[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.
____________________