[Congressional Record Volume 162, Number 107 (Tuesday, July 5, 2016)]
[House]
[Pages H4236-H4240]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          FIX CROWDFUNDING ACT

  Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 4855) to amend provisions in the securities laws relating to 
regulation crowdfunding to raise the dollar amount limit and to clarify 
certain requirements and exclusions for funding portals established by 
such Act, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

[[Page H4237]]

  


                               H.R. 4855

       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 ``Fix Crowdfunding Act''.

     SEC. 2. CROWDFUNDING VEHICLES.

       (a) Amendments to the Securities Act of 1933.--The 
     Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended--
       (1) in section 4A(f)(3), by inserting ``by any of 
     paragraphs (1) through (14) of'' before ``section 3(c)''; and
       (2) in section 4(a)(6)(B), by inserting after ``any 
     investor'' the following: ``, other than a crowdfunding 
     vehicle (as defined in section 2(a) of the Investment Company 
     Act of 1940),''.
       (b) Amendments to the Investment Company Act of 1940.--The 
     Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) is 
     amended--
       (1) in section 2(a), by adding at the end the following:
       ``(55) The term `crowdfunding vehicle' means a company--
       ``(A) whose purpose (as set forth in its organizational 
     documents) is limited to acquiring, holding, and disposing 
     securities issued by a single company in one or more 
     transactions and made pursuant to section 4(a)(6) of the 
     Securities Act of 1933;
       ``(B) which issues only one class of securities;
       ``(C) which receives no compensation in connection with 
     such acquisition, holding, or disposition of securities;
       ``(D) no associated person of which receives any 
     compensation in connection with such acquisition, holding or 
     disposition of securities unless such person is acting as or 
     on behalf of an investment adviser registered under the 
     Investment Advisers Act of 1940 or registered as an 
     investment adviser in the State in which the investment 
     adviser maintains its principal office and place of business;
       ``(E) the securities of which have been issued in a 
     transaction made pursuant to section 4(a)(6) of the 
     Securities Act of 1933, where both the crowdfunding vehicle 
     and the company whose securities it holds are co-issuers;
       ``(F) which is current in its ongoing disclosure 
     obligations under Rule 202 of Regulation Crowdfunding (17 
     C.F.R. 227.202);
       ``(G) the company whose securities it holds is current in 
     its ongoing disclosure obligations under Rule 202 of 
     Regulation Crowdfunding (17 C.F.R. 227.202); and
       ``(H) is advised by an investment adviser registered under 
     the Investment Advisers Act of 1940 or registered as an 
     investment adviser in the State in which the investment 
     adviser maintains its principal office and place of 
     business.''; and
       (2) in section 3(c), by adding at the end the following:
       ``(15) Any crowdfunding vehicle.''.

     SEC. 3. CROWDFUNDING EXEMPTION FROM REGISTRATION.

       Section 12(g)(6) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78l(g)(6)) is amended--
       (1) by striking ``The Commission'' and inserting the 
     following:
       ``(A) In general.--The Commission'';
       (2) by striking ``section 4(6)'' and inserting ``section 
     4(a)(6)''; and
       (3) by adding at the end the following:
       ``(B) Treatment of securities issued by certain issuers.--
     An exemption under subparagraph (A) shall be unconditional 
     for securities offered by an issuer that had a public float 
     of less than $75,000,000 as of the last business day of the 
     issuer's most recently completed semiannual period, computed 
     by multiplying the aggregate worldwide number of shares of 
     the issuer's common equity securities held by non-affiliates 
     by the price at which such securities were last sold (or the 
     average bid and asked prices of such securities) in the 
     principal market for such securities or, in the event the 
     result of such public float calculation is zero, had annual 
     revenues of less than $50,000,000 as of the issuer's most 
     recently completed fiscal year.''.

  The SPEAKER pro tempore (Mr. Knight). Pursuant to the rule, the 
gentleman from New Jersey (Mr. Garrett) and the gentlewoman from 
California (Ms. Maxine Waters) 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 
enter in extraneous material 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 rise in support of H.R. 4855. This is the Fix 
Crowdfunding Act. Once again, I thank the gentleman from North Carolina 
(Mr. McHenry), the sponsor of the bill, which also passed the Financial 
Services Committee in June with a vote of 57-2.
  Let's get into it, Mr. Speaker.
  Title III of the JOBS Act, known as the crowdfunding title, is one of 
the most promising provisions of that law, and so, by opening the door 
for equity crowdfunding to literally millions of Americans, people who 
want to invest in companies that they believe in, title III has the 
potential to further democratize our capital markets, and doing so will 
create opportunities for Main Street to generate wealth.
  Unfortunately, in part due to provisions added by the Senate during 
conference negotiations and in part due to problems with the SEC's 
implementation of title III, equity crowdfunding in the United States 
may never reach its full potential.
  As SEC Commissioner Mike Piwowar noted in his dissent to the SEC's 
rules that came out last year, he said: ``The rules will spin a complex 
web of provisions and requirements for compliance . . . Such burdens 
will spook many small businesses from pursuing crowdfunding as a viable 
path to raising capital.''
  Fortunately, once again, the Financial Services Committee has stepped 
up to the plate to address these problems; and fortunately, we have Mr. 
McHenry here, who has put forward his Crowdfunding Act to fix it.
  The Fix Crowdfunding Act would address some of these issues, and it 
does so in two important ways. First, the bill would enable special 
purpose vehicles, as defined by the bill, to be considered an 
authorized investor in crowdfunding offerings.
  What does this mean?
  Well, this means a group of investors can basically come together and 
pool the resources and then invest alongside some more sophisticated 
investors in these new, growing startup businesses.
  As I tell you this, it is important to note that, under current 
regulations, unless you are, well, extremely wealthy, you are typically 
prohibited from investing in private businesses here in the United 
States.
  Secondly, Mr. McHenry's Fix Crowdfunding Act increases the amount 
that a company can raise through this mechanism of crowdfunding before 
it has to go and register with the SEC.
  So while these things may be just technical fixes to a complicated 
set of security laws, at the end of the day, what they will do is break 
down what we say is historical barriers that prevented startup 
companies and businesses from connecting with literally millions of 
Americans and investors across the country.
  So the Fix Crowdfunding Act that we are seeing here today will 
address many of the problems that currently exist with the crowdfunding 
regulations.
  Again, I want to thank the gentleman from North Carolina, and also my 
colleagues on the Financial Service Committee for their support.
  Mr. Speaker, I reserve the balance of my time.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such 
time as I may consume.
  Mr. Speaker, I would like to thank my colleague from North Carolina 
for his efforts to work with me to craft this bipartisan legislation. 
H.R. 4855 is an example of how Congress can assist startups to finance 
their operations while still protecting the investors who entrust their 
hard-earned funds to those companies.
  Equity crowdfunding, through which startup companies sell stock to 
hundreds or even thousands of everyday people, has been and will always 
be a high-risk, high-reward investment.
  The sad reality is that most new businesses fail. As a result, 
Congress and the Securities and Exchange Commission have put in place 
guardrails to prevent less-sophisticated investors from suffering 
financial ruin.
  In 2012, Congress cautiously approached equity crowdfunding by 
creating a number of investor protections in the Jumpstart Our Business 
Startups Act, or JOBS Act. The SEC followed our directions and 
finalized a crowdfunding rule that protects investors by setting 
reasonable investment limits based on income and provides helpful 
disclosures for investors to weigh the risk. Last month, those rules 
went live, with hundreds of businesses successfully raising capital 
that, in turn, funds American jobs.
  H.R. 4855, as amended in committee, seeks to enhance the investor and 
company experience in crowdfunding. The bill would authorize 
crowdfunding portals to pool investors together in order

[[Page H4238]]

to make a joint investment in a business. These vehicles would only 
make investments in one company and would be advised by a registered 
investment adviser with a fiduciary duty to the fund. Importantly, the 
investors would have the same rights to sue the company as if they had 
directly invested in the company itself.
  This provision will also aid companies as they will be able to more 
efficiently make financial decisions, provided that the investment 
adviser agrees that they are in the best interest of the fund's 
investors.
  H.R. 4855 also clarifies that as long as a crowdfunding company 
continues to make ongoing disclosures to investors required under the 
SEC's rules, it would not have to make the more detailed public reports 
until it had either a $75 million value or $50 million in revenue. This 
change is consistent with the levels set under Regulation A, another 
exempt offering sold to retail investors.
  I am pleased that the amended bill no longer includes problematic 
provisions that were opposed by advocates like the Consumer Federation 
of America. Instead, the bill is now crafted to make target 
improvements to crowdfunding for all investors and startups.

                              {time}  1815

  Now, although crowdfunding should be viewed as a highly risky 
investment, especially for retail investors, both of the changes in 
H.R. 4855 will ensure a longer choice of high-quality crowdfunding 
companies and a higher degree of finance savvy for investors.
  Mr. Speaker and Members, I had reservations about crowdfunding. I had 
real concerns, but I am very pleased that I was able to work with Mr. 
McHenry, and he was so very cooperative in dealing with those concerns 
that made me feel even better about crowdfunding than I had been 
feeling. So I am just so hopeful that this works and it works well, and 
that even though there is some risk involved in this, that we have the 
opportunity for people who want to take a little risk to go out there 
and to be able to organize the kind of funding that perhaps can make 
them reap substantial profits in a real credible way.
  So I want to thank, again, Mr. McHenry for his cooperation and for 
the work and the time that he has put into this.
  Mr. Speaker, I reserve the balance of my time.
  Mr. GARRETT. Mr. Speaker, I appreciate the fact that the gentleman 
from North Carolina was able to bring about that hope and change to the 
gentlewoman.
  Mr. Speaker, I yield to the gentleman from California (Mr. McCarthy).
  Mr. McCARTHY. Mr. Speaker, I thank the gentleman for yielding.
  I want to take this moment to not only thank the subcommittee chair, 
but thank the ranking member and Congressman McHenry for their 
bipartisan work on this bill and bringing it to the floor.
  Mr. Speaker, it is clear that many--too many--communities are still 
trying to pull themselves up after the past 8 years of economic 
stagnation. Some have succeeded, but the current system has left 
millions of people behind with a long road of recovery left to go.
  Now, the House is not blind to it, and we recognize, like so many 
others, that an anticompetitive state is depriving us of our ability to 
prosper. That is why we started the Innovation Initiative and why this 
bill is so important.
  Four years ago, Congress came together to pass the JOBS Act, a bill 
that provided small businesses and entrepreneurs more ways to raise 
capital investment.
  Now, this wasn't a banker's bill. It was a bill that opened the door 
for members of our communities to invest in ideas that could create 
good-paying jobs, provide goods and services, and increase the quality 
of life for the American people in their community.
  After all, it is small businesses that have created two-thirds of all 
net new jobs since the 1970s. But while small businesses remain the 
cornerstone of our economy, the Federal Government has made it harder 
and harder to start one.
  The entry of new businesses in the United States has declined by 
nearly 44 percent since the late 1970s. Starting a business has been 
especially hard in recent years. The policies today, after 7\1/2\ years 
under President Obama, are not a roadmap for those looking for a better 
way.
  The JOBS Act was a good start to creating a more dynamic economy. But 
it was never followed through after the bill's initial success. These 
bills today are targeted fixes to restore the original spirit of the 
JOBS Act: to harness innovation and bring together millions of 
Americans with potential new businesses through crowdfunding.
  These new businesses could become the next Apple or Under Armour. 
They could revitalize the most downtrodden communities who were hardest 
hit by the recession and faced the slowest recovery.
  Now, a couple of weeks ago, I was in Baltimore visiting a 
cybersecurity startup. The work they do to protect cyber networks is 
growing more important by the day. By engaging with the changing 
world--using the power of innovation to improve our security--this 
startup also lifted up a community and helped it to thrive.
  Today, ZeroFOX has ushered in a new era for their southern Baltimore 
community. That community is part of the future helping our country 
become a better place.
  This is the power of the innovation economy. This is what we are 
voting to support. This is how America has a better and brighter 
future.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such 
time as I may consume.
  I am sure there are those who wonder why we on the opposite side of 
the aisle work so hard to pay attention to our constituents as it 
relates to investment and why we work so hard to pay attention to our 
consumers. I will tell you why.
  Everyone recognizes what happened in 2008 in this country. We 
literally had a meltdown. We went into a recession--almost a 
depression. Why did we do that?
  We went into a recession and almost a depression because our 
regulatory agencies were not paying attention and people were being 
taken advantage of. We had a very difficult time trying to explain to 
the people of this country why we had so many foreclosures, why people 
were losing their homes, and why communities were so displaced.
  But we recognized that our regulatory agencies who had the 
responsibility for oversight and who had the responsibility for making 
sure people weren't taken advantage of just had not been doing their 
jobs. I want you to know that with Dodd-Frank reforms, we have gone a 
long way to correct that. In addition to looking at our markets and 
looking at Wall Street, we created the Consumer Financial Protection 
Bureau that is doing a magnificent job in looking out for our consumers 
and making sure that what happened that led up to the 2008 meltdown 
does not happen again in America.
  So I am very pleased that the Obama administration in the last 75 
months has had consecutive job growth. It looks as if it is about 14.5 
million private-sector jobs. Of course, when Mr. Obama took over, we 
know that about 800 jobs per month were being lost. So we don't take 
our job lightly, and we don't play with this.
  We want to make sure that there is capital available for startups 
because we support business and we absolutely support small business. 
We want to make sure they have access to capital. But what we don't 
want is we don't want, then, to be tricked or fooled or to be led into 
so-called opportunities that are really not opportunities at all.
  Mr. Speaker, I reserve the balance of my time.
  Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, before I yield to the gentleman from North Carolina, I 
will say that I agree with the gentlewoman that prior to 2008 and the 
crisis, the regulators were not doing their jobs. They were not 
monitoring as they were supposed to be. So true to form to the 
Washington way of dealing with things at that time, this administration 
was able to pass through a 2,000-page Democratic-inspired and -crafted 
piece of legislation called the Dodd-Frank legislation--2,000 pages and 
400 regulations. It did as Washington normally does: give those failed 
regulators raises, more authority, and bigger and fancier buildings.
  What was the result of that?

[[Page H4239]]

  Well, some jobs were created since 2008. We have had one of the 
slowest recoveries on record. As I said before, the most recent jobs 
report showed that only 38,000 jobs out of 300-plus million people in 
this country--think about that--were created during the month of May. 
That was the worst jobs record since 2010. New business startups in 
this country are at a 20-year low. Think about that if you are waiting 
to get a new job from a new business--a 20-year low.
  So because of that, because Dodd-Frank did not fix the problem, 
because those 2,000 pages and those more highly paid bureaucrats in 
Washington didn't solve the problem, American families and small 
businesses are finding it extremely difficult to find credit to expand 
their businesses and to hire more people.
  So thank goodness we have this legislation here today and the work by 
the gentleman from North Carolina not only on this bill, but the 
previous bill that he was able to accomplish in a bipartisan manner.
  Mr. Speaker, I yield such time as he may consume to the gentleman 
from North Carolina (Mr. McHenry) to explain the bill in more detail.
  Mr. McHENRY. Mr. Speaker, may I inquire how much time is remaining?
  The SPEAKER pro tempore. The gentleman from New Jersey has 13 minutes 
remaining.
  Mr. McHENRY. Mr. Speaker, I rise today in support of the Fix 
Crowdfunding Act.
  Mr. Speaker, these days, small businesses are struggling to find the 
financing investment that they need to start up and to grow. That 
affects jobs. It certainly does.
  Recently in my district, we have read reports that smaller counties 
in America, which used to lead the Nation in the growth of new 
businesses, now have actually lost more businesses than they have 
created.
  The reason why the ranking member and I are actually able to work 
together on an important piece of legislation like this in a very 
logjammed discussion point about appropriate regulation--a lot of stuff 
gets locked up in partisan debate--what unites our conversation is a 
rural issue and an urban issue, and it is about capital deserts in 
America.
  Now, everybody talks about food deserts. If you think about this, if 
you are not close to a grocery store, then you can't get fresh fruit, 
fresh vegetables, and you can't get foodstuffs for your family.
  But we have capital deserts in America. Capital deserts are about 
those areas that are not Boston, Austin, and Silicon Valley. It is the 
rest of America that is struggling to get the capital they need so they 
can start a business, so they can grow a business.
  I am not talking about the next Google or Facebook--maybe it is. I am 
talking about a lawn service. I am talking about a coffee shop. I am 
talking about a baker who wants to sell her goods on a wider scale so 
that she can provide for her family. Those are the concerns that are 
real and that we can address in a real way before Congress today--
tonight--in this vote.
  Investment crowdfunding is one way we can reverse this disturbing 
trend. What this bill does is allow us to expand what you are able to 
do through investment crowdfunding.
  Five years ago in the JOBS Act, we had a revolutionary change to the 
way we allowed individuals to invest a little bit of money in their 
fellow men. It allowed men or women in local communities to invest in a 
local coffee shop. You didn't have to be a wealthy investor to get 
these great opportunities. You could be the average, everyday investor 
like me or like many of my constituents.
  But in the JOBS Act and in the investment crowdfunding part of that 
bill that I wrote 5 years ago, out of that, the Securities and Exchange 
Commission wrote four regulations, and they created a couple of major 
challenges as a result of that. One is the 12(g) problem. Let me 
explain this.
  What the 12(g) problem is is that, in essence, you are subjecting 
very low fundraising to very expensive regulatory disclosures. That is 
a problem. It is a problem because it is costly. It is economically 
costly and restricts economic opportunity. We fixed that in the Fix 
Crowdfunding Act.
  Another significant problem for crowdfunding is that under SEC rules, 
single-purpose funds are not permitted. Let me explain this. Single-
purpose funds are like this: you have somebody who has a fiduciary 
responsibility, meaning that I am going to look out for your best 
interests on this investment and we are able to create a fund in order 
to pool those resources, that investor acumen, if you will, and work 
together with them. So it allows unsophisticated people to get 
sophisticated advice if we allow special purpose vehicles.
  So these two very important provisions, understood at a very simple 
level, if we fix these things we will provide more economic 
opportunity, we will have better investor advice, and we will be able 
to expand and make real the utility of crowdfunding.
  The essence of this is that we believe in the capacity of individual 
Americans to make decisions for themselves and to take a little bit of 
risk for themselves. It is a powerful thing. It is a powerful, 
meaningful step forward.
  Now, it doesn't solve the greater debate that we are having here in 
Washington on so many challenging issues of policy where perhaps the 
left and the right don't see eye to eye. But on this, we came together 
and we were able to create a small opening of economic opportunity and 
try to get those resources out into the community. It is a meaningful 
step forward.
  I thank the ranking member of the Financial Services Committee. I 
thank Ranking Member Waters for her active engagement on this. She 
helped improve our original bill that came through the Financial 
Services Committee 5 years ago, and she has helped work through this 
compromise before us on the House floor tonight.

                              {time}  1830

  While we may not agree on so many other issues of policy, we have 
worked together on two substantive areas of policy here in recent 
weeks. I think that is a hopeful sign. I think it is a positive sign.
  What we are doing here today will expand that opportunity for 
millions of Americans to have that little bit of investment that they 
would like to make in their fellow man and their fellow woman to create 
new jobs to provide new economic opportunity.
  Ladies and gentlemen, I ask and encourage your support for the Fix 
Crowdfunding Act, and I urge an ``aye'' vote.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself the 
balance of my time.
  I am so pleased that the gentleman from New Jersey recognized that 
the regulatory agencies were not doing their job. We don't agree on 
much, but he did indicate just a moment ago that he agreed that the 
regulatory agencies had not protected consumers or our small business 
people--or anybody--and that is why we ended up with the Dodd-Frank 
reform. We may disagree about Dodd-Frank reform, but I think with that 
recognition I am sure he would logically conclude that something had to 
be done, and so I am very pleased about that.
  Let me just say to Mr. McHenry again, I want to thank him for the 
work that he has done and the leadership that he has provided. He is 
absolutely correct, whether it is in the cities or in urban areas, we 
need to have access to capital for our small businesses and our start-
ups. In addition, he has led the way for us to make investing and 
venture capital, et cetera, more accessible. I think we still have more 
work to do.
  One of the things we are going to have to take a very close look at 
is why our bigger banks and financial institutions are not investing in 
these communities and why they are not welcoming small businesses in to 
the banks and to these financial institutions and listen to their 
dreams and their ideas about businesses and provide the capital for 
that.
  Again, I am very pleased about what he has done, his leadership, and 
the work that we are doing.
  Mr. Speaker, I yield back the balance of my time.
  Mr. GARRETT. Mr. Speaker, I encourage my colleagues to vote ``yes'' 
on this very important 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.

[[Page H4240]]

Garrett) that the House suspend the rules and pass the bill, H.R. 4855, 
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.

                          ____________________