to facilitate
capital formation with our obligation to protect investors
and our markets. Too often, investors are the target of
fraudulent schemes disguised as investment opportunities. As
you know, if the balance is tipped to the point where
investors are not confident that there are appropriate
protections, investors will lose confidence in our markets,
and capital formation will ultimately be made more difficult
and expensive.
While I recognize that H.R. 3606 is the product of a
bipartisan effort designed to facilitate capital formation
and includes certain promising approaches, I believe that
there are provisions that should be added or modified to
improve investor protections that are worthy of the Senate's
consideration.
Definition of Emerging Growth Company
The ``IPO On-Ramp'' provisions of H.R. 3606 provide a
number of significant regulatory changes for what are defined
as ``emerging growth companies.'' While I share the view that
it is important to reduce the impediments to smaller
businesses conducting initial public offerings in the United
States, the definition of ``emerging growth company'' is so
broad that it would eliminate important protections for
investors in even very large companies, including those with
up to $1 billion in annual revenue. I am concerned that we
lack a clear understanding of the impact that the
legislation's exemptions would have on investor protection. A
lower annual revenue threshold would pose less risk to
investors and would more appropriately focus benefits
provided by the new provisions on those smaller businesses
that are the engine of growth for our economy and whose IPOs
the bill is seeking to encourage.
Changes to Research and Research Analyst Rules
H.R. 3606 also would weaken important protections related
to (1) the relationship between research analysts and
investment bankers within the same financial institution by
eliminating a number of safeguards established after the
research scandals of the dot-com era and (2) the treatment of
research reports prepared by underwriters of IPOs.
H.R. 3606 would remove certain important measures put in
place to enforce a separation between research analysts and
investment bankers who work in the same firm. The rules
requiring this separation were designed to address
inappropriate conflicts of interest and other objectionable
practices--for example, investment bankers promising
potential clients favorable research in return for lucrative
underwriting assignments--which ultimately severely harmed
investor confidence. In addition, H.R. 3606 would overturn
SRO rules that establish mandatory quiet periods designed to
prevent banks from using conflicted research to reward
insiders for selecting the bank as the underwriter. I am
concerned that the changes contained in H.R. 3606 could
foster a return to those practices and cause real and
significant damage to investors.
In addition, the legislation would allow, for the first
time, research reports in connection with an emerging growth
company IPO to be published before, during, and after the IPO
by the underwriter of that IPO without any such reports being
subject to the protections or accountability that currently
apply to offering prospectuses. In essence, research reports
prepared by underwriters in emerging growth company IPOs
would compete with prospectuses for investors' attention, and
investors would not have the full protections of the
securities laws if misled by the research reports.
Disclosure, Accounting and Auditing Matters
H.R. 3606 would allow emerging growth companies to make
scaled disclosures, in an approach similar to that currently
permitted under our rules for smaller reporting companies,
and would provide other relief from specific disclosure
requirements, during the 5-year on-ramp period. While there
is room for reasonable debate about particular exemptions
included in the disclosure on-ramp, on balance I believe
allowing some scaled disclosure for emerging growth
companies could be a reasonable approach.
H.R. 3606, however, also would restrict the independence of
accounting and auditing standard-setting by the Financial
Accounting Standards Board (``FASB'') and the Public Company
Accounting Oversight Board (``PCAOB''). These provisions
undermine independent standard-setting by these expert
boards, and both the FASB and the PCAOB already have the
authority to consider different approaches for different
classes of issuers, if appropriate.
Moreover, H.R. 3606 would exempt emerging growth companies
from an audit of internal controls set forth in Section
404(b) of the Sarbanes Oxley Act during the five-year on-ramp
period. IPO companies already have a two-year on-ramp period
under current SEC rules before such an audit is required. In
addition, the Dodd-Frank Act permanently exempted smaller
public companies (generally those with less than $75 million
in public float) from the audit requirement, which already
covers approximately 60 percent of reporting companies. I
continue to believe that the internal controls audit
requirement put in place after the Enron and other accounting
scandals of the early 2000's has significantly improved the
quality and reliability of financial reporting and provides
important investor protections, and therefore believe this
change is unwarranted.
``Test the Waters'' Materials
H.R. 3606 would allow emerging growth companies to ``test
the waters'' to determine whether investors would be
interested in an offering before filing IPO documents with
the Commission. This would allow offering and other materials
to be provided to accredited investors and qualified
institutional buyers before a prospectus--the key disclosure
document in an offering--is available.
There could be real value to permitting these types of pre-
filing communications: it could save companies time and
money, and make it more likely that companies that file for
IPOs can complete them. Indeed, there are some SEC rules that
permit ``test the waters'' activities already. However,
unlike the existing ``test the waters'' provisions, the
provisions of H.R. 3606 would not require companies to file
with the SEC and take responsibility for the materials they
use to solicit investor interest, even after they file for
their IPOs. This would result in uneven information for
investors who see both the ``test the waters'' materials and
the prospectus compared to those who only see the prospectus.
In addition, as with the provisions relating to research
reports, it could result in investors focusing their
attention on the ``test the waters'' materials instead of the
prospectuses, without important investor protections being
applied to those materials.
Confidential Filing of IPO Registration Statements
H.R. 3606 would permit emerging growth companies to submit
their registration statements confidentially in draft form
for SEC staff review. This reduction in transparency would
hamper the staff's ability to provide effective reviews,
since the staff benefits in its reviews from the perspectives
and insights that the public provides on IPO filings. It also
could require significant resources for staff review of
offerings that companies are not willing to make public and
then abandon before making a public filing. SEC staff
recently limited the general practice of permitting foreign
issuers to submit IPO registrations in nonpublic draft form
because of these concerns, and expanding that program to all
IPOs could adversely impact the IPO review program.
Crowdfunding
H.R. 3606 also provides an exemption from Securities Act
registration for ``crowdfunding,'' which would permit
companies to offer and sell, in some cases, up to $2 million
of securities in publicly advertised offerings without
preparing a registration statement. For the past several
months, the staff has been analyzing crowdfunding, among
other capital formation strategies, and also has discussed
these strategies with the Commission's newly created Advisory
Committee on Small and Emerging Companies.
I recognize that proponents of crowdfunding believe this
method of raising money could help small businesses harness
the power of the internet and social media to raise small
amounts of very early stage capital from a large number of
investors. That said, I believe that the crowdfunding
exemption included as part of H.R. 3606 needs additional
safeguards to protect investors from
[[Page S1723]]
those who may seek to engage in fraudulent activities.
Without adequate protections, investor confidence in
crowdfunding could be significantly undermined and would not
achieve its goal of helping small businesses.
For example, an important safeguard that could be
considered to better protect investors in crowdfunding
offerings would be to provide for oversight of the industry
professionals that intermediate and facilitate these
offerings. With Commission oversight, these intermediaries
could serve a critical gatekeeper function, running
background checks, facilitating small businesses' provision
of complete and adequate disclosures to investors, and
providing the necessary support for these small businesses.
Commission oversight would further enhance customer
protections by requiring intermediaries to protect investors'
and issuers' funds and securities, for example by requiring
funds and securities to be held at an independent bank or
broker-dealer.
Investors also would benefit from a requirement to provide
certain basic information about companies seeking
crowdfunding investors. H.R. 3606 requires only limited
disclosures about the business investors are funding.
Additional information that would benefit investors should
include a description of the business or the business plan,
financial information, a summary of the risks facing the
business, a description of the voting rights and other rights
of the stock being offered, and ongoing updates on the status
of the business.
Changes to Section 12(g) Registration Thresholds
H.R. 3606 also would change the rules relating to the
thresholds that trigger public reporting by, among other
things, increasing the holder of record threshold that
triggers public reporting for companies and bank holding
companies. The current rules have been in place since 1964,
and since that time there have been profound changes in the
way shareholders hold their securities and in the capital
markets.
Last spring, I asked our staff to comprehensively study a
variety of capital formation-related issues, including the
current thresholds for public reporting. At this point, I do
not have sufficient data or information to assess whether the
thresholds proposed in H.R. 3606 are appropriate. I do
recognize that a different treatment may be appropriate for
community banks that are already subject to an extensive
reporting and regulatory regime.
Rulemaking
H.R. 3606 requires a series of new, significant Commission
rulemakings with time limits that are not achievable. For
example, the rulemaking for the crowdfunding section has a
deadline of 180 days, and it specifically requires the
Commission to consider the costs and benefits of the rules.
Given (1) that much of the data that would be used to perform
such analyses is not readily available and (2) the complexity
of such analyses, this time frame is too short to develop
proposed rules, perform the required analyses, solicit public
comments, review and analyze the public comments, and adopt
final rules. I believe a deadline of 18 months would be more
appropriate for rules of this magnitude.
I stand ready to assist Congress as it addresses these
important issues. Please call me, at (202) 551 2100, or have
your staff call Eric Spitler, Director of the Office of
Legislative and Intergovernmental Affairs, at (202) 551 2010,
should you have any questions or comments.
Sincerely,
Mary L. Schapiro,
Chairman.
____
[From the AFL CIO Executive Council, Mar. 14, 2012]
The Jobs Act--A Cynical and Dangerous Return to the Politics of
Financial Deregulation
America needs jobs. Yet Congress cannot enact such basic
legislation as the reauthorization of the Surface
Transportation Bill that would create hundreds of thousands
of jobs. Instead, this week Congress once again is looking to
deregulate Wall Street--this time in the form of the
cynically named JOBS Act, which would weaken the ability of
the Securities and Exchange Commission to regulate our
capital markets and allow companies to sell stock to the
public without providing three years of audited financial
statements, without having adequate internal controls and
without complying with key corporate governance reforms in
the recently passed Dodd-Frank Act.
We still have millions of unemployed workers as a direct
result of decades of financial deregulation. Workers' pension
funds have yet to recover from the effects of the last time
we created a bubble in IPOs during the late 1990s. And yet
members of both parties in Congress seem bent on repeating
these experiences, even as congressional Republicans block
any initiative that might really create jobs and set our
economy toward the path of long-term prosperity.
In case our own ugly history with stock bubbles and
financial fraud is not enough, Congress should heed the
warnings from other developed countries that recently have
experimented with deregulated securities markets. In the
1990s, Canadian regulators condemned the ``continuing
occurrence of shams, swindles and market manipulations'' on
the Vancouver Stock Exchange of loosely regulated small
company stocks. More recently, the London Stock Exchange's
Alternative Investment Market has been described as a
``casino'' for its highly speculative small company stock
listings.
Workers' retirement savings will be in greater risk of
fraud and speculation if securities market deregulation once
again is railroaded through Congress. Once again our economy
will be at risk from the folly of policymakers promoting
financial bubbles and ignoring the needs of the real economy.
The AFL CIO calls on Congress to set aside the politics of
the 1%, the old game of special favors for Wall Street, and
turn to the business of real job creation. The labor movement
strongly opposes the JOBS Act and any other effort to weaken
the Dodd-Frank Act.
We support the efforts of Senate Democrats such as Jack
Reed, Carl Levin, and Mary Landrieu to amend the ``JOBS Act''
to lessen the harm it does to investors, pension funds, and
the U.S. economy.
We want jobs, not cynical Wall Street scams.
____
A Message From Secretaries of State on Crowdfunding Regulation
March 14, 2012
Re Crowdfunding and H.R. 3606, the Jumpstarting Our Business
Startups Act.
Hon. Tim Johnson,
Chairman, U.S. Senate Committee on Banking, Housing and Urban
Affairs, Dirksen Senate Office Building, Washington, DC.
Hon. Richard C. Shelby,
Ranking Member, U.S. Senate Committee on Banking, Housing and
Urban Affairs, Dirksen Senate Office Building,
Washington, DC.
Dear Chairman Johnson, Ranking Member Shelby and Members of
the Committee: As Secretaries of State with primary
securities regulatory jurisdiction, we welcome this
opportunity to discuss the developments in ``crowdfunding''
as a useful tool in small business capital formation, and the
work of the U.S. Senate to ensure that such a mechanism
remains viable for small businesses and safe for investors.
Crowdfunding is an online, typically grass-roots, money-
raising strategy that allows the public to use websites to
contribute small amounts of money to help artists, musicians,
filmmakers and other creative people finance their projects.
Recently, crowdfunding financing has been applied to small
businesses and start-ups, facilitating their attempts to get
their ventures off the ground.
We applaud the work of Congress, via H.R. 3606, aimed at
allowing small businesses greater access to crowdfunding
financing through the Internet. We are keenly aware of how
critical small businesses are to job growth and to improving
the economy.
However, Congress' attempt to enact laws meant to
reinvigorate the economy could, in fact, have a detrimental
effect. If passed as currently drafted, Title III of H.R.
3606, would prohibit the States from working proactively to
enforce laws designed to protect investors.
State securities regulators are proud of their 100-year
history of effectively regulating smaller businesses seeking
to raise capital. States securities laws protect investors by
requiring registration of securities offerings and preventing
the exploitation of investors through unjust or incomplete
offerings. State securities regulators are uniquely able to
protect investors in that they are not only present in the
state, but they are also attuned to the particular state's
economic conditions. It would therefore be impractical and a
disservice to investors to remove state regulators entirely
from this important role. To that end, we recommend the
following adjustments to current legislation concerning
crowdfunding.
Currently-proposed Federal legislation would limit state
authority to protect their investing citizenry. Specifically,
Title III of H.R. 3606--which is identical to H.R. 2930, the
crowdfunding bill passed by the House last November--leaves
enormous gaps in investor protection. Small businesses and
investors alike have suffered from the fraudulent activities
of unregistered brokers and unqualified business advisers
who, escaping regulatory oversight, seek only to profit by
exploiting the legitimate capital formation community and
ultimately harm its investors through unchecked and improper
practices. Website operators functioning as intermediaries,
among others, should complete at least minimal filings with
regulators and demonstrate minimum competencies. Congress
should preserve the States' ability to address this issue.
We commend Congress's efforts to be responsive to small
business owners' capital formation needs, but we are
concerned that Title III of H.R. 3606, by preventing states
from acting proactively to deter fraud in this new market,
would have precisely the opposite effect.
The states are currently developing a framework for
encouraging and facilitating the formation of small business
capital. Last fall, NASAA voted to establish a special
committee to propose steps that state securities regulators
can take collectively to facilitate small business capital
formation. In January, this special committee completed work
on an initial draft of a model rule which state securities
regulators may adopt to responsibly encourage small business
capital formation through a crowdfunding exemption. The NASAA
model crowdfunding rule completed the first phase of the
rulemaking process, an internal comment period, on February
7, and NASAA expects to
[[Page S1724]]
publish a revised version of the rule for public comment as
early as latter this month. We believe that federal
legislation should be crafted in a fashion that complements
these efforts, and that it can best do so by ensuring that
the role of state regulators in this area is addressed in
broad parameters.
State securities regulators understand that technology has
vastly improved the methods by which entrepreneurs can
communicate with potential investors. We also understand,
however, that securities offerings made through the
Internet--which Title III of H.R. 3606 is based on--are
fraught with risk. In such cases, the need for the state
securities laws becomes even more urgent for the protection
of investors and legitimate, worthwhile small business
offerings. We urge Congress to resist preemption and preserve
state securities regulators' authority to protect their
investors.
____
State of Louisiana,
Office of Financial Institutions,
Baton Rouge, LA, March 14, 2012.
Senator Mary Landrieu,
Dirksen Senate Office Building, Washington, DC.
Dear Senator Landrieu: I am writing to urge you to oppose
the preemption of Louisiana law to protect investors in any
``crowdfunding'' legislation that comes before the Senate. By
preempting state law for a new crowdfunding exemption,
Congress would be creating a massive hole in the investor
protection safety net by needlessly prohibiting the Office of
Financial Institutions from working proactively to enforce
laws designed to protect Louisiana investors.
I want to echo the concerns expressed in the March 12, 2012
letter sent by North American Securities Administrators
Association (NASAA) President Jack Herstein on this important
investor protection issue to the Senate leadership. I agree
with NASAA that ``preempting state authority is a very
serious step and not something that should be undertaken
lightly or without careful deliberation, including a thorough
examination of all available alternatives.''
Crowdfunding would give unproven start-up companies,
offering risky speculative investments, direct access to
small unsophisticated investors, potentially creating a haven
for fraud. If state regulatory authority is preempted, states
would not be able to review crowdfunding investment
opportunities before they are offered to investors. Post-sale
anti-fraud remedies provide little comfort to an investor who
has lost a significant sum of money that is unrecoverable.
Expanded access to capital markets is beneficial only when
investors remain confident that they are protected, when
transparency in the marketplace is preserved, and when
investment opportunities are legitimate. As Columbia Law
School Professor John Coffee stated, in testimony to the
Senate Banking Committee, ``one of these bills (S. 1791)
could well be titled `The Boiler Room Legalization Act of
2011.'' Such legislation, according to Professor Coffee, ``is
likely to be used by early stage issuers that do not yet have
an operating history or, possibly, even financial statements.
Such issuers are flying on a `wing and prayer,' selling hope
more than substance.''
I appreciate that the concept of crowdfunding is appealing
because it provides small, innovative enterprises access to
capital that might not otherwise be available. Indeed, this
is precisely why states are now considering adopting a model
rule that would establish a more modest exemption for
crowdfunding as it is traditionally understood, with
individual investments capped at several hundred dollars per
investor.
Instead of preempting states, Congress should allow the
states to take a leading role in implementing an appropriate
regulatory framework for crowdfunding. States are the most
appropriate regulator in this area and Congress should allow
states the opportunity to continue to protect retail
investors from the risks associated with smaller, speculative
investments.
I welcome the opportunity to discuss this matter further
and to work together to craft legislation that is beneficial
to small business as well as the investing public in
Louisiana and throughout the United States.
Sincerely,
John Ducrest,
Commissioner of Securities.
____
American Sustainable
Business Council,
Washington, DC, March 14, 2012.
Hon. Harry Reid,
Office of the Majority Leader, U.S. Capitol, Washington, DC.
Hon. Mitch McConnell,
Office of the Minority Leader, U.S. Capitol, Washington, DC.
Dear Majority Leader Reid and Minority Leader McConnell:
The American Sustainable Business Council (ASBC) supports the
CROWDFUND Act, S. 2190, authored by Senators Merkley, Bennet,
Brown and Landrieu and encourage the Senate to use this bill
as the vehicle to move forward on crowdfunding.
The American Sustainable Business Council is a growing
coalition of business organizations and businesses committed
to advancing a framework and policies that support a just and
sustainable economy. The organizations that have joined in
this partnership represent over 100,000 businesses and more
than 200,000 business professionals covering the gamut of
local and state chambers of commerce, microenterprise, social
enterprise, green and sustainable, local living economy,
women business leaders, economic development and investor
organizations.
In 2010 ASBC was one of the very few organizations
supporting crowdfunding as a vehicle for small businesses to
access capital investment without the prohibitive cost and
time presently required by the Securities and Exchange
Commission (SEC) regulations. That original proposal was to
have small individual investments from a large number of
people with a relatively low aggregate investment cap. This
would minimize individual investor loss and systemic fraud.
While the current legislation allows for larger individual
and aggregate investments than the original proposal, our
initial crowdfunding goals have been addressed.
While we support appropriate SEC oversight over significant
investments, we recognize there will always be risks in the
marketplace. This legislation strikes an appropriate balance
between those risks and regulatory protection.
The winners with S. 2190 will not only be individual
businesses that will have new avenues to access to capital,
but also the national economy by enabling small and medium
sized businesses to grow and create jobs. Small businesses
are responsible for creating the majority of net new jobs in
the country and deserve our support to rebuild the U.S.
economy.
We applaud the leadership of Senators Merkley, Bennet,
Brown and Landrieu on this critical issue for small and
medium sized businesses. We look forward to working with the
U.S. Senate to successfully pass S. 2190 and see its
enactment into law.
Sincerely,
David Levine,
Co-Founder and CEO.
____
Re Crowdfunding Intermediary in favor of the CROWDFUND Act
(S. 1970).
Senator Harry Reid,
Hart Senate Office Building,
Washington, DC.
Dear Senator Reid, I write in favor of the bipartisan
compromise CROWDFUND Act proposed recently by Senators
Merkley, S. Brown, Bennet, and Landrieu.
Yesterday evening's introduction of the first bi-partisan
Senate crowdfunding bill is a big step forward in our fight
to get equity crowdfunding passed through Congress. I have
been to Washington DC seven times since mid November
discussing equity crowdfunding legislation directly with key
Senate offices. The offices of the Senators on the Banking
Committee have been very receptive to input from the
entrepreneurial community and have adopted many of our
suggestions in the latest bill.
This latest bill, the CrowdFund Act, is important because,
unlike previous bills, for the first time we have a Senate
bill with bipartisan sponsorship, a balance of state
oversight and federal uniformity, industry standard investor
protections, and workable funding caps. This bill has a
legitimate chance at quieting those who were previously
trumping up fears of fraud/bad actors as well as the various
state oversight concerns. To date the main issues the
opposition raised were regarding fraud and state oversight of
our new industry. While the opposition is mainly from those
protecting the interests of large banks, the earlier House
Bill and two partisan Senate bills did little to address the
legitimate concerns raised by the opposition. As a
compromise, this bill has a real chance at becoming law.
I hope to see your support of this bipartisan effort in the
Senate to pass a functional and balanced CROWDFUND Act.
Sincerely,
Freeman White,
CEO, Launcht.com
____
Motaavi,
Durham, NC, March 14, 2012.
Hon. Harry Reid,
Hart Senate Office Building,
Washington, DC.
Hon. Mitch McConnell,
Russell Senate Office Building,
Washington, DC.
Dear Senators Reid and McConnell: We are a crowdfunding
intermediary based in Durham, NC. We understand the Senate
will take up the JOBS Act shortly. We are very concerned
about language in Title III of While we appreciate the broad
exemption written by the House, the language does not protect
investors and puts the crowdfunding industry at risk of
significant fraud. However, more responsible language does
exist. The CROWDFUND Act, cosponsored by Senators Jeff
Merkley (OR), Michael Bennet (CO), Scott Brown (MA), and Mary
Landrieu (LA), represents an ideal crowdfunding statutory
framework.
The crowdfunding language in the JOBS Act lacks critical
investor protection features. It does not require offerings
to be conducting through an intermediary, which opens the
door for fraudulent activity similar to what was experienced
when Rule 504 was changed to allow offer and solicitation in
the mid-1990s. It also does not require appropriate
disclosures or inspections. The bill does not require the
issuer to inform investors of dilution risk or capital
structure. There are no provisions for misstatements or
omissions that relate specifically to this exemption.
Crowdfunding is premised on openness. Without disclosure,
investors cannot protect themselves or accurately price the
securities they are buying. If issuers are not
[[Page S1725]]
willing to provide information over and above what is
required, the JOBS Act language does not provide investors
with other alternatives short of giving up on crowdfunding
altogether.
The CROWDFUND Act addresses our concerns. This bill strikes
the right balance between disclosure and flexibility. The
language is tightly integrated with existing securities laws
to provide investor protection. It places easily met
obligations on the issuer and the intermediary to ensure that
investors have the information they need to make sound
decisions. This bill has many provisions for appropriate
rulemaking, and is written in a way that reflects how
crowdfunding actually works. We think crowdfunding can be
valuable and integral part of the capital formation process.
The CROWDFUND Act is the right bill to make this happen.
We understand that introducing a significant amendment to
the JOBS Act may slow down the reconciliation process, but we
think the benefits are worth the effort. We urge you to adopt
the CROWDFUND Act as the Senate language on crowdfunding and
believe the House will also see the value in this well
written, investor focused bill.
Sincerely,
Nick Bhargava, J.D.
Motaavi, LLC.
Ms. LANDRIEU. Again to recap so people can see on this chart, AARP
has written us against the House bill. Consumer Federation of America--
against the House bill. The AFL CIO--against the House bill. Yes, those
are some of the left leaning organizations.
But we also have centrist and right leaning organizations. I am
talking about the former Securities and Exchange Commissioners' Chief
Accountant, this is what they say
There are always paths to improvement for any complex
system, the American Stock Exchange included. But how quickly
these Congressmen seem to have forgotten why many such
regulations were enacted in the first place. Last month
marked the 10-year anniversary of the collapse of Enron.
It has not been 10 years and we are going back to where we were when
Enron took money out of the pockets of thousands of people in America.
Why are we doing that
Regulations that prevent capital multiplying companies that
want to go public from doing so are bad. Ones that prevent
capital destroying ones from becoming public nuisances are
good. No job creation will be generated through the process
of socializing capital destruction to the general public.
But he is saying that the House bill goes too far.
Again, Eric Schureunberg, editor of Inc.com--they are a very well
respected voice in the small business community in America today. They
are saying the House bill is flawed.
I know we are going to be criticized on the other side by saying it
is just the same old left wing groups that want more regulation and
more regulation. But that is not true. That is why I am putting all of
this in the record today so people can carefully consider it tomorrow,
and over the weekend on Monday, before we come back here; to look and
read what is being said about the House bill and to be open and honest
in our efforts to try to reform it. Again, for the record, Mary
Shapiro, Chairman of the Securities and Exchange Commission, said:
While I recognize that H.R. 3606--the ill-advised political opportunity
bill, those are my words--is the product of a bipartisan effort
designed to facilitate capital formation and include certain promising
approaches, I believe there are provisions that should be added or
modified to improve investor protections that are worthy of the
Senate's consideration.
So that is what we have done. We took the bill from the House and
looked at it very carefully and on Monday I am going to hand this out
to everyone and we are sending it to everyone's offices now. It has
kind of become a famous small business blue line that is very easy for
everyone to understand. It shows the differences between the Senate
bill and the House bill. As we can see, both bills raise the cap on
regulation A offerings from $5 million to $50 million. We are happy to
do that. We improve the transparency of regulation A by requiring an
audited financial statement.
You don't need to have graduated from a master's program at Stanford
or Harvard to understand that if you are getting ready to invest--
whether it is $1,000, $10,000 or $100,000--having an audited financial
statement about the company you are getting ready to invest in would be
a basic thing to do. I think we learned about this when we were in
seventh or eighth grade. You don't have to go to Harvard to know this.
The audited financial statement requirement is absent from the House
bill. There is no requirement in the House bill for an audited
financial statement, so we put an audited financial statement in our
bill. I don't think that is a radical amendment. It is a simple one; it
is an important one. In the House version of this IPO on-ramp, they
exempt companies up to $1 billion in annual revenue. Madam President,
$1 billion is a lot of money, so everybody wake up. The House bill says
if you are less than $1 billion, you basically don't have to adhere to
most of the rules and regulations; you can just go on your merry way.
That sign is great--``ill-advised political opportunity.'' That is
what I am calling the House bill. Let me check to see how many
companies went public that were over $1 billion last year. Only 22
percent of companies that went public last year were over $1 billion.
So if my math is correct, the House bill is going to eliminate 78
percent of the companies from regulation that raise money in the
public. That is going too far. It is unnecessary. We bring that number
down to $350 million in our bill, and the author of this provision in
the Senate has signed on as a supporter, Chuck Schumer. The reason he
did that is because he realizes--even as the sponsor of this on-ramp
provision--that the House bill went too far. I am not going to go into
all the rules and regulations, but it is not that complicated because--
1, 2, 3, 4, 5, 6, 7, 8--there are only about eight big differences, but
they are important differences.
I am going to wrap up by saying: Please study the record. Please look
at it. In our Senate bill, which the Chair has been very supportive of,
as has Senator Cantwell, and I wish to thank both of them publicly, as
well as Senator Klobuchar--we have the Export-Import Bank in our bill,
which is not in the House bill. The Chamber of Commerce has written us
asking us to please support the Export-Import Bank. We also expand the
SBIC, which is the small business investment program, which the
President included in his State of the Union Address to authorize that
program to move from $3 billion to $4 billion. Why? Because we are
having such success, through the SBIC programs that exist in all our
States, getting money out to Main Street, to small businesses. So that
is included in our bill--and one the Chair has particularly been a lead
on, and that is at no cost to the taxpayer. These things do not cost
any additional money. There is the SBA 504 refinancing that is going to
allow to extend for 1 year the ability of the small business loan
program that has thousands of outstanding loans to extend for another
year the opportunity to refinance their commercial loans.
So we have added three provisions to the House bill that make it more
balanced and better for small business, and we have put a couple
oversight measures into their provisions that I think--in the words of
many of even the advocates of this bill--``make the bill better.''
I don't know if we will be successful, but this is worth a try
because the damage that could be done in venturing out so far into a
new way of financing without the proper safeguards could set us back
decades. We don't want to go backward; we want to go forward. We don't
want to go back to the days of Enron and Bernie Madoff. Why would
Republicans, in the face of these scandals, come up with--and some
Democrats voted for it. I am not quite sure how that happened, but we
are going to find out. Why would they want to go back to those days? We
want to go forward with the right protections.
I see my friend Senator Levin on the floor. He most certainly
understands this issue in many ways better than I do on the technical
side of it. He has helped write this bill. I am hoping he will give an
even better explanation than I have been able to give, but I think I
have covered it pretty broadly, and he can go into a lot more detail
about the possibility of fraud in here if it is not locked down.
I am going to end with a word to my community banks because I have
tried to become a champion for them. I think they can appreciate it. I
am not
[[Page S1726]]
100 percent sure. I believe in community banks. The Independent
Community Bankers of America sent a letter supporting the House bill. I
am going to call them over the weekend and talk with them specifically
about my concerns and ask them to reconsider their position. I think
our compromise is very good for our community bankers. I don't know
whether they will. I know they want to get rid of some of the onerous
requirements that were placed on them in the Sarbanes-Oxley
legislation, and I appreciate it. I helped sponsor some of the
amendments on their behalf.
But I think this House bill is going too far. I am going to reach out
to them. We will see what their view is. I do respect the views of my
community bankers. We are going to have a lot more to talk about next
week.
Again, I thank Senator Levin and Senator Reed for joining with me and
Senator Jack Reed for leading this effort to help put a bill before the
Senate that is quite balanced and provides the investor protections and
also opens some exciting opportunities for capital to create new
businesses in America that are the backbone of our extraordinary--and
not to be matched--entrepreneurship spirit in the world. We honor that,
but we want to do it in the right way.
I yield the floor.
The PRESIDING OFFICER. The Senator from Michigan.
Mr. LEVIN. Madam President, before the Senator from Louisiana leaves
the floor, let me thank her for her leadership in this area and the
passion she has brought to it. This is a train which has moved with
great speed from the House of Representatives--much too great a speed--
and her ability, just by the expression of her will and her
determination to bring this to a point where we can debate it at least
over a few days and the weekend, is critically important, I believe, to
future of investors in this country.
There is no State that has suffered more from the job losses of the
great recession than my State of Michigan. We don't have to ask a
Michigander twice if he or she believes Congress should take action to
increase the speed of the jobs recovery. So I am ready to consider any
legislation that promises more opportunity for the workers of this
country, but unfortunately the legislation the House has sent to us,
which is promoted as a job creation bill, is no such thing. In the name
of job creation, the House bill would severely weaken investor and
taxpayer protections in our securities laws.
In the name of putting Americans to work, the House bill would hand a
series of special favors to influential special interest groups. It
also reflects a disturbing failure to learn the lessons of the recent
and all-too-painful past. It defies belief that after the worst
financial crisis in generations, a crisis brought on by the failure to
effectively police our financial markets, Congress would consider
removing vital obstacles to fraud and abuse. The House bill would take
a series of steps that would undermine the integrity of our financial
markets. We should not go down that road. We need not go down that
road. In working with Senator Jack Reed, Senator Landrieu and Senator
Sherrod Brown and others, I participated in an effort to make some
changes in that bill that would give small, innovative companies more
tools to access the capital they need. We want to do that. We all want
to do that. But we do that in our bill without putting the stability of
our economy and the interest of American investors and taxpayers at
risk.
I wish to lay out some of the problems with the House bill and how
our Reed-Landrieu-Levin amendment would address those problems. The
House bill would lower barriers to fraud that are now present in the
so-called regulation A stock offerings. These are offerings that are
exempt from the SEC registration requirements. The House bill would
expose retail investors--those with no expertise and no resources--to
assess the risks of participating in the unregulated market to massive
potential fraud and abuse.
The bill does not even require that companies making offerings under
regulation A provide audited financial statements. The regulation A
process is appropriate for very small companies, but the House bill
provides few meaningful limits to its use. Instead, it would allow
larger companies to avoid meaningful oversight year after year.
I have worked with colleagues to fix this problem by ensuring that
these offerings are limited, so they are only used once every 3 years--
that is one of the changes we would make--and that investors in the
offerings get an accurate picture of the company's finances by
requiring audited financial statements.
In the name of giving smaller companies greater access to the initial
public offering market, the House bill would create a new class of
corporation called an emerging growth company and would strip from
investors in such companies more than a dozen important investor
protections. Some of the protections involve transparency. The House
bill would weaken corporate governance provisions we enacted less than
2 years ago in the Dodd-Frank Act, including disclosures on executive
pay. The House bill would exempt these companies from having to comply
with changes to accounting standards. It would repeal the protections
we put in place after the dot-com bubble burst. These protections
require financial firms to separate research analysts who advise
clients on whether to invest in initial public offerings from the sales
teams of those same companies.
There is supposed to be a wall between those two parts of any company
so the sales teams don't take advantage of what the research teams are
telling their customers. There are too many opportunities for conflicts
of interest and front-running and other things if we allow that wall to
be breached.
The House bill provides that companies with up to $1 billion in
annual revenue would not have to get an outside auditor to check their
internal controls. So what happens if one of these companies is cooking
the books? Who is going to catch it? We learned with Enron and WorldCom
why we need meaningful checks on how companies prepare their financial
statements. The vast majority of financial restatements, which are
corrections to bad information given to the investing public, are made
by medium and small companies. Investors in these companies should have
the confidence that the financial statements on which they base their
decisions are accurate.
Now, those provisions in the House bill are bad enough given the
chronic problem in financial markets with poor and misleading financial
disclosure but, to make matters worse, the bill would open this
collection of loopholes with companies of up to $1 billion in annual
revenues. That is a level which would include well over 80 percent of
all IPOs. So over 80 percent of all the IPOs that will be issued would
then be exempt from the protections under the House bill.
Financial regulators, associations of individual investors, many of
the largest pension funds in this country, securities experts, and the
chamber of commerce have raised alarm bells about that $1 billion
threshold as well as the many problems that would follow from the House
bill.
Just this week, the SEC took a series of enforcement actions against
fraudsters seeking to victimize investors in pre-IPO offerings. One SEC
official noted, ``The newly emerging secondary market for pre-IPO stock
presents risks for even savvy investors.'' The House bill threatens to
bring the same level of risk and instability that plagues pre-IPO
trading to the IPO market itself--changes that, rather than building
support for IPOs, might actually make the IPO market so risky that it
ends up dampening investor interest.
The amendment some of us have been working on, which is the Reed-
Landrieu-Levin, et al., amendment, accepts the premise that some small,
newly public companies could benefit from somewhat relaxed requirements
as they adjust to the public marketplace. But our amendment would limit
these benefits to smaller companies--those with under $350 million in
annual revenue--and our amendment would not exempt these companies from
many of the critical investor protections. For example, we would not
remove protections designed to protect the integrity of the research
that is available to investors, nor would we exempt them from any new
accounting
[[Page S1727]]
rules, nor would we exempt them from requirements regarding important
executive pay disclosures and shareholder input on executive pay
packages. Our amendment would provide flexibility for smaller, newly
public companies to adjust to the public markets, but we would leave in
place the investor protections that ensure our public markets remain
the best in the world.
The House bill would also allow companies or fraudsters posing as
legitimate companies to solicit investors directly through the
Internet. This is one of the really big issues we are going to address
next week. As written, the House bill would offer investors almost no
protection from fraudulent schemes and fake investment opportunities.
Although these Web sites that are often called intermediaries or
funding portals are the only entities capable of making sure that a
company seeking to sell its stock on its site is real, the House
exempts them--exempts the intermediaries and the funding portals--from
any real regulation or liability. The same is true with the issuing
company. That is why labor groups, seniors organizations, regulators,
and security experts all warn us that this measure is an open
invitation to fraud. One group calls it the ``boiler room legalization
act.''
So we have many problems with these provisions in the House bill, but
we also believe the so-called crowdfunding, in which small startups can
access pools of capital from small investors, usually over the
Internet, has the potential to provide opportunity for truly small
businesses to get additional capital they need to grow. This can be
done legitimately. That is why we build on the work of Senators Merkley
and Bennet to create a platform for raising money through the Internet.
But we make sure, as they do, that it has the necessary investor and
consumer protections. In fact, legitimate crowdfunding sites have made
it clear to us that they, like us, are concerned about the House bill.
So we have legitimate crowdfunding interest groups that want to make
sure the protections are there for the investors, speaking out against
some of the excessive provisions in the House bill. They want the
additional protections we provide. So our amendment makes sure that
funding portals are subject to meaningful regulation and that the
companies that use them to raise capital are also subject to meaningful
regulation.
Our amendment would, unlike the House bill, require comprehensive
disclosures to investors about the company and the risks of such
investments. If this new way of investing in small companies is to
succeed, then investor protections such as the ones embodied in the
Merkley-Bennet provisions, which we have included in our amendment, are
vital to giving investors the confidence to participate.
The House bill also attempts to remove regulations on so-called
private offerings. By allowing issuers of private offerings to market
their stock to the general public--whether it is on billboards and the
Internet, in visits to retirement homes or late-night television ads--
that provision in the House bill would dangerously lower our defenses
against frauds. We have seen this movie before. In the 1990s regulators
lowered the barriers to general solicitation for private offerings and
within years reversed their error because of widespread fraud and
abuse.
Some have complained that the existing restrictions on solicitation
for private offerings are too narrow and impede businesses' access to
capital. That seems unlikely given the nearly $1 trillion a year in
private offering activity. But if there are yet more worthy investments
that are going unfunded because of unneeded investor protections, the
SEC regulations should be updated for the Internet age.
The Reed-Landrieu-Levin amendment would direct the SEC to revise its
rules to allow companies to offer and sell shares to a credited
investor, but it then directs the SEC to make sure those who offer or
sell these securities take reasonable steps to verify that the
purchasers are actually accredited investors. It requires the SEC to
revise its rules to make sure these sales tactics are appropriate.
There are not going to be, under our language, billboards or cold calls
to senior living centers. I wish I could say the same about the House
bill.
There is little evidence that the reduced investor protections and
invitations to fraud in the House bill will make any meaningful
contribution to job growth. We do not have one study on any one of the
provisions in the House bill establishing that even one job would be
created. If such a study existed, I am sure we would have seen it. The
simple reality is that repealing Federal securities laws--and that is
clearly the intent of the House bill--does not create jobs. In fact,
the former Chief Accountant to the SEC was quoted recently as saying
that this JOBS bill was no jobs bill at all. He said: ``This would be
better known as the bucket-shop and penny-stock fraud reauthorization
act of 2012.''
Taken together, these and other provisions in the House bill send a
false message: that in order to grow the economy, we must subject our
citizens to more fraud, we must put pension funds and church endowments
at greater risk of fleecing, we must create more threats to the
financial stability of American families.
The America that I know and that I believe in is capable of growing
our economy without these unnecessary risks. Indeed, it is fraud and
financial abuse that have repeatedly brought our economy to its knees.
We opened the door to fraud and abuse in the savings and loan industry
and precipitated a crisis that destroyed 750 financial institutions
when we did that. We cut the number of new homes built in this country
by nearly half and devastated entire communities. We dropped the
barriers to fraud through financial statements and in swaps markets,
opening the door to the predations of the so-called ``smartest guys in
the room''--those are the criminal executives of Enron. We lowered the
barriers to heedless risk and conflicts of interest in the financial
system, thereby paving the road to the greatest financial crisis since
the 1930s.
Over the last 10 years, on a bipartisan basis, my Permanent
Subcommittee on Investigations has held hearing after hearing and
issued report after report on the Enron crisis, on accounting and
securities frauds, and on the more recent subprime mortgage crisis. Our
investigation has exposed how some American corporations, and their
accountants and banks, were willing to dupe investors and, even after
their wrongdoing came to light, walk away with huge paychecks while
workers, investors, and the American economy at large paid the price.
Enron was the seventh largest U.S. corporation before its crash
bankrupted employees, pensions, and investors. It lied about its
earnings and did so with the help of accountants and banks. Goldman
Sachs sold securities through public and private offerings that did not
fully inform investors about what they were buying. The wrongdoing our
subcommittee has uncovered over the years is as powerful a reminder as
we can get that investors deserve protection against abuses when they
invest their hard-earned dollars in U.S. capital markets.
There is a rising wave of concern among market experts that the
effect of the House legislation might be precisely the opposite of its
supporters' stated intent and that instead of boosting the ability of
companies to find capital so they can grow, these changes would hurt
the market for investing in new companies by making that market too
risky. If we remove meaningful transparency and safeguards against
fraud, SEC Chairman Schapiro wrote just a few days ago that ``investors
will lose confidence in our markets and capital formation will
ultimately be made more difficult and expensive.''
The question for the champions of lower regulatory barriers is this:
Did those rollbacks of regulatory protections help our economy grow?
Did those rollbacks which we saw so many of and which I have just
outlined create jobs? Ask a family who was wiped out in the financial
crisis. Ask an investor who lost everything to Enron. Ask one of the
many 8.6 million American workers who lost their jobs in a financial
crisis created on Wall Street, one we have yet to fully overcome.
In November of 1999 this body debated another piece of financial
legislation, one that supporters claimed would lead to boundless new
economic opportunities for our country. The bill we were debating
repealed the Glass-Steagall Act. It lowered barriers to
[[Page S1728]]
concentration in the financial industry. It removed the wall that had
separated investment banking from commercial banking since the
aftermath of the Great Depression.
Senator Byron Dorgan came to this floor and he issued a warning: ``It
may be that I am hopelessly old-fashioned, but I just do not think we
should ignore the lessons learned in the 1930s . . . I also think that
we will, in 10 year's time, look back and say: We should not have done
that because we forgot the lessons of the past.''
Well, that was 1999. Ten years after Senator Dorgan's remarks, almost
to the day that he predicted, America's economy hit rock bottom, with
the lowest mark of employment during the great recession. Well, old-
fashioned sounds pretty good these days. I hope to be as old-fashioned
as Senator Dorgan, who warned us that lowering the barriers that
protect us from financial catastrophe can only destroy jobs--not create
jobs, destroy jobs.
I hope the Senate will turn away from the House bill that threatens
more fraud, more abuse, and renewed crisis. I hope the Senate will
embrace reforms that are present in our substitute amendment that give
our innovative companies the chance to compete without endangering
investor confidence or the stability of our economy.
Madam President, I yield the floor, and I note the absence of a
quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mrs. SHAHEEN. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Manchin). Without objection, it is so
ordered.
Mrs. SHAHEEN. Mr. President, when I talk to owners, operators, and
employees of small businesses in New Hampshire, one thing I hear
consistently is that access to capital is a real challenge. While our
community banks have increased their lending, capital access from large
banks and other entities has been very hard to come by. As a result,
small businesses fighting to grow and create jobs continue to be
constrained in their efforts.
I am glad the Senate is planning to move forward with this
legislation that will address capital formation and will take some
additional steps to help those small companies get the financing they
need to grow, but as we take that step forward, it is equally important
that we do not also take a step back. That is why I believe it is
critical for the Senate to extend two venues of small business
financing as part of this debate: the Export-Import Bank and the Small
Business Administration's 504 refinancing program. These programs,
which bring no cost to the taxpayers--let me say that again: these
programs bring no cost to taxpayers--provide financing options for so
many small businesses in New Hampshire, in West Virginia, and across
our country.
We have an important opportunity to ensure that such important
avenues to capital remain available in the coming years by extending
these programs as part of the small business capital package we are
currently debating. So first let me begin with the Export-Import Bank,
which is a vital agency that helps many small businesses secure the
financing they need for export deals. This is critical because exports
are such an important part of the markets that are available to
businesses today. Mr. President, 95 percent of markets exist outside of
the United States, but only 1 percent of small and medium-sized
businesses are doing business outside of the United States. So
businesses need access to these international markets.
Last August, Senator Ayotte and I held a Small Business Committee
field hearing in New Hampshire, and it was on small business exporting.
We heard how difficult it can be for a small company to sell its
products overseas. It is particularly challenging for a small business
to get financing for its foreign deals. That is where the Export-Import
Bank makes such a significant impact. Mr. President, 87 percent of the
Export-Import Bank's transactions support small businesses. So I think
there is a misconception about whom the Ex-Im Bank really helps.
Eighty-seven percent of their transactions support small businesses.
Last year alone, the bank helped finance more than $6 billion in
export sales from small companies in the United States. It has set a
goal of increasing this volume by an additional $3 billion in the
coming years, and it has created a new Global Access for Small Business
Initiative which is designed to dramatically increase the number of
small companies taking advantage of its programs. In fact, I think this
new initiative is terrific. The Ex-Im Bank came to New Hampshire and
unveiled this initiative. Again, this bank assists small businesses at
no cost to the taxpayer.
Unfortunately, right now this no-cost small business program is in
jeopardy. Unless we act soon to reauthorize the Export-Import Bank, it
will hit its lending cap and it will be forced to cut off its support
for small businesses. We just cannot afford to let that happen. Without
the bank small businesses will lose a significant amount of foreign
sales and the jobs they maintain. Last year the bank supported over
288,000 American jobs. As more small companies become aware of the
bank's programs, more businesses will be able to access new markets and
create new jobs.
So I want to give an example because, as I said, last year we had the
Chair of the Export-Import Bank in Portsmouth, NH. They unveiled their
new small business initiative, and they met with a number of small
businesses that were interested in exporting.
One of those small businesses was a company called Skelley Medical,
which is a medical equipment company that is based in Hollis, NH.
Before our event, Skelley Medical was unaware of the programs the
Export-Import Bank offered. Two weeks later, just 2 weeks after this
event, Skelley took out a policy with the bank. That put Skelley in a
position to expand its sales overseas. Right now, Skelley Medical is
looking to finance deals in as many as five international markets. That
is all thanks to the help of the Export-Import Bank. Without the
Export-Import Bank, that kind of small business success story will not
happen. It would be a real mistake for this Senate to pass a capital
access bill without this critical reauthorization.
The second program I would like to talk about is another no-cost
program that deserves to be extended. That is the Small Business
Administration's section 504 refinancing program.
With bipartisan support, the Senate passed the Small Business Jobs
Act 2 years ago--well, about a year and a half ago. That Small Business
Jobs Act created this 504 program to help small businesses refinance
existing loans under the SBA's 504 lending program.
Again, what we are hearing, as my colleagues know, as I am sure the
Presiding Officer knows, is that this difficult real estate market we
are in has made it challenging for many successful businesses to
refinance their real estate deals. They cannot get access to capital
right now, particularly in the real estate industry, which has been so
hard hit during this recession. What this SBA program allows is for
small businesses to lock in long-term, stable financing so they can
free up capital to invest in their companies and hire new workers.
Although this program got off to a slow start, the Small Business
Administration has made important changes to ensure that it is working
better now for small businesses and for banks. As a result, we are
starting to see a significant increase in volume.
In New Hampshire, lenders see this program becoming a real success in
the near future. Alan Abraham, who is the president of the Granite
State Development Corporation in New Hampshire, has said that ``banks
and borrowers are now understanding the significant benefits of the
program.'' He told me:
We are starting to field many [more] phone calls requesting
information on the policies, and we anticipate dozens of New
Hampshire small businesses could benefit from extending this
program.
We should not cut this program off at the knees just as we are
beginning to see substantial returns--again, without costs to
taxpayers.
This program is scheduled to sunset in September. I believe it is
important for the lending community to know as soon as possible that
the program will continue into 2013 so that they can devote the
resources necessary to continue this initiative's budding success and
also so that we can provide the certainty so many companies tell us
they need.
[[Page S1729]]
We should extend this program. We should address the Export-Import
Bank's reauthorization. That is why, as we look at the Landrieu-Reed-
Levin substitute amendment, it includes these provisions. It includes
reauthorization of the Export-Import Bank, and it includes the
extension of the SBA 504 program. It also includes a number of other
provisions that address some of the concerns that have been expressed
by the House-passed capital formation bill.
Senators Landrieu, Reed, and Levin were on the floor earlier and very
eloquently elaborated on those changes. I urge my colleagues to support
that substitute amendment to reauthorize the Export-Import Bank and to
extend SBA's 504 Loan Program.
I ask unanimous consent that I be added as a cosponsor to that
Landrieu-Reed-Levin amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mrs. SHAHEEN. Mr. President, I yield the floor, and I suggest the
absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. REID. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________