[Congressional Record Volume 161, Number 146 (Tuesday, October 6, 2015)]
[House]
[Pages H6805-H6808]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
REFORMING ACCESS FOR INVESTMENTS IN STARTUP ENTERPRISES ACT OF 2015
Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 1839) to amend the Securities Act of 1933 to exempt certain
transactions involving purchases by accredited investors, and for other
purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
[[Page H6806]]
H.R. 1839
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 ``Reforming Access for
Investments in Startup Enterprises Act of 2015'' or the
``RAISE Act of 2015''.
SEC. 2. EXEMPTED TRANSACTIONS.
(a) Exempted Transactions.--Section 4 of the Securities Act
of 1933 (15 U.S.C. 77d) is amended--
(1) in subsection (a), by adding at the end the following
new paragraph:
``(7) transactions meeting the requirements of subsection
(d).'';
(2) by redesignating the second subsection (b) (relating to
securities offered and sold in compliance with Rule 506 of
Regulation D) as subsection (c); and
(3) by adding at the end the following:
``(d) Certain Accredited Investor Transactions.--The
transactions referred to in subsection (a)(7) are
transactions meeting the following requirements:
``(1) Accredited investor requirement.--Each purchaser is
an accredited investor, as that term is defined in section
230.501(a) of title 17, Code of Federal Regulations (or any
successor regulation).
``(2) Prohibition on general solicitation or advertising.--
Neither the seller, nor any person acting on the seller's
behalf, offers or sells securities by any form of general
solicitation or general advertising.
``(3) Information requirement.--In the case of a
transaction involving the securities of an issuer that is
neither subject to section 13 or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m; 78o(d)), nor exempt from
reporting pursuant to section 240.12g3-2(b) of title 17, Code
of Federal Regulations, nor a foreign government (as defined
in section 230.405 of title 17, Code of Federal Regulations)
eligible to register securities under Schedule B, the seller
and a prospective purchaser designated by the seller obtain
from the issuer, upon request of the seller, and the seller
in all cases makes available to a prospective purchaser, the
following information (which shall be reasonably current in
relation to the date of resale under this section):
``(A) The exact name of the issuer and the issuer's
predecessor (if any).
``(B) The address of the issuer's principal executive
offices.
``(C) The exact title and class of the security.
``(D) The par or stated value of the security.
``(E) The number of shares or total amount of the
securities outstanding as of the end of the issuer's most
recent fiscal year.
``(F) The name and address of the transfer agent, corporate
secretary, or other person responsible for transferring
shares and stock certificates.
``(G) A statement of the nature of the business of the
issuer and the products and services it offers, which shall
be presumed reasonably current if the statement is as of 12
months before the transaction date.
``(H) The names of the officers and directors of the
issuer.
``(I) The names of any persons registered as a broker,
dealer, or agent that shall be paid or given, directly or
indirectly, any commission or remuneration for such person's
participation in the offer or sale of the securities.
``(J) The issuer's most recent balance sheet and profit and
loss statement and similar financial statements, which
shall--
``(i) be for such part of the two preceding fiscal years as
the issuer has been in operation;
``(ii) be prepared in accordance with generally accepted
accounting principles or, in the case of a foreign private
issuer, be prepared in accordance with generally accepted
accounting principles or the International Financial
Reporting Standards issued by the International Accounting
Standards Board;
``(iii) be presumed reasonably current if--
``(I) with respect to the balance sheet, the balance sheet
is as of a date less than 16 months before the transaction
date; and
``(II) with respect to the profit and loss statement, such
statement is for the 12 months preceding the date of the
issuer's balance sheet; and
``(iv) if the balance sheet is not as of a date less than 6
months before the transaction date, be accompanied by
additional statements of profit and loss for the period from
the date of such balance sheet to a date less than 6 months
before the transaction date.
``(K) To the extent that the seller is a control person
with respect to the issuer, a brief statement regarding the
nature of the affiliation, and a statement certified by such
seller that they have no reasonable grounds to believe that
the issuer is in violation of the securities laws or
regulations.
``(4) Issuers disqualified.--The transaction is not for the
sale of a security where the seller is an issuer or a
subsidiary, either directly or indirectly, of the issuer.
``(5) Bad actor prohibition.--Neither the seller, nor any
person that has been or will be paid (directly or indirectly)
remuneration or a commission for their participation in the
offer or sale of the securities, including solicitation of
purchasers for the seller is subject to an event that would
disqualify an issuer or other covered person under Rule
506(d)(1) of Regulation D (17 C.F.R. 230.506(d)(1)) or is
subject to a statutory disqualification described under
section 3(a)(39) of the Securities Exchange Act of 1934.
``(6) Business requirement.--The issuer is engaged in
business, is not in the organizational stage or in bankruptcy
or receivership, and is not a blank check, blind pool, or
shell company that has no specific business plan or purpose
or has indicated that the issuer's primary business plan is
to engage in a merger or combination of the business with, or
an acquisition of, an unidentified person.
``(7) Underwriter prohibition.--The transaction is not with
respect to a security that constitutes the whole or part of
an unsold allotment to, or a subscription or participation
by, a broker or dealer as an underwriter of the security or a
redistribution.
``(8) Outstanding class requirement.--The transaction is
with respect to a security of a class that has been
authorized and outstanding for at least 90 days prior to the
date of the transaction.
``(e) Additional Requirements.--
``(1) In general.--With respect to an exempted transaction
described under subsection (a)(7):
``(A) Securities acquired in such transaction shall be
deemed to have been acquired in a transaction not involving
any public offering.
``(B) Such transaction shall be deemed not to be a
distribution for purposes of section 2(a)(11).
``(C) Securities involved in such transaction shall be
deemed to be restricted securities within the meaning of Rule
144 (17 C.F.R. 230.144).
``(2) Rule of construction.--The exemption provided by
subsection (a)(7) shall not be the exclusive means for
establishing an exemption from the registration requirements
of section 5.''.
(b) Exemption in Connection With Certain Exempt
Offerings.--Section 18(b)(4) of the Securities Act of 1933
(15 U.S.C. 77r(b)(4)) is amended--
(1) by redesignating the second subparagraph (D) and
subparagraph (E) as subparagraphs (E) and (F), respectively;
(2) in subparagraph (E), as so redesignated, by striking
``; or'' and inserting a semicolon;
(3) in subparagraph (F), as so redesignated, by striking
the period and inserting ``; or''; and
(4) by adding at the end the following new subparagraph:
``(G) section 4(a)(7).''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentlewoman from New York (Mrs. Carolyn B.
Maloney) each will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members
have 5 legislative days in which to revise and extend their remarks and
include extraneous materials on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I want to again commend the sponsor of this bill, the
gentleman from North Carolina (Mr. McHenry), who just joined us, for
all of his work on this bill and the earlier bills as well and for his
continued work on capital formation issues.
Mr. Speaker, there is no doubt that the JOBS Act of 2012 has been a
tremendous success, a huge success, for the American public and the
public marketplace.
The number of companies that have gone public has risen dramatically
ever since the barriers to capital formation that existed for several
years have been lifted, if you will, helping to make our capital
markets more attractive to companies and investors in the United States
and all around the world as well.
But the JOBS Act also did something else, somewhat ironically. It
included a number of provisions that helped companies to stay private
for a longer period of time.
You see, these provisions have allowed pre-IPO companies to expand
their investor base, if you will, and have allowed them to open up the
doors to capital that were previously shut out to them.
But, you see, as these companies raise more capital and as these
companies issue more shares to investors, it can become even more
difficult and even more costly for shareholders to find a willing buyer
or to exit their position in that company.
That is what this bill is all about. That is where H.R. 1839, the
RAISE Act, would come in. The RAISE Act would build upon the success of
the JOBS Act of 2012 by creating an environment, if you will, where
restricted securities of pre-IPO companies can be traded in a more
liquid secondary market, which then could ultimately have the effect of
lowering the cost of capital for businesses.
So the RAISE Act does this how? By codifying the longstanding
exemption developed by the courts, the SEC, and the securities laws
that would provide a means for the resale, if you will, of these
private restricted securities.
Now, for those just listening here, this sounds a little bit
technical. Maybe it sounds a lot technical to be effective. But,
really, it is a simple fix
[[Page H6807]]
that could ultimately have the effect of helping literally thousands of
businesses all across this country to do what? To raise more capital
and put it to use, put it to use to innovating or to hiring more
employees.
That is at the end of the day exactly the type of bipartisan solution
our constituents are calling on Congress to implement. I urge all of my
colleagues, again, on both sides of the aisle to vote in favor of the
underlying bill.
Mr. Speaker, I reserve the balance of my time.
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I yield myself such
time as I may consume.
I rise today in support of H.R. 1839, which is an excellent example
of bipartisan compromise that I think we should do more of in this
body.
I would like to thank Mr. McHenry and Ranking Member Waters for all
of their work on this bill on which I am pleased to be the lead
Democrat.
This bill codifies a longstanding rule that has been recognized in
the securities law, known informally as rule 4(1)(\1/2\), which allows
investors to resell private restricted securities without registering
with the SEC.
Rule 4(1)(\1/2\) has long been recognized by the SEC and has been
recognized by the Federal courts on numerous occasions as well.
But no one has ever bothered to codify this rule, even though
everyone is okay with it and supports it, with investors relying on
this informal rule.
The reason that the SEC and the courts have long recognized this rule
is that it fully complies with the spirit of the Securities Act of
1933. These sales are really just transactions between two
sophisticated investors.
As a result, different law firms have different interpretations of
what rule 4(1)(\1/2\) requires and the market has become very
fragmented.
So I think it is a very good idea to finally codify rule 4(1)(\1/2\)
so that everyone knows the rules of the road and investors can have
confidence that they are complying with the law when they resell
private securities to other sophisticated investors.
But this bill doesn't just codify rule 4(1)(\1/2\). It actually
improves upon it by establishing minimum standards for disclosure,
marketing, and a holding period that will protect investors, foster
transparency, and make this market even stronger.
{time} 1645
This bill addresses several concerns that we heard from investor
groups and regulators:
First, it requires that the seller provide the buyer with some basic
information about the company, which ensures that buyers have the
standard information they need before making an investment decision.
Second, it prohibits bad actors, such as people who have been banned
from the securities industry, from taking advantage of the rule.
Third, it prohibits the securities of shell companies from being sold
under this new rule, 4(1)(\1/2\).
So I am pleased that we were able to work together with the gentleman
from North Carolina (Mr. McHenry) on this bill and that we were able to
add these important investor protections because now we have a bill
that will enjoy strong bipartisan support.
I urge my colleagues to support this bill.
I reserve the balance of my time.
Mr. GARRETT. Again, I thank the gentlewoman from New York.
Mr. Speaker, I yield such time as he may consume to the gentleman
from North Carolina (Mr. McHenry), the sponsor of the legislation.
Mr. McHENRY. Mr. Speaker, I thank the gentleman from New Jersey (Mr.
Garrett), the chairman of the Capital Markets and Government Sponsored
Enterprises Subcommittee, for yielding time.
I thank the gentlewoman from New York (Mrs. Carolyn B. Maloney), the
ranking member of the subcommittee, for working with me on the
provisions of the bill we are talking about this afternoon.
I also want to thank the gentlewoman from California (Ms. Maxine
Waters), the ranking member of the full committee, for working with us
to craft this compromise we have on the floor here today.
I have joined together with my colleagues from across the aisle to
offer a Federal exemption from registering for the resale of private
company securities, which is vital for adding liquidity to the
secondary markets and driving economic growth.
Today private growth companies are not only disrupting existing
industries, but are creating entirely new markets. Thanks to private
markets, in particular, the advancement in American technology and
entrepreneurship is thriving.
Funding the growth of these private companies, however, has created a
paradigm shift. This shift requires our regulatory framework to achieve
a balance between encouraging innovation and growth while ensuring that
shareholders and investors are protected, and those investor
protections need to remain strong.
Unfortunately, as successful entrepreneurs and startup employees look
to sell their private shares in the secondary markets, they encounter a
regulatory framework that is inefficient. That inefficiency is costly
and dries up the liquidity of these securities and is harmful to
economic growth.
Most private secondary transactions rely on a broadly accepted
exemption known as section 4(1)(\1/2\). While widely known and applied,
section 4(1)(\1/2\) has never been formally codified into securities
law. The result has been a disjointed collection of case law and no-
action SEC letters that have shaped these private secondary
transactions.
Our bill attempts to fix this problem. The bill would provide an
exemption for these types of transactions, allowing startup employees
the ability to execute trades in a way that is consistent, clear, and
certain.
That is why we have Federal securities laws, for that certainty, that
clarity, and that consistency. It would allow for private companies to
find a much better way to raise capital by opening up the secondary
markets.
Although the bill is a technical fix, we have worked hard to seek
compromise and find commonsense solutions to this complicated
exemption.
While we have negotiated in good faith on this bill, as has the party
across the aisle, my goal is to ensure that the language and operation
of this compromise will work in the real world.
Further improvements to the bill may be necessary to fully codify
existing uses of that authority, and I am committed to working with my
colleagues across the aisle as well as folks in the Senate to clarify
the intent here.
I look forward to continuing to work with our ranking member of the
full Committee on Financial Services, as necessary, to ensure that the
law is a useful tool and serves as an example of how policy can meet
the demands of a changing marketplace.
The bottom line is this bill is a sensible way forward. This bill
will lower costs and provide transparent standards for the issues that
are important in the private and secondary transactions. Additionally,
the bill will give today's private growth companies a foundation on
which they can confidently plan their trajectory through the capital
markets, both private and public.
Ultimately, codifying this exemption will ensure the United States
remains the best market in the world for the world's innovators to
build their businesses here and employ Americans and grow our economy.
I am pleased that this legislation enjoys bipartisan support, and I
urge my colleagues to support it.
Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I have no
additional speakers on the floor. I urge my colleagues to support this
important legislation.
I yield back the balance of my time.
Mr. GARRETT. Mr. Speaker, I yield myself the balance of my time.
Again I thank the gentlewoman from New York for her support on this
and the prior legislation, and I thank the gentleman from North
Carolina.
When the gentleman from North Carolina makes a reference to the
regulations of 4(1)(\1/2\), then you know there is something wrong out
there that there are just too many obscure regulations that are holding
back and being impediments to our capital markets.
The gentleman from North Carolina also came up with the right
summation of this. It is a technical bill to deal with all of these
absurdities and technicalities just to make it easier for
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people to be able to start a business, grow a business, sell a
business, hire employees, grow capital formation and the number of
employees in this country as well.
With that being said, I look forward to strong, bipartisan support,
as we have seen in the past on this type of legislation.
I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 1839, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. GARRETT. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this motion will be postponed.
____________________