[Congressional Record Volume 159, Number 171 (Wednesday, December 4, 2013)]
[House]
[Pages H7470-H7491]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SMALL BUSINESS CAPITAL ACCESS AND JOB PRESERVATION ACT
Mr. HENSARLING. Mr. Speaker, pursuant to House Resolution 429, I call
up the bill (H.R. 1105) to amend the Investment Advisers Act of 1940 to
provide a registration exemption for private equity fund advisers, and
for other purposes, and ask for its immediate consideration in the
House.
The Clerk read the title of the bill.
The SPEAKER pro tempore. Pursuant to House Resolution 429, an
amendment in the nature of a substitute consisting of the text of Rules
Committee Print 113-29 shall be considered as adopted, and the bill, as
amended, shall be considered read.
The text of the bill, as amended, is as follows:
H.R. 1105
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Capital
Access and Job Preservation Act''.
SEC. 2. REGISTRATION AND REPORTING EXEMPTIONS RELATING TO
PRIVATE EQUITY FUNDS ADVISORS.
Section 203 of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3) is amended by adding at the end the following:
``(o) Exemption of and Reporting Requirements by Private
Equity Funds Advisors.--
``(1) In general.--Except as provided in this subsection,
no investment adviser shall be subject to the registration or
reporting requirements of this title with respect to the
provision of investment advice relating to a private equity
fund or funds, provided that each such fund has not borrowed
and does not have outstanding a principal amount in excess of
twice its invested capital commitments.
``(2) Maintenance of records and access by commission.--Not
later than 6 months after the date of enactment of this
subsection, the Commission shall issue final rules--
``(A) to require investment advisers described in paragraph
(1) to maintain such records and provide to the Commission
such annual or other reports as the Commission taking into
account fund size, governance, investment strategy, risk, and
other factors, as the Commission determines necessary and
appropriate in the public interest and for the protection of
investors; and
``(B) to define the term `private equity fund' for purposes
of this subsection.''.
The SPEAKER pro tempore. After 1 hour of debate on the bill, as
amended, it shall be in order to consider the further amendment printed
in part B of House Report 113-283, if offered by the gentlewoman from
New York (Mrs. Maloney), or her designee, which shall be considered
read and shall be separately debatable for 10 minutes equally divided
and controlled by the proponent and an opponent.
The gentleman from Texas (Mr. Hensarling) and the gentlewoman from
California (Ms. Waters) each will control 30 minutes.
The Chair recognizes the gentleman from Texas.
General Leave
Mr. HENSARLING. Mr. Speaker, I ask unanimous consent that all Members
have 5 legislative days within which to revise and extend their remarks
and submit extraneous material for the Record on H.R. 1105, currently
under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. HENSARLING. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, since Congress was not in session last week, perhaps
some of my colleagues missed the front page headline from The
Washington Post. I read: ``Among American Workers, Poll
[[Page H7471]]
Finds Unprecedented Anxiety About Jobs and Economy.''
According to the report, American workers are living with
``unprecedented economic anxiety.'' More than six in 10 worry that they
will lose their jobs. Nearly one in 3 say they worry a lot about losing
their jobs.
The article goes on to mention an American named John Stewart who
wakes up every morning at 1:30 a.m. for a 2-hour commute to catch two
different buses in Philadelphia so he can get to work on time. In the
newspaper, he said: ``I can't save money to buy the things I need to
live as a human being.''
Mr. Speaker, we don't have to read The Washington Post. All we have
to do is listen to our own constituents, since even today millions--
millions--of our fellow countrymen remain unemployed and underemployed.
I hear these stories every week myself. Recently, I heard from Ida in
Wills Point, Texas, in the Fifth Congressional District that I
represent. She and her 79-year-old husband own a small trucking
company. She wrote me that ``because of increasing regulations in taxes
in the past 4 years, we have lost all but two of our trucks.'' She goes
on to write me: ``My husband is the only driver right now because I can
no longer drive. He drives full-time 3,500 miles a week most weeks
because we can't live on his Social Security.'' She says: ``We are
really stuck in a hole.''
Millions, Mr. Speaker, are ``stuck in a hole.''
Today, we have an opportunity, Mr. Speaker, to do something to help
raise many of our fellow countrymen out of that hole of economic
anxiety and economic hardship. Today, we have the opportunity to pass
H.R. 1105, the Small Business Capital Access and Jobs Preservation Act.
I want to commend the bipartisan group of Members--two Republicans
and two Democrats--who introduced the bill: Mr. Hurt of Virginia, Mr.
Himes of Connecticut, Mr. Garrett of New Jersey, and Mr. Cooper of
Tennessee.
As chairman of the Financial Services Committee, Mr. Speaker, I want
to thank all the members of the committee who came together across
party lines to approve the bill. Mr. Speaker, nearly one-third of the
Democrats who sit on our committee joined with 30 Republicans in
supporting H.R. 1105. In short, Mr. Speaker, this is, indeed, a
bipartisan jobs bill.
We know that small businesses face an incredible red tape burden. In
fact, a recent survey of the National Federation of Independent
Business said that ``government regulations and red tape are the single
most important challenge that small businesses face in creating and
preserving jobs.''
Mr. Speaker, I heard from another small business person in Grand
Saline, Texas, in my district. He said because of overregulation ``our
business has devolved from one that provides a service for a customer
into one that provides that same service as an afterthought while our
real efforts go into paperwork.''
{time} 1445
Mr. Speaker, we can debate the relative merits or demerits of the
Dodd-Frank Act; but even the primary author himself, former Chairman
Frank, admitted that perhaps not every aspect of Dodd-Frank achieved
perfection. And many of us would argue on a bipartisan basis that the
part of the act that requires small business investors who are private
equity advisers to register with the SEC is perhaps one of those
provisions that is in need of reform.
This is a provision, Mr. Speaker, that many of us believe was aimed
at Wall Street, but ends up hurting Main Street. Because of this
provision embedded in Dodd-Frank, smaller firms that invest in
entrepreneurs and in small businesses face yet one more significant
regulatory cost, regulatory burden, more red tape.
As one of the small business investors testified before our
committee, it is going to cost his company $200,000 every year to
comply with the regulation. He went on to say:
While for some larger firms this is an insignificant cost,
for a medium-sized firm such as ours that offers capital to
small businesses, it is a significant expense.
And pay attention to this, Mr. Speaker. He said:
This money comes directly out of our funds intended for
investment into Main Street.
In today's economy, to help pull these people out of this hole of
economic anxiety, we need more private sector, more private equity
investment into Main Street. Private equity equals small business jobs.
In fact, Mr. Speaker, between 1995 and 2010, 23,000 different
companies across our Nation benefited from private equity investment,
employing 3 million different people, and the investments that are made
by private equity historically have grown jobs at three times the rate
of other companies.
And so what does this look like? I have to tell you, Mr. Speaker, it
look likes an outfit called New Mountain Capital that invested in a
company named Inmar, a national coupon and reverse logistics processing
company. By helping them update their IT with a $100 million
investment, they now support 4,200 different employees.
The face of private equity looks like Capital South Partners that
invested in a North Carolina firm, Vita Nonwovens, and now they have 95
employees in High Point, North Carolina, and I should add
parenthetically, another 55 employees in my native Texas. This is the
face of private equity. These are some of the small business jobs that
are being created.
Now, we may hear from some that this is needed to somehow battle Wall
Street, but let me tell you what private equity is not. Private equity
it is not Wall Street. It is not complex derivatives trading. It is not
currency swaps. Mr. Speaker, it is not about systemic risk. That is not
what this is about. And so, again, this was a provision aimed at Wall
Street that, unfortunately, is hitting Main Street.
It is time to make sure that Americans like John in Philadelphia can
live like a human being. It is time to make sure that constituents like
mine, Ida and her husband, don't have to drive 3,500 miles a week just
so they can put food on the table.
Mr. Speaker, it is time, again, for this institution to put jobs
first, not regulators first, but jobs first. I urge all of my
colleagues to adopt H.R. 1105.
I reserve the balance of my time.
Ms. WATERS. Mr. Speaker, I ask unanimous consent that the gentleman
from Massachusetts (Mr. Lynch) manage the time at this time.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from California?
There was no objection.
Mr. LYNCH. Mr. Speaker, I yield myself such time as I may consume.
I rise today in opposition to H.R. 1105, which will create a gaping
loophole for private equity fund advisers and deprive investors and
regulators of important information about the risk these funds pose.
The Dodd-Frank Act wisely required that advisers to all hedge funds,
private equity funds, and other private funds register and file regular
reports with the SEC. It did this for two reasons: one, to help
regulators better understand the systemic risks that these funds pose
to the overall financial system, and to provide investors in these
funds with meaningful information about the funds' governance.
This bill would exempt nearly every private equity fund adviser from
these important disclosure requirements. Some of my colleagues who
support this bill will argue that because private equity funds were not
the cause of the last crisis, we should not subject them to these
modest transparency and accountability requirements.
But one of the most important lessons we did learn during the
financial crisis is that systemic threats seem to always bubble up from
the opaque and unregulated sectors of the market. Giving this exemption
will allow threats to once again grow in the dark corners of our
financial system, only showing themselves when it is too late to
prevent serious harm to the American taxpayer.
Supporters of this bill, while well-intended, will point to the
provision that ensures advisers to private equity funds with leverage
ratios over 2:1 will still have to register. This may sound attractive
on its surface until you realize that every private equity fund is
basically within that parameter. Private equity funds invest in
companies, and it is these portfolio companies that
[[Page H7472]]
load up on leverage and that have the potential to take on outside
risk, piling on the leverage while the private equity fund itself
appears on its surface to be modestly leveraged. A private equity fund
could have a leverage ratio well below 2:1, while its portfolio
companies are leveraged in excess of 30:1 masking the actual risk that
these funds pose. Nearly every private equity fund in existence today
would come in below the 2:1 leverage cap. This is a hollow limitation
that provides no protection to the funds' investors or to the American
taxpayer.
Mr. Speaker, we learned the hard way after the recent financial
crisis that systemic risks grow in the dark corners of our financial
markets and that the more information we can gather about how the
markets work, the safer we will be. The registration and reporting
requirements for private equity advisers are modest and narrowly
tailored, but they provide investors and regulators with important
information. Rolling back these reforms now moves us in the wrong
direction. I urge my colleagues to oppose H.R. 1105.
I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I am now privileged to yield 5 minutes
to the gentleman from Virginia (Mr. Hurt), the primary author of this
legislation, a real leader on our committee and in this Congress in
creating jobs.
Mr. HURT. Mr. Speaker, I rise in support of H.R. 1105, the Small
Business Capital Access and Job Preservation Act, a bipartisan bill
that our colleagues, Representatives Cooper, Himes, Garrett, and I
introduced earlier this year. I thank all of them for their leadership
on this issue.
I would also like to thank Chairman Hensarling and again Chairman
Garrett for their support and leadership on this bill, as we were able
to achieve a bipartisan vote out of the Financial Services Committee.
Every Member of this body can agree that with millions of Americans
out of work, our top focus in Congress should be, and it must be,
enacting policies to spur job creation throughout our Nation.
Today, the House takes up another bill to encourage economic growth
and job creation by increasing the flow of private capital to small
businesses that are found on Main Streets all across America. At a time
when the available avenues of capital and credit for small businesses
continue to decrease, capital investments from private equity into our
communities are more important than ever.
Unfortunately, Dodd-Frank has placed a costly and unnecessary
regulatory burden of SEC registration on advisers to private equity
while exempting advisers to similar investment funds. These
registration requirements do not improve the stability of our financial
system, and they restrict the ability of private equity to invest
capital in our small businesses to spur job growth.
In Virginia's Fifth District, my district, there are literally
thousands of jobs that exist because of the investment of private
equity. These critical investments allow our small businesses to
innovate, expand their operations, and create the jobs that our
communities need. If enacted, the unnecessary burdens on advisers to
private equity funds that do not have excessive leverage would be
eliminated, and they would be given the same exemption from the SEC's
registration requirements that venture capital advisers enjoy.
These registration requirements, which do not make the financial
system any more stable, impose an undue burden on small and mid-sized
private equity firms, and decrease the ability of their investment to
create jobs.
During our Financial Services Committee hearing on the bill,
witnesses discussed the cost these requirements have imposed on private
equity firms. They force investment advisers to private equity to
expend substantial resources that disproportionately affect small and
mid-sized funds with costs of hundreds of thousands of dollars
annually, or more, to comply with these requirements.
It is important to note that most people, including SEC Chair Mary Jo
White, concede that private equity funds did not cause the 2008
financial crisis and are not a source of systemic risk, despite that
argument being the impetus for the registration requirement under Dodd-
Frank. These funds are not highly interconnected with other financial
market participants; and, therefore, the failure of a private equity
fund would be highly unlikely to trigger cascading losses that would
lead to a similar financial crisis. Additionally, these funds invest
primarily in illiquid assets, including small Main Street businesses
found across our country. These businesses are diversified across
multiple industries and therefore lack concentrated exposure to any
single sector.
Furthermore, investors in private equity firms are all sophisticated
investors who negotiate for the strongest investor protections. These
sophisticated investors include public pension funds, university
endowments, nonprofit foundations--many of whom are the primary
beneficiaries of private equity successes. Those investors typically
are represented by counsel and heavily negotiate fund terms in advance
of investing, including reporting governance and conflicts of interest.
It should also be noted that H.R. 1105 does nothing to change current
Federal law with respect to common law and statutory fiduciary
protections owed by investors to advisers to private equity funds.
There are already existing significant investor protections available
both contractually and in the form of State and Federal fiduciary
duties and antifraud protections--investor protections that exist
whether or not the advisers are registered with the SEC.
In the end, the costs of unnecessary registration represent real
capital that otherwise could be used to invest in companies such as
Virginia Candle in our district--a company that, through private equity
investment, expanded from a garage in Lynchburg, Virginia, to millions
of homes across the world.
Beyond Virginia Candle in Virginia, private equity-backed companies
employ over 7.5 million people. Let me say that again: private equity-
backed companies employ over 7.5 million people nationwide in over
17,000 U.S. companies. The impact of the registration requirements
stand to diminish job creation in each of the congressional districts
represented on this floor today.
I ask all of my colleagues today to join me in voting ``yes'' on H.R.
1105 and pass this bill from the House in order to increase the flow of
private capital to our small businesses so that they can innovate,
grow, and create jobs for the American people.
Small Business Investor Alliance,
December 3, 2013.
Hon. John A. Boehner,
Speaker, House of Representatives,
Washington, DC.
Hon. Nancy Pelosi,
Democratic Leader, House of Representatives,
Washington, DC.
Dear Speaker Boehner and Democratic Leader Pelosi: On
behalf of the Small Business Investor Alliance (SBIA), the
premier organization of lower middle market private equity
funds and investors, we urge you to support passage of the
bipartisan Small Business Capital Access and Job Preservation
Act (H.R. 1105), sponsored by Representatives Robert Hurt
(VA-5), Jim Himes (CT-4), Scott Garrett (NJ-5), and Jim
Cooper (TN-5). Passage of H.R. 1105 would reduce expensive
regulatory costs for small business investors enabling
increased capital formation and job creation for growing
small businesses.
Private equity funds are critical to the capital raising
process for many small businesses. In fact, a Pepperdine
University study found that private equity backed businesses
generated 129 percent more revenue growth and 257 percent
more employment growth than non-private equity backed
businesses. America needs more private equity small business
investing, not less.
It is commonly overlooked that small business investors are
generally small businesses too. They are being held back by
expensive regulatory costs as a result of new expanded SEC
registration requirements put into place by the Dodd-Frank
Act. Investment Adviser registration is very costly in both
money and time, especially for smaller funds that do most of
the small business investing. Most of our private equity
funds do not have legal departments, compliance teams, and
other forms of overhead that are required by the new
regulatory system. Compliance costs are often $250,000 or
more per year--a heavy expense to a small business investment
fund. Many of the new burdens are caused by the fact that the
SEC rules are designed to deal with publicly traded
businesses and investing, not for investing in domestic,
privately-held small businesses. Small business investors are
not mutual funds, multi-national conglomerates, or giant
financial institutions and should not be treated as such.
Private equity funds, particularly those supporting small
businesses, are not a systemic risk and did not contribute to
the financial crisis. H.R. 1105 would reduce regulatory
costs, but would still maintain record
[[Page H7473]]
retention and information for regulators and thus maintain
investor safeguards.
Congress can reduce unnecessary burdens for our private
equity funds and allow them to do what they do best--invest
in job creating small businesses to empower them to succeed,
create jobs, and grow the economy. SBIA strongly supports
passage of the bipartisan Small Business Capital Access and
Job Preservation Act.
Sincerely,
Brett Palmer,
President.
____
Small Business &
Entrepreneurship Council,
December 2, 2013.
Hon. Robert Hurt,
House of Representatives,
Washington, DC.
Dear Congressman Hurt: On behalf of the Small Business &
Entrepreneurship Council (SBE Council), I am writing to
support H.R. 1105, the Small Business Capital Access and Job
Preservation Act. A late September 2013 survey by SBE Council
found a disturbingly large percentage of entrepreneurs (62%)
who said the outlook for their firms had not improved (or had
worsened) since the financial crisis more than five years
ago. For growth-oriented firms responding to the survey,
access to capital remains a worrisome issue. That is why SBE
Council continues to support initiatives such as H.R. 1105,
which will help improve U.S. capital formation and access for
small businesses.
The overly broad Dodd-Frank law imposed SEC registration
and compliance rules on private equity when, quite simply,
none were needed. There was and is no evidence of pervasive
problems with private equity, or that it poses systemic risk
to the marketplace. Irrelevant and time-consuming procedures
as required by Dodd-Frank, only hamstring private equity's
role in efficiently serving the many small businesses that
benefit from the capital and expertise it provides.
Lifting the redundant and burdensome Dodd-Frank regulations
on private equity--as H.R. 1105 proposes to do--will improve
capital markets efficiency, and therefore make a meaningful
difference for entrepreneurs. The (SEC) can also better meet
its core responsibility of protecting markets and retail
investors.
Please let SBE Council know how we can help advance H.R.
1105 into law.
Sincerely,
Karen Kerrigan,
President & CEO.
____
Chamber of Commerce of the
United States of America,
Washington, DC, December 2, 2013.
To The Members of The U.S. House of Representatives: The
U.S. Chamber of Commerce, the world's largest business
federation representing the interests of more than three
million businesses of all sizes, sectors, and regions, as
well as state and local chambers and industry associations,
and dedicated to promoting, protecting, and defending
America's free enterprise system, supports H.R. 1105, the
``Small Business Capital Access and Job Preservation Act.''
This bill would amend the Investment Advisers Act of 1940 to
exempt private equity fund investment advisers from its
registration and reporting requirements, provided that each
private equity fund has not borrowed and does not have
outstanding a principal amount exceeding twice its invested
capital commitments. This bill would additionally enhance the
capital formation needed to build new businesses, expand
existing businesses, and create jobs.
Businesses small and large, particularly new businesses,
need a mix of capital sources to meet short-term and long-
term growth needs. This diversity of capital has provided the
liquidity needed for different sized firms to be able to have
the opportunity to achieve success. Congress recognized these
facts and the needs to increase diverse portals of capital
access in passing the bipartisan Jumpstart Our Business
Startups Act (``JOBS Act'') last year.
Private equity financing is an important form of financing
for smaller businesses that are trying to grow. In fact,
between 1995 and 2010 over 23,000 businesses, employing 3
million people, were backed by private capital. These
businesses grew jobs at a rate of 64% compared to other
businesses which only grew jobs at a rate of 18%. It should
also be noted that private equity financing was not a cause
of the financial crisis and that under its business model
does not pose interconnected risk to the economy. Yet, the
Dodd-Frank Wall Street Reform and Consumer Protection Act
requires that private equity firms must register with the
Securities and Exchange Commission.
These requirements are not only costly, but are also
designed for public company investors and not investors in
privately held companies. These requirements are a mismatch
for the investment model and the costs involved may be
prohibitive for smaller firms that specialize in investing in
the middle markets. Accordingly, the failure to pass this
bill could cut off funding sources for small businesses.
Passage of H.R. 1105 would serve as an important step
forward towards promoting efficient capital markets conducive
to long-term economic growth and job creation. The Chamber
may consider including votes on, or in relation to, this bill
in our annual How They Voted scorecard.
Sincerely,
R. Bruce Josten,
Executive Vice President,
Government Affairs.
____
Private Equity Growth
Capital Council,
Washington, DC, December 2, 2013.
Hon. Robert Hurt,
House of Representatives, Cannon House Office Building,
Washington, DC.
Hon. Scott Garrett,
House of Representatives, Rayburn House Office Building,
Washington, DC.
Hon. Jim Himes,
House of Representatives, Cannon House Office Building,
Washington, DC.
Hon. Jim Cooper,
House of Representatives, Longworth House Office Building,
Washington, DC.
Dear Congressmen, Thank you for your leadership in
advancing H.R. 1105, The Small Business Capital Access and
Job Preservation Act. As you know, the bill is scheduled for
a Floor vote this week. The Private Equity Growth Capital
Council (PEGCC) strongly supports this legislation.
Private equity and growth capital investment drives
economic activity and growth across the U.S. economy by
investing in promising companies looking to grow and those in
need of a turnaround. Last year alone, private equity and
growth capital invested $347 billion in more than 2,000 U.S.-
based businesses located in all 50 states and every
congressional district. There are 17,700 companies based in
the U.S. that are backed by private equity investment, and
these companies employ more than 7.5 million people
worldwide.
The stated goal of the Dodd-Frank Act is to reduce systemic
risk in the U.S. financial system. Private equity and growth
capital pose no systemic risk to the economy, did not
contribute the financial crisis and, therefore, should not be
subjected to enhanced SEC oversight. Choosing to increase
regulation on private equity and growth capital will require
a disproportionately large level of resources from the SEC's
budget and divert focus from protecting retail investors and
ensuring market integrity.
Furthermore, registration does not provide additional
investor protections, and it significantly increases the cost
of compliance for private equity and growth capital firms.
These registration regulations treat private equity and
growth capital firms like investment advisers with retail
clients. In contrast, private equity works with
sophisticated, accredited investors who mostly consist of
pension funds, charitable foundations and university
endowments. These investors are typically represented by
legal counsel and heavily negotiate fund terms in advance of
investing in a fund. Negotiated items often include
reporting, governance and conflicts of interest. Investors
obtain little if any benefit from the added SEC registration
requirements, yet the time and resources needed to comply
with SEC registration distracts from private equity's core
mission of investing in, strengthening and growing great
companies.
The private equity and growth capital industry strongly
supports the passage of H.R. 1105, The Small Business Capital
Access and Job Preservation Act. If you would like more
information about the positive impact of private equity in
your state, please visit www.PrivateEquityAtWork.com/state-
by-state.
Thank you, again, for advancing this legislation. We look
forward to working with you to get this proposal enacted.
Sincerely,
Steve Judge,
President & CEO.
____
National Association of
Investment Companies,
Washington, DC, December 3, 2013.
Hon. John A. Boehner,
Speaker, House of Representatives, Washington, DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives, Washington, DC.
Dear Speaker Boehner and Minority Leader Pelosi: On behalf
of the National Association of Investment Companies (NAIC),
an advocacy association that represents private equity member
firms, including women and ethnic minorities who remain
significantly under-represented in private equity, we are
writing to support passage of the Small Business Capital
Access and Job Preservation Act (H.R. 1105). H.R. 1105 is
bipartisan legislation sponsored by Representatives Robert
Hurt (VA-5), Jim Nimes (CT-4), Scott Garrett (NJ-5), and Jim
Cooper (TN-5).
The fastest growing sector of the U.S. economy is the $6
trillion annual market of minority consumers, who within
decades will comprise the majority of consumers. NAIC member
firms represent companies that invest in this growth sector
of the U.S. economy. Passage of H.R. 1105 reduces compliance
costs for private equity firms and would allow our member
firms to increase capital investment in areas of the economy
that are under-represented in their ability to access capital
to create jobs.
The exorbitant cost of SEC registration can take resources
away from making investments in Women- and minority-owned
businesses. Annual SEC registration costs often run as high
as $250,000, as SEC registered fund must spend precious
resources on hiring compliance and legal services to be fully
compliant with SEC rules. H.R. 1105 would reduce these costs
by removing some of the inapplicable SEC investment adviser
[[Page H7474]]
rules that are unworkable for private equity funds.
NAIC strongly supports passage of the Small Business
Capital Access and Job Preservation Act and we urge your
support of this important bipartisan legislation.
Sincerely,
Jennell F. Lynch,
Vice President.
____
Association for Corporate Growth,
Chicago, IL, December 2, 2013.
RE Support the ``Small Business Capital and Job Preservation
Act of 2013'' (H.R. 1105).
Hon. John A. Boehner,
Speaker, House of Representatives, Washington, DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives, Washington, DC.
Dear Speaker Boehner and Minority Leader Pelosi: On behalf
of the Association for Corporate Growth (ACG) and our 14,500
members and the 26,000 ``Main Street'' businesses they
operate, we urge Members of the House of Representatives to
vote in favor of H.R. 1105, the Small Business Capital and
Job Preservation Act when it comes before the full body later
this week.
Founded in 1954, ACG is an organization with 46 chapters in
the United States representing professionals from private
equity firms, corporations and lenders that invest in middle-
market companies, as well as from law, accounting, investment
banking and other firms that provide advisory services. ACG
represents more private equity firms than any other
association in the United States--virtually all of which
invest in smaller and middle-market companies.
It is important that the application of the Dodd-Frank Act
uphold the original spirit and intent of the legislation
without constraining capital. Yet, Dodd-Frank requires that
virtually all private equity firms must register with the
Securities and Exchange Commission (SEC) under the Investment
Advisers Act of 1940, despite the fact that private equity
funds are structured and operate almost identically to
venture capital funds, which under the Dodd-Frank Act are
exempted from having to register.
This bipartisan legislation, introduced Representatives
Robert Hurt (R-VA), Jim Himes (D-CT), Jim Cooper (D-TN) and
Scott Garrett (R-NJ), would amend the Investment Advisers Act
of 1940 to exempt private equity fund investment advisers
from its registration and reporting requirements, so long as
the fund has not borrowed and does not have an outstanding
principal amount of debt exceeding twice its invested capital
obligations. Since private equity funds were not a cause of
the financial crisis and its business model does not pose any
interconnected risk to the economy, ACG believes H.R. 1105 is
a necessary piece of legislation that will help ensure the
continued flow of capital to businesses. H.R. 1105 strikes a
proper balance between access to capital and protection from
systemic risk. H.R. 1105 also re-establishes regulatory
parity between private equity and venture capital.
Private capital can be found in every corner of our nation
and the bipartisan Small Business Capital Access and Job
Preservation Act will preserve private equity funding as a
pipeline of capital for growing businesses. ACG stands ready
to assist and serve as a resource to Members of the U.S.
House of Representatives as they aim to achieve sound
financial policies and enhancements of the Dodd-Frank Act
that accomplish continued growth in the middle-market.
We thank Representatives Robert Hurt (R-VA), Jim Himes (D-
CT), Jim Cooper (D-TN) and Scott Garrett (R-NJ) for their
leadership on this important issue. We urge all members of
Congress to support their efforts and vote in favor of H.R.
1105.
Sincerely,
Gary LaBranche, FASAE, CAE,
President and CEO.
Mr. LYNCH. Mr. Speaker, I yield myself 1 minute.
I do want to respond to the gentleman's invoking of the SEC chair,
Mary Jo White. Judging from the gentleman's remarks, you would think
she might be in favor of this bill. Well, let me talk about what she
says about this bill in particular:
Our markets would not be well served by narrowing the scope
of the commission's jurisdiction in oversight of these
advisers.
That is with respect to this bill. She also said:
Private equity investors are in need of the same
protections as other private fund investors.
Lastly, she has also said that the commission has brought enforcement
actions, talking about the advisability of having oversight over
advisers and having these disclosures made:
The commission has brought enforcement actions against
private equity funds and their advisory personnel involving
unlawful pay-to-play schemes, insider trading, conflicts of
interest, valuation, and misappropriation of assets.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. LYNCH. I yield myself another 30 seconds.
Now, when you think about the protections that are necessary for
pension funds, especially where these workers have invested their whole
lives in these pension funds, you understand the need for this
disclosure.
At this time I yield 3 minutes to the gentleman from Minnesota (Mr.
Ellison).
{time} 1500
Mr. ELLISON. Mr. Speaker, let me thank the gentleman from
Massachusetts.
Before I launch into the substantive critique of this bill and I urge
Members to vote ``no,'' I would like to make a preliminary observation,
and that is that when our chairman of our committee begins his
presentation, making a broad-based critique and attack on regulation,
Members should be very careful about this because good regulation is
good for the American people. We need health and safety protections. We
need to be protected from unsafe water, unsafe products. And investors
need to be protected, as well. Any time a Member of Congress or anyone
comes up and says regulations are bad, this is obviously wrong and the
American people know it. Therefore, when you are being told to do
something just because regulations are always bad, you should be very
suspicious of what is going on and dig deeper into the situation.
I urge Members to just consider how important good, solid, well-
tailored regulation is to benefit the American people, and I push back
on anybody who just makes a frontal assault on all regulation, no
matter how good or how bad and just regulation in general. This has
been a theme around here, and I urge Members to be suspicious of it.
It should also be considered that when this bill is in front of us,
we should know that people have looked carefully at it. Members who are
wondering what they want to do on this bill, they should consider that
the Obama administration has strongly opposed this bill, with senior
advisers recommending a veto. This is a bill that is not going to
become law. There is no Senate companion. I just checked and have been
advised that there is no Senate companion. So we are really here
talking about a bill that is going to be a threatened veto by the
President and has no Senate companion, but is also opposed by SEC Chair
Mary Jo White and the Council of Institutional Investors, an
organization which has investors' interests in mind as this bill is
trying to make investor information more opaque, and Americans for
Financial Reform, not to mention the Consumer Federation of America,
the AFL-CIO, and State securities regulators.
So the people who work with these regulations all the time don't
think they are the right thing to do. Even if some Members might
consider that maybe this might get capital to somebody who wouldn't
otherwise get it, the people who regulate and use these regulations
every day have carefully considered H.R. 1105 and have come to the
conclusion that it is bad for investors, that it creates less
transparency, not more, and, therefore, is, in fact, a risk to our
financial well-being.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. LYNCH. I yield the gentleman an additional 1 minute.
Mr. ELLISON. Americans are obviously looking for jobs. This is the
big hook, the way to get anybody to vote for anything around here. It
says it is going to create jobs. Of course, there has been no
demonstration of how this is going to create jobs.
The point is that it will create a situation where there is less
information for investors who need it, and it is important for Members
to know that the SEC has taken enforcement actions against private
equity firms.
For example, at Knelman Asset Management Group, the SEC found that
registered private equity funds-to-funds adviser Knelman Asset
Management Group, LLC, Irving Knelman, a managing director, chief
executive officer and former CEO, violated the Advisers Act custody,
antifraud compliance reporting, and books and records provisions. This
is a case where you have the SEC using information to bring
accountability in the private equity arena.
The SPEAKER pro tempore. The time of the gentleman has again expired.
Mr. LYNCH. I yield the gentleman an additional 20 seconds.
[[Page H7475]]
Mr. ELLISON. Let me wrap up by saying that we urge Members to vote
``no,'' to look out for advisers. Even private equity advisers need
transparency, not less information. A ``no'' vote is urged here.
Mr. HENSARLING. Mr. Speaker, at this time I am very happy to yield 4
minutes to the gentleman from New Jersey (Mr. Garrett), a coauthor of
the legislation and the chairman of the Capital Markets and GSE
Subcommittee.
Mr. GARRETT. Mr. Speaker, I thank the chair.
Before I give my remarks, I just want to say in response that I
believe the chairman said that he is not opposed to all regulations. I
think he said he is in favor of regulation, but make sure that it is
smart and appropriate regulation--at least, that is my position, as
well.
Understand, too, to the gentleman's point, that even when this
legislation is passed, the SEC still will have significant authority,
will still have its enforcement division, will still have its new asset
management unit, which has recently recruited industry professionals
with asset management experience to serve as specialists in this unit
to do the investigations that the gentleman wants to have continue, and
it will continue even after the passage of this legislation.
With that said, I want to again thank the chairman. I want to thank
the gentleman from Virginia (Mr. Hurt), and also the gentleman from
Connecticut (Mr. Himes), as well, for their hard work on this very
important legislation, as well as all our cosponsors on both sides of
the aisle. For that reason, I am pleased to support H.R. 1105. And do
make no mistake about it; this is bipartisan legislation, and it is all
about helping small businesses and helping to create more jobs in this
country.
Today, more than 17,700 companies, backed by private equity employ
over 7.5 million people. In my home State of New Jersey alone, 597
private equity-backed companies support more than 377,000 workers,
while the New Jersey Division of Pensions and Benefits has invested
billions on behalf of retirees and private equity firms. Hopefully, all
those facts give you the facts you need to know how important it is to
the creation of jobs. Yet despite their long track record supporting
small business nationwide, the Dodd-Frank Act has imposed enormous and
numerous burdens on private equity firms, forcing most fund advisers to
spend literally millions of dollars complying with new SEC registration
and reporting requirements.
While these burdensome regulations no doubt crimp the flow of much-
needed investment dollars to America's small businesses, there is
little or no evidence that they are needed to promote the stability of
our financial system or to protect investors. Unlike, say, Federal
housing policy and the government-sponsored enterprises Fannie Mae and
Freddie Mac, private equity did not cause the financial crisis and is
not--and never has been--a source of systemic risk.
As former SEC Chair Mary Schapiro admitted back in 2011: ``Private
equity funds have less potential to pose systemic risk than any other
type of private funds.'' Indeed, if the SEC is so concerned about the
systemic risk of private equity funds, their recent examinations of
private equity advisers certainly do not show it.
As Chair White recently said: Neither the SEC's examinations staff
nor the Division of Investment Management ``has conducted examinations
of an adviser to a private fund based primarily on systemic risk
concerns.''
She also said: SEC examiners ``have not to date reviewed systemic
risk issues as part of their examinations of private funds.''
Thirdly: None of the advisers to private funds that withdrew their
registration in 2012 ``had systemic market impact.''
And so now we must ask ourselves this question: Do we really want the
SEC, already saddled with a multitude of unfinished, nongermane Dodd-
Frank mandates expending valuable resources on risks that don't even
exist? In addition, because only sophisticated investors may invest in
these private equity funds, the need to protect investors in this case
is more limited compared to other areas of the security market.
While I wholeheartedly support the SEC's mission to protect
investors, the agency with limited resources should be devoted, first
and foremost, to protecting the less sophisticated, the retail mom-and-
pop investors. They need the most protection.
It was Paul Kanjorski, who was in Congress when Dodd-Frank went
through. He said:
I, for one, could care less about high-wealth individuals
who want to contribute their money to a group of investors.
If they want to take the shot of losing it, it does not
really affect the rest of society.
It also bears mentioning that this legislation in no way alters the
many existing tools the SEC already has to prevent and punish fraud in
the private equity industry for the benefit of sophisticated investors
and the broader economy.
I urge support of H.R. 1105 at a time when most small businesses
continue to have difficulty getting credit and need to grow. Passing
this bipartisan legislation, commonsense legislation, should be no a
no-brainer.
Mr. LYNCH. Mr. Speaker, I yield myself 1 minute to respond to some of
these allegations.
In respect to sophisticated investors, the Council of Institutional
Investors, which is an association representing corporate, union, and
public pensions, foundations and endowments, largely very sophisticated
investors with combined assets of $3 trillion, opposes this bill. They
oppose this bill because of the record of enforcement actions of the
SEC to go after risks that do actually exist.
I now yield 3 minutes to the gentleman from Connecticut (Mr. Himes),
a cosponsor of the bill.
Mr. HIMES. Mr. Speaker, I would like to thank my friend from
Massachusetts for the time and Ranking Member Waters for being willing
to hear different perspectives on this bill from our side.
I want to start by saying that Dodd-Frank, which I think I can say I
contributed more than my share to, was, on balance, a very good and
very important thing. The dragging of derivatives into the light of
day, trading on exchanges, clearing through clearinghouses, the
creation of the CFPB, taking steps to eliminate too big to fail, there
is lots of stuff in Dodd-Frank which is important and good.
But not everything in Dodd-Frank is important and good. Like all
other works of mortals, there are things in this that are probably
unintended and perhaps overreaching. I happen to believe that the
requirement that private equity funds register with the SEC is one of
those areas.
Why is that?
First, private equity funds, as has been pointed out on the floor
today, were a million miles from the bad mortgages from Fannie Mae,
from Freddie Mac, from the subprime mortgages, from all of those things
that caused the failures in 2008. They weren't anywhere close.
Secondly, investor protection is important, but, by law, the only
people who can invest in these funds are accredited investors or
institutional investors who don't just sign up. They hire attorneys to
negotiate partnership agreements. They negotiate with these private
equity funds for disclosure, for the terms, and all of those sorts of
things. So we are not talking about retail investors here.
Finally, the issue of leverage. We have finally gotten to the point
where people acknowledge that these are not large leverage funds. The
point is made that the leverage is at the investment company level.
That is true. Private equity firms do buy companies, invest in them,
and then those companies take on leverage. The average leverage across
the entire universe of private equity-sponsored companies is less than
3 to 1. It is not 30 to 1, but 3 to 1. It is less than 3 to 1. By way
of comparison, hedge funds, on average, are leveraged 15 to 1. Lehman
Brothers, when it went down, was leveraged in excess of 30 to 1. We are
talking about companies which are assuming the same kind of debt that
any other small business assumes out there, less than 3 to 1.
What we have happening right now is we have examiners and the
intention and the resources of the SEC, which has terribly important
missions around real estate and mortgages and derivatives and finding
the next Bernie Madoff, going to $175 million funds and
[[Page H7476]]
examining these funds on behalf of the sophisticated investors. That
does not make sense.
Dodd-Frank exempted venture capital funds from this registration
requirement. Venture capital funds do the exact same thing with the
exact same investors that private equity funds do; they just do it in
an earlier stage in the company's history. The only reason for that
exemption is that we like venture capital funds more than we like
private equity funds. They sound better. They make nice things in
garages in Palo Alto. Private equity sounds more ominous; therefore,
they have been subjected to registration.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. LYNCH. Mr. Speaker, I yield the gentleman an additional 1 minute.
Mr. HIMES. Mr. Speaker, we exempted venture capital funds from the
Advisers Act of 1940 registration. The same set of investors, same
types of investing. Actually, a more risky asset class than private
equity. We exempted them for no other reason than that we like venture
capital better than we like private equity. That is fine. But in
statute and in regulation, we should be consistent.
So I think that you can argue that venture capitalists should be
subject to the same kind of registration requirements that private
equity is or you can argue, as I do, that probably both types of funds
don't need to be registered under the Advisers Act of 1940, but you
can't support Dodd-Frank and say venture capitalists are exempt and
private equity is not and be consistent in policy.
So I urge my colleagues, in the interest of balancing a very good
piece of legislation, to support H.R. 1105.
Mr. HENSARLING. Mr. Speaker, I am now pleased to yield 2 minutes to
the gentleman from Illinois (Mr. Hultgren).
{time} 1515
Mr. HULTGREN. Thank you, Chairman Hensarling.
Mr. Speaker, what we are trying to do here today is to get small
business jobs growing again, and private equity helps do that. The
infusion of private investment helps these small businesses create jobs
so we can get the economy moving again.
Over the last 15 years, private capital has helped about 23,000 small
businesses, employing approximately 3 million people. Businesses backed
by private capital grew jobs 3.5 times faster than other businesses.
We need to encourage this kind of growth by bringing more
opportunity, not more regulation. Capital is better spent getting
people back to work and growing our small businesses than it is tied up
in compliance costs.
In Illinois, my home State, more than $200 billion has been invested
in local companies. Private equity is about skin in the game, and we
need to keep these resources in the economy, not on the sidelines.
I ask my colleagues to support H.R. 1105. I am a proud cosponsor and
believe we should pass this important bill.
Mr. LYNCH. Mr. Speaker, may I ask how much time is remaining for each
side.
The SPEAKER pro tempore. The gentleman from Massachusetts has 16\3/4\
minutes remaining. The gentleman from Texas has 12\1/2\ minutes
remaining.
Mr. LYNCH. Mr. Speaker, at this time I yield 3 minutes to the
gentleman from Tennessee (Mr. Cooper).
Mr. COOPER. I thank my friend, the gentleman from Massachusetts. We
are seatmates on the Government Reform Committee, and it is a pleasure
to serve with you. It is also a pleasure to support this bill.
Mr. Speaker, I want to address my remarks particularly to the new
Democrats and Blue Dog Democrats because not everyone in this body is
an expert on private equity or venture capital. This sounds like a
complicated topic. It sounds technical, but it is really all about
jobs.
There is nothing we are asked about more back home than about
creating jobs. There is nothing we talk more about here than creating
jobs. Passing this bill is a good way to do that.
It is easy to get wound up in the details, but the bottom line is
this: private equity creates jobs. These are funds that have wealthy
investors investing in them, and they lend their money, they invest in
growth companies that create jobs.
My friend from New Jersey mentioned they have already helped create
7.5 million jobs in America, some 17,000 individual companies. These
are the companies we try to recruit to our districts. These are the
companies that we try to grow back home so that more of our good people
back home can have good jobs.
The paperwork requirement that, unfortunately, and I think probably
inadvertently, was put on them by the Dodd-Frank bill needs to be
removed. SEC registration is not appropriate for these funds. It costs
between three-quarters of a million dollars and $1 million a year for
them just to do the paperwork. That is money taken away from job
creation. That is money that is embalmed in red tape.
So this is a chance, and we do need to make sure there is a Senate
companion to this bill once it passes the House. I am proud of my
colleagues for being involved in a bipartisan job-creation effort
because folks who really understand venture capital and private equity
know this is a great way to help create more jobs in this country, by
removing a little bit of the red tape that probably shouldn't have been
there to begin with.
This bill passed the Financial Services Committee last session of
Congress by voice vote. This shouldn't even be controversial. This year
the vote was overwhelming, 38-18.
So I hope my colleagues, particularly among new Democrats and Blue
Dogs, will understand this is a job-creation issue. This is a
bipartisan job-creation opportunity.
H.R. 1105 should pass with overwhelming, bipartisan support. Let's
get this through the Senate, and let's create more jobs in America.
I thank the chairman for yielding time, and I hope all my colleagues
will vote for H.R. 1105.
Mr. HENSARLING. Mr. Speaker, I now yield 1\1/2\ minutes to the
gentlewoman from Missouri (Mrs. Wagner).
Mrs. WAGNER. Mr. Speaker, I want to thank Chairman Hensarling of our
Financial Services Committee and also the gentleman from Virginia (Mr.
Hurt), my friend, for their very hard work in bringing this important
legislation to the floor today.
Mr. Speaker, today I rise in support of H.R. 1105, the Small Business
Capital Access and Job Preservation Act. This legislation addresses yet
another misguided provision of the Dodd-Frank Act that will help ensure
that private equity maintains its critical role in our economy.
Private equity firms provide capital to Main Street businesses in
Missouri and all across our country and, importantly, private equity
often invests in companies when others are unwilling to do so. These
investments support nearly 18,000 businesses in the United States that
employ some 7.5 million workers.
Unfortunately, the Dodd-Frank Act seeks to make it more difficult for
private equity to maintain this important economic role. To my
knowledge, no evidence has been produced which shows that private
equity was the cause of the 2008 financial crisis, or that it presents
a systemic risk to our financial system.
It makes little sense, then, to impose unnecessary and costly red
tape burdens on private equity investors which will only make it more
difficult for them to invest in American businesses and create jobs.
H.R. 1105 is, therefore, a necessary response to an overreach of the
Dodd-Frank Act and will help support Main Street businesses and jobs
all throughout our country.
I am pleased to support this very bipartisan bill and urge my
colleagues to vote in support of H.R. 1105.
Mr. LYNCH. Mr. Speaker, I yield myself such time as I may consume.
I do want to point out, in response to the gentleman from Tennessee's
remarks about this bill going on voice vote in committee, I just want
to remind the Members and the public that during that debate there was
a need for further work on this bill.
I think, in a moment of bipartisanship, we agreed, both Democrat and
Republican, to allow the bill to go by voice vote with the promise to
work on some of those issues going forward. So it was an agreement to
try to continue to agree and to work on the bill. It was
[[Page H7477]]
not a vote in favor of any particular provisions within this bill.
There has been a lot of talk here about the risks that don't exist,
and I do want to just point out some of those. As a result of this
bill, funds investing more than $300 billion a year, much of which is
the retirement savings of workers like teachers, firefighters, police
officers, they would no longer be required to provide basic investor
protections.
Specifically, H.R. 1105 would deprive investors of basic disclosures
about an employee of a fund adviser who, for instance, violated
securities law, or the adviser's businesses practices, its fees, any
conflict of interest on the part of that adviser.
It would also eliminate a compliance program and code of ethics
within the bill, within Dodd-Frank, and would eliminate the need for a
chief compliance officer for each fund manager.
H.R. 1105, the bill under consideration here, would also prevent the
SEC from conducting compliance exams of private equity fund adviser,
even though SEC Chairman Mary Jo White notes that the Commission has
already uncovered issues such as unlawful pay-to-play schemes, insider
trading that we have all read about recently, conflicts of interest,
valuation issues, and misappropriation of assets.
I want to talk about some of these since there has been a complete
dismissal of any risk here. I think the record speaks to the risk.
The SEC has brought several enforcement actions against private
equity firms. While the defendants do not necessarily represent all
private equity firms, they do highlight the need for a strong police
officer with the authority to examine all private equity advisers.
Capital formation relies on investor confidence in the underlying
assets; and without registration with the SEC, investors will no longer
have a cop on the beat that can enforce the rule of law, reducing
investor demand.
In Knelman, for example here, there have been broad violations
related to fraud, custody, compliance, and reporting. In Knelman Asset
Management Group, the SEC found that registered private equity fund-of-
funds adviser Knelman Asset Management Group, LLC, and Irving P.
Knelman, KAMG's managing director, chief executive officer, and former
CCO, violated the Advisers Act's custody, antifraud, compliance,
reporting, and books-and-records provisions.
In insider trading enforcement, the Gowrish insider trading case
involved an individual who allegedly stole confidential acquisition
information, TPG Capital, and sold that information to two friends who
made $500,000 in illicit trading profits.
Valuation related enforcement actions, the Oppenheimer/Brian
Williamson matters concern an investment adviser and portfolio manager
who misrepresented material details about his valuation methodology to
his investors.
Recently, the Commission filed a case against Yorkville Advisors,
where Yorkville allegedly inflated the values of certain liquid assets.
While Yorkville managed hedge funds, the valuation issues are very
similar to ones we see in private equity.
Finally, the KCAP valuation case involved alleged overstatements of
the value of certain debt securities and CLOs held in the investment
portfolio, highlighting the division and AMU's emphasis on pursuing
valuation cases.
And in the Ranieri Partners case, the SEC also found that an
investment manager knowingly used a sanctioned, unregistered broker-
dealer to solicit capital for a pooled investment vehicle.
So all of these illegal activities would be made unavailable to
private equity investors under this bill. That is what the risk is.
That is not fiction. Those are actual cases that the SEC has introduced
enforcement actions on. So there is real risk here for investors and
for the markets themselves.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield myself 30 seconds to say that
the gentleman from Massachusetts sets up a straw man and then knocks it
down. The activities that he describes as illegal continue to be
illegal, and I would say that private equity funds provide extensive
reporting to investors, including audited annual financial statements.
Private fund equity advisers are subject to the antifraud provisions
of the Investment Advisors Act of 1940, whether they are registered or
not, and fund offerings are subject to the antifraud provisions of the
Securities Act of 1933.
The real choice becomes, are we going to get even greater protections
for millionaire investors, or are we going to help struggling single
moms trying to find a job in this economy?
Mr. Speaker, at this time I am happy to yield 2 minutes to the
gentleman from Ohio (Mr. Stivers).
Mr. STIVERS. Mr. Speaker, I would like to thank the gentleman from
Texas for yielding time.
The Small Business Capital Access and Job Preservation Act is an
important bill that I believe will allow more capital to go and flow to
small business so they can create jobs.
You know, at a time when we have 7.3 percent unemployment, and
underemployment over 10 percent, we have a need for more capital to
flow into our businesses so they can create jobs.
Meanwhile, the Dodd-Frank Act created burdensome new SEC registration
on private equity firms but, as the gentleman from Connecticut said
earlier, not on venture capital firms that do exactly the same thing.
So, in fact, I would argue that venture capital firms have more risk
than private equity.
There already are important protections, consumer protections, around
private equity. You have to be a sophisticated, accredited investor,
and there is already important fraud detection and fraud enforcement
actions that are available to the SEC in the cases of these investors
being taken advantage of.
So at a time when private equity is helping provide over 6 million
jobs in America, we should be doing everything we can to actually
encourage more activity by private equity, to encourage more jobs in
America, not burdening them with big regulations.
I want to just make four quick points. These middle-market private
equity firms, like we have in towns like Columbus, Ohio, where I live,
contribute a lot toward job creation, but not a lot toward systemic
risk.
And the compliance costs for these smaller firms in towns like
Columbus, Ohio, will be especially high as a percentage; and it could
drive many of them out of business.
Many of these firms that manage both SBIC and non-SBIC funds already
face multiple layers of regulation.
And the fourth point is many of these investment adviser rules are
not really pertinent to private equity funds.
{time} 1530
So I stand in support of the Small Business Capital Access and Job
Preservation Act. I want to thank the gentleman from Virginia,
Representative Hurt, for his hard work on this. I think it is a win for
job creation, and I urge all my colleagues to support it.
Mr. LYNCH. Mr. Speaker, I yield myself 2 minutes.
We need not worry about small firms in this. They are already exempt
under this bill. They are already exempt. So the concerns about small
firms being covered by this, they are already exempt, number one.
Number two, the other scenario that has been posited here is that
somehow, by allowing private equity firms the right to keep secret--or
to refuse to disclose that their employees have been prosecuted for
violating securities laws, by allowing that to remain undisclosed, that
somehow that is going to help some single mom go to work, I don't think
that is a rational assumption.
Mr. Speaker, I will now enter into the Record letters from the
following organizations who are all opposed to this bill: Americans for
Financial Reform, the Council of Institutional Investors, the North
American Securities Administrators Association, and a Statement of
Administration Policy from the Obama administration.
I reserve the balance of my time.
Americans for
Financial Reform,
Washington, DC.
Dear Representative: On behalf of Americans for Financial
Reform, we are writing to express our opposition to HR 1105.
Contrary to its title, this bill is not designed to benefit
small business. Instead, it would exempt private equity fund
advisers--who include some of the wealthiest and most
significant entities on Wall Street--from basic reporting
requirements designed to help regulators
[[Page H7478]]
monitor systemic risk in the financial system and protect
investors and the public.
Prior to the Dodd-Frank Act, hedge and private equity funds
received almost no regulatory monitoring, despite the fact
that combined they manage some $3 trillion in assets and
played a significant intermediary role in the financial
crisis. Section 404 of the Dodd-Frank Act created more
transparency for this previously dark portion of the markets,
by requiring advisers to hedge and private equity funds to
report basic financial information relevant to systemic risk
to the Securities and Exchange Commission (SEC). The
experience of the 2008 crisis--where risks emerged from parts
of the markets not being monitored by regulators--clearly
demonstrates the importance of ensuring that regulators can
track financial risks wherever they originate.
The Section 404 reporting requirements as implemented by
the SEC are far from onerous. All advisers with below $150
million in assets under management are completely exempted,
and advisers with up to $1.5 billion in assets under
management must report only limited and basic information
once per year. Advisers to large private equity funds are
required to respond only once per year (advisers to other
large funds report quarterly).
HR 1105 would exempt almost all private equity fund
advisers from reporting requirements to the Securities and
Exchange Commission. The sole requirement for the exemption
is that the fund must not have outstanding borrowings that
exceed twice the fund's invested capital. But this
requirement places little if any real limitation on the
exemption, since the great majority of borrowing connected
with private equity activity is conducted through portfolio
companies, not at the fund level. (That is, companies owned
by private equity funds borrow large amounts as the direction
of the fund, but the fund itself rarely borrows a great
deal).
It is particularly distressing that Congress would consider
granting this exemption at a time when concern is growing
among regulators and market observers about risks created by
a possible bubble in the leveraged loan market, which is
dominated by loans sponsored by private equity firms. Several
warnings have been issued recently by regulators concerning
the risks being created in these markets. As Moody's
investor's service has stated:
``Private equity firms have been exploiting investors''
willingness to lend to speculative-grade companies . . .
Higher yields are drawing investors to riskier structures at
a time when interest rates remain at historical lows.''
Since leveraged loans are also being sold to small retail
investors, a bubble could impact both the stability of the
broader financial system and the retirement savings of retail
investors. The situation in the leveraged loan market clearly
demonstrates the connection between private equity activity
and important risks to financial stability and to investors.
An additional source of concern is the danger that the
exemption granted in HR 1105 could too easily be exploited to
reach beyond private equity firms alone. The distinction
between a hedge fund and a private equity fund is not a
formal legal distinction, it is simply a differentiation
between general investment strategies. While HR 1105 grants
the SEC the ability to define more precisely what a private
equity fund is, if that definition is at all overbroad then
it could be taken advantage of by a wide range of hedge funds
in order to avoid oversight.
Private equity funds already receive significant subsidies
through the tax system, as they are major beneficiaries of
the favorable treatment for `carried interest', as well as
the general tax subsidy to debt costs. It is totally
inappropriate to also grant such funds a blanket exemption
from even the limited and basic Dodd-Frank regulatory
reporting requirements. Such a blanket exemption would make
it more difficult for regulators to monitor systemic risk and
risks to investors, solely in order to exempt wealthy
managers of large private equity funds from a minor
administrative task. HR 1105 should be rejected.
Thank you for your consideration. For more information
please contact AFR's Policy Director, Marcus Stanley.
Sincerely,
Americans for Financial Reform.
Following Are the Partners of Americans for Financial Reform
All the organizations support the overall principles of AFR
and are working for an accountable, fair and secure financial
system. Not all of these organizations work on all of the
issues covered by the coalition or have signed on to every
statement.;
A New Way Forward; AFL-CIO; AFSCME; Alliance For Justice;
American Income Life Insurance; American Sustainable Business
Council; Americans for Democratic Action, Inc; Americans
United for Change; Campaign for America's Future; Campaign
Money; Center for Digital Democracy; Center for Economic and
Policy Research; Center for Economic Progress; Center for
Media and Democracy; Center for Responsible Lending; Center
for Justice and Democracy.
Center of Concern; Center for Effective Government; Change
to Win; Clean Yield Asset Management; Coastal Enterprises
Inc.; Color of Change; Common Cause; Communications Workers
of America; Community Development Transportation Lending
Services; Consumer Action; Consumer Association Council;
Consumers for Auto Safety and Reliability; Consumer
Federation of America; Consumer Watchdog; Consumers Union.
Corporation for Enterprise Development; CREDO Mobile; CTW
Investment Group; Demos; Economic Policy Institute; Essential
Action; Greenlining Institute; Good Business International;
HNMA Funding Company; Home Actions; Housing Counseling
Services; Home Defender's League; Information Press;
Institute for Global Communications; Institute for Policy
Studies: Global Economy Project.
International Brotherhood of Teamsters; Institute of
Women's Policy Research; Krull & Company; Laborers'
International Union of North America; Lawyers' Committee for
Civil Rights Under Law; Main Street Alliance; Move On; NAACP;
NASCAT; National Association of Consumer Advocates; National
Association of Neighborhoods; National Community Reinvestment
Coalition; National Consumer Law Center (on behalf of its
low-income clients); National Consumers League; National
Council of La Raza.
National Council of Women's Organizations; National Fair
Housing Alliance; National Federation of Community
Development Credit Unions; National Housing Resource Center;
National Housing Trust; National Housing Trust Community
Development Fund; National NeighborWorks Association;
National Nurses United; National People's Action; National
Urban League; Next Step; OpenTheGovernment.org; Opportunity
Finance Network; Partners for the Common Good; PICO National
Network.
Progress Now Action; Progressive States Network; Poverty
and Race Research Action Council; Public Citizen; Sargent
Shriver Center on Poverty Law; SEIU; State Voices; Taxpayer's
for Common Sense; The Association for Housing and
Neighborhood Development; The Fuel Savers Club; The
Leadership Conference on Civil and Human Rights; The Seminal;
TICAS; U.S. Public Interest Research Group; UNITE HERE.
United Food and Commercial Workers; United States Student
Association; USAction; Veris Wealth Partners; Western States
Center; We the People Now; Woodstock Institute; World Privacy
Forum; UNET; Union Plus; Unitarian Universalist for a Just
Economic Community.
List of State and Local Affiliates
Alaska PIRG; Arizona PIRG; Arizona Advocacy Network;
Arizonans For Responsible Lending; Association for
Neighborhood and Housing Development NY; Audubon Partnership
for Economic Development LDC, New York NY; BAC Funding
Consortium Inc., Miami FL; Beech Capital Venture Corporation,
Philadelphia PA; California PIRG; California Reinvestment
Coalition; Century Housing Corporation, Culver City CA;
CHANGER NY; Chautauqua Home Rehabilitation and Improvement
Corporation (NY); Chicago Community Loan Fund, Chicago IL.
Chicago Community Ventures, Chicago IL; Chicago Consumer
Coalition; Citizen Potawatomi CDC, Shawnee OK; Colorado PIRG;
Coalition on Homeless Housing in Ohio; Community Capital
Fund, Bridgeport CT; Community Capital of Maryland, Baltimore
MD; Community Development Financial Institution of the Tohono
O'odham Nation, Sells AZ; Community Redevelopment Loan and
Investment Fund, Atlanta GA; Community Reinvestment
Association of North Carolina; Community Resource Group,
Fayetteville A; Connecticut PIRG; Consumer Assistance
Council; Cooper Square Committee (NYC).
Cooperative Fund of New England, Wilmington NC; Corporacion
de Desarrollo Economico de Ceiba, Ceiba PR; Delta Foundation,
Inc., Greenville MS; Economic Opportunity Fund (EOF),
Philadelphia PA; Empire Justice Center NY; Empowering and
Strengthening Ohio's People (ESOP), Cleveland OH;
Enterprises, Inc., Berea KY; Fair Housing Contact Service OH;
Federation of Appalachian Housing; Fitness and Praise Youth
Development, Inc., Baton Rouge LA; Florida Consumer Action
Network; Florida PIRG; Funding Partners for Housing
Solutions, Ft. Collins CO; Georgia PIRG.
Grow Iowa Foundation, Greenfield IA; Homewise, Inc., Santa
Fe NM; Idaho Nevada CDFI, Pocatello ID; Idaho Chapter,
National Association of Social Workers; Illinois PIRG; Impact
Capital, Seattle WA; Indiana PIRG; Iowa PIRG; Iowa Citizens
for Community Improvement; JobStart Chautauqua, Inc.,
Mayville NY; La Casa Federal Credit Union, Newark NJ; Low
Income Investment Fund, San Francisco CA; Long Island Housing
Services NY; MaineStream Finance, Bangor ME.
Maryland PIRG; Massachusetts Consumers' Coalition;
MASSPIRG; Massachusetts Fair Housing Center; Michigan PIRG;
Midland Community Development Corporation, Midland TX;
Midwest Minnesota Community Development Corporation, Detroit
Lakes MN; Mile High Community Loan Fund, Denver CO; Missouri
PIRG; Mortgage Recovery Service Center of L.A.; Montana
Community Development Corporation, Missoula MT; Montana PIRG;
Neighborhood Economic Development Advocacy Project; New
Hampshire PIRG.
New Jersey Community Capital, Trenton NJ; New Jersey
Citizen Action; New Jersey PIRG; New Mexico PIRG; New York
PIRG; New York City Aids Housing Network; New Yorkers for
Responsible Lending; NOAH Community Development Fund, Inc.,
Boston MA; Nonprofit Finance Fund, New York NY; Nonprofits
Assistance Fund, Minneapolis M;
[[Page H7479]]
North Carolina PIRG; Northside Community Development Fund,
Pittsburgh PA; Ohio Capital Corporation for Housing, Columbus
OH; Ohio PIRG.
OligarchyUSA; Oregon State PIRG; Our Oregon; PennPIRG;
Piedmont Housing Alliance, Charlottesville VA; Michigan PIRG;
Rocky Mountain Peace and Justice Center, CO; Rhode Island
PIRG; Rural Community Assistance Corporation, West Sacramento
CA; Rural Organizing Project OR; San Francisco Municipal
Transportation Authority; Seattle Economic Development Fund;
Community Capital Development; TexPIRG.
The Fair Housing Council of Central New York; The Loan
Fund, Albuquerque NM; Third Reconstruction Institute NC;
Vermont PIRG; Village Capital Corporation, Cleveland OH;
Virginia Citizens Consumer Council; Virginia Poverty Law
Center; War on Poverty--Florida; WashPIRG; Westchester
Residential Opportunities Inc.; Wigamig Owners Loan Fund,
Inc., Lac du Flambeau WI; WISPIRG.
Small Businesses
Blu; Bowden-Gill Environmental; Community MedPAC;
Diversified Environmental Planning; Hayden & Craig, PLLC; Mid
City Animal Hospital, Pheonix AZ; The Holographic Repatteming
Institute at Austin; UNETO.
____
Council of
Institutional Investors,
Washington, DC, December 3, 2013.
Hon. John Boehner,
Speaker of the House, House of Representatives, Washington,
DC.
Hon. Nancy Pelosi,
House Minority Leader, House of Representatives, Washington,
DC.
Dear Mr. Speaker and Minority Leader Pelosi: I am writing
on behalf of the Council of Institutional Investors
(Council), a nonprofit association of corporate, union, and
public pension funds, foundations, and endowments, with
combined assets that exceed $3 trillion. Most member funds
are major shareowner with a duty to protect the retirement
assets of millions of American workers. Significantly
affected by the financial crisis, Council member funds have a
strong interest in meaningful regulatory reform.
The purpose of this letter is to share with you the
Council's views on The Small Business Capital Access and Job
Preservation Act (H.R. 1105) that the House of
Representatives is scheduled to consider in open session
tomorrow, December 4, 2013. Our views are in part informed by
the findings of the Investors' Working Group (IWG). The IWG
was an independent nonpartisan commission of industry experts
sponsored in 2009 by the CFA Institute and the Council to
provide an investor perspective on ways to improve U.S.
financial system regulation. As you may be aware, many of the
IWG's findings and recommendations were adopted by the 111th
Congress during the development of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act).
The Council opposes the Small Business Capital Access and
Job Preservation Act. We strongly believe that all private
equity advisors available to U.S. investors should be subject
to oversight and registration with the Securities and
Exchange Commission (SEC), and we concur with SEC Chairman
White's letter to the House Financial Services Committee
leadership in that ``our markets would not be well-served''
by such a decrease in the SEC's authority.
Private equity funds play a significant role in the economy
as a source of capital, as an investment vehicle, and as a
growing job provider. However, prior to the Dodd-Frank Act
many private equity fund advisors operated unchecked--exempt
from regulation, compliance examinations, disclosure
requirements, and unencumbered by leverage limits.
By requiring private equity fund advisors to register with
the SEC and abide by disclosure requirements, the Dodd-Frank
Act adds a meaningful layer of protection for investors.
Registration ensures that investors have access to basic
information about the adviser's compensation, disciplinary
history, and investment strategies; it safeguards against the
possibility for an advisor's conflict of interest; it ensures
that advisers establish formal compliance programs and act in
the best interests of their clients; and it allows the SEC to
collect data and examine advisers for compliance weaknesses
and potential fraud. By eliminating the registration and
reporting requirements on private fund advisors, H.R. 1105
would deny investors in private equity funds these important
protections, and it would restrict the SEC from garnering
regulatory information critical for assessing systemic risk
in a comprehensive manner.
Furthermore, H.R. 1105 does not define what constitutes a
``private equity fund,'' but instead requires the SEC to
develop specific parameters for an otherwise ambiguous asset
class within a mere six months of passage. We believe it may
be imprudent to exempt a broad asset class without first
understanding the boundaries of such an exemption, especially
considering the notion widely held by many industry experts
that ``there is no fundamental legal distinction between
private equity funds, hedge funds and venture capital funds .
. . there is no telling how broad or narrow [the SEC's]
definition will be.''
Finally, we note that the Dodd-Frank Act also creates a
special exemption from SEC registration for venture capital
funds under $150 million. H.R. 1105 attempts to create a
similar exemption for private equity funds, yet the Bill
fails to include size limits akin to those in place for
venture capital funds. It is similarly imprudent to exempt
large private equity funds from the protections typically
afforded to investors via SEC registration.
Thank you for considering our members' views in connection
with this critical financial regulatory issue. We look
forward to continuing to work with you to restore confidence
in our economy by improving the transparency and oversight of
the U.S. financial system.
If you have any questions, or would like additional
information regarding our views please feel free to contact
me. Additionally, General Counsel Jeff Mahoney is available.
Sincerely,
Jordan Lofaro.
____
North American Securities
Administrators Association, Inc.,
Washington, DC, December 4, 2013.
Re The Small Business Capital Access and Job Preservation Act
(H.R. 1105).
Hon. John Boehner,
Speaker, House of Representatives, The Capitol, Washington,
DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives, The Capitol,
Washington, DC.
Dear Speaker Boehner and Leader Pelosi: On behalf of the
North American Securities Administrators Association (NASAA),
I'm writing to reiterate concerns the association previously
expressed regarding H.R. 1105, the ``Small Business Capital
Access and Job Preservation Act,'' which the House is
scheduled to consider later this week.
Prior to enactment of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), investment advisers
to private funds with fewer than 15 clients were not required
to register with the U.S. Securities and Exchange Commission
(SEC) and precious little was known about the capital market
activities of these funds and other shadow banking actors.
Title IV of the Dodd-Frank Act closed this regulatory gap
by requiring nearly all advisers to private funds with more
than $150 million in regulatory assets under management
(RAUM) within the United States to register with the SEC.
Advisers to private funds with less than $150 million in RAUM
were exempted from SEC registration but required to report
basic data and risk metrics on a confidential basis. The SEC
finalized the rules to implement the registration and
reporting requirements in November 2011 and, for the two
years since, advisers to private funds have been subject to
the regulatory oversight of the SEC.
Private fund advisers wishing to return to the shadows of
the unregulated financial services industry have argued that
the new registration and reporting requirements are
burdensome and provide little benefit in monitoring systemic
risk within our financial markets. While any regulation
entails some measure of cost, the costs in this context are
specifically scaled to the size of the adviser-limited, basic
disclosure on the Form ADV for exempt reporting advisers and
scaled-down disclosure on the Form PF for certain registered
private equity fund advisers. Only private fund advisers
managing at least a billion dollars in specific asset class
funds are required to complete the more detailed sections of
Form PF. For those large firms handling billions of dollars,
which is the case for approximately a third of all private
equity funds, cost arguments become specious at best.
In terms of systemic risk, private equity fund advisers
reported managing approximately $1.6 trillion as of May 2013.
While individual fund outcomes are not expected to cause
catastrophic loss, most would agree the market as a whole is
sizeable enough to warrant some oversight. Those in doubt
should consider a number of recent SEC enforcement actions
that illustrate the kinds of misconduct that were occurring
in the unregulated private equity space prior to the SEC
oversight before taking any steps to cloak that market in
darkness once more.
Investor confidence in our markets is strengthened through
prudent regulations that bring transparency to the
marketplace and promote accountability. Any concerns
regarding the structure or costs associated with the SEC's
regulation of advisers to private equity firms is best
addressed to the SEC in rulemaking that can adjust the
reporting, registration, and examination requirements
accordingly.
For the reasons advanced previously and set forth above, we
respectfully urge you to oppose H.R. 1105 in its present
form. Should you have any questions, please feel free to
contact me or Michael Canning, NASAA's Director of Policy.
Sincerely,
Russ Iuculano,
NASAA Executive Director.
____
Statement of Administration Policy
H.R. 1105--Small Business Capital Access and Job Preservation Act
(Rep. Hurt, R-VA, and 12 cosponsors, Dec. 3, 2013)
The Administration strongly opposes passage of H.R. 1105,
which would amend the Investment Advisers Act of 1940 to
exempt nearly all private equity fund advisers from
registration. The legislation effectively provides a blanket
registration and reporting
[[Page H7480]]
exemption for private equity funds, undermining advances in
investor protection and regulatory oversight implemented by
the Securities and Exchange Commission (SEC) under Title IV
of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Wall Street Reform).
The Administration is committed to building a safer, more
stable financial system. H.R. 1105 represents a step
backwards from the progress made to date, given that private
equity fund advisers have been filing reports with the SEC
for over a year. The bill's passage would deny investors
access to important information intended to increase
transparency and accountability and to minimize conflicts of
interest. Moreover, H.R. 1105 would exempt private equity
funds from the disclosure requirements that the Congress laid
out in Wall Street Reform to allow regulators to assess
potential systemic risks.
Private equity funds are already subject to less stringent
reporting requirements compared to other types of private
funds and to an annual, rather than quarterly, filing
requirement. In addition, private fund advisers with under
$150 million in assets under management are exempted from
registration and subject only to recordkeeping and reporting
requirements.
If the President were presented with H.R. 1105, his senior
advisors would recommend that he veto the bill.
Mr. HENSARLING. Mr. Speaker, I am very pleased now to yield 1 minute
to the gentleman from Tennessee (Mr. Fincher).
Mr. FINCHER. I thank the chairman for yielding.
Mr. Speaker, strong job creation is the foundation for a healthy
economy, while overregulation kills jobs. Private equity provides much-
needed capital and better investment returns to pension plans,
university endowments, charitable foundations, and other investors than
if they simply deposited their money in a bank. The various forms of
capital provided by private equity in our economy result in more
resources for companies to operate their firms, expand their
facilities, and create more jobs.
H.R. 1105, sponsored by my good friend from Virginia (Mr. Hurt),
would help expand private equity by relieving certain advisers' private
equity funds from the burdensome and unnecessary process of registering
with the SEC. This bill would simply allow advisers and private equity
firms to do what they do best: invest in promising companies in order
to help them expand and create more jobs.
Let's support job growth in this country by voting in favor of H.R.
1105.
Mr. LYNCH. Mr. Speaker, could I ask how much time remains on each
side.
The SPEAKER pro tempore. The gentleman from Massachusetts has 7\3/4\
minutes remaining, and the gentleman from Texas has 7\1/2\ minutes
remaining.
Mr. LYNCH. I yield 2 minutes to the gentlelady from New York (Mrs.
Maloney).
Mrs. CAROLYN B. MALONEY of New York. I thank the gentleman for
yielding.
Mr. Speaker, I would like to remind my colleagues that we are still
recovering from a massive financial crisis that cost this country $16
trillion, and I would venture to say that we should be more focused on
protecting investors, not removing investor protections. And I would
say that all investors deserve to be protected--sophisticated
investors, retail investors, pension investors. All investors should be
protected, which is why the Obama administration has come out so
strongly in opposition to the underlying bill and why the Securities
and Exchange Commission, whose mission is to protect investors, is so
adamantly, strongly opposed to this bill.
Now, I am sympathetic to the point that my colleagues have raised on
the other side of the aisle and on this side of the aisle that some of
the reporting and registration requirements are onerous. So let's
address that. Let's direct the SEC to come forward with simplified
forms, to do it quickly, within 6 months. Let's save money. Let's
simplify the process. But let's not remove important investors'
protections, such as the fiduciary duty to act in the client's best
interest. What is wrong with that? I think that is a moral
responsibility, such as the obligation to disclose conflicts of
interest.
Now, that is not onerous. How difficult is it to say, yes or no, I
have not had any conflict of interest? Or if you are advising your
client to invest in your business, then disclose your conflict of
interest. What is so onerous about that? That is not onerous. That is
easy.
And what is wrong with the obligation to disclose fees? Everyone
talks about transparency. That is why we are opposing this bill. We
want it to be transparent, and we want to protect investors.
The SPEAKER pro tempore. The time of the gentlewoman has expired.
Mr. LYNCH. I yield the gentlewoman an additional 1 minute.
Mrs. CAROLYN B. MALONEY of New York. I feel that there are many ways
that we could address this that would come forward with a strong piece
of legislation that President Obama could sign into law. Instead, he
has got a lot of ink in his veto pen, and he has said right out front
that he would veto this bill.
Now, if they want to simplify disclosure and registration
requirements, then let's do that. Let's require the SEC to come forward
with it. Let's simplify the process and save the cost for small
businesses. We want to save that cost.
Honest private equity firms have grown jobs in this country, and it
is important to grow jobs. It is important to support them in every
single way. But removing all investor protections, according to the
Obama administration, would literally assault the safety and soundness
and the strong financial security that we are trying to build in this
country.
What is wrong with protecting investors? That is what we are saying.
I have an amendment which would do just that, protect the investors but
simplify the forms and maintain the cost.
If their goal is to save money for the small firms, then let's do
that, but let's not erase very important investor protections in the
process.
Mr. HENSARLING. Mr. Speaker, I yield myself 1 minute.
Again, I want to address the gentleman from Massachusetts who, again,
I believe, sets up a straw man only to knock it down.
I would urge all Members to actually read the bill. I know that many
of my Democratic colleagues now have buyer's remorse from not reading
the 2,000-page ObamaCare bill, but, Mr. Speaker, this is a two-page
bill, 36 lines.
And I would say to my friend, the gentleman from Massachusetts, that
on page 2, that the SEC can ``require investment advisers described in
paragraph (1) to maintain such records and provide to the Commission
such annual or other reports as the Commission taking into account fund
size, governance, investment strategy, risk, and other factors, as the
Commission determines necessary.''
So to make the assertion that these records of foul play could never
exist is simply not true.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. HENSARLING. I yield myself an additional 30 seconds.
I would say to my friend, the gentlelady from New York who made the
assertion that the SEC is opposed to this bill, that the SEC has not
opposed this bill. One member, Mary Jo White, has issued an opinion
that she does not support the legislation, but the SEC has taken no
official position.
With respect to a threatened veto, I don't recall that when my
Democratic colleagues had the majority here that they refused to pass
bills simply because President Bush threatened to veto. But I must
admit, our committee has produced, I believe it is, at least 10 or 11
bipartisan bills which all received veto threats from a President who
says he wants to work on a bipartisan basis. This is most regrettable.
Mr. LYNCH. I yield myself 2 minutes.
Mr. Speaker, I would now like to enter into the Record statements
from the following organizations which all oppose H.R. 1105: the AFL-
CIO, California Public Employees' Retirement System, and North American
Securities Administrators Association.
And regarding reading the bill, I certainly did read the bill, and my
point is that the bill does not require public disclosure of those
matters, as the gentleman points out. It just goes to the Commission.
So it doesn't go to the public. The public doesn't get the information.
It stays within the custody of the Commission.
Mr. HENSARLING. Will the gentleman yield?
Mr. LYNCH. I yield to the gentleman from Texas.
Mr. HENSARLING. By definition, it is private equity. It is not a
public fund.
[[Page H7481]]
Mr. LYNCH. Reclaiming my time, that is right. But those are public
investors. They are the ones that need the information.
Mr. Speaker, I yield the balance of my time to the gentlelady from
California (Ms. Waters), our ranking member and a real champion of
America's working families.
Legislative Proposals to Relieve the Red Tape Burden on Investors and
Job Creators
United States House of Representatives Committee on Financial Services
Subcommittee on Capital Markets and Government Sponsored Enterprises
(Statement of Anne Simpson Senior Portfolio Manager, Investments
Director of Global Governance California Public Employees' Retirement
System, May 23, 2013)
Chairman Garrett, Ranking Member Maloney, and Members of
the Committee, on behalf of the California Public Employees'
Retirement System (CalPERS), we thank you for convening this
hearing. CalPERS is pleased to submit testimony for the
record to reassert our strong support for efficient and
effective financial regulation, as enacted by the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``Dodd-
Frank'').
This statement includes a brief overview of CalPERS,
including how we benefit from effective financial markets
regulation and the role that shareowner rights and corporate
governance play in building investor confidence. It also
includes a discussion of our views on HR 1135, HR 1105, and
HR 1564.
Some Background on CalPERS
CalPERS is the largest public pension fund in the United
States with approximately $266 billion in global assets and
equity holdings in over 9,000 companies. CalPERS pays out
over $14 billion annually in retirement benefits to more than
1.6 million public employees, retirees, their families and
beneficiaries. This is not only an important source of daily
income for those individuals; it also provides a positive
economic multiplier to the local economy. We fully understand
the virtuous circle between savings, investment and economic
growth. That is at the heart of the CalPERS agenda.
As a significant institutional investor with a long-term
investment time horizon, CalPERS fundamentally relies upon
the integrity and efficiency of the capital markets. For
every dollar that we pay in benefits to our members, 64 cents
are generated by investment returns. The financial crisis hit
us hard with $70 billion wiped from CalPERS assets. While we
are pleased that we have been able to recover these losses
over the last several years, we simply cannot afford another
drawdown on our fund.
We rely upon the safety and soundness of capital markets,
and more broadly, sustainable economic growth, to provide the
long term returns that allow us to meet our liabilities.
However, there is still much to be done to bring about smart
regulation.
In our view, smart regulation should be structured as
follows:
First, regulation needs to be complete and coordinated.
Innovation in financial markets has led to the development of
new financial instruments and pools. Regulation needs to keep
pace with financial innovation and the attendant risks in
order to be relevant. (Derivatives are an example of that
innovation, but it is innovation that has been outside the
reach of regulation historically.)
Second, regulation needs to allow market players to
exercise their proper role and responsibilities. Capitalism
was designed to allow the providers of finance a market role
in allocating investment, and then holding boards accountable
for their stewardship of those funds. This is why shareowner
rights are vital to the functioning of markets, including the
ability of investors to propose candidates to boards of
directors (known in short as `proxy access') and to remove
directors who fail.
Third, regulation needs to ensure transparency, so that
markets can play their vital role in pricing risk. Timely,
relevant and reliable information is the currency of risk
management. Those agencies which have a role in channeling
that information need to be fit for that purpose. (Credit
ratings agencies were found wanting in this regard.)
Fourth, regulation needs to address conflicts of interest
and perverse incentives which can undermine the market's
ability to allocate capital effectively. (Short term, risk-
free compensation for executives has fueled poor decision
taking, as one example of this).
Fifth, regulation needs to ensure it does not prevent
institutional investors from financing legitimate strategies,
and taking advantage of new opportunities. Regulation is not
there to prevent risk taking, it is there to ensure that
risks are disclosed, and can be managed.
Finally, regulation needs to be proportionate. For CalPERS,
we balance the additional costs that are required with the
potential for financial ruin. To those who question whether
we can afford to invest in smart regulation, we reply, how
can we afford not to? The financial crisis dealt a crippling
blow to many investors, and the underlying sub-prime mortgage
scandal triggered widespread loss for ordinary people
throughout the country. The devastating impact on the real
economy is still with us. The costs of regulation need to be
weighed against this loss.
We see smart regulation as an investment in safety and
soundness of financial markets which generate the vast bulk
of the returns to our fund. Smart regulation is an investment
in the effective functioning of capital markets, which is
critical not just to our fund, but to the recovery of the
wider economy.
H.R. 1135
It is widely acknowledged that the 2008 financial crisis
represented a massive failure of oversight. Too many CEOs
pursued excessively risky strategies or investments that
bankrupted their companies or weakened them financially for
years to come. Boards of directors were often complacent,
failing to challenge or rein in reckless senior executives
who threw caution to the wind. And too many boards approved
executive compensation plans that rewarded excessive risk
taking.
Accountability is critical to motivating people to do a
better job in any organization or activity. An effective
board of directors can help every business understand and
control its risks, thereby encouraging safety and stability
in our financial system and reducing the pressure on
regulators, who, even if adequately funded, will be unlikely
to find and correct every problem. Unfortunately, long-
standing inadequacies in investor protection have limited
shareowners' ability to hold boards accountable.
Fortunately, Dodd-Frank contains a number of reforms that
when fully implemented and effectively enforced will provide
long-term investors like CalPERS with better tools, including
better information, to hold directors more accountable going
forward. These included a provision that requires additional
disclosure involving the ratio between the CEO's total
compensation and the median total compensation for all the
other company employees. To be clear, section 953(b) as
currently enacted is unartful and its critics properly
identify a number of potential ambiguities. However, we
strongly support the spirit of the disclosure and believe
that the SEC has the regulatory flexibility to provide
companies with guidance on how to comply with this section.
However, if Congress believes the SEC is unable to
implement section 953(b) as currently written, we would
encourage Congress to amend the section and retain the
requirement. HR 1135 seeks only to repeal this requirement
and for the reasons discussed above, we would strongly
discourage the committee from advancing this bill.
H.R. 1105
Prior to the enactment of Dodd-Frank, we testified that the
fundamental risk posed by private pools of capital is that
they can choose to operate outside the regulatory structure
of the United States. CalPERS Chief Investment Officer Joe
Dear warned the Senate Securities Subcommittee of the overall
risks to the financial system ``when these entities operate
in the shadows of the financial system'' and when
``regulatory authorities lack basic information about
exposures, leverage ratios, counterparty risks and other
information.'' Less than three years after the enactment of
Dodd-Frank, these risks have been mitigated by the
requirement for private fund advisors to register and be
subject to reasonable regulation.
Although HR 1105 would only exempt funds with low leverage
ratios, it would constitute a large step away from the
comprehensive regulation of market participants that Dodd-
Frank sought to impose. Dodd-Frank has already provided small
private fund advisors an exemption to registration and
regulation, and we believe it is therefore unnecessary for
large, albeit unleveraged, fund advisors.
H.R. 1564
The issues surrounding auditor independence and audit firm
rotation are of great importance to CalPERS.
Clearly, auditors play a vital role in the integrity of
financial reporting and the efficiency of the capital
markets. As a long-term investor, and a strong advocate of
reform we believe independence of an auditor is critical to
investor confidence and the stability and effective
functioning of the capital markets. It is the important role
of auditors that brings standardization and discipline to
corporate accounting which in turn enhances investor
confidence.
CalPERS Global Principles of Accountable Corporate
Governance (Principles) highlight the importance of auditor
independence requiring audit committees to assess the
independence of their external auditor on an annual basis.
Also, as part of the engagement we recommend that audit
committees require written disclosure from the external
auditor of:
all relationships between the registered public accounting
firm or any affiliates of the firm and the potential audit
clients or persons in a financial reporting oversight role
that may have a bearing on independence;
the potential effects of these relationships on the
independence in both appearance and fact of the registered
public accounting firm; and
the substance of the registered accounting firm's
discussion with the audit committee.
CalPERS expressly supported mandatory rotation in the wake
of the scandals which led to the Sarbanes-Oxley Act of 2002.
CalPERS communicated its view to the European Parliament
Committee on Legal Affairs, that ``mandatory auditor rotation
is an effective means of increasing auditor independence''.
CalPERS Principles state that
[[Page H7482]]
``Audit Committees should promote the rotation of the auditor
to ensure a fresh perspective and review of the financial
reporting framework.''
We believe that audit committees should endorse expanding
the pool of auditors for the annual audit to help improve
market competition and minimize the concentration of audit
firms from which to engage for audit services. We support
audit committees having the ability to determine audit
independence by requiring auditors to provide 3 prior years
of activities, relationships and services (including tax
services) with the company, affiliate of the company and
persons in financial reporting oversight roles that may
impact the independence of the audit firm.
Additionally, we would note that the Public Company
Accounting Oversight Board's (PCAOB) Investor Advisory Group
(IAG), of which I am a member, urged the agency to consider
firm rotation in the context of lessons learned from the
financial crisis. The PCAOB IAG indicated that the purpose of
an audit is to provide confidence to investors that an
independent set of eyes have looked at the numbers reported
by management and objectively without bias determined they
can indeed be relied upon. If investors' confidence in this
process is diminished or lost, the benefits of the audit and
its costs may be questioned.
Over the last two years, the PCAOB has thoughtfully
reviewed auditor independence and mandatory rotation, holding
a series of roundtables on the issues. We note the issue of
mandatory rotation has been addressed by the European
Commission (EC). The EC has voted to draft law to open up the
European Union audit services market and improve audit
quality and transparency including mandatory rotation of the
auditor whereby an auditor may inspect a company's books for
a maximum of 14 years. We believe that it is essential and
beneficial for the PCAOB to collaborate with non-U.S.
regulators and standard-setters on this matter.
Ultimately, we believe that audit committees are in the
best position to select the auditor. However, we are strong
supporters of the PCAOB and have faith in their thoughtful
approach to the regulation of the audit profession. If they
ultimately conclude that mandatory rotation is appropriate,
we will support this judgment consistent with our support for
the position taken by the EC. Accordingly, because HR 1564
would eliminate the PCAOB's discretion in this area, we
cannot support the measure.
Regulatory Agency Funding
Finally, although the hearing has not focused directly on
the funding for the SEC, we would be remiss if we didn't
highlight the vital role of the SEC and PCAOB in fostering
capital formation and protecting investors in financial
markets. CalPERS has long recognized that for financial
regulators to achieve their stated objectives, they must be
well-managed, well-staffed and that means they must be well-
funded. Rules without enforcement are little better than
useless. In 2001, CalPERS testified in support of legislation
that would put SEC staff salaries on par with other financial
regulators and was pleased that pay-parity provisions were
enacted into law that year. More recently, we called for
lawmakers to provide the SEC and U.S. Commodity Futures
Trading Commission (CFTC) with stable, independent funding.
Although no such mechanisms were included in Dodd-Frank, it
remains imperative that the SEC and CFTC be given sufficient
resources to effectively police the U.S. capital and futures
markets.
We believe the SEC FY2014 funding request reflects the
importance of their traditional core responsibility, as well
as the new authority granted it in Dodd-Frank, and we urge
you to support their funding requests.
Thank you in advance for considering the views of a long-
term investor like CalPERS when you decide on how to proceed
with these important issues.
____
North American Securities
Administrators Association, Inc.,
Washington, DC, June 18, 2013.
Re H.R. 1105, the Small Business Capital and Job Preservation
Act.
Hon. Jeb Hensarling,
Chairman, House Committee on Financial Services, Rayburn
House Office Building, Washington DC.
Hon. Maxine Waters,
Ranking Member, House Committee on Financial Services,
Rayburn House Office Building, Washington DC.
Dear Chairman Hensarling and Ranking Member Waters: On
behalf of the North American Securities Administrators
Association (NASAA), I'm writing to express concerns with
H.R. 1105, the Small Business Capital and Job Preservation
Act. NASAA appreciates and shares the desire of the Committee
to facilitate job creation. Investor confidence in our
markets is strengthened through efforts that are designed to
bring transparency to the marketplace and promote
accountability. Unfortunately, H.R. 1105 could frustrate this
goal by establishing an exemption from the registration
requirements in federal law designed to promote transparency
and accountability. Moreover, while NASAA considers the
inclusion of fund leverage limits in the bill to be an
improvement, we believe Congress would be remiss to ignore
the question of the size of funds, in terms of assets, in
making determinations about which private equity firms should
be subject to the registration exemption.
The Dodd-Frank Act provided exemptions for advisers who
solely advise ``venture capital funds'' as defined by the SEC
and for advisers who solely advise private funds and have
assets under management in the United States of less than
$150 million; however, in each case such exempted advisers
remain subject to SEC recordkeeping and reporting
requirements. H.R. 1105 would insert an additional exemption
for private equity fund advisers from registration or
reporting requirements. Unlike the exemptions contained in
Dodd-Frank, H.R. 1105 does not limit the exemption to
advisers solely to private funds nor does it contain a cap
that would limit the exemption to smaller advisers.
Furthermore, at least two fundamental components of the
proposed legislation are so vague that they undermine any
benefits the bill purports to confer on small business.
First, the bill is unclear as to what, if any, reporting
requirements are required for private equity fund advisers.
Section 2 provides that an adviser to a ``private equity
fund,'' regardless of assets under management, would be
exempt from both registration and reporting requirements.
This proposed exemption from all registration and reporting
requirements would seem to run contrary to the basic and
obvious interest of investors in private equity funds, since
registration under the Investment Advisers Act serves to
protect investors from conflicts of interest and other risks
associated with entrusting their assets to advisers. The
exemption would to have the unintended consequence of
depriving the SEC of important regulatory information
critical for assessing systemic risk and protecting
investors. The registration regimes long in place for
advisers, and recently the reporting regimes established
under Dodd-Frank for certain private fund advisers, are
designed to help insure that regulators and investors have
access to important information. The inclusion of fund
leverage limits in the bill attenuate NASAA's concerns with
respect to systemic risk, and we understand that private
equity funds were not a catalyst of the financial crisis of
2008; however, this information is nevertheless critical to
regulators and investors alike. Specifically, regulators use
the information to measure risk and assess compliance;
investors use the information to guide choices in picking
advisers and understanding their operations.
Second, even if the language in H. R. 1105 were clarified,
the legislation would remain significantly ambiguous as to
the type and size of adviser to which it would apply. This is
because the legislation does not define ``private equity
fund'' but rather delegates this task to the SEC, which would
be given six months to promulgate rules necessary to
establish the record keeping and reporting obligations of
these advisers. Though the bill appears to treat advisers to
``private equity funds'' similar to advisers to venture
capital funds for the purposes of exemption, it fails to
include the limits currently applicable to the exemption for
advisers to venture capital funds. Without more specificity
and a clear definition of what constitutes a ``private equity
fund'', it is unknown what types of entities are covered by
the exemption. This is problematic because without statutory
clarification of the universe of ``private equity,'' any
assessment of risk to financial stability posed by such
capital investment would be invalid. Moreover, it seems
unwise to establish an exemption before defining what is
covered by the exemption; as AFL-CIO Policy Director Damon
Silver testified to the Committee on May 23rd:
``There is no fundamental legal distinction between private
equity funds, hedge funds and venture capital funds. These
are terms that describe broad investment strategies, not
legal structures. So the bill directs the SEC to define what
a private equity fund is. And there is no telling how broad
or narrow, or gameable, such a definition will be.''
Moreover, the enactment of the JOBS Act and the removal of
the long-standing prohibition on general solicitation and
advertising in Regulation D, Rule 506 offerings reinforces
NASAA's belief that, as a general matter, the risk to
investors and regulators that would accompany the exemptions
contemplated by H.R. 1105 far exceed the bill's potential
benefits as a tool for capital formation and job creation.
Thank you for your consideration of these concerns. We look
forward to working with you as these bills move through the
legislative process. If you have questions, or if NASAA can
be of assistance, please contact me or Michael Canning,
NASAA's Director of Policy.
Sincerely,
A. Heath Abshure,
NASAA President and
Arkansas Securities Commissioner.
____
American Federation of Labor and Congress of Industrial
Organizations,
Washington, DC, June 19, 2013.
LEGISLATIVE ALERT
Hon. Jeb Hensarling,
Chairman, House Financial Services Committee, Rayburn House
Office Building, Washington, DC.
Hon. Maxine Waters,
Ranking Minority Member, House Financial Services Committee,
Rayburn House Office Building, Washington, DC.
Dear Chairman Hensarling and Ranking Minority Member
Waters: The AFL-CIO, a labor federation of 57 unions
representing 12 million working men and women with over
[[Page H7483]]
$4 trillion in assets in benefit plans, opposes the Small
Business Capital Access and Job Preservation Act (H.R. 1105);
the Burdensome Data Collection Relief Act (H.R. 1135); the
Audit Integrity and Job Protection Act (H.R. 1564); and the
Retail Investor Protection Act (H.R. 2374) scheduled for
markup in committee this week. The AFL-CIO testified in May
before this Committee in opposition to these bills and we
reiterate, in brief, below our continued opposition. This
package of bills is a clear indication that some in Congress
have every intention to take us down the road of
deregulation, yet again.
Since 1980, the United States has gone through several
cycles of financial deregulation. The first of these episodes
led to the savings and loan fiasco of the early 1990's, the
second to the tech bubble collapse in 2000 and the wave of
corporate scandals and bankruptcies that began with Enron in
2001. And the third, and by far the most devastating, was the
residential real estate bubble driven by a deregulated
banking sector through the use of mortgage backed securities,
and the subsequent collapse of that bubble starting in 2007.
Surely members of the Committee don't want to be associated
with arguably the next and fourth devastating round of
deregulation.
``The Small Business Capital Access and Job Preservation Act.'' (H.R.
1105)
Despite its title, H.R. 1105 has nothing to do with small
business and everything to do with ensuring some of the
richest and most powerful, and most tax subsidized, Wall
Street firms are allowed to continue to operate, and build up
system-wide leverage, in secret. Specifically, H.R. 1105
would exempt all private equity fund advisers from the
registration and reporting requirements in the Dodd-Frank
Act, unless each fund has outstanding borrowings that exceed
two times the fund's invested capital commitments.
The impact of H.R. 1105 would be to prevent the SEC from
collecting the information necessary to monitor a significant
source of systemic risk. Section 404 of the Dodd-Frank Act
gave the Securities and Exchange Commission (SEC) authority
to establish recordkeeping and reporting requirements ``as
necessary and appropriate in the public interest and for the
protection of investors, or for the assessment of systemic
risk by the Financial Stability Oversight Council. H.R. 1105
would exempt private equity funds from this recordkeeping and
reporting framework and direct the SEC to replace it with one
that omits consideration of potential systemic risks and is
exclusively for use by the SEC. The AFL-CIO continues to
oppose any bill that weakens investor protections and
increases systemic risk.
``The Burdensome Data Collection Relief Act'' (H.R. 1135)
H.R. 1135 seeks to keep secret the relationship between CEO
pay and the median pay of other employees at public
companies, by repealing section 953(b) of the Dodd-Frank Act,
which requires such disclosure. It is a bill designed to hide
material information from investors and boards which
ultimately becomes detrimental in efforts to fight income
inequality.
Investors have long had multiple concerns about CEO pay--
starting with the raw numbers that come out of investors'
'pockets. Top executives at large public companies now keep
for themselves an average of 10% of their companies' net
profits, approximately double the rate in the early 1990s.
The disclosure requirements of 953(b) would help reveal the
true nature of disparities between CEO's and their employees
enabling investors and boards to also consider and take
action accordingly. As such, the AFL-CIO strongly opposes
H.R. 1135 and the repeal of 953(b) disclosure requirements.
``The Auditor Integrity and Job Protection Act.'' (H.R. 1564)
H.R. 1564 seeks to prevent the Public Company Accounting
Oversight Board (PCAOB) from placing limits on the length of
time a public company can use the same audit firm, referred
to as auditor rotation. H.R. 1564 amends Sarbanes-Oxley by
adding a limitation on PCAOB authority which states, ``The
Board shall have no authority under this title to require
that audits conducted for a particular issuer in accordance
with the standards set forth under this section be conducted
by specific auditors, or that such audits be conducted for an
issuer by different auditors on a rotating basis.''
H.R. 1564 both substantively weakens the ability of the
PCAOB to play its role in protecting our economy against
systemic risk, and it weakens the independence of auditor
regulation. Both results are contrary to the public interest,
and consequently the AFL-CIO opposes this bill.
``The Retail Investor Protection Act'' (H.R. 2374)
H.R. 2374 would require the SEC to identify whether the
different standards of conduct that apply to broker-dealers
and investment advisers result in harm to retail investors.
In addition, the bill requires the SEC's Chief Economist to
conduct a cost benefit analysis of such a change. make a
formal finding that the rule would reduce investor confusion,
and coordinate with other federal regulators. Finally, the
bill would prohibit the SEC from proposing rules applicable
to broker-dealers' standard of conduct without simultaneously
proposing rules that would ``address any harm to retail
customers resulting from differences in the registration,
supervision, and examination requirements applicable to
brokers, dealers, and investment advisers.''
H.R. 2374 suggests these changes despite the fact that the
SEC is currently collecting data to support an economic
analysis before any rulemaking is undertaken. The bill would
significantly delay and perhaps derail these long overdue
efforts of the SEC to raise the standard of conduct that
applies to brokers when they give advice to retail investors
and accordingly the AFL-CIO opposes H.R. 2374.
For the above reasons we urge you to vote against this
cluster of bills that seek to undo much needed reforms
enacted in the Dodd-Frank Act.
Sincerely,
William Samuel,
Director Government Affairs Department.
____
Consumer Federation of America,
June 18, 2013.
Hon. Jeb Hensarling,
Chairman, Financial Services Committee, House of
Representatives.
Hon. Maxine Waters,
Ranking Member, Financial Services Committee, House of
Representatives.
Dear Chairman Hensarling, Ranking Member Waters and Members
of the Committee: The Financial Services Committee is
scheduled to mark-up yet another set of bills this week that
would weaken investor protection and undermine the
transparency and integrity of our capital markets. I am
writing on behalf of the Consumer Federation of America to
urge you to oppose these bills. While CFA opposes each of the
bills scheduled for mark-up for reasons described briefly
below, our primary focus is the cynically titled ``Retail
Investor Protection Act,'' which would undermine the ability
of federal agencies to ensure that Americans receive
appropriate protections in their dealings with financial/
professionals who purport to offer investment advice.
Oppose Bill (H.R. 2374) to Undermine Protections for Vulnerable
Investors
H.R. 2374 launches a two-stage attack on federal
regulators' attempts to improve protections for average,
unsophisticated investors in their dealings with predatory
and self-dealing investment professionals. First, it would
throw new roadblocks in the way of the Securities and
Exchange Commission (SEC) as it attempts to close a gaping
regulatory loophole that permits broker-dealers to provide
investment ``advice'' to retail investors that is not
designed to serve the best interests of those investors.
Second, it would inappropriately tie the ability of the
Department of Labor (DOL) to update its fiduciary definition
under ERISA to the SEC's successful completion of its
separate rulemaking under the securities laws.
Over the years, brokers have been permitted to call
themselves financial advisers and offer extensive advisory
services without having to meet the best interest standard
included as part of the fiduciary duty that applies to all
other investment advisers. As a result, many investors are
deceived into believing they are dealing with a trusted
adviser when, in fact, they are dealing with a salesperson--a
salesperson, moreover, who is free to put his or her own
financial interests ahead of the interests of the investor
and often receives financial incentives to encourage such
practices. Investors who place their trust in these salesmen
in advisers' clothing can end up paying excessively high
costs for higher risk or poorly performing investments that
satisfy a suitability standard, but not a fiduciary duty.
That is money most middle income investors can ill afford to
waste.
This legislation would make it more difficult for the SEC
to address this problem by requiring further study of an
issue that has already been studied extensively. Indeed, the
SEC has been studying the issue of the standard of conduct
that should apply to brokers' investment advice for over a
decade. In the process, it has conducted focus group testing
of disclosures designed (without success) to clarify the
differing legal standards that apply to brokerage and
advisory accounts, commissioned a comprehensive independent
study intended to lay the foundation for further rulemaking,
and conducted a staff study of the issues to be addressed by
rulemaking. Over the years, the SEC has collected reams of
comment from all interested parties with a stake in the
issue, and it has recently issued an additional Request for
Information to form the basis of a thorough economic analysis
to accompany any rulemaking it might decide to undertake.
Clearly, the additional cost-benefit analysis requirements
in H.R. 2374 are not designed to address any shortcomings in
the SEC approach to economic analysis of this issue. Instead,
their primary effect would be to create additional grounds
for legal challenge by fringe industry groups that oppose any
rulemaking that might force them to abandon predatory
practices that allow them to profit at their customers'
expense. The best outcome, if this legislation were adopted,
would be further delay of a rule that is already years
overdue. More likely is that the legislation would inhibit
SEC rulemaking altogether or result in a rule so weak as to
be entirely devoid of meaningful. new protections for
investors. Middle income investors who need to make every
dollar count would be the ultimate victims of these
bureaucratic games.
But retail investors would not be the only victims of this
legislation. Working Americans attempting to prepare for a
secure retirement would also be denied appropriate
protections, perhaps indefinitely. Loopholes
[[Page H7484]]
in the definition of investment advice under ERISA make DOL's
fiduciary standard all but unenforceable. This bill would
prevent DOL from acting to address that problem until after
the SEC completes an entirely separate fiduciary rulemaking
under the securities laws. It would impede DOL action despite
repeated assurances that the SEC and DOL are coordinating
their efforts and that any rules adopted will not conflict.
DOL has responded to criticism of its original approach by
withdrawing that proposal in order to conduct a thorough
economic analysis, redraft the proposal, and clarify how the
revised definition would interact with prohibited transaction
exemptions. DOL deserves to have the resulting reproposal
judged on its merits, not halted based on unsubstantiated
fears about the form that rulemaking might take. For all
these reasons, we urge you to vote NO on H.R. 2374.
Oppose Anti-Investor Bills to Undermine Market Transparency and
Integrity
The Committee is also scheduled to mark up three other
bills, each of which would in its own way undermine market
transparency and integrity.
H.R. 1564, the ``Audit Integrity and Job Protection Act,''
would prevent the Public Company Accounting Oversight Board
(PCAOB) from adopting a rule to require rotation of auditors
at public companies even if it determines, based on a
thorough review of the evidence, that doing so is necessary
to address the persistent lack of independence and
professional skepticism in the audits of public companies.
The PCAOB has not yet decided on a regulatory approach and is
instead engaged in carefully weighing the evidence. In
contrast to the PCAOB's balanced and thoughtful approach,
this legislation would decide the issue without any
consideration of the evidence on audit failures tied to lack
of auditor independence, a problem that has been highlighted
by regulators both here and abroad. We urge you to protect
the independence of the PCAOB and the audit process by voting
NO on H.R. 1564.
H.R. 1105, the Small Business Capital Access and Job
Preservation Act, would exempt a large swath of ``private
equity'' funds from registration with the SEC without showing
any reason why such an exemption is necessary or appropriate.
The bill would leave it to the agency to define the scope of
funds that might qualify for the exemption, setting up an
inevitable regulatory race to the bottom as funds pressure
the agency to write as expansive an exemption as possible. As
such, the bill would limit the ability of the agency to
provide effective oversight of a portion of the securities
business with a proven capacity to spread risk through the
financial system. We urge you to vote NO on H.R. 1105, which
would undermine efforts to protect the financial system from
systemic threats.
H.R. 1135, the ``Burdensome Data Collection Relief Act,''
would undermine market transparency by denying investors
information about the relationship between CEO and worker pay
at the companies in which they invest. Not only would this
bill hide material information from the owners of public
companies, but it would also undermine efforts to rein in
out-of-control CEO pay. Opposition to this disclosure is
clearly based not on any excessive costs or insurmountable
burdens associated with making the disclosure, but on the
fact that the information is likely to be embarrassing to
many companies and could provide the impetus for reform. We
urge you to stand up for market transparency and economic
equality by voting NO on H.R. 1135.
Taken together, these bills would reduce oversight of
potentially risky market segments (H.R. 1105), tie the hands
of regulators seeking to address a persistent market failure
(H.R. 1564), deprive investors of information that could
provide a check on excessive CEO pay (H.R. 1135), and impede
the ability of federal regulators to act to protect
unsophisticated investors from predatory industry practices
(H.R. 2374). We urge you to vote NO on each of these bills.
Thank you for your attention to our concerns. You may contact
me if you have any questions about our position on the
issues.
Respectfully submitted,
Barbara Roper,
Director of Investor Protection.
____
United States Securities
and Exchange Commission,
Washington, DC, June 18, 2013.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services, House of
Representatives, Rayburn House Office Building,
Washington, DC.
Hon. Maxine Waters,
Ranking Member, Committee on Financial Services, House of
Representatives, Rayburn House Office Building,
Washington, DC.
Dear Chairman Hensarling and Ranking Member Waters: I
understand that the House Committee on Financial Services is
scheduled this week to consider several bills pending before
it, including H.R. 1105 and H.R. 2374. I write to briefly
express my views on these two bills. The views expressed in
this letter are my own and do not necessarily reflect the
views of the full Commission or any Commissioner.
The Small Business Capital Access and Job Preservation Act
(H.R. 1105) would amend the Investment Advisers Act of 1940
(Investment Advisers Act) to generally exempt investment
advisers to private equity funds from the registration
requirements of the Investment Advisers Act, unless such
funds have borrowed and have outstanding principal amounts in
excess of twice their invested capital commitments. The
Retail Investor Protection Act (H.R. 2374) would impose new
restrictions on the Commission's ability to adopt a uniform
fiduciary standard of conduct for investment advisers and
broker-dealers.
registration of private equity advisers
Regarding H.R. 1105, registration under the Investment
Advisers Act serves to protect investors from conflicts of
interest and other risks associated with investors'
entrusting their assets to advisers. Title IV of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) mandated that advisers to private equity funds
with assets under management above $150 million register with
the Commission. Although private equity funds were not an
underlying cause of the recent financial crisis, private
equity fund advisers represent a significant and influential
part of the financial landscape. In my view, our markets
would not be well-served by narrowing the scope of the
Commission's jurisdiction and oversight of these advisers.
Private equity fund investors are in need of the same
protections as other private fund investors. As with other
types of funds and advisers, the Commission has brought
enforcement actions against private equity funds and their
advisory personnel involving unlawful pay to play schemes,
insider trading, conflicts of interest, valuation, and
misappropriation of assets. Registration provides the
Commission with tools to discover and prevent fraud and other
violations of the securities laws, enhancing confidence in
our capital markets and promoting fair dealing. It is
important, therefore, that the Commission, as a capital
markets regulator, have an appropriate level of oversight of
these entities, for both investor protection and market
efficiency purposes.
Beyond this, to base exemptions from registration on
investment strategy or leverage would result in the
securities laws generally favoring or disfavoring particular
strategies, which should be avoided when the objective is a
fair and level playing field.
Uniform fiduciary standard of conduct
Section 913 of the Dodd-Frank Act added new express
authority for the Commission to adopt a uniform fiduciary
standard of conduct and to consider other potential options
for the harmonization of the regulation of broker-dealers and
investment advisers. Although there are differing views on
this issue, many investor advocates and industry participants
support the establishment of a uniform fiduciary standard of
conduct. The new restrictions on the Commission's authority
that would be imposed under H.R. 2374, however, would make it
difficult for the Commission to adopt such a rule should it
determine to do so.
The Commission has pursued the consideration of possible
rulemaking under section 913 with care and diligence. Section
913 required the Commission to conduct a study regarding
obligations of broker-dealers and investment advisers. That
study, published in 2011, contained two primary
recommendations from Commission staff--one in favor of a
uniform fiduciary standard of conduct and another calling for
enhanced harmonization of the regulatory requirements for
broker-dealers and investment advisers. Following publication
of the study, Commissioners and Commission staff have met
with relevant parties and maintained an open dialogue with
those interested in these issues. To further its review, the
Commission in March 2013 published a request for additional
data and other information, in particular quantitative data
and economic analysis. Any rulemaking under section 913 would
include a rigorous economic analysis.
If, after such fact-finding and deliberations, the
Commission should determine to propose a uniform fiduciary
standard of conduct, H.R. 2374 would layer on new statutory
requirements for the Commission to satisfy before finalizing
any such rules, which could impede this investor-focused
initiative in what already has been a multi-year process.
I hope that this information is helpful to you and to the
other members of the Committee. Please do not hesitate to
contact me or have your staff contact Tim Henseler, Acting
Director of the Office of Legislative and Intergovernmental
Affairs, if I can be of further assistance.
Sincerely,
Mary Jo White,
Chair.
Ms. WATERS. I thank the gentleman from Massachusetts for managing in
my absence.
Mr. Speaker, I am pleased to have the opportunity to come back to the
floor to add a few comments.
Prior to leaving, the chairman of this committee talked about this
being a job creation bill. He wrapped this bill in jobs creation. And I
must say that I don't think that the gentleman has much else he could
say about why they are trying to exempt all of these private equity
funds from registering with the SEC.
Wrapping it in this notion of they are creating all of these jobs and
we should all be very appreciative is one way to deflect attention from
the fact that here we have private equity funds. $180
[[Page H7485]]
million from the smaller private equity funds have been exempted
already. Those firms that have $180 million in those funds or less are
already exempted. That was done in the Dodd-Frank legislation. Now they
are coming back and they are saying exempt everybody.
What is it you are trying to hide? Why is it you do not want these
firms to register?
Well, first of all, they are registered at this point. The SEC is
given the oversight and the regulation that they need, and they are
finding that it is very important for them to do so because they are
finding that there are unlawful pay-to-play schemes, insider trading,
conflicts of interest, and misappropriations of assets, et cetera. That
is not to say that all private equity funds are doing these things, but
weeding out the bad actors is extremely important.
The SEC is our cop on the block. They are there to protect the
investors. This is their number one responsibility, and we want them to
do this. Just as you have CalPERS from California, which is against
this bill, they should be against this bill. They have the retirement
funds of policemen and firemen and all of the middle class people that
make up the basis of this economy.
Well, let me just add to the ones that were mentioned by my friend
from Massachusetts. We also have Americans for Financial Reform. We
also have the Consumer Federation and all of the State regulators who
are against this bill. And the President's advisers have said they are
recommending a veto.
What do you have to hide? Why don't you want registration? That is
the question that must be asked. That is the question that has really
not been answered.
Mr. Speaker and Members, I would ask for a ``no'' vote on this bill
because we endanger the investors that they claim they want to protect
because they claim they want them to produce all of these jobs, and
certainly that will never happen if we allow the kinds of situations to
continue to happen that were described in the discussion about Bain
Capital in the Presidential election debates.
Further, let me just say that we have worked very, very hard to try
to make sure that we have protection. That is the role of the SEC. And
again, they already have these registered private equity firms that
they are taking a look at, and they are learning things about them. And
this information will be used to make sure that we have the kind of
private equity funds that can do the kind of jobs that we want them to
do.
Yes, we appreciate investment. Yes, we want job creation. But why
should we have private equity funds that somehow have no oversight,
that don't have anybody scrutinizing what they are doing? Why is it we
don't want any regulatory agencies looking at them? That just doesn't
make good sense.
And I would say to my friends, you have to oppose this bill. There
will be an amendment coming up that was mentioned by the gentlewoman
from New York (Mrs. Maloney) that makes good sense. And if they had
gone to that simply as a way of trying to help out in this area, they
could have gotten a lot of support, but they have stepped way over the
line when they say no oversight, no scrutiny by the SEC or anybody
else.
The SPEAKER pro tempore. The time of the gentlewoman has expired.
{time} 1545
Mr. HENSARLING. Mr. Speaker, I am very happy to yield 2 minutes to
the gentleman from New Jersey (Mr. Garrett), a coauthor of the
legislation and the chairman of our Capital Markets and GSE
Subcommittee.
Mr. GARRETT. I thank the chairman for yielding.
Mr. Speaker, let's step back for a moment and just see where we may
agree on certain points.
I guess at the 30,000-foot level we agree on the fact that we want to
work together on legislation that will try to prevent the next
financial crisis. We agree that we want to try to protect investors.
It is after that level, however, when we get into the details that we
disagree.
As far as protecting and trying to make sure the next financial
crisis does not occur, there has been no evidence either today on the
floor or in the committee process during the discussion of this debate
or in any of the debates when we discussed Dodd-Frank that the origin
of the last financial crisis was from private equity. No evidence. Or
from hedge funds. No evidence. Or from venture capital. No evidence
whatever. So to say that we need to have extensive, overbearing,
overlapping, extraneous regulation on private equity to prevent the
next one, they have no evidence to say that was the cause in the past.
We say, just as the gentleman from Connecticut said before, venture
capital is excluded from it. Why not private equity as well? And that
is why we have come together in a bipartisan manner to make sure the
next crisis doesn't occur in an area such as this.
In the second area, the point was made as far as the cost. The
gentleman from Massachusetts said, Well, we're talking about the larger
funds here. If he was at the hearing last night in the Rules Committee,
he would have heard one of his colleagues, Mr. Polis from Colorado,
refute that point.
Why is that? This is what he said. When you are talking about firms,
$150 million, $200 million sounds like large firms, right? But that is
just how much money is under management. The actual money they are
actually spending in the company is just a fraction of it. A little
tiny fraction, as he pointed out. It is around 2 percent.
So if you are talking about a $150 million fund under management, it
sounds big. Actually, that is around a $3 million business. And now you
are asking that $3 million business to have to pay upwards of half a
million dollars each year for all their compliance costs and the
examination, which goes to the last point by the gentlelady from New
York.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. HENSARLING. I yield the gentleman an additional 30 seconds.
Mr. GARRETT. We would love to try to find some common ground on her
amendment, but her amendment simply goes to the first point and the
initial filing of the forms and what have you. After that, there is the
extraneous additional examinations and all the other costs that are so
overly burdensome that we have found both in a bipartisan manner, as
Mr. Himes from Connecticut has already pointed out, is overly
burdensome and unnecessary.
If there was some other way to pull this together in a bipartisan
manner more so than we have already done, I would do so, but I am glad
that the gentleman from Virginia and also the gentleman from
Connecticut have been able to come together on all the points to come
to a final bill in a bipartisan manner. And I support the legislation.
Mr. HENSARLING. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, listening to some of my colleagues on the other side of
the aisle, it is hard not to conclude that some of them have never met
a regulation that they didn't like, regardless of what it does to the
hopes, dreams, and aspirations of the unemployed and underemployed in
America.
As I look over your chair, Mr. Speaker, and see the words, ``In God
We Trust,'' I sometimes question whether some Members would like to
take down the word ``God'' and replace it with ``regulators'': In
Regulators We Trust.
The question has never been, Mr. Speaker, the question between
regulation and deregulation. The question is between smart regulation
and dumb regulation; and in order to make that determination, one needs
to see what cost is being imposed, again, on the hopes and dreams and
aspirations of the unemployed and the underemployed.
Why does this underlying regulation need to be there in the first
place? Is it systemic risk? Well, even the chairman of the SEC has
admitted that private equity played no role in the financial crisis.
We know in terms of the economy, private equity may represent
somewhere on the order of 1.5 to 2 percent of GDP. There is no evidence
of interconnectedness, which many maintain is at the root of systemic
risk.
So what are they trying to protect? Well, investor protection. This
is all about giving additional protection to millionaire investors at
the expense of single moms trying to make ends meet. I am not really
sure that meets the test of smart regulation.
[[Page H7486]]
We know already that private equity fund advisers are subject, as
they well should be, to the antifraud provisions of the Investment
Advisers Act of 1940, whether they are registered or not. Fund
offerings are subject to the antifraud provisions of the Securities Act
of 1933. The SEC still has the ability to ensure that proper
documentation is maintained.
No, we do not want to see any investor, regardless of sophistication
or income, be subject to coercion or fraud. But, at the same time, we
don't want to deny small businesses--the job engine in America--the
funding they need to put America back to work.
There are many companies today that we recognize--Dunkin' Donuts,
Baskin-Robbins, Petco, Skype, J.Crew--that all have benefited from
private equity. Where would the tens of thousands, if not hundreds of
thousands, of jobs they represent be today if private equity had to
face yet another burden that is going to cost these small investment
firms half a million dollars, a million dollars?
Today, we haven't really heard that much about company likes Entrust
or Universal Smart Comp, but maybe they are tomorrow's Petco or
tomorrow's Toys ``R'' Us.
And so it really comes down to this, Mr. Speaker, again: Are there
going to be additional protections for multimillionaire investors, or
are there going to be additional protections and opportunities for
unemployed single moms trying to make ends meet?
Our side of the aisle said, Let's help the single mom. Let's pass
H.R. 1105, and put America back to work.
I yield back the balance of my time.
Mr. STUTZMAN. Mr. Speaker, I rise today in support of H.R. 1105, the
Small Business Capital Access and Job Preservation Act. Washington
can't regulate its way to the top while red tape puts American jobs at
risk.
Too often big-government builds barriers to success but men and women
in the real economy know how to get the job done. In nearly every
sector of our economy, thousands of companies are backed by private
equity and employ millions of hardworking Americans.
Unfortunately, Dodd-Frank places unnecessary and burdensome
regulations on private firms that invest hundreds of billions of
dollars each year to open doors for new opportunities. Instead of
creating jobs, these requirements increase costs, divert capital, and
consume time.
Private equity is critical to a strong recovery and works best when
advisers look ahead for new opportunities, not when they're constantly
forced to worry about red tape. Today, we have an opportunity to reduce
Dodd-Frank's unfair burdens on responsible investment advisors.
It's time to pass this common-sense legislation and unleash new
opportunities for job growth.
I thank my colleague Representative Hurt for his work on this issue
and Chairman Hensarling for his leadership. I urge my colleagues to
vote yes.
Mr. VAN HOLLEN. Mr. Speaker, today's legislation would amend the
Investment Advisors Act of 1940 to generally exempt private equity fund
investment advisors from its registration and reporting requirements,
subject to certain conditions.
Proponents of this legislation argue that private equity funds were
not the source of systemic risk during the most recent financial crisis
and therefore that their investment advisors should not be subject to
registration and reporting requirements under current law. While
private equity funds can play an important role in capital formation,
and I would agree that private equity funds were not the principal
source of systemic risk during the last financial crisis, that does not
mean it would be impossible for private equity firms to become a source
of systemic risk at some point in the future.
Moreover, as Securities and Exchange Commission Chair Mary Jo White
has pointed out, registration and reporting requirements are not used
solely for systemic risk prevention. Just as importantly, they are also
used for investor protection. In that regard, it is worth noting that
the SEC has brought enforcement actions against unscrupulous private
equity funds involving unlawful pay to play schemes, insider trading,
conflicts of interest, valuation issues and misappropriation of assets.
This investor protection function will become even more important once
the SEC finalizes implementation of a provision in the recently enacted
Jumpstart Our Business Startups (JOBS) Act permitting the general
solicitation and advertising of private equity funds and private
securities.
For these reasons, I will be opposing this bill.
The SPEAKER pro tempore. All time for debate has expired.
Amendment No. 1 Printed in Part B of House Report 113-283 Offered by
Mrs. Carolyn B. Maloney of New York
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I have an amendment
at the desk.
The SPEAKER pro tempore. The Clerk will designate the amendment.
The text of the amendment is as follows:
Page 1, strike line 10 and all that follows through page 2,
line 17, and insert the following:
``(o) Simplified Registration and Disclosure for Small
Private Equity Fund Advisers.--
``(1) In general.--Subject to paragraph (2), the Commission
shall promulgate rules providing for a simplified procedure
for registration and disclosure under this section for any
investment adviser acting as an investment adviser to a
private equity fund or funds that, in the aggregate, have
assets under management in the United States of between
$150,000,000 and $1,000,000,000.
``(2) Tailored application.--The rules promulgated under
paragraph (1) shall take into account compliance costs, fund
size, governance, and any other factors that the Commission
determines necessary.
``(3) Private equity fund defined.--Not later than 6 months
after the date of enactment of this subsection, the
Commission shall issue final rules to define the term
`private equity fund' for purposes of this subsection.''.
The SPEAKER pro tempore. Pursuant to House Resolution 429, the
gentlewoman from New York (Mrs. Carolyn B. Maloney) and a Member
opposed each will control 5 minutes.
The Chair recognizes the gentlewoman from New York.
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I first want to
commend the chairman and the ranking member for their hard and
dedicated work on the Financial Services Committee.
I would also like to commend the vice-chairman, Congressman Hurt, for
his work on this bill. I agree with him that private equity funds did
not cause the financial crisis.
I also agree that many private equity funds--and especially the small
private equity funds that invest in middle-market businesses--support
jobs across our country. I also agree that for many small equity funds,
the cost of complying with every single requirement in the Investment
Advisers Act can be burdensome and costly.
However, while I share the goal of reducing unnecessary regulatory
burdens on small private equity funds with under $1 billion in assets,
I believe that there are better ways to accomplish this goal to reduce
the burden, to reduce costs without eliminating important investor
protections.
I would say that we should have equality in this country--and
equality of treatment for everyone, including investors. If you are a
small investor, a large investor, a teacher, an unemployed worker, and
you have invested, whoever you are, you should have protections. Aren't
we a country of laws and equality of treatment? So my amendment would
direct the SEC to create a simplified disclosure form for fund advisers
between $150 million and $1 billion, while also retaining important
investor protections.
We would reduce the burden, reduce the reporting, reduce the
disclosure, simplify the forms, make it easier, but protect the
fiduciary duty to act in a client's best interest. Isn't that the
moral, right thing to do?
There is the obligation to disclose conflicts of interest and the
obligation to disclose fees. I thought we all supported transparency.
Well, let's have transparency in these investment funds, too.
I would ask my colleagues on the other side of the aisle who are
objecting to this amendment how much of a burden is it to disclose
whether or not you have a conflict of interest. You just have to check
yes or no, I have a conflict of interest. Then maybe you have to
disclose what that conflict is. But that is the fair and right thing to
do.
How burdensome is it to disclose fees? Tell people what you are
charging them. And how burdensome is it to have the necessary fiduciary
duty to act in the client's best interest? Most people think that you
are acting in their best interest. I think they would be horrified to
know that some Members of this body want to roll back that protection
for them.
I would also like to note that in August the SEC did provide relief
for
[[Page H7487]]
smaller private equity funds from what the industry tells me is one of
the most burdensome aspects of registration--the so-called custody
rule--which requires that the funds use independent custodians for
stocks that don't even trade. So private equity funds have already
gotten relief, and I applaud the SEC for this commonsense decision.
The reforms in my amendment would build on this relief and would
direct the SEC to act quickly on simplified forms--within 6 months--and
save these small businesses money so that money can go out into the
community.
The underlying bill grants a complete exemption to private equity
fund advisers with under 2 to 1 leverage, which is pretty much the
entire industry, because the funds themselves are not leveraged. It is
the companies the funds invest in that are leveraged.
The underlying bill is opposed by the Securities and Exchange
Commission, whose prime mission is to protect investors, and by
President Obama's administration. He has even threatened a veto.
If the problem is the high cost of registry at the SEC and preparing
the required disclosures, then the solution is to simplify the
registration and disclosures for small equity funds. That is what my
bill does. But it also protects investors.
It does not exempt the entire industry from investor protection,
which is what the underlying bill does, and I do not believe that that
is the intent of my colleagues on either side of the aisle.
So my amendment accomplishes the express goal of saving money and
simplifying, but protects the integrity of our financial system and
investors.
I urge everyone to support my amendment, and I yield back the balance
of my time.
Mr. HENSARLING. Mr. Speaker, I rise in opposition to the amendment.
The SPEAKER pro tempore. The gentleman from Texas is recognized for 5
minutes.
Mr. HENSARLING. I yield myself such time as I may consume.
Mr. Speaker, the amendment, regardless of how well-intentioned it may
be, functionally guts the bill and is essentially redundant of current
law in Dodd-Frank.
And I grant the gentlelady, who is a very senior and thoughtful
member of our committee, that her provision is perhaps more articulate
than the underlying law, but section 408(n) of Dodd-Frank already says:
In prescribing regulations to carry out the requirements of
this section with respect to investment advisers acting as
investment advisers to mid-sized private funds, the
Commission shall take into account the size, governance,
investment strategy of such funds.
It goes on to say:
The Commission shall provide for registration and
examination procedures with respect to the investment
advisers of such funds which reflect the level of systemic
risk.
So, again, it is essentially redundant of what is already in current
law.
According to the Private Equity Growth Council, on average it is
taking $1.8 million for the initial Dodd-Frank compliance cost and an
additional $1.3 million each year in Dodd-Frank compliance costs. All
for what? We already have underlying investor protections in place.
There is no evidence presented whatsoever that this has anything to
do with systemic risk, all at the cost of jobs, at a time when, again,
Mr. Speaker, tens of millions of our countrymen are struggling. They
are underemployed, unemployed.
{time} 1600
Again, who are we going to help? Are we going to help regulators? Are
we going to help millionaire investors? Are we going to help struggling
Americans trying to pay the bills? We should oppose this amendment, Mr.
Speaker.
At this time, I would be very happy to yield 2 minutes to the
gentleman from Virginia (Mr. Hurt), again, the author of H.R. 1105.
Mr. HURT. I thank the chairman.
Mr. Speaker, I rise in opposition to the gentlelady's amendment.
I appreciate her work and interest on this important issue; but with
all due respect, this amendment would defeat the entire purpose of the
bill.
If adopted, all advisers to private equity who are currently
undergoing the burdensome and unnecessary registration process would
still be required to do so. Additionally, it would establish an
entirely subjective, so-called ``simplified'' compliance standard that
would have to be defined by the Securities and Exchange Commission.
There is no reason to believe that such a so-called simplified standard
would provide any meaningful relief for those private equity companies
investing in small companies across this country.
As has been stated, small and mid-sized private equity firms are
expending hundreds of thousands of dollars in annual compliance costs
and would still have to be registered with the SEC. Instead of
addressing this problem, this amendment, if adopted, would continue to
restrict the ability of small and mid-sized private equity firms to
invest in small businesses.
As Members of both parties have pointed out, there are not persuasive
arguments that private equity generates systemic risk; and, indeed, to
the extent that leverage at the fund level could potentially trigger
such risk, we have already adopted a standard proposed by Mr. Himes in
committee that would require registration for advisers to firms with
leverage that exceeds 2 to 1.
I know that the gentlelady understands that access to private capital
is the lifeblood for small business. The current SEC registration
requirements are unnecessary. They produce a significant burden on
private equity firms and, therefore, restrict the flow of private
capital to small businesses across the country.
I urge this body to defeat this amendment and to vote in favor of the
underlying bill.
Mr. HENSARLING. Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore. The gentleman from Texas has 1\1/2\ minutes
remaining.
Mr. HENSARLING. I yield myself the balance of my time.
Mr. Speaker, again, historically, private equity has invested in tens
of thousands of small businesses, and it has helped create millions of
jobs in America.
The question today is: Are we going to put a roadblock in place of
private equity--the small business investment engines--so that we can
somehow help regulators?
With all due respect to our regulators--and there are many good ones
and many great ones at the SEC--I have never met a regulator who turned
down the opportunity to regulate more. I have never met him.
So the question is: Are we going to grant an even greater ability to
take funds away from small businesses to create a work product that
doesn't meet the commonsense test, the jobs test, the smell test--or
any other test--at a time when people are still suffering and wondering
how are they going to put gas in the tank; how are they going to take
their kids to school; how are they going to afford their health care
bills since, clearly, they cannot keep their health insurance even if
they want to.
How are they going to do this?
We need private equity to fund small business to get America back to
work. We need to defeat this amendment. We need to pass the underlying
bill. It is time to be pro-jobs.
With that, Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. All time for debate has expired.
Pursuant to the rule, the previous question is ordered on the bill,
as amended, and on the amendment offered by the gentlewoman from New
York (Mrs. Carolyn B. Maloney).
The question is on the amendment by the gentlewoman from New York
(Mrs. Carolyn B. Maloney).
The question was taken; and the Speaker pro tempore announced that
the noes appeared to have it.
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, on that I demand
the yeas and nays.
The yeas and nays were ordered.
The vote was taken by electronic device, and there were--yeas 186,
nays 225, not voting 20, as follows:
[Roll No. 620]
YEAS--186
Andrews
Barber
Bass
Beatty
Becerra
Bera (CA)
Bishop (NY)
Blumenauer
Bonamici
Brady (PA)
Braley (IA)
Brown (FL)
Brownley (CA)
Bustos
Butterfield
Capps
Capuano
Cardenas
Carney
Carson (IN)
Cartwright
Castor (FL)
Castro (TX)
Chu
Cicilline
Clarke
Clay
[[Page H7488]]
Cleaver
Clyburn
Cohen
Connolly
Conyers
Courtney
Crowley
Cummings
Davis (CA)
Davis, Danny
DeFazio
DeGette
Delaney
DeLauro
DelBene
Deutch
Dingell
Doggett
Doyle
Duckworth
Edwards
Ellison
Engel
Eshoo
Esty
Farr
Fattah
Foster
Frankel (FL)
Fudge
Gabbard
Gallego
Garamendi
Garcia
Gibson
Green, Al
Green, Gene
Grijalva
Gutierrez
Hahn
Hanabusa
Hastings (FL)
Heck (WA)
Higgins
Himes
Hinojosa
Holt
Honda
Horsford
Hoyer
Huffman
Israel
Jackson Lee
Jeffries
Johnson (GA)
Johnson, E. B.
Jones
Kaptur
Keating
Kelly (IL)
Kennedy
Kildee
Kilmer
Kind
Kirkpatrick
Kuster
Langevin
Larsen (WA)
Larson (CT)
Lee (CA)
Levin
Lewis
Lipinski
Loebsack
Lofgren
Lowenthal
Lowey
Lujan Grisham (NM)
Lujan, Ben Ray (NM)
Lynch
Maffei
Maloney, Carolyn
Maloney, Sean
Matsui
McCollum
McDermott
McGovern
McNerney
Meeks
Meng
Michaud
Miller, George
Moore
Moran
Murphy (FL)
Nadler
Napolitano
Neal
Negrete McLeod
Nolan
O'Rourke
Owens
Pallone
Pascrell
Pastor (AZ)
Payne
Pelosi
Perlmutter
Peters (CA)
Peters (MI)
Pingree (ME)
Pocan
Price (NC)
Quigley
Rahall
Rangel
Richmond
Roybal-Allard
Ruiz
Ruppersberger
Ryan (OH)
Sanchez, Linda T.
Sanchez, Loretta
Sarbanes
Schakowsky
Schiff
Schneider
Schwartz
Scott (VA)
Scott, David
Serrano
Sewell (AL)
Shea-Porter
Sherman
Sinema
Slaughter
Smith (WA)
Speier
Swalwell (CA)
Takano
Thompson (CA)
Thompson (MS)
Tierney
Titus
Tonko
Tsongas
Van Hollen
Veasey
Vela
Velazquez
Visclosky
Walz
Wasserman Schultz
Waters
Watt
Waxman
Welch
Wilson (FL)
Yarmuth
NAYS--225
Aderholt
Amash
Amodei
Bachmann
Bachus
Barletta
Barr
Barrow (GA)
Barton
Benishek
Bentivolio
Bilirakis
Bishop (UT)
Black
Blackburn
Boustany
Brady (TX)
Bridenstine
Brooks (AL)
Brooks (IN)
Broun (GA)
Buchanan
Bucshon
Burgess
Calvert
Camp
Capito
Carter
Cassidy
Chabot
Chaffetz
Coble
Coffman
Cole
Collins (GA)
Collins (NY)
Conaway
Cook
Cooper
Costa
Cotton
Crawford
Crenshaw
Cuellar
Daines
Davis, Rodney
Denham
Dent
DeSantis
DesJarlais
Diaz-Balart
Duffy
Duncan (SC)
Duncan (TN)
Ellmers
Farenthold
Fincher
Fitzpatrick
Fleischmann
Fleming
Flores
Forbes
Fortenberry
Foxx
Franks (AZ)
Frelinghuysen
Gardner
Garrett
Gerlach
Gibbs
Gohmert
Goodlatte
Gosar
Gowdy
Granger
Graves (GA)
Griffin (AR)
Griffith (VA)
Grimm
Guthrie
Hall
Hanna
Harper
Harris
Hartzler
Hastings (WA)
Heck (NV)
Hensarling
Holding
Hudson
Huelskamp
Huizenga (MI)
Hultgren
Hunter
Hurt
Issa
Jenkins
Johnson (OH)
Johnson, Sam
Jordan
Joyce
Kelly (PA)
King (IA)
King (NY)
Kingston
Kinzinger (IL)
Kline
Labrador
LaMalfa
Lamborn
Lance
Lankford
Latham
Latta
LoBiondo
Long
Lucas
Luetkemeyer
Marchant
Marino
Massie
Matheson
McAllister
McCarthy (CA)
McCaul
McClintock
McHenry
McIntyre
McKeon
McKinley
Meadows
Meehan
Messer
Mica
Miller (FL)
Miller (MI)
Mullin
Mulvaney
Murphy (PA)
Neugebauer
Noem
Nugent
Nunes
Nunnelee
Olson
Palazzo
Paulsen
Pearce
Perry
Peterson
Petri
Pittenger
Pitts
Poe (TX)
Polis
Pompeo
Posey
Price (GA)
Reichert
Renacci
Ribble
Rice (SC)
Rigell
Roby
Roe (TN)
Rogers (AL)
Rogers (KY)
Rogers (MI)
Rohrabacher
Rokita
Rooney
Ros-Lehtinen
Roskam
Ross
Rothfus
Royce
Runyan
Ryan (WI)
Salmon
Sanford
Scalise
Schock
Schrader
Schweikert
Scott, Austin
Sensenbrenner
Sessions
Shimkus
Shuster
Simpson
Smith (MO)
Smith (NE)
Smith (NJ)
Smith (TX)
Southerland
Stewart
Stivers
Stutzman
Terry
Thompson (PA)
Thornberry
Tiberi
Tipton
Turner
Upton
Valadao
Wagner
Walberg
Walden
Walorski
Weber (TX)
Webster (FL)
Wenstrup
Westmoreland
Whitfield
Williams
Wilson (SC)
Wittman
Wolf
Womack
Woodall
Yoder
Yoho
Young (AK)
Young (IN)
NOT VOTING--20
Bishop (GA)
Campbell
Cantor
Cramer
Culberson
Enyart
Gingrey (GA)
Graves (MO)
Grayson
Herrera Beutler
Lummis
McCarthy (NY)
McMorris Rodgers
Miller, Gary
Radel
Reed
Rush
Sires
Stockman
Vargas
{time} 1631
Messrs. NEUGEBAUER, GRIFFITH of Virginia, DUFFY, SAM JOHNSON of
Texas, HUELSKAMP, GRIFFIN of Arkansas, BACHUS, RYAN of Wisconsin, and
COSTA changed their vote from ``yea'' to ``nay.''
Mrs. CAPPS, Mr. McDERMOTT, Ms. SLAUGHTER, Messrs. ELLISON, RAHALL,
and KIND changed their vote from ``nay'' to ``yea.''
So the amendment was rejected.
The result of the vote was announced as above recorded.
The SPEAKER pro tempore (Mr. Heck of Nevada). The question is on the
engrossment and third reading of the bill.
The bill was ordered to be engrossed and read a third time, and was
read the third time.
Motion to Recommit
Mr. HORSFORD. Mr. Speaker, I have a motion to recommit at the desk.
The SPEAKER pro tempore. Is the gentleman opposed to the bill?
Mr. HORSFORD. I am opposed in its current form.
The SPEAKER pro tempore. The Clerk will report the motion to
recommit.
The Clerk read as follows:
Mr. Horsford moves to recommit the bill H.R. 1105 to the
Committee on Financial Services with instructions to report
the same back to the House forthwith with the following
amendment:
Page 2, line 17, strike the quotation marks and final
period and insert after such line the following:
``(3) Protecting american jobs.--The exemption described
under paragraph (1) shall only apply to an investment adviser
providing investment advice to a fund that--
``(A) does not own a controlling interest in a company that
outsources American jobs to other countries; and
``(B) publicly reports on a quarterly basis the number of
jobs eliminated at each company owned and controlled by the
fund.''.
Mr. HURT (during the reading). Mr. Speaker, I ask unanimous consent
that the reading of the motion be dispensed with.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Virginia?
There was no objection.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Nevada is recognized for 5 minutes in support of his motion.
Mr. HORSFORD. Mr. Speaker, this is the final amendment to the bill
which will not kill the bill or send it back to committee. If adopted,
the bill will immediately proceed to final passage, as amended.
The underlying bill would exempt almost every private equity fund
from registration and reporting requirements under Dodd-Frank. It is
another attempt by House Republicans to turn back the clock on progress
that we have made to make sure Wall Street is helping Main Street.
This bill, despite being titled the Small Business Capital Access and
Job Preservation Act, has nothing to do with small business or creating
jobs, and everything to do with chipping away at the safeguards put in
place when Congress passed financial sector reform.
Wall Street reform has made the financial system more transparent,
reduced risk, and protected against systemic failure. Private equity
fund advisers have been filing reports with the SEC for over a year
now. We shouldn't be trying to gut the system of accountability and
oversight, we should be building it up. We should be working together
to make the reforms work and make them stronger.
H.R. 1105 would roll back the progress by providing blanket
registration and reporting exemptions, seriously hampering oversight.
The motion to recommit I am offering would amend the underlying bill
so that investment funds are only eligible if they do not own a
controlling interest in companies that outsource American jobs to other
countries. We would also require reporting about any downsizing at each
company owned and controlled by the fund.
Instead of decreasing transparency by Wall Street, we should be
demanding greater public disclosure to protect consumers. We should not
be encouraging outsourcing of American jobs overseas. We should be
incentivizing companies to keep jobs right here in America, or to bring
them back. And we should not be encouraging downsizing or the
elimination of jobs, but incentivizing companies to hire employees and
to get the American public back to work.
Now, when I go home to my district in Nevada and meet with
constituents, they want to know what Congress is doing to create jobs.
They aren't asking me to roll back reforms that make
[[Page H7489]]
financial markets more stable. They aren't asking me to make life
easier for Wall Street. They want this Congress focused on one street,
Main Street, and on creating middle class jobs to help grow the economy
and put Americans back to work.
And so it is telling that for this Congress, with so few legislative
days remaining in this year, we are focusing our precious time on
private equity fund advisers. This bill focuses the attention of
Congress on the policy desires of an elite group that is doing just
fine. They are asking for more secrecy. Why? That is not what we should
be spending our time on.
Instead of bringing an infrastructure bill to the floor that would
create middle class jobs, instead of passing comprehensive immigration
reform, Mr. Speaker, to fix our broken system and to grow the economy,
instead of passing workplace protections that prevent Americans from
being fired because of who they love, instead of working to reduce food
insecurity, instead of replacing the harmful sequester that is hurting
everything from military contractors to economic activity for all
Americans, instead of doing any of that, of doing what the American
people are demanding of this Congress, the House GOP, through H.R.
1105, are focusing their energy on gutting Wall Street reform.
So we have serious business that this body could be focused on,
business that many of our constituents on both sides of the aisle say
they want us to address. But, instead, we have H.R. 1105, a focus to
gut Wall Street reform; and it is a quiet, but concerted, effort to
once again turn back the clock on the American people. Not to mention,
the underlying bill is also a futile attempt because the President has
already said he would veto the legislation.
I urge my colleagues to vote ``yes'' on the motion to recommit and
for the House of Representatives to do the people's business, and I
yield back the balance of my time.
Mr. HURT. Mr. Speaker, I rise in opposition to the motion to
recommit.
The SPEAKER pro tempore. The gentleman from Virginia is recognized
for 5 minutes.
Mr. HURT. Mr. Speaker, with all due respect to the gentleman from
Nevada, the problem with his motion to recommit is that it would punish
a company like Vitamin Shoppe. Vitamin Shoppe is a leading U.S.-based
vitamin and supplements distributor. Earlier this year, Vitamin Shoppe
went global, opening its first international franchise in Panama City,
Panama. By partnering with a private equity fund, Vitamin Shoppe grew
its business from a Northeast-based specialty retailer to a national
chain, adding more than 400 stores and 2,500 new jobs.
With all due respect, this bill is not about overseas jobs. This bill
is not about Wall Street. This bill is about Main Street American jobs
to the tune of 7.5 million jobs working in 17,000 U.S. companies. This
bill is about encouraging private capital investment in those Main
Street jobs. This bill is about not adding $500,000 in compliance costs
to Main Street job creation.
To put this in perspective, I dare say, of every congressional
district represented on this floor, this bill is about a window
manufacturer in Rocky Mount, Virginia, in Virginia's Fifth District,
our district, which has operated there for the last 70 years. It has
provided good jobs in our community. It has provided jobs for
generations of people living in Franklin County, Virginia, and for
families who have worked there for generations. In the last 10-20 years
in Rocky Mount, Virginia, just like all across southside Virginia and
so many congressional districts across this country, we have seen hard
times because of the loss of thousands of manufacturing jobs. We have
seen over the last 10-20 years double digit unemployment.
{time} 1645
This window manufacturing plant was able to survive because of
private equity investment, and now that window manufacturing company
boasts 1,000 employees. Those jobs still exist today because of a
private equity investment.
Last night we had a meeting of the Rules Committee, and one member of
the committee asked a question. He said: If a big PE firm has to pay an
extra $500,000 for compliance costs, what is the big deal?
It seems to me that it would be better, perhaps, to ask that question
to an employee at that windows manufacturing firm in Rocky Mount. If
asked, I suspect he would say, you know: I have a good job. I love my
job. I work 60 hours a week to be able to pay my mortgage, to pay my
bills and take care of my family. He would say, Please, to all of you
in Washington, do everything that you can to make sure that 1 year from
now I still have my job and make sure that my neighbor has a job, too.
That is a big deal, and that is what this bill is about. I urge the
defeat of this motion to recommit, I urge the adoption of this good
jobs bill, and I ask for your vote for H.R. 1105.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. Without objection, the previous question is
ordered on the motion to recommit.
There was no objection.
The SPEAKER pro tempore. The question is on the motion to recommit.
The question was taken; and the Speaker pro tempore announced that
the noes appeared to have it.
Recorded Vote
Mr. HORSFORD. Mr. Speaker, I demand a recorded vote.
A recorded vote was ordered.
The SPEAKER pro tempore. Pursuant to clause 9 of rule XX, the Chair
will reduce to 5 minutes the minimum time for any electronic vote on
the question of passage.
The vote was taken by electronic device, and there were--ayes 185,
noes 227, not voting 19, as follows:
[Roll No. 621]
AYES--185
Andrews
Barber
Barrow (GA)
Bass
Beatty
Becerra
Bera (CA)
Bishop (NY)
Blumenauer
Bonamici
Brady (PA)
Braley (IA)
Brown (FL)
Brownley (CA)
Bustos
Butterfield
Capps
Capuano
Cardenas
Carney
Carson (IN)
Cartwright
Castor (FL)
Castro (TX)
Chu
Cicilline
Clarke
Clay
Cleaver
Clyburn
Cohen
Connolly
Conyers
Costa
Courtney
Crowley
Cuellar
Cummings
Davis (CA)
Davis, Danny
DeFazio
DeGette
DeLauro
DelBene
Deutch
Dingell
Doggett
Doyle
Duckworth
Duncan (TN)
Edwards
Ellison
Engel
Eshoo
Esty
Farr
Fattah
Frankel (FL)
Fudge
Gabbard
Gallego
Garcia
Green, Al
Green, Gene
Grijalva
Gutierrez
Hahn
Hanabusa
Hastings (FL)
Heck (WA)
Higgins
Hinojosa
Holt
Honda
Horsford
Hoyer
Huffman
Israel
Jackson Lee
Jeffries
Johnson (GA)
Johnson, E. B.
Jones
Kaptur
Keating
Kelly (IL)
Kennedy
Kildee
Kilmer
Kind
Kirkpatrick
Kuster
Langevin
Larsen (WA)
Larson (CT)
Lee (CA)
Levin
Lewis
Lipinski
Loebsack
Lofgren
Lowenthal
Lowey
Lujan Grisham (NM)
Lujan, Ben Ray (NM)
Lynch
Maloney, Carolyn
Maloney, Sean
Matsui
McCollum
McDermott
McGovern
McIntyre
McNerney
Meeks
Meng
Michaud
Miller, George
Moore
Moran
Nadler
Napolitano
Neal
Negrete McLeod
Nolan
O'Rourke
Owens
Pallone
Pascrell
Pastor (AZ)
Payne
Pelosi
Perlmutter
Peters (CA)
Peters (MI)
Pingree (ME)
Pocan
Price (NC)
Quigley
Rahall
Rangel
Richmond
Roybal-Allard
Ruiz
Ruppersberger
Ryan (OH)
Sanchez, Linda T.
Sanchez, Loretta
Sarbanes
Schakowsky
Schiff
Schneider
Schwartz
Scott (VA)
Scott, David
Serrano
Sewell (AL)
Shea-Porter
Sherman
Sinema
Slaughter
Smith (WA)
Speier
Swalwell (CA)
Takano
Thompson (CA)
Thompson (MS)
Tierney
Titus
Tonko
Tsongas
Van Hollen
Vargas
Veasey
Vela
Velazquez
Visclosky
Walz
Wasserman Schultz
Waters
Watt
Waxman
Welch
Wilson (FL)
Yarmuth
NOES--227
Aderholt
Amash
Amodei
Bachmann
Bachus
Barletta
Barr
Barton
Benishek
Bentivolio
Bilirakis
Bishop (UT)
Black
Blackburn
Boustany
Brady (TX)
Bridenstine
Brooks (AL)
Brooks (IN)
Broun (GA)
Buchanan
Bucshon
Burgess
Calvert
Camp
Capito
Carter
Cassidy
Chabot
Chaffetz
Coble
Coffman
Cole
Collins (GA)
Collins (NY)
Conaway
Cook
Cooper
Cotton
Cramer
Crawford
Crenshaw
Daines
Davis, Rodney
Delaney
Denham
Dent
DeSantis
DesJarlais
Diaz-Balart
Duffy
Duncan (SC)
Ellmers
Farenthold
Fincher
Fitzpatrick
Fleischmann
Fleming
Flores
Forbes
Fortenberry
Foster
Foxx
Franks (AZ)
Frelinghuysen
Garamendi
Gardner
Garrett
Gerlach
Gibbs
Gibson
Gohmert
Goodlatte
Gosar
Gowdy
Granger
Graves (GA)
Griffin (AR)
[[Page H7490]]
Griffith (VA)
Grimm
Guthrie
Hall
Hanna
Harper
Harris
Hartzler
Hastings (WA)
Heck (NV)
Hensarling
Himes
Holding
Hudson
Huelskamp
Huizenga (MI)
Hultgren
Hunter
Hurt
Issa
Jenkins
Johnson (OH)
Johnson, Sam
Jordan
Joyce
Kelly (PA)
King (IA)
King (NY)
Kingston
Kinzinger (IL)
Kline
Labrador
LaMalfa
Lamborn
Lance
Lankford
Latham
Latta
LoBiondo
Long
Lucas
Luetkemeyer
Maffei
Marchant
Marino
Massie
Matheson
McAllister
McCarthy (CA)
McCaul
McClintock
McHenry
McKeon
McKinley
Meadows
Meehan
Messer
Mica
Miller (FL)
Miller (MI)
Mullin
Mulvaney
Murphy (FL)
Murphy (PA)
Neugebauer
Noem
Nugent
Nunes
Nunnelee
Olson
Palazzo
Paulsen
Pearce
Perry
Peterson
Petri
Pittenger
Pitts
Poe (TX)
Polis
Pompeo
Posey
Price (GA)
Reichert
Renacci
Ribble
Rice (SC)
Rigell
Roby
Roe (TN)
Rogers (AL)
Rogers (KY)
Rogers (MI)
Rohrabacher
Rokita
Rooney
Ros-Lehtinen
Roskam
Ross
Rothfus
Royce
Runyan
Ryan (WI)
Salmon
Sanford
Scalise
Schock
Schrader
Schweikert
Scott, Austin
Sensenbrenner
Sessions
Shimkus
Shuster
Simpson
Smith (MO)
Smith (NE)
Smith (NJ)
Smith (TX)
Southerland
Stewart
Stivers
Stutzman
Terry
Thompson (PA)
Thornberry
Tiberi
Tipton
Turner
Upton
Valadao
Wagner
Walberg
Walden
Walorski
Weber (TX)
Wenstrup
Westmoreland
Whitfield
Williams
Wilson (SC)
Wittman
Wolf
Womack
Woodall
Yoder
Yoho
Young (AK)
Young (IN)
NOT VOTING--19
Bishop (GA)
Campbell
Cantor
Culberson
Enyart
Gingrey (GA)
Graves (MO)
Grayson
Herrera Beutler
Lummis
McCarthy (NY)
McMorris Rodgers
Miller, Gary
Radel
Reed
Rush
Sires
Stockman
Webster (FL)
{time} 1653
Mr. JONES changed his vote from ``no'' to ``aye.''
So the motion to recommit was rejected.
The result of the vote was announced as above recorded.
The SPEAKER pro tempore. The question is on the passage of the bill.
The question was taken; and the Speaker pro tempore announced that
the ayes appeared to have it.
Recorded Vote
Ms. WATERS. Mr. Speaker, I demand a recorded vote.
A recorded vote was ordered.
The SPEAKER pro tempore. This is a 5-minute vote.
The vote was taken by electronic device, and there were--ayes 254,
noes 159, not voting 18, as follows:
[Roll No. 622]
AYES--254
Aderholt
Amash
Amodei
Bachmann
Bachus
Barber
Barletta
Barr
Barrow (GA)
Barton
Benishek
Bentivolio
Bera (CA)
Bilirakis
Bishop (UT)
Black
Blackburn
Boustany
Brady (TX)
Bridenstine
Brooks (AL)
Brooks (IN)
Broun (GA)
Buchanan
Bucshon
Burgess
Butterfield
Calvert
Camp
Capito
Cardenas
Carney
Carter
Cassidy
Chabot
Chaffetz
Coble
Coffman
Cole
Collins (GA)
Collins (NY)
Conaway
Cook
Cooper
Costa
Cotton
Cramer
Crawford
Crenshaw
Cuellar
Daines
Davis, Rodney
Denham
Dent
DeSantis
DesJarlais
Diaz-Balart
Duckworth
Duffy
Duncan (SC)
Duncan (TN)
Ellmers
Esty
Farenthold
Fincher
Fitzpatrick
Fleischmann
Fleming
Flores
Forbes
Fortenberry
Foxx
Franks (AZ)
Frelinghuysen
Gallego
Garcia
Gardner
Garrett
Gerlach
Gibbs
Gibson
Gohmert
Goodlatte
Gosar
Gowdy
Granger
Graves (GA)
Griffin (AR)
Griffith (VA)
Grimm
Guthrie
Hall
Hanna
Harper
Harris
Hartzler
Hastings (WA)
Heck (NV)
Hensarling
Himes
Holding
Hudson
Huelskamp
Huizenga (MI)
Hultgren
Hunter
Hurt
Israel
Issa
Jackson Lee
Jenkins
Johnson (OH)
Johnson, Sam
Jordan
Joyce
Kelly (PA)
Kind
King (IA)
King (NY)
Kingston
Kinzinger (IL)
Kirkpatrick
Kline
Labrador
LaMalfa
Lamborn
Lance
Lankford
Latham
Latta
LoBiondo
Long
Lucas
Luetkemeyer
Maffei
Maloney, Sean
Marchant
Marino
Massie
Matheson
McAllister
McCarthy (CA)
McCaul
McClintock
McHenry
McIntyre
McKeon
McKinley
Meadows
Meehan
Meeks
Messer
Mica
Miller (FL)
Miller (MI)
Mullin
Mulvaney
Murphy (FL)
Murphy (PA)
Neugebauer
Noem
Nugent
Nunes
Nunnelee
Olson
Owens
Palazzo
Paulsen
Pearce
Perry
Peterson
Petri
Pittenger
Pitts
Poe (TX)
Polis
Pompeo
Posey
Price (GA)
Quigley
Rahall
Reichert
Renacci
Ribble
Rice (SC)
Rigell
Roby
Roe (TN)
Rogers (AL)
Rogers (KY)
Rogers (MI)
Rohrabacher
Rokita
Rooney
Ros-Lehtinen
Roskam
Ross
Rothfus
Royce
Ruiz
Runyan
Ryan (WI)
Salmon
Sanford
Scalise
Schneider
Schock
Schrader
Schweikert
Scott, Austin
Sensenbrenner
Sessions
Sewell (AL)
Shimkus
Shuster
Simpson
Sinema
Smith (MO)
Smith (NE)
Smith (NJ)
Smith (TX)
Southerland
Stewart
Stivers
Stutzman
Terry
Thompson (PA)
Thornberry
Tiberi
Tipton
Turner
Upton
Valadao
Vargas
Veasey
Wagner
Walberg
Walden
Walorski
Weber (TX)
Webster (FL)
Wenstrup
Westmoreland
Whitfield
Williams
Wilson (SC)
Wittman
Wolf
Womack
Woodall
Yoder
Yoho
Young (AK)
Young (IN)
NOES--159
Andrews
Bass
Beatty
Becerra
Bishop (NY)
Blumenauer
Bonamici
Brady (PA)
Braley (IA)
Brown (FL)
Brownley (CA)
Bustos
Capps
Capuano
Carson (IN)
Cartwright
Castor (FL)
Castro (TX)
Chu
Cicilline
Clarke
Clay
Cleaver
Clyburn
Cohen
Connolly
Conyers
Courtney
Crowley
Cummings
Davis (CA)
Davis, Danny
DeFazio
DeGette
Delaney
DeLauro
DelBene
Deutch
Dingell
Doggett
Doyle
Edwards
Ellison
Engel
Eshoo
Farr
Fattah
Foster
Frankel (FL)
Fudge
Gabbard
Garamendi
Green, Al
Green, Gene
Grijalva
Gutierrez
Hahn
Hanabusa
Hastings (FL)
Heck (WA)
Higgins
Hinojosa
Holt
Honda
Horsford
Hoyer
Huffman
Jeffries
Johnson (GA)
Johnson, E. B.
Jones
Kaptur
Keating
Kelly (IL)
Kennedy
Kildee
Kilmer
Kuster
Langevin
Larsen (WA)
Larson (CT)
Lee (CA)
Levin
Lewis
Lipinski
Loebsack
Lofgren
Lowenthal
Lowey
Lujan Grisham (NM)
Lujan, Ben Ray (NM)
Lynch
Maloney, Carolyn
Matsui
McCollum
McDermott
McGovern
McNerney
Meng
Michaud
Miller, George
Moore
Moran
Nadler
Napolitano
Neal
Negrete McLeod
Nolan
O'Rourke
Pallone
Pascrell
Pastor (AZ)
Payne
Pelosi
Perlmutter
Peters (CA)
Peters (MI)
Pingree (ME)
Pocan
Price (NC)
Rangel
Richmond
Roybal-Allard
Ruppersberger
Ryan (OH)
Sanchez, Linda T.
Sanchez, Loretta
Sarbanes
Schakowsky
Schiff
Schwartz
Scott (VA)
Scott, David
Serrano
Shea-Porter
Sherman
Slaughter
Smith (WA)
Speier
Swalwell (CA)
Takano
Thompson (CA)
Thompson (MS)
Tierney
Titus
Tonko
Tsongas
Van Hollen
Vela
Velazquez
Visclosky
Walz
Wasserman Schultz
Waters
Watt
Waxman
Welch
Wilson (FL)
Yarmuth
NOT VOTING--18
Bishop (GA)
Campbell
Cantor
Culberson
Enyart
Gingrey (GA)
Graves (MO)
Grayson
Herrera Beutler
Lummis
McCarthy (NY)
McMorris Rodgers
Miller, Gary
Radel
Reed
Rush
Sires
Stockman
{time} 1700
So the bill was passed.
The result of the vote was announced as above recorded.
A motion to reconsider was laid on the table.
personal explanation
Mr. GINGREY of Georgia. Mr. Speaker, on rollcall No. 620 on the
Maloney Amendment to H.R. 1105--the Small Business Capital Access and
Job Preservation Act, I am not recorded due to a death in the family.
Had I been present, I would have voted ``no.''
Mr. Speaker, on rollcall No. 621 on the Motion to Recommit to H.R.
1105--the Small Business Capital Access and Job Preservation Act--
offered by Mr. Horsford of Nevada, I am not recorded due to a death in
the family. Had I been present, I would have voted ``no.''
Mr. Speaker on rollcall No. 622 on Final Passage of H.R. 1105--the
Small Business Capital Access and Job Preservation Act, I am not
recorded due to a death in the family. Had I been present, I would have
voted ``yea.''
personal explanation
Mrs. McMORRIS RODGERS. Mr. Speaker, on rollcall No. 618 on Ordering
the Previous Question, H. Res. 429, A resolution providing for the
consideration of H.R. 1105--Small Business Capital Access and Jobs
Preservation Act and H.R. 3309--Innovation Act, I am not recorded
because I was absent due to the birth of my daughter. Had I been
present, I would have voted ``yea.''
Mr. Speaker, on rollcall No. 619 on Agreeing to the Resolution, H.
Res. 429, A resolution providing for the consideration of H.R. 1105--
Small Business Capital Access and Jobs Preservation Act and H.R. 3309--
Innovation Act, I am not recorded because I was absent due to the birth
of my daughter. Had I been present, I would have voted ``yea.''
[[Page H7491]]
Mr. Speaker, on rollcall No. 620 on H.R. 1105, on Agreeing to the
Amendment offered by Mrs. Maloney of New York, I am not recorded
because I was absent due to the birth of my daughter. Had I been
present, I would have voted ``nay.''
Mr. Speaker, on rollcall No. 621 on H.R. 1105, on Motion to Recommit
with Instructions, the Small Business Capital Access and Jobs
Preservation Act, I am not recorded because I was absent due to the
birth of my daughter. Had I been present, I would have voted ``nay.''
Mr. Speaker, on rollcall No. 622 on H.R. 1105, on Passage, the Small
Business Capital Access and Jobs Preservation Act, I am not recorded
because I was absent due to the birth of my daughter. Had I been
present, I would have voted ``yea.''
____________________