[Congressional Record Volume 163, Number 171 (Tuesday, October 24, 2017)]
[House]
[Pages H8097-H8099]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             FAMILY OFFICE TECHNICAL CORRECTION ACT OF 2017

  Mr. BARR. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 3972) to clarify that family offices and family clients are 
accredited investors, and for other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 3972

       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 ``Family Office Technical 
     Correction Act of 2017''.

     SEC. 2. ACCREDITED INVESTOR CLARIFICATION.

       (a) In General.--Subject to subsection (b), any family 
     office or a family client of a family office, as defined in 
     section 275.202(a)(11)(G)-1 of title 17, Code of Federal 
     Regulations, shall be deemed to be an accredited investor, as 
     defined in Regulation D of the Securities and Exchange 
     Commission (or any successor thereto) under the Securities 
     Act of 1933.
        (b) Limitation.--Subsection (a) only applies to a family 
     office with assets under management in excess of $5,000,000, 
     and a family office or a family client not formed for the 
     specific purpose of acquiring the securities offered, and 
     whose purchase is directed by a person who has such knowledge 
     and experience in financial and business matters that such 
     person is capable of evaluating the merits and risks of the 
     prospective investment.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Kentucky (Mr. Barr) and the gentlewoman from California (Ms. Maxine 
Waters) each will control 20 minutes.
  The Chair recognizes the gentleman from Kentucky.


                             General Leave

  Mr. BARR. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days in which to revise and extend their remarks and 
include extraneous material on the bill.
  The SPEAKER pro tempore (Mr. Womack). Is there objection to the 
request of the gentleman from Kentucky?
  There was no objection.
  Mr. BARR. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise today in support of H.R. 3972, the Family Office 
Technical Correction Act, which passed out of the House Financial 
Services Committee earlier this month with the unanimous support of my 
Republican and Democratic colleagues.
  This timely legislation provides a technical clarification that makes 
it very apparent that family offices are considered accredited 
investors under regulation D.
  Under Dodd-Frank, a family office or, in other words, a company that 
only has family clients, is owned by the family, and is not a public 
investment adviser can give financial advice to family members without 
the office registering under the Investment Advisers Act.

                              {time}  1400

  The rationale behind this was that family members will look out for 
one another. Thus, this legislation, for the same reason, allows family 
offices to count as accredited investors, which would allow them to 
make private placement investments.
  The end result is that more capital will be available for investment 
in

[[Page H8098]]

businesses, resulting in more jobs and greater economic opportunity for 
Americans of all walks of life.
  I want to thank Representative Carolyn Maloney and Chairman 
Hensarling for their leadership on this important legislation, and I 
urge my colleagues in the House to support the Family Office Technical 
Correction Act.
  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, H.R. 3972 would expand the definition of ``accredited 
investor'' to organizations known as family offices and their family 
clients.
  Family offices manage the financial interests of wealthy families. 
Deeming family offices and family clients to be accredited investors 
would allow them to more easily invest in private, unregistered 
security offerings.
  Today, each family client, family member, and associated employees 
and entities must independently meet the accredited investor 
definition. This would require, for example, that each individual in a 
family independently meet certain income or net worth thresholds.
  As I understand it, this process can be cumbersome for private funds 
that may lose their private, unregistered status if they fail to 
appropriately verify their investors as accredited or otherwise 
qualified to invest in private offerings. If there is any doubt, a 
private fund could deny a family office or family client the 
opportunity to invest.
  This bill seeks to remedy that problem by recognizing that family 
offices and family clients are financially sophisticated in their own 
right. Thanks to an amendment by Representative Maloney that was 
unanimously accepted during the committee markup, the bill ensures that 
these family offices and family clients have the financial wherewithal 
and knowledge to invest as accredited investors in typically risky, 
illiquid private security offerings.
  Specifically, the bill would apply the same standards currently in 
place for trusts so that, number one, the family office must have more 
than $5 million in assets; two, the family office and family clients 
must not be formed for the specific purpose of acquiring the securities 
offered; and, three, the family office and family client must be 
dedicated--or directed, rather, by a sophisticated person.
  These restrictions limit the potential unintended consequences of the 
bill so that, for example, someone who could not otherwise meet the 
accredited investor test alone could not circumvent the rules by 
investing with another family member as a ``family office.''
  They would also prevent estranged family members, who could be up to 
10 generations removed, from investing as an accredited investor 
without receiving any services of or otherwise being affiliated with 
the family office.
  I support the bill, and I reserve the balance of my time.
  Mr. BARR. Mr. Speaker, I yield 1 minute to the gentleman from Texas 
(Mr. Hensarling), the chairman of the Financial Services Committee.
  Mr. HENSARLING. Mr. Speaker, I thank the gentleman from Kentucky.
  This did pass our committee on a unanimous basis.
  I want to thank the gentlewoman from New York (Mrs. Carolyn B. 
Maloney) for her leadership and for her other areas of leadership on 
our committee. As a very senior Democrat, her counsel is always 
important; her leadership is always important.
  This is indeed, as was described, Mr. Speaker, in many respects, a 
technical correction that needed to take place. We need to ensure that 
our family offices, that those investment funds can be put to their 
highest and best use to help grow the economy.
  I was happy that the ranking member used the phrase ``unintended 
consequences'' because, indeed, Mr. Speaker, from time to time, there 
are unintended consequences of regulation.
  We do wish to ensure that these family offices that otherwise meet 
the definition of accredited investors have the full range of 
investment opportunities before them. This bill will do this.
  Again, it came out on a strong bipartisan, indeed, a unanimous basis 
from the Financial Services Committee, and so I would urge all Members 
of the House to adopt it.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield as much time as 
she may consume to the gentlewoman from New York (Mrs. Carolyn B. 
Maloney), the author of the bill and the sponsor of the bill.
  Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I rise today in 
support of H.R. 3972, and I am very thankful to gentleman from Texas 
(Mr. Hensarling), the chairman, and the gentlewoman from California 
(Ms. Maxine Waters), the ranking member, for their support and 
assistance on this legislation.
  This bill is very simple. It makes what I consider to be a technical 
fix to the rules for family offices.
  Family offices are entities that are established by wealthy families 
to manage their own money and to provide financial services to their 
family members.
  The original family office was created by John D. Rockefeller 135 
years ago and still exists in the district that I represent. So family 
offices have a long and storied history in this country and have become 
important sources of liquidity for our markets.
  It is also important to note that family offices do not pose a 
systemic risk and did not cause any problems in the financial crisis, 
so they don't pose any safety and soundness risk to the financial 
system.
  Family offices aren't regulated by the SEC as investment advisers 
because they don't have traditiona clients or outside investors. They 
invest money in their funds like most investment advisers.

  A family office is just that: a family office managing its own family 
money. Their clients are primarily family members, and disputes between 
family members are better handled either internally by the family or 
through State courts, which have laws to govern disputes between family 
members.
  Prior to Dodd-Frank, the SEC had been exempting family officers and 
offices from the Advisers Act for decades on a case-by-case basis. In 
Dodd-Frank, we codified the exemption for family offices and required 
the SEC to write a rule formally defining ``family offices.'' The SEC 
finalized that rule in 2011, so family offices, to meet the SEC's 
definition, do not have to register with the SEC or as investment 
advisers.
  However, a problem has now come up that we did not anticipate. We 
assumed that every family client or a member of the family would 
qualify as a sophisticated accredited investor under the SEC rules. But 
it turns out that there are very limited circumstances in which a 
family client of a family office may not actually qualify as an 
individual accredited investor.
  For example, a 19- or 20-year-old member of a wealthy family may be 
in his or her first job after school and may not be making enough money 
to qualify as an accredited investor, which is over $200,000, annually.
  The real problem is, under the rules we have now, if just one of 
these family clients--a young person, in most cases--in a family office 
is not an accredited investor, then the entire family office is not 
considered an accredited investor and, thus, cannot buy any securities 
that are limited to accredited investors, like privately issued stocks 
or bonds. My bill would fix this by just clarifying that all family 
offices and family clients are, in fact, accredited investors.
  The bill does not allow that any 19- or 20-year-old can go out on 
their own and buy securities. It is limited to accredited investors 
that can only be done through the family office.
  The bill also includes some important limitations: The family office 
has to have at least $5 million in assets, which is the same limitation 
that applies to trusts in the current accredited investor rule. The 
family office also has to have its investments directed by a 
sophisticated investment professional, which provides yet another layer 
of protection.
  So, really, this bill is very narrowly tailored and provides what I 
consider to be a technical fix that will allow family offices to better 
serve their own family members.
  I urge my colleagues to support this bill.
  Mr. BARR. Mr. Speaker, I continue to reserve the balance of my time.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield back the 
balance of my time.

[[Page H8099]]

  

  Mr. BARR. Mr. Speaker, I have no further requests at this time, and I 
yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Kentucky (Mr. Barr) that the House suspend the rules and 
pass the bill, H.R. 3972, as amended.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

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