[Congressional Record Volume 163, Number 177 (Wednesday, November 1, 2017)]
[House]
[Pages H8320-H8323]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       FAIR INVESTMENT OPPORTUNITIES FOR PROFESSIONAL EXPERTS ACT

  Mr. HUIZENGA. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 1585) to amend the Securities Act of 1933 to codify certain 
qualifications of individuals as accredited investors for purposes of 
the securities laws, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 1585

       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 ``Fair Investment 
     Opportunities for Professional Experts Act''.

     SEC. 2. DEFINITION OF ACCREDITED INVESTOR.

       (a) In General.--Section 2(a)(15) of the Securities Act of 
     1933 (15 U.S.C. 77b(a)(15) is amended--
       (1) by redesignating clauses (i) and (ii) as subparagraphs 
     (A) and (F), respectively; and
       (2) in subparagraph (A) (as so redesignated), by striking 
     ``; or'' and inserting a semicolon, and inserting after such 
     subparagraph the following:
       ``(B) any natural person whose individual net worth, or 
     joint net worth with that person's spouse, exceeds $1,000,000 
     (which amount, along with the amounts set forth in 
     subparagraph (C), shall be adjusted for inflation by the 
     Commission every 5 years to the nearest $10,000 to reflect 
     the change in the Consumer Price Index for All Urban 
     Consumers published by the Bureau of Labor Statistics) where, 
     for purposes of calculating net worth under this 
     subparagraph--
       ``(i) the person's primary residence shall not be included 
     as an asset;

[[Page H8321]]

       ``(ii) indebtedness that is secured by the person's primary 
     residence, up to the estimated fair market value of the 
     primary residence at the time of the sale of securities, 
     shall not be included as a liability (except that if the 
     amount of such indebtedness outstanding at the time of sale 
     of securities exceeds the amount outstanding 60 days before 
     such time, other than as a result of the acquisition of the 
     primary residence, the amount of such excess shall be 
     included as a liability); and
       ``(iii) indebtedness that is secured by the person's 
     primary residence in excess of the estimated fair market 
     value of the primary residence at the time of the sale of 
     securities shall be included as a liability;
       ``(C) any natural person who had an individual income in 
     excess of $200,000 in each of the 2 most recent years or 
     joint income with that person's spouse in excess of $300,000 
     in each of those years and has a reasonable expectation of 
     reaching the same income level in the current year;
       ``(D) any natural person who is currently licensed or 
     registered as a broker or investment adviser by the 
     Commission, the Financial Industry Regulatory Authority, or 
     an equivalent self-regulatory organization (as defined in 
     section 3(a)(26) of the Securities Exchange Act of 1934), or 
     the securities division of a State or the equivalent State 
     division responsible for licensing or registration of 
     individuals in connection with securities activities;
       ``(E) any natural person the Commission determines, by 
     regulation, to have demonstrable education or job experience 
     to qualify such person as having professional knowledge of a 
     subject related to a particular investment, and whose 
     education or job experience is verified by the Financial 
     Industry Regulatory Authority or an equivalent self-
     regulatory organization (as defined in section 3(a)(26) of 
     the Securities Exchange Act of 1934); or''.
       (b) Rulemaking.--The Commission shall revise the definition 
     of accredited investor under Regulation D (17 C.F.R. 230.501 
     et seq.) to conform with the amendments made by subsection 
     (a).

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Michigan (Mr. Huizenga) and the gentleman from Illinois (Mr. Foster) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Michigan.


                             General Leave

  Mr. HUIZENGA. 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 materials on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Michigan?
  There was no objection.
  Mr. HUIZENGA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, small businesses, entrepreneurs, and emerging companies 
are what drive the American economy. We meet them in our districts and 
see firsthand the benefits that their dreams, their innovations, and 
their hard work provide to our constituents and to our communities.
  These innovators, entrepreneurs, and risk takers are critical to our 
country's economic growth and prosperity. In fact, small businesses are 
responsible for more than 60 percent of the Nation's net new jobs over 
the past two decades. Sixty percent of all of the new jobs over the 
past two decades come from these small emerging companies.
  Their ability to raise capital in the private markets is critical to 
the economic well-being of the United States.
  So if our Nation is going to have an economy that provides 
opportunities for every American, then we must promote and encourage 
the success and growth of our small businesses and our startups. It is 
this notion that brings us to this legislation that we are discussing 
today.
  Under current law, accredited investors are allowed to purchase 
securities that haven't been registered with the Securities and 
Exchange Commission. These types of offerings carry more risks than 
public offerings. The thought is that individuals with enough financial 
sophistication or net worth can bear the potential losses that may be 
associated with these types of securities.
  How the law works today is that this definition of an accredited 
investor is solely based on wealth.
  The ability to participate in a private offering should not be 
limited to individuals that pass some type of Federal Government assets 
test. Instead, the ability to participate should be expanded to include 
all individuals who demonstrate that they have sufficient understanding 
of the offering. That may be a doctor who has gone through the training 
and has an idea that a new piece of equipment might work for them; or a 
scientist who has done research in the lab who says: You know what, 
this makes sense to me, and they understand the risk that they are 
entering into.
  Well, H.R. 1585, the Fair Investment Opportunities for Professional 
Experts Act, introduced by Representative Schweikert and Representative 
Hill, will expand the definition of an accredited investor in a way 
that will appropriately increase the pool of potential investors, 
thereby providing additional investment opportunities for more 
Americans and enabling the businesses they invest in to create more 
jobs.
  The expansion of the accredited investor definition will enhance the 
ability of many companies, particularly small and emerging companies 
and businesses, to raise capital and grow by increasing the pool of 
potential investors. These are investors, again, that are very 
knowledgeable about that particular area.
  This will both provide greater investment opportunities for more 
Americans and will enable these businesses to begin investing to create 
more jobs.
  H.R. 1585 is a bipartisan bill that will help create jobs and a 
healthier economy. The bill provides Americans with more investment 
opportunities and enhances small companies' ability to raise capital.
  This legislation overwhelmingly passed the Financial Services 
Committee by a bipartisan vote of 58-2, and I urge all of my colleagues 
to vote ``yes'' on this particular bill today.
  Mr. Speaker, I reserve the balance of my time.
  Mr. FOSTER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise today in support of H.R. 1585. This bill will 
expand the definition of accredited investor, a status reserved for 
investors who possess the sophistication and financial means necessary 
to invest in private securities offerings.
  Currently, accredited investors are limited to persons who have an 
annual income more than $200,000, or $300,000 together with a spouse, 
or a net worth in excess of $1 million, excluding a primary residence.
  Aside from the primary residence exclusion added by the Dodd-Frank 
Act, the accredited investor definition has not been updated since 
1982.
  In light of the growth of private markets and increasing complexity, 
the SEC's Investor Advisory Committee recommended that the SEC conduct 
additional study of adjusting the current thresholds for inflation and 
establishing alternatives based on existing credentials, investment 
experience, and limits of investments.
  An updated definition is long overdue. Current law speaks almost 
exclusively to the ability to bear a loss rather than the 
sophistication of the investor.
  The bill we consider today is the product of bipartisan compromise. 
Last Congress, it was significantly narrowed to include only persons 
who qualify based on current income and net worth tests: registered 
brokers, and investment advisers, and those who have the appropriate 
educational background and job experience as determined by the SEC and 
verified by FINRA.
  These categories are in line with the recommendations of the Investor 
Advisory Committee and effective proxies for sophistication, access to 
information, and ability to withstand losses.
  There is an inherent tension between democratizing markets and 
protecting investors on the basis of their ability to bear financial 
losses.

  This bill includes Ranking Member Waters' bipartisan amendment to 
require the SEC to adjust net worth and income thresholds for inflation 
every 5 years. This will establish the economic value of the thresholds 
in current law, as the dollar amounts are increased, with growth in the 
overall economy and changes in the value of the dollar.
  Doing so will preserve access to private markets for those currently 
investing in them. Private offerings can offer some of the best returns 
in the market, but they obviously carry different risks, like 
illiquidity, than securities in the public markets.
  While there can be investment opportunities that significantly 
increase a person's net worth, they cannot be immediately sold if an 
investor's financial circumstances change.
  So this bill strikes a good compromise between giving access to 
investments without exposing the retirement accounts of working 
families to excessive risks.

[[Page H8322]]

  Mr. Speaker, I urge broad support for the bill today, and I reserve 
the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, I yield 5 minutes to the gentleman from 
Arizona (Mr. Schweikert), the sponsor of this legislation.
  Mr. SCHWEIKERT. Mr. Speaker, I thank Chairman Huizenga for yielding 
me time.
  A little bit of history: this piece of legislation, the underlying 
idea, actually was fostered a few years ago. One of my closest friends 
in Arizona, Lakshmi, is freaky smart, electrical engineer, off the 
charts IQ. He and I were having a conversation about a company that he 
was really interested in that had been started by a handful of his old 
friends.
  Well, it turns out his old friends had gone through all this process, 
and he had just sort of been watching what they were doing.
  Now, Lakshmi is an absolute expert on the technology that these 
gentlemen are putting together, but because of a series of timing and 
other things, he was walled off from investing in a company that was 
using a technology he was an absolute expert in, because he didn't meet 
the accredited investor standards. He didn't have the million dollars 
in the bank.
  His argument to me was, should his knowledge on a company and its 
product, their risk profile, its opportunity to succeed and its 
potential failure in the marketplace be based on his bank account, or 
should it be based on his knowledge?
  Now, the legislation has gone through a couple generations of 
compromise. I personally preferred the original bill, a bit more 
expansive, but this is a good thing, because for our brothers and 
sisters on both sides of the aisle here, I think we are embracing this 
concept that we all care about the curve where we are seeing the 
wealthy getting wealthier in the United States and much of our 
hardworking middle holding sort of flat.
  This is one of the reasons: we have created these definitions where 
accredited investors, I think only, like, 600-some-thousand people, 
have gone through the process to hold that designation in our society, 
meaning it is a tiny sliver of our society that is allowed to invest in 
these types of businesses.
  We have a bureaucracy that for how many years now the regulator has 
said: Your ability to invest in these types of organizations is based 
on your bank account.
  Today, we take the sort of first step on a bipartisan basis to say: 
Yes, bank account is one, but how about your risk tolerance, your 
knowledge, your expertise, and your understanding that many of these 
fail, and many of these businesses become amazing successes, but are 
you able to process both the technology, the risk, and the information?
  For many of us, we are hoping that the opportunity to be part of the 
investor class starts to become much more egalitarian across our 
society instead of just being the hallmark of the ultrawealthy in our 
country.
  Mr. Speaker, I thank Mr. Huizenga for giving me a moment and for 
moving this bill forward.
  Mr. FOSTER. Mr. Speaker, I just wanted to say that I appreciate my 
colleague's heartfelt concern for the difficulty of the wealth piling 
up in the top of our country.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, I yield 3 minutes to the gentleman from 
California (Mr. Royce), a member of the Financial Services Committee 
and chairman of the Foreign Affairs Committee.

                              {time}  1430

  Mr. ROYCE of California. Mr. Speaker, today I rise in support of the 
Fair Investment Opportunities for Professional Experts Act. This is a 
bipartisan bill. It expands economic opportunities for many, many 
Americans because, to date, only an individual's wealth has been taken 
into consideration when defining whether he meets the qualifications or 
she meets the qualifications of an accredited investor under our 
securities laws. The simple fix proposed by this bill will empower 
those with financial expertise and those with experience to join the 
ranks of those who can invest in private, high-growth companies.
  It was explained very eloquently here by the bill's author, and I 
think that this commonplace change is going to broaden the pool of 
startup capital. That is going to help companies looking to grow, 
companies looking to add jobs.
  At the same time, it provides an investment opportunity, one with 
greater upside and more risk, to those previously locked out of the 
private placement market. This includes many educated young Americans 
who have not yet had time to grow their pocketbooks but do have the 
expertise in these areas.
  Mr. Speaker, in closing, I have seen firsthand that the 
entrepreneurial spirit is certainly alive and well in California and 
all across this country, and this bill before us today ensures that 
more Americans can participate in both the risk and reward of the 
startup economy.
  Mr. Speaker, I urge all of my colleagues to support passage of H.R. 
1585.
  Mr. HUIZENGA. Mr. Speaker, I yield 2 minutes to the gentleman from 
Ohio (Mr. Davidson), a member of the Financial Services Committee.
  Mr. DAVIDSON. Mr. Speaker, H.R. 1585 does one of the things that most 
of us came to Congress to do: solve problems and change laws.
  The current law excludes most of America from participating in one of 
the most dynamic parts of our economy, which is private placement 
investment into small startup companies or, sometimes, very big 
companies but they are not yet publicly traded. There are opportunities 
all over to do this, but there are only a small number of Americans who 
can make the investment.
  For many smaller companies, they are faced with a dilemma. One option 
is no option. They may not have the network of prospective high net 
worth, accredited investors who can take a look at the kind of capital 
that would help that company become a thriving larger company, that 
would help grow the companies that drive the growth in our economy.
  As investors, there are people who work in the investment industry 
who are doing the underwriting--charter financial analysts, for 
example. Whether they are working for a private equity group, they are 
doing the work but don't yet have the high net worth. They have true 
domain expertise.
  Imagine the skilled labor who is actually doing the technology 
implementation, who knows exactly everything that it would take in a 
program to make a program be the winner in the marketplace but is also 
well informed on the rest of the risks, has been well educated on the 
market, and he is prevented from participating.
  This act is a step in the right direction. I hope we can accomplish 
more together. I am confident we will see great success if we can pass 
this and build on it by taking a bigger bite at the apple soon.
  Mr. Speaker, I want to thank my colleagues Mr. Schweikert for 
offering the bill, Mr. Hill for getting it through, Mr. Hensarling, and 
Mr. Huizenga, but I also want to thank my colleagues because it is 
really nice to see something go through unanimously in our committee.
  Mr. FOSTER. Mr. Speaker, I yield back the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, very quickly, just to recap, 60 percent of 
all job growth over the past two decades has come from small and 
emerging companies. This bill today recognizes that and encourages more 
of that to happen. It allows knowledgeable but maybe not wealthy folks 
to invest in areas of their expertise. In an era of crowdfunding and 
fund-me pages and those types of capital raises and investing, this 
bill makes sense. As the gentleman from Ohio, my friend Mr. Davidson, 
pointed out, it came through the committee unanimously.
  Mr. Speaker, I think we all like to point out that Congress can work 
together across party lines and have some common goals that can be 
achieved and recognized, and this is one of those bills. I am very 
pleased to have such broad support.
  Mr. Speaker, I encourage continued support for this bill, H.R. 1585, 
and I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Michigan (Mr. Huizenga) that the House suspend the rules 
and pass the bill, H.R. 1585, as amended.

[[Page H8323]]

  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.

                          ____________________