[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.
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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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