[Congressional Record Volume 163, Number 183 (Thursday, November 9, 2017)]
[House]
[Pages H8667-H8678]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  0915
                     MICRO OFFERING SAFE HARBOR ACT

  Mr. HENSARLING. Mr. Speaker, pursuant to House Resolution 609, I call 
up the bill (H.R. 2201) to amend the Securities Act of 1933 to exempt 
certain micro-offerings from the registration requirements of such Act, 
and for other purposes, and ask for its immediate consideration in the 
House.
  The Clerk read the title of the bill.
  The SPEAKER pro tempore (Mr. Rogers of Kentucky). Pursuant to House 
Resolution 609, the bill is considered read.
  The text of the bill is as follows:

                               H.R. 2201

       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 ``Micro Offering Safe Harbor 
     Act''.

     SEC. 2. EXEMPTIONS FOR MICRO-OFFERINGS.

       (a) In General.--Section 4 of the Securities Act of 1933 
     (15 U.S.C. 77d) is amended--
       (1) in subsection (a), by adding at the end the following:
       ``(8) transactions meeting the requirements of subsection 
     (f).''; and
       (2) by adding at the end the following:
       ``(f) Certain Micro-Offerings.--The transactions referred 
     to in subsection (a)(8) are transactions involving the sale 
     of securities by an issuer (including all entities controlled 
     by or under common control with the issuer) that meet all of 
     the following requirements:
       ``(1) Pre-existing relationship.--Each purchaser has a 
     substantive pre-existing relationship with an officer of the 
     issuer, a director of the issuer, or a shareholder holding 10 
     percent or more of the shares of the issuer.
       ``(2) 35 or fewer purchasers.--There are no more than, or 
     the issuer reasonably believes that there are no more than, 
     35 purchasers of securities from the issuer that are sold in 
     reliance on the exemption provided under subsection (a)(8) 
     during the 12-month period preceding such transaction.
       ``(3) Small offering amount.--The aggregate amount of all 
     securities sold by the issuer, including any amount sold in 
     reliance on the exemption provided under subsection (a)(8), 
     during the 12-month period preceding such transaction, does 
     not exceed $500,000.''.
       (b) Exemption Under State Regulations.--Section 18(b)(4) of 
     the Securities Act of 1933 (15 U.S.C. 77r(b)(4)) is amended--
       (1) in subparagraph (F), by striking ``or'' at the end;
       (2) in subparagraph (G), by striking the period and 
     inserting ``; or''; and
       (3) by adding at the end the following:
       ``(H) section 4(a)(8).''.

  The SPEAKER pro tempore. After 1 hour of debate on the bill, it shall 
be in order to consider the amendment printed in House Report 115-401, 
if offered by the gentleman from Minnesota (Mr. Emmer) or his designee, 
which shall be considered read and shall be separately debatable for 10 
minutes equally divided and controlled by the proponent and an 
opponent.
  The gentleman from Texas (Mr. Hensarling) and the gentlewoman from 
California (Ms. Maxine Waters) each will control 30 minutes.
  The Chair recognizes the gentleman from Texas.
  Mr. HENSARLING. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, we know that, unfortunately, after 8 years of bad 
economic policies from the Obama administration, working people did not 
receive a pay increase. We know that we had one of the lowest labor 
participation rates in modern history. We know that the economy was 
limping along at 1\1/2\ to 2 percent economic growth.
  But, fortunately, Mr. Speaker, a new day has dawned and now, all of a 
sudden, we see that, with the policies of Republicans in Congress, with 
the policies of the Trump administration, we are seeing promising 
signs. What we are seeing all of a sudden now is 2 quarters, Mr. 
Speaker, of 3-plus percent economic growth. This means a difference to 
working families. They are finally seeing increases in their paychecks, 
increases in their take-home pay.
  That is why one of the most exciting policies that are being worked 
upon today that we hope to see soon is fundamental, pro-growth tax 
reform for the entire American economy; one that would grow our economy 
and that makes a Tax Code fairer, flatter, simpler, more competitive; 
one that would lower rates for families and allow 90 percent of 
Americans to fill out their forms on something akin to a postcard; 
something that would help our small businesses and entrepreneurs.
  I look forward, Mr. Speaker, to having that legislation on the floor 
soon. But we have legislation today that is also important to our small 
businesses and our entrepreneurs, H.R. 2201, by the gentleman from 
Minnesota.
  What is so important about this legislation, Mr. Speaker, is that it 
would allow our entrepreneurs and our small businesses to more 
effectively be able to reach out to family and friends to get the 
needed capital to start their businesses.
  A 2014 survey by the Kauffman Foundation found out that over 28 
percent of startups raise their funding from their personal network. 
Mr. Speaker, we have a challenge, and that is the Securities Act does 
not clearly define what is a public offering or, conversely, a 
nonpublic offering. So this makes it very difficult for our early-stage 
entrepreneurial growth companies to go out and do any kind of private 
placement to raise funds from friends and family.
  Now, we know that a private placement is already something that is 
established in law. But what isn't established is a bright line, safe 
harbor for these business enterprises to go out and raise these funds.
  So what we also know, unfortunately, from our Securities and Exchange 
Commission is that a registered offering is simply not economically

[[Page H8668]]

feasible for a small business, an entrepreneur, an issuer who is 
seeking to raise less than $1 million.
  So too often, Mr. Speaker, we have a number of these enterprises 
that, frankly, just never get jump-started because they don't have the 
opportunity for a private offering. That is why it is so important.
  I want to thank the gentleman from Minnesota (Mr. Emmer) for his 
leadership in bringing this legislation to the House floor today.
  So it is a simple piece of legislation. Again, it simply allows a 
bright line, safe harbor for very small offerings. It requires that 
each purchaser has a substantive preexisting relationship with an 
officer, director, or shareholder of the issuer.
  The issuer must reasonably believe that there are no more than 35 
purchasers of the securities, and the aggregate amount of all 
securities sold by the issuer cannot exceed $500,000 in a 12-month 
period.
  So, Mr. Speaker, we are talking about a very small portion of 
startups, but a very vitally important section of our startups that 
need capital.
  Mr. Speaker, a few decades ago there was a company where a gentleman 
borrowed money from his father to import Japanese sports shoes, and he 
purchased 200 pairs of these Japanese sports shoes. He started a 
business called Blue Ribbon Sports, and today we know it as Nike.
  A few decades ago there was an investor out in Omaha, Nebraska, who 
borrowed money from seven friends and family members, including his 
sister Doris and Aunt Alice. Over the next 9 years, this initial 
investment grew, and this gentleman purchased something called 
Berkshire Hathaway, the textile company that has now led to the 
Berkshire Hathaway empire.
  In 1994, there was a gentleman who took a loan from his parents, 
moved to a two-bedroom, small apartment, and launched a company called 
Amazon.
  We want to make sure that the next Berkshire Hathaway, the next 
Amazon get launched, and that is why it is so critical we enact H.R. 
2201.
  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. 2201 would create an unnecessary and potentially 
dangerous loophole in Federal and State securities laws by allowing 
companies to sell unregistered securities without important safeguards 
that normally apply to such transactions. Specifically, the bill would 
allow a company to raise up to $500,000 from 35 or fewer investors, 
subject only to the requirement that each of these investors has a 
substantive preexisting relationship with the company.
  Currently, before a company can offer or sell its securities, it must 
either register the offering with the Securities and Exchange 
Commission--that is the SEC--or qualify for at least one of several 
existing exemptions from registration. These exemptions provide reduced 
regulatory requirements for businesses conducting the offerings, but 
are limited to investors who have the financial sophistication to 
understand the risks, or enough assets to bear losses without the full 
protections of the securities laws.

  Additionally, unlike H.R. 2201, these existing exemptions include 
several critical investor protections, such as notice to regulators, 
limitations on advertising, and restrictions on resale. For example, 
securities offered pursuant to rule 506 of regulation D are restricted, 
meaning they cannot be resold for at least a year without registering 
them; that is, re-registering them.
  Additionally, the re-registration exemptions available under the 
crowdfunding rules and regulation A impose limitations on the amounts 
an individual can invest in a year, thereby placing a cap on potential 
losses.
  H.R. 2201's lack of basic safeguards would leave investors vulnerable 
to an array of investment scams. For example, a purchaser of securities 
offered pursuant to H.R. 2201 would be able to immediately resell the 
securities in secondary transactions. In the past, the failure to 
restrict the resale of unregistered securities has exposed secondary 
investors to ``pump and dump'' schemes, a form of fraud that involves 
hyping up cheap junk stock in order to resell it at a higher price to 
unwitting investors.
  Additionally, investor and consumer advocates, like Americans for 
Financial Reform, Center for American Progress, and Public Citizen, 
oppose H.R. 2201 because it would enable a particularly deceptive scam 
known as ``affinity fraud.'' Bad actors perpetrating affinity fraud 
could use H.R. 2201 to prey upon religious communities, ethnic groups, 
and the elderly.
  Just a few years ago, the SEC shut down a scheme targeting the 
Hispanic community in southern California. The perpetrators raised more 
than $800,000 by representing to close friends and family members that 
their investment would be used to develop a financial services firm 
serving the Hispanic community.
  The SEC found that, instead of developing the purported business, the 
scammers ``used a large part of the investors' money to engage 
unsuccessfully in high risk `day-trading' of stocks; pay personal 
living, travel, and entertainment expenses; or make other unexplained 
expenditures with no connection to the purported startup business 
activities.''
  H.R. 2201 would provide a roadmap for bad actors to similarly rip off 
investors. The bill's $500,000 cap on offerings does not eliminate the 
need for robust safeguards against fraud and abuse. In fact, these 
protections are even more important for offerings of this size, given 
the proliferation of investment schemes in the smaller offering space.
  The SEC has found that ``fraud in the micro cap stock markets is of 
increasing concern to regulators, as such markets have proven to be 
fertile grounds for fraud and abuse.''
  While $500,000 may not seem like a lot on Wall Street, for Main 
Street Americans, losing even a fraction of that amount would destroy 
the hope of one day retiring with dignity. Existing exemptions such as 
those available under the SEC's regulation D, regulation A, and 
crowdfunding rules provide ample opportunities for companies to raise 
capital while also protecting investors.
  H.R. 2201 would only expose hardworking Americans to a new and wholly 
unnecessary risk. For these reasons, I urge my colleagues to vote 
``no'' on H.R. 2201, and I reserve the balance of my time.


                             General Leave

  Mr. HENSARLING. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days within which to revise and extend their 
remarks and submit extraneous material on the bill under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Texas?
  There was no objection.
  Mr. HENSARLING. Mr. Speaker, I yield 5 minutes to the gentleman from 
Minnesota (Mr. Emmer), the sponsor of the legislation and an 
outstanding member of the Financial Services Committee.
  Mr. EMMER. Mr. Speaker, while government isn't meant to create jobs, 
with the help of the President, Congress can set Federal policies that 
establish a pro-worker, pro-business environment that lifts people out 
of poverty, helps families, and drives our country forward.
  One problem today that is impeding job growth is access to capital 
for small businesses. American businessmen and -women are often unable 
to get the loans they need to start a new enterprise or to grow an 
existing one.
  Additionally, if a firm would like to publicly sell stock to raise 
money, it must register with the Securities and Exchange Commission, 
which costs $2.5 million, on average; an amount most small businesses 
simply cannot afford.
  Small and emerging businesses are a key to the economic engine in 
America. The Small Business Administration found that these businesses 
create over half of the new jobs on an annual basis in this country. 
More importantly, today's small businesses are tomorrow's success 
story.
  Just think of all the great businesses in this country that started 
with a dream in a garage: Amazon, Apple, Microsoft, Disney, Harley-
Davidson, and Minnesota's own Medtronic. We want to empower the 
entrepreneurs in this country to dream, innovate, and create jobs that 
grow our economy.
  That is why I introduced the Micro Offering Safe Harbor Act. This 
bill will make it easier for entrepreneurs and

[[Page H8669]]

small businesses to raise money from family, friends, and their 
personal network without running afoul of the vague and undefined 
``private offering'' safe harbor provisions in the Securities Act of 
1933.
  Thus, the Micro Offering Safe Harbor Act helps bring clarity to 
existing law so that our current and future job creators can easily 
raise capital within the confines of an easy-to-understand provision 
without the help of an expert.

                              {time}  0930

  This legislation requires three specific criteria to be met 
simultaneously in order to trigger a safe harbor exemption for a 
security offering instead of just one or more. These criteria ensure 
that: one, each purchaser has a substantive preexisting relationship 
with an owner; two, there are no more than 35 purchasers of securities 
from the issuer that are sold in reliance on the exemption during the 
12 months proceeding; and, three, the aggregate amount of all 
securities sold by the issuers does not exceed $500,000 during the 12-
month period preceding the offering. The bill also exempts any of the 
aforementioned security offerings from blue-sky laws, while maintaining 
antifraud provisions at the Federal and State level.
  These provisions protect Americans from criminals trying to swindle 
them out of their hard-earned money, while making capital more 
accessible to businesses by investors from around the country.
  In fact, I will be offering an amendment to enhance these antifraud 
provisions. This amendment, which incorporates the suggestions made by 
my colleagues on the other side of the aisle during a legislative 
hearing in the last Congress, will ensure that individuals who have 
been disqualified under the ``bad actor'' disqualification standard, as 
is listed under current law, are prohibited from using the exemption 
provided under H.R. 2201, establishing yet an additional layer of 
investor protection.
  Entrepreneurs and small-business owners need access to capital in 
order to achieve the American Dream. Although small businesses 
accounted for 99.7 percent of all the businesses in the United States 
last year, only half of them will survive longer than 5 years, 
according to our Bureau of Labor Statistics.
  Lack of capital or difficulty accessing capital is one of the main 
causes of failure for many of these small businesses. A 2015 survey 
conducted by BlueVine found that 75 percent of small and emerging 
businessowners reported their primary source of funding comes from 
their own personal finances, followed by banks at 16 percent and family 
and friends at 6 percent.
  While banks and credit unions do their best to offer the funding 
these businesses need to grow and thrive, there are still 3 million 
fewer small business loans made annually, today, than there were before 
the 2008 financial crisis. H.R. 2201 seeks to build off the success of 
the Jumpstart Our Business Startups Act of 2012, better known as the 
JOBS Act, and will continue to spur capital formation for the true job 
creators and drivers of our country's economy.
  The Micro Offering Safe Harbor Act helps small and emerging companies 
add another tool to the toolkit, enabling them to confidently find 
alternative ways of raising these funds without having to pay for 
costly securities experts and without the fear of lawsuits if they 
operate within these easy-to-understand parameters.
  That is why the Micro Offering Safe Harbor Act is endorsed by the 
National Small Business Association; the Small Business & 
Entrepreneurship Council; the National Federation of Independent 
Business; the Chamber of Commerce; Heritage Action; and Engine, ``The 
Voice of Startups in Government.''
  The House approved an identical version of this legislation during 
the 114th Congress as part of the Accelerating Access to Capital Act, 
and language similar to H.R. 2201 was included in the Financial CHOICE 
Act, which was adopted by this Chamber in June.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. HENSARLING. Mr. Speaker, I yield an additional 30 seconds to the 
gentleman from Minnesota.
  Mr. EMMER. Mr. Speaker, the time has come for Congress to come 
together and help small businesses help themselves by making this 
important update and improvement to the Securities Act of 1933.
  I want to thank Chairman Hensarling; Capital Markets, Securities, and 
Investment Subcommittee Chairman Huizenga; and all of the staff on the 
Financial Services Committee for their hard work on this legislation.
  Mr. Speaker, I urge my colleagues to support this legislation and 
hope that both parties will use H.R. 2201 as a way to show their 
support for more opportunities and better lives for our job creators.
  Mr. Speaker, I include in the Record letters from the National Small 
Business Association, the Small Business & Entrepreneurship Council, 
the United States Chamber of Commerce, Heritage Action for America, and 
Engine.

                              National Small Business Association.
     Hon. Tom Emmer,
     House of Representatives,
     Washington, DC.
       Dear Representative Emmer: On behalf of the National Small 
     Business Association (NSBA), the nation's first small-
     business advocacy organization, with more than 65,000 small-
     business members representing every state and every industry 
     across the country, I commend your leadership for introducing 
     the Micro Offering Safe Harbor Act (H.R. 2201) as it will 
     have an immediate and direct impact on small businesses 
     looking to raise capital. NSBA has long supported the kind of 
     simplification this legislation would bring for small 
     businesses.
       Capital is the lifeblood of any small business, and often 
     small-business owners need capital at various stages; some at 
     their startup and others later when they are looking to 
     expand. Despite this ongoing need, small-business lending 
     from banks has decreased over the last decade and many small 
     businesses have few options for obtaining capital. According 
     to NSBA's 2016 Year-End Economic Report, small-business 
     access to capital remains stubbornly unchanged since the 
     previous year, with just 69 percent of small firms reporting 
     they are able to get adequate financing. This drop has real-
     world implications: 41 percent said lack of capital is 
     hindering their ability to grow their business or expand 
     operations, and 20 percent said they had to reduce the number 
     of employees as a result of tight credit.
       Therefore, raising capital though securities is an 
     attractive alternative option for many small-business owners. 
     However, the current regulatory requirements are quite 
     onerous for small businesses, often requiring expensive 
     specialized counsel for even very small securities offerings.
       NSBA supports this targeted legislation that creates a safe 
     harbor for small securities offerings which meet requirements 
     clearly identified in the legislation. Under the legislation, 
     these exemptions include offerings in which each purchaser 
     has a substantive pre-existing relationship with the owners, 
     where the issuer has less than 35 purchasers utilizing the 
     exemption in the preceding 12 month period, or where the 
     total amount raised during the preceding 12 month period is 
     less than $500,000. By creating three safe harbor exemptions 
     for ``non-public offerings,'' businesses can operate with 
     clarity and a clear conscience knowing that they would be 
     exempted from registering with the Securities and Exchange 
     Commission (SEC). Additionally, the legislation also exempts 
     transactions meeting the specified requirements from state 
     registration requirements, commonly referred to as ``blue sky 
     laws.''
       Raising capital for small businesses from friends and 
     family already takes place on a regular basis, except those 
     transactions often lack the legal protections and structure 
     of securities law. In addition to expanding access to capital 
     for small businesses, this legislation will bring those 
     transactions under a recognized legal framework, and make 
     resolving disputes that arise much more efficient. Finally, 
     bringing these existing transactions under an existing legal 
     framework will provide a sound legal basis for subsequent 
     larger offerings requiring registration with the SEC.
       Access to capital continues to be one of the most pressing 
     issues facing the small-business community. All small 
     businesses need an injection of capital at one point or 
     another, unfortunately in the past several years it has 
     become difficult for small businesses to get the funds they 
     need to grow and expand. NSBA is pleased to support the Micro 
     Offering Safe Harbor Act as it will help small businesses 
     around the country expand and create new jobs in their 
     communities.
           Sincerely,
                                                   Todd McCracken,
     President & CEO.
                                  ____

                                                  Small Business &


                                     Entrepreneurship Council,

                                     Vienna, VA, October 10, 2017.
     Hon. Tom Emmer,
     House of Representatives,
     Washington, DC.
       Dear Representative Emmer: On behalf of the Small Business 
     & Entrepreneurship Council (SBE Council) and our nationwide 
     membership of entrepreneurs and small business owners, I am 
     writing to voice our support for the Micro Offering Safe 
     Harbor Act, H.R. 2201.

[[Page H8670]]

       When it comes to raising capital, the existing regulatory 
     system is onerous and complex. Even for small securities 
     offerings, compliance and navigating the rules are very 
     expensive. H.R. 2201 is a needed solution that makes smart 
     changes to existing law, providing certainty and an effective 
     option for small businesses that need to raise capital.
       H.R. 2201 would exempt from registration requirements with 
     the Securities and Exchange Commission (SEC) offerings made 
     only to the entrepreneur's friends and family, to less than 
     35 purchasers, and when $500,000 or less is raised. The 
     offering would be exempt from state registration and 
     qualification rules, thus reducing costs and complexity. H.R. 
     2201 would appropriately scale SEC rules and regulatory 
     compliance for our nation's small businesses, which in turn 
     will provide another practical option for entrepreneurs to 
     raise the capital they need to start or grow their firms.
       The United States has much work to do when it comes to 
     fostering capital formation and encouraging investment and 
     entrepreneurship. The Micro Offering Safe Harbor Act is a 
     smart solution that will help many entrepreneurs successfully 
     start and grow their businesses. Thank you for your 
     leadership.
           Sincerely,
                                                   Karen Kerrigan,
     President & CEO.
                                  ____

                                        Chamber of Commerce of the


                                     United States of America,

                                 Washington, DC, October 10, 2017.
     Hon. Jeb Hensarling,
     Chairman, Committee on Financial Services,
     House of Representatives, Washington, DC.
     Hon. Maxine Waters,
     Ranking Member, Committee on Financial Services, House of 
         Representatives, Washington, DC.
       Dear Chairman Hensarling and Ranking Member Waters: The 
     U.S. Chamber of Commerce strongly supports several bills the 
     Committee is scheduled to markup on October 11, 2017. The 
     Chamber appreciates the Committee's ongoing work to enhance 
     capital formation, hold regulators accountable, and reduce 
     red tape burdens upon American businesses and consumers. The 
     Chamber supports the following bills.
       H.R. 477, the ``Small Business Mergers, Acquisitions, 
     Sales, and Brokerage Simplification Act of 2017,'' would 
     simplify Securities and Exchange Commission (SEC) 
     registration requirements for certain mergers and 
     acquisitions (M&A) brokers who perform services related to 
     the transfer of ownership of smaller private companies. The 
     legislation properly balances regulatory relief for brokers 
     and businesses involved in such transactions with important 
     investor protections to prevent abuse. H.R. 477 would require 
     disclosure of relevant information to investors and would not 
     exempt M&A brokers from existing rules designed to prevent 
     those who violate the law from continuing to work in the 
     securities business.
       H.R. 1116, the ``Taking Account of Institutions with Low 
     Operation Risk (TAILOR) Act of 2017,'' would direct federal 
     banking regulators to scale rulemakings in order to properly 
     reflect the various risk profiles of financial institutions. 
     One of the unfortunate developments in recent years has been 
     ``one size fits all'' regulation in the banking sector. This 
     legislation would ensure that community and regional 
     financial institutions are not forced to comply with 
     regulatory regimes more suited for global, interconnected 
     institutions.
       H.R. 1585, the ``Fair Investment Opportunities for 
     Professional Experts Act,'' would expand the definition of 
     ``accredited investor'' under securities laws by allowing 
     those who can demonstrate relative education or work 
     expertise to invest in certain private offerings, regardless 
     of their income or net worth. In addition to providing Main 
     Street households with greater opportunities to build wealth, 
     H.R. 1585 would expand the pool of capital available to 
     private businesses.
       H.R. 1645, the ``Fostering Innovation Act of 2017,'' would 
     extend the Sarbanes-Oxley 404(b) internal controls exemption 
     for certain emerging growth companies (EGCs) from five years 
     to ten. This change would prevent the premature phase out of 
     one of the more popular provisions of the 2012 Jumpstart our 
     Business Startups (``JOBS'') Act, and would provide a further 
     incentive for companies to enter public markets.
       H.R. 2201, the ``Micro Offering Safe Harbor Act,'' would 
     provide a means for businesses to solicit and raise limited 
     amounts of capital without running afoul of securities laws. 
     Private businesses would be permitted to seek community-based 
     financing of up to $500,000 per year in order to expand or 
     hire new employees. Importantly, the bill includes a number 
     of robust investor protections that would help prevent fraud 
     and abuse in the market.
       H.R. 2396, the ``Privacy Notification Technical 
     Clarification Act,'' would amend the 1999 Gramm-Leach-Bliley 
     Act by clarifying that financial institutions are only 
     required to send customers annual privacy notifications if 
     there have been changes in the institution's privacy 
     policies. It also clarifies that such notices need not be 
     physically provided to a customer if they are made available 
     online at the customer's request. These provisions would save 
     costs for consumers and mitigate confusion related to privacy 
     notices.
       H.R. 2706, the ``Financial Institution Customer Protection 
     Act of 2017,'' would help prevent another ``Operation 
     Chokepoint'' by prohibiting federal agencies from directing a 
     financial institution to terminate an account without a 
     material, documented reason for doing so. This bill would 
     ensure that agencies do not unjustifiably discriminate 
     against certain industries. The bill would also clarify 
     liability under the Financial Institutions Reform, Recovery, 
     and Enforcement Act. A House investigation of Operation Choke 
     Point revealed the Obama administration Department Of Justice 
     had radically and inappropriately reinterpreted the law.
       H.R. 3299, the ``Protecting Consumers Access to Credit Act 
     of 2017,'' would codify the ``valid-when-made'' doctrine, 
     which states that the characteristics of a loan are valid at 
     origination, and are not unenforceable when assigned to 
     another party. The recent Second Circuit decision in the 
     Madden vs. Midland Funding, LLC case has undermined this 
     doctrine and threatens to impose a chilling effect on credit 
     markets nationwide. H.R. 3299 would restore the longstanding 
     ``valid-when-made'' legal principle and protect consumers and 
     businesses that rely on robust credit markets.
       H.R. 3312, the ``Systemic Risk Designation Improvement Act 
     of 2017,'' would replace Dodd-Frank's arbitrary asset 
     threshold for labeling a bank ``systemically important'' with 
     a multi-factor, tailored assessment that considers size, 
     interconnectedness, substitutability, complexity, and cross-
     jurisdictional. Mid-size and regionals banks do not generate 
     systemic risk and are critical to small business lending. By 
     tailoring regulation and rejecting a one-size-fits-all 
     approach, H.R. 3312 would promote Main Street access to 
     credit and unlock economic growth.
       H.R. 3857, the ``Protecting Advice for Small Savers (PASS) 
     Act of 2017,'' would repeal the misguided ``fiduciary rule'' 
     issued by the Department of Labor (DOL) in 2016. The DOL rule 
     was built upon a fundamentally flawed and theoretical 
     analysis that has been refuted by real life experience. A 
     recent Chamber survey demonstrated the harm that DOL's rule 
     is already inflicting upon investors, and we have long called 
     for the SEC to assert its jurisdiction regarding standards of 
     conduct for broker-dealers and investment advisers. H.R. 3857 
     would rightly direct SEC to craft a rulemaking under the 
     securities laws to protect investors and preserve access to 
     investment choice.
       H.R. 3903, the ``Encouraging Public Offerings Act of 
     2017,'' would allow any company--regardless of size or EGC 
     status--to take advantage of the popular provisions under 
     Title I of the 2012 JOBS Act, which include allowing 
     investors to submit confidential draft registration 
     statements with the SEC and to ``test the waters'' before 
     filing an IPO. Title I of the JOBS Act has proven to be a 
     true policy success, and Congress and the SEC should continue 
     to explore how more companies can take advantage of its 
     provisions.
       H.R. 3911, the ``Risk-Based Credit Examinations Act of 
     2017,'' would authorize the SEC to utilize `risk-based' 
     examinations of Nationally Recognized Statistical Rating 
     Organizations (NRSROs), which would allow the SEC to focus 
     its limited resources and prioritize its examination agenda, 
     while reducing unnecessary compliance burdens on regulated 
     entities.
       H.R. 3948, the ``Protection of Source Code Act,'' would 
     amend the Securities Act of 1933 to require that the SEC 
     actually issue a subpoena before requiring a person or entity 
     to produce trading ``source code.'' Source code is the 
     intellectual property of certain market participants, and 
     there is no reason for the SEC to put into place a broad 
     collection mechanism for such sensitive information. This 
     legislation is necessary after past attempts by the Commodity 
     Futures Trading Commission (CFTC) to collect source code 
     without a subpoena.
       H.R. 3972, the ``Family Office Technical Correction Act of 
     2017,'' would provide certainty for ``family offices'' 
     defined under securities laws by clarifying that such offices 
     are accredited investors. This bill would preserve the 
     ability of family offices to invest in certain private 
     offerings and help them remain an important source of capital 
     for growing businesses.
       H.R. 3973, the ``Market Data Protection Act of 2017,'' 
     would delay any reporting to the consolidated audit trail 
     (CAT) until the SEC, Financial Industry Regulatory Authority 
     (FINRA), and CAT operators develop sufficient cybersecurity 
     protocols to protect the information that is set to be 
     collected under the CAT. Recent cyberattacks have 
     demonstrated that vulnerabilities exist within our capital 
     markets, and H.R. 3973 would help safeguard the personal and 
     sensitive information of market participants. The SEC should 
     also explore alternatives to using personally-identifiable 
     information as part of its data collection efforts under the 
     CAT.
       Collectively, these bills would modernize capital markets, 
     preserve consumer choice and access to credit, and require 
     more transparency and accountability of the federal financial 
     regulators. We look forward to working with the Committee and 
     Congress as these bills advance through the legislative 
     process.
           Sincerely,
                                                     Neil Bradley.

[[Page H8671]]

     
                                  ____
                                      Heritage Action for America.
     To: Interested Parties
     From: Heritage Action for America
     Date: November 7, 2017
     Subject: Micro-Offering Safe Harbor Act (H.R. 2201)
       The Micro-Offering Safe Harbor Act (H.R. 2201) would remove 
     unnecessary regulatory impediments for the smallest 
     businesses seeking to raise capital to launch, to grow and to 
     create jobs. It would create an exemption to the Securities 
     Act registration requirement for businesses that make a 
     securities offering to 35 or fewer people with whom they have 
     a pre-existing relationship and that raise $500,000 or less. 
     This will reduce the need for main street businesses to 
     retain sophisticated securities counsel and improve their 
     access to capital.
       Heritage Action supports this legislation.
                                  ____



                                                       Engine,

                              San Francisco, CA, October 11, 2017.
     Hon. Jeb Hensarling,
     Chairman, House Committee on Financial Services, House of 
         Representatives, Washington, DC.
     Hon. Maxine Waters,
     Ranking Member, House Committee on Financial Services, House 
         of Representatives, Washington, DC.
       Dear Chairman Hensarling and Ranking Member Waters: On 
     behalf of Engine and our community of startups, 
     entrepreneurs, investors, and innovators, I write to express 
     support for several bills scheduled for consideration before 
     the House Committee on Financial Services tomorrow. 
     Specifically, Engine reiterates its support for H.R. 2201, 
     the ``Micro Offering Safe Harbor Act,'' which will facilitate 
     capital access for promising startups.
       Engine is a nonprofit and advocacy group that supports 
     high-growth, high-tech startups through research, advocacy, 
     and policy analysis. We work to foster and promote forward-
     looking government policies and a regulatory environment in 
     which entrepreneurs can launch innovative, new companies that 
     grow and thrive. Through conversations with diverse startups 
     across the country, we know that capital access remains a top 
     challenge in getting a business off the ground.
       A large portion of startups rely on small, nonpublic 
     offerings (also known as a ``private placements''), such as a 
     ``friends and family'' round, to raise seed capital. In fact, 
     a 2014 survey by the Kauffman Foundation found that over 28 
     percent of startups raised some amount of funding from their 
     personal network. However, the Securities Act does not 
     clearly define what constitutes a public offering, or 
     conversely, a nonpublic offering, making it easy for early 
     stage companies to unintentionally run afoul of the law when 
     doing a private placement.
       H.R. 2201 would create three bright line safe harbor 
     exemptions for non-public offerings. Under the legislation, 
     offerings would be exempt from registration with the 
     Securities and Exchange Commission (SEC) if each purchaser 
     has a substantive pre-existing relationship with the issuer, 
     there are 35 or fewer purchasers, or the amount being raised 
     does not exceed $500,000. These exemptions would bring much 
     needed clarity for startups and ensure that a company doing a 
     small, private placement is not forced to complete burdensome 
     paperwork or spend precious resources on an expensive lawyer 
     in order to comply with ambiguous regulatory requirements.
       Finally, H.R. 2201 would exempt these micro-offerings from 
     state blue sky registration and qualification laws, 
     decreasing the regulatory complexity for startups doing a 
     small raise.
       Engine appreciates the Committee's consideration of this 
     bill and its continued work on capital access issues for 
     emerging firms. We look forward to further engagement with 
     the bills' sponsors and Committee members on these important 
     issues.
           Sincerely,
                                                    Evan Engstrom,
                                               Executive Director.

  Ms. MAXINE WATERS of California. Mr. Speaker, I yield such time as he 
may consume to the gentleman from Rhode Island (Mr. Cicilline).
  Mr. CICILLINE. Mr. Speaker, I thank the gentlewoman for yielding.
  I want to begin, Mr. Speaker, by responding to the gentleman from 
Texas, who began this debate by saying how this was a continuation of 
an ongoing effort by Republicans to promote progrowth tax reform in 
particular.
  I want to be very clear, Mr. Speaker. The proposal that is currently 
before this House with respect to the tax changes is a tax scam. It is 
not a tax plan. It is a scam. It gives $1.5 trillion in tax cuts to the 
wealthiest Americans, the biggest corporations, and the millionaires 
and billionaires. It increases taxes on tens of millions of middle 
class families. It pays for this big gift back to corporations and 
billionaires and millionaires by deep cuts in Medicare, Medicaid, 
infrastructure spending, education--the things that actually create 
jobs.
  It creates additional incentives to ship American jobs overseas, 
creates incentives for American companies to take jobs here and ship 
them overseas, not to keep them here in our own country. It is another 
maybe more robust example of trickle-down economics. It has failed 
before. It will fail again.
  The American people might have the benefit of understanding this more 
completely if there were actually a process where this was debated, 
witnesses testified, and experts came in to talk about the implications 
of this. But this is being done in the dark of night, at the speed of 
light so the American people won't find out what is about to happen to 
them. So the idea of describing this as progrowth in this context, both 
with the provisions and the process, seems, to me, laughable.
  Let me just give the American people a couple of examples:
  It denies individuals the right to deduct State and local taxes but 
preserves that right for corporations;
  It denies the worker who is forced to leave his home and move because 
his employer is moving--either do that or he loses his job--from 
deducting the cost of moving, but it preserves the right of a company 
who is offshoring jobs overseas to take a deduction for the cost of 
moving those American jobs overseas.
  Those are just two examples. So this isn't a progrowth tax policy. 
This is trickle-down economics designed to let the people at the very 
top hold onto more of their money and corporations to keep more of 
their profits in the hope that it will trickle down to the rest of the 
American people.
  It doesn't work. It doesn't represent a progrowth tax policy. It is a 
tax scam, and so I want to just correct the record, Mr. Speaker, with 
all due respect to the gentleman from Texas.
  Mr. Speaker, I rise, in addition to that, to express my strong 
opposition to H.R. 2201, the Micro Offering Safe Harbor Act.
  In light of the devastating 2008 financial crisis and the regulatory 
weaknesses revealed by the Wells Fargo and Equifax scandals, we should 
be considering legislation that will bolster consumer and investor 
protections; but today, instead, we are considering H.R. 2201, which 
will enable abusive financial practices.
  Generally, a company that seeks to make public offerings must 
register them with the Securities and Exchange Commission or must fit 
into one of several exceptions that are designed to balance investor 
protections with regulatory burdens on smaller companies. This 
legislation would allow so-called microcap offerings, offerings valued 
at $500,000 or less in a single year to be sold to 35 or fewer 
investors, subject only to the requirement that each investor have a 
substantive preexisting relationship with the company.
  Despite the similarity of these provisions to some restrictions 
currently imposed on unregistered security offerings, H.R. 2201 omits 
several critical investor protections that are characteristic of 
existing exemptions. In particular, microcap offerings would be exempt 
from important regulatory protections set up in the 1933 Securities 
Act, including registration, disclosure, and fraud protections.
  Oversight in the smaller offering space such as the one proposed in 
H.R. 2201 is important because the SEC has found fraud in the microcap 
stock markets is of increasing concern to regulators, as such markets 
have proven to be fertile grounds for fraud and abuse.
  Without core protections, H.R. 2201 would leave investors vulnerable 
to an array of investment scams and abuses, with unsophisticated 
investors particularly at risk. For example, the bill has no 
restriction on resale. In the past, failure to restrict the resale of 
unregistered securities has exposed secondary investors to fraudulent 
pump-and-dump schemes, as the gentlewoman from California mentioned.
  Additionally, groups like Americans for Financial Reform, Center for 
American Progress, and Public Citizen oppose H.R. 2201 because it would 
enable a type of investment scam known as affinity fraud. In these 
schemes, scam artists prey upon members of identifiable groups, such as 
ethnic or religious communities or the elderly, often by enlisting 
respected community or religious members to help convince victims that 
a dubious investment is legitimate. The proliferation of affinity fraud 
in low-income communities demonstrates that H.R. 2201's preexisting 
relationship requirement would not provide safeguards against such 
abuse.

[[Page H8672]]

  Given existing exemptions for smaller companies would provide ample 
opportunity for companies to raise capital while also protecting 
investors, H.R. 2201 is, at best, unnecessary. This bill would simply 
create a loophole that undermines protections against the kind of 
financial abuses and recklessness that we have already seen damage our 
financial system and hurt people.
  Mr. Speaker, I urge my colleagues to oppose H.R. 2201.
  I thank the gentlewoman again for yielding.
  Mr. HENSARLING. Mr. Speaker, I yield myself 30 seconds, just to say, 
as I listen to the gentleman from Rhode Island and the ranking member, 
their comments are very interesting, but everything they described is 
already illegal. Their remarks acknowledge that the SEC can and does 
bring actions to enforce the securities laws and shut down fraud when 
they discover the fraud.

  Nothing in H.R. 2201 eliminates the DOJ's ability to pursue criminal 
prosecutions or fraud. Nothing in it impacts the SEC's ability to 
pursue civil actions against issuers who engage in fraud under section 
17(a) of the Securities Act of 1933. It is just a red herring. It is 
one of the reasons we have had such poor economic growth under the 
Democratic regime.
  Mr. Speaker, I yield 3 minutes to the gentleman from Missouri (Mr. 
Luetkemeyer), chairman of the Financial Institutions and Consumer 
Credit Subcommittee of our committee.
  Mr. LUETKEMEYER. Mr. Speaker, I thank Chairman Hensarling for his 
leadership on this issue. I also want to thank the gentleman from 
Minnesota (Mr. Emmer) for taking a lead on this important legislation.
  As an elected official, I have the opportunity to interact with 
individuals across my district who strive to create new or expand 
existing small businesses. These are folks who work hard to provide for 
their families and serve as the backbones of their communities.
  Unfortunately, for many entrepreneurs, overregulation has stifled 
their ability to innovate and grow. The National Federation of 
Independent Business published a recent study showing that 30 percent 
of small business respondents cited taxes, regulations, and red tape as 
their most significant business problem.
  While certain sectors are reaping the benefits of a strong economy, 
the reality is that startups and small businesses are sitting on the 
sidelines with limited access to credit. It is something I hear about 
from businessmen and -women every single day, be they bankers, 
retailers, farmers, doctors, and every profession in between.
  We also know that many startups and businesses have historically 
turned to local financial institutions for initial financing. In the 
years after passage of Dodd-Frank, small bank lending is down 
dramatically, leaving many commercial customers scrambling to find 
other forms of reasonably priced financing.
  Across the board, we are enabling a burdensome system that penalizes 
entrepreneurship. We need to reverse course if we want to see a 
resurgence of small business creation and growth.
  H.R. 2201 is commonsense legislation that seeks to reverse one 
impediment to entrepreneurship. Mr. Emmer's bill offers a thoughtful 
approach to a problem that has hindered and, in some cases, prevented 
small offerings across the Nation. It will appropriately scale Federal 
rules and regulatory compliance and will allow small businesses to 
access the capital necessary for growth.
  More specifically, this legislation will exempt certain nonpublic 
micro offerings from the SEC requirements. The bill features guardrails 
that allow for investor protection and subjects any and all exempted 
micro offerings to the full suite of Federal and State antifraud laws.
  The result will be a less burdensome regulation that stifles 
innovation and increases access to capital for startups and small 
businesses that comply with the parameters included in the bill. This 
bill is about Main Street, about the small-business men and women in 
each of our districts.
  Mr. Speaker, I want to again thank and applaud the gentleman from 
Minnesota for his hard work on this legislation, and I ask my 
colleagues to join me in voting in favor of the legislation.
  Ms. MAXINE WATERS of California. Mr. Speaker, may I inquire as to how 
much time I have remaining.
  The SPEAKER pro tempore. The gentlewoman has 18\1/2\ minutes 
remaining. The gentleman from Texas has 16 minutes remaining.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such 
time as I may consume.
  Mr. Speaker, we have laid out this morning exactly how vulnerable 
groups and individuals can be taken advantage of with legislation like 
this. I don't know exactly where this legislation originated, but I can 
almost guarantee you that we are creating opportunities for individuals 
who don't have the best interest of our constituents at heart to 
literally get small groups together, 35, I guess, or less, and sell 
them on ideas where they are raising funds that probably will not 
result in profits as expected by those who are investing in these 
schemes.

                              {time}  0945

  No, there are no protections. There is no notice. The SEC will not 
know when and where these schemes are arising. So I would say to my 
colleagues on the opposite side of the aisle: When are we going to act 
as if we have the best interests of our constituents at heart? When are 
we going to be about protecting consumers rather than opening up 
opportunities for them to be the victims of fraud?
  We have fraudulent schemes that are directed at the most vulnerable 
people. I know where those people who are organizing these schemes will 
go. They will go to our churches where well-meaning ministers and 
parishioners will be taken advantage of.
  In these vulnerable communities that are always taken advantage of, 
we have people who are the victims of payday loans where they are 
paying 400 percent for moneys that they are borrowing when they are 
desperate in between paychecks. We have rent-to-own schemes. We have 
all kinds of schemes where these convenience stores, in places where we 
have food deserts, are charging extremely high prices for food that is 
basically being sold for regular, ordinary, good prices in other 
communities.
  In some communities, even in California, the gas taxes are rising. We 
have the rental market that is going off the scale all over this 
country with people not being able to afford a decent lease or a decent 
rental space, and so here we are just opening up another opportunity 
for folks to be ripped off.
  It is going to happen; I can guarantee you that. When you have 
something like this that is passed by the Congress of the United 
States, it is going to be taken advantage of, and the way that this is 
constructed, it almost begs to be taken advantage of.
  So do you know what happens when this kind of thing takes place and 
Members of Congress put their reputations on passing this kind of 
legislation? When the rip-offs start and people are harmed a few years 
later, then they are going to come back with legislation talking about 
how they are correcting the fraud and the rip-offs that we caused in 
the first place.
  When is this going to stop? We have a Consumer Financial Protection 
Bureau that is struggling every day to protect our consumers. Prior to 
Dodd-Frank, we had our oversight agencies with the responsibility of 
protecting consumers, but they didn't have any real protection. So 
Dodd-Frank reforms helped to create opportunities for Members of 
Congress to be able to protect their consumers and not to be involved 
in these kinds of schemes.
  But the opposite side of the aisle has spent an inordinate amount of 
time trying to kill off the Consumer Financial Protection Bureau, and 
they have done it in so many ways. Not only do they come up with 
amendments time and time again to try and shut down the Consumer 
Financial Protection Bureau, they treat the Director of the Consumer 
Financial Protection Bureau so badly that they almost deny him the 
opportunity to come before our committee and to be heard.
  So I don't know whose side legislators are on who create this kind of 
crap. I don't understand why it is deemed to be important to open up 
the opportunity for schemes and to not give the SEC the ability to know 
when they are getting started, to have the

[[Page H8673]]

kind of disclosures, and to have the kind of oversight that would 
protect the most vulnerable people in our society.
  Mr. Speaker, yes, this legislation will probably pass today. The 
Republicans have the majority votes in this Congress, and I suppose 
they are going to get all of their people to vote for this bill that is 
going to rip off some of their constituents, and, again, we won't be 
able to stop it because, again, they have the majority votes.
  But I want the people of this country to know and understand what is 
happening, who is doing it to them, and why they are having a difficult 
time. At a time when the rental market is going off the scale and they 
can't afford to pay the first and the last month's rent to get into a 
place, I want them to know who is creating the difficulties in their 
lives when their jobs have not increased their pay, they are still 
trying to have a decent quality of life for their families, despite the 
fact that the pay does not match the job that they are doing, and they 
haven't had the pay increases.
  When are we going to show that we stand up for the least of these? 
When your churches get ripped off--and we are working on some of those 
schemes now where, even with the responsibilities that the SEC has, we 
have people who are getting ripped off, and here we come with another 
piece of legislation. Then what we do is we shade it in terms of this 
is for small business development. Then we hear from the opposite side 
about all the other companies who started as little-bitty companies in 
their garage. Well, they all started without this bill. They didn't 
need this bill to start.
  So why are you doing this? Yeah, you are right; there are a lot of 
companies, and you have named them, particularly in the high tech 
industries that started, and they had some of their own money to get 
started with, and maybe the family helped them, I don't know, but they 
didn't have this legislation. They didn't need this legislation. Nobody 
needs this legislation.
  This legislation is harmful, and I would ask my colleagues to vote 
against the bill. If there are any Members on the opposite side of the 
aisle who really are concerned about their constituents, I would ask 
them to defy their leadership and vote against this bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HENSARLING. Mr. Speaker, number one, I was very pleased to hear 
one of the most compelling indictments of 8 years of the Obama 
administration I have ever heard on the House floor, and I thank the 
ranking member for it.
  Mr. Speaker, I yield 3 minutes to the gentleman from Pennsylvania 
(Mr. Rothfus), who is the vice chairman of the Financial Institutions 
and Consumer Credit Subcommittee.
  Mr. ROTHFUS. Mr. Speaker, I thank the chairman for yielding.
  Jobs, jobs, jobs. That is why, Mr. Speaker, I rise today to express 
my support for the Micro Offering Safe Harbor Act.

  Whose side am I on? The tens of millions of folks who don't have jobs 
out there who want job opportunities. We know from some studies that, 
over the last 8 years of wrong regulation, 650,000 small businesses 
have not been created. That means 6\1/2\ million jobs, 6\1/2\ million 
people who are not paying Medicare tax, and 6\1/2\ million people who 
are not paying Social Security tax. We need these people in the game, 
Mr. Speaker, and this act can help them get into the game.
  This is an important piece of pro-jobs legislation, and I thank my 
colleague, Mr. Emmer, for introducing it.
  We all want our economy to become vibrant once again so it can 
generate opportunity and prosperity for all Americans. Unfortunately, 
regulatory burdens--both new and preexisting--often get in the way of 
raising capital and building a business.
  At hearing after hearing at the Financial Services Committee, we have 
heard from financial institutions that are unable to lend to small 
businesses or are afraid to do so. We have also heard from businesses 
that cannot find the capital they need to expand or to retool. All of 
this has an impact on jobs and wages as well as on our overall economy.
  The Micro Offering Safe Harbor Act is a targeted, commonsense bill 
that will make it easier for small businesses to access capital that 
they need to grow.
  Specifically, H.R. 2201 will permit businesses to issue a limited 
number of securities to individuals with whom principals have a 
preexisting relationship. This would include family and friends who are 
often early investors in startups.
  Businesses will only be able to issue a small amount of securities--
$500,000 a year--but that is a step in the right direction toward 
helping businesses that need funding.
  This is good policy that will make it easier for small businesses to 
get off the ground, grow, and add jobs.
  At the same time, this bill ensures that our regulators can continue 
to police fraud and abuse, and to do so aggressively. On that point, 
there is no ambiguity. Fraud is illegal, and it will not be tolerated 
or excused.
  Again, I strongly support the Micro Offering Safe Harbor Act. It is 
good for the economy and good for hardworking Americans. It is good for 
jobs, jobs, jobs.
  Mr. Speaker, I urge my colleagues to support this legislation.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such 
time as I may consume.
  Mr. Speaker, by allowing entities to sell unregistered securities 
based solely on a preexisting relationship with the investor, H.R. 2201 
would create a road map for affinity fraud.
  Affinity fraud is a type of investment scam where swindlers prey upon 
members of identifiable groups such as ethnic or religious communities 
or the elderly. Often, affinity fraudsters take advantage of 
preexisting relationships to engender trust and convince victims that a 
dubious investment is legitimate.
  The Securities and Exchange Commission has found that such frauds 
pose heightened risks to investors because they can be difficult for 
regulators or law enforcement officials to detect, particularly where 
the fraudsters have used respected community or religious leaders to 
convince others to join the investment.
  The following cases represent a sampling of recent affinity fraud 
actions from around the United States.
  In August, 2013, the SEC halted an offering fraud scheme where Steven 
Bruce Heinz, a Utah resident purporting to be an investment adviser, 
sold phony investment contracts to more than 15 of his former clients, 
family members, and friends. According to the SEC's complaint, Heinz 
raised $4 million in investor funds he used to engage in high-risk 
trading of future contracts and to pay his own personal expenses such 
as family vacations to Mexico and a $600,000 loan.
  Among the investors taken in by Heinz scam was ``the recent widow of 
a church associate of Heinz who invested with Heinz after he 
volunteered to assist her with her finances and investments after her 
spouse died.''
  In 2012, the SEC stopped a $7.5 million fraud operation targeting the 
Persian-Jewish community in Los Angeles. The SEC's assistant regional 
director stated that Shervin Neman ``deceived members of his own 
community to raise money in this fraudulent Ponzi scheme. By exploiting 
investors' trust in him, Neman was continually able to raise more money 
to pay back existing investors and finance an extravagant lifestyle.''
  According to the SEC's complaint, among other things, Neman spent 
investor funds to pay for his wedding and honeymoon, his wife's 
engagement ring, luxury cars, and VIP tickets to entertainment venues.
  In 2015, the SEC permanently barred John Allan Russell from the 
securities industry after Russell pled guilty to securities fraud in 
Colorado State court. The SEC's administrative law judge found that 
Russell obtained almost $300,000 by selling debt securities to an 
elderly victim who suffered from dementia and Alzheimer's disease. The 
ALJ also determined that ``Russell's scheme may have involved affinity 
fraud because the misconduct began a few years after the victim acted 
as Russell's godfather at his baptism.''
  These cases demonstrate that H.R. 2201's preexisting relationship 
requirement would not provide any meaningful deterrent against abuse. 
On the contrary, it would encourage opportunistic conduct targeting 
communities.

[[Page H8674]]

  Mr. Speaker, I urge my colleagues to join me in voting ``no'' for 
this bill.
  Given all that the SEC is able to do, they can't keep up with these 
schemes, and now you are going to open up the door for them to have to 
wrestle with trying to help people who are victims of these kinds of 
schemes.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from 
Colorado (Mr. Tipton), who is the vice chairman of the Oversight and 
Investigations Subcommittee.

                              {time}  1000

  Mr. TIPTON. Mr. Speaker, I rise today to join my colleagues in 
support of the gentleman from Minnesota's legislation, the Micro 
Offering Safe Harbor Act.
  As I have traveled through my district back in Colorado, I have often 
been dismayed by the ever-increasing number of storefronts, once 
thriving businesses, which now have ``for sale'' and ``for lease'' 
signs out front.
  Small businesses are essential to job creation and job innovation, 
but they have been so hamstrung by the burden of compliance with 
regulations intended for large public companies that their ability to 
be able to create jobs and innovate has been stifled.
  The Micro Offering Safe Harbor Act will exempt certain micro 
offerings from the registration requirements of the Securities Act of 
1933, thereby removing obstacles to obtaining funding in capital 
markets for Main Street businesses. It is hard for capitalism to work, 
Mr. Speaker, without capital.
  This legislation tackles that problem and creates opportunities for 
hardworking small businesses to be able to go public to raise that 
initial capital in the early stage and to be able to develop that seed 
capital that is needed. Growth is often contingent on capital. Without 
investment, it is easy for small businesses to falter.
  By defining the ``nonpublic offering'' exemption under the Securities 
Act, this legislation will provide small businesses with much-needed 
clarity and a renewed confidence in what the proper procedure is for a 
nonpublic offering that does not violate the law and helps to be able 
to grow businesses.
  Removing this confusion will provide small businesses with much-
needed certainty and allow them to be able to focus their resources on 
growth, rather than on compliance.
  For this reason, I support the measure that is before us today, and I 
would encourage my colleagues to do the same. I commend Mr. Emmer for 
introducing this legislation to alleviate the burdensome compliance 
environment that is imposed on small businesses. Again, I encourage my 
colleagues to support this legislation.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such 
time as I may consume.
  Mr. Speaker, the North American Securities Administrators Association 
sent this letter of concern. They said that H.R. 2201 would result in 
an overly broad Federal exemption that would allow public solicitation 
and sales to any investor, regardless of sophistication or financial 
wherewithal, subject only to the requirement that there be a previously 
existing relationship, a standard that is not difficult to establish.
  In practical terms, this means that Main Street investors could be 
solicited and sold up to $500,000 in private security by bad actors, 
including persons having been convicted of crimes or subject to one or 
more previous State enforcement actions, without any disclosure to the 
investor and without any notice to State or Federal regulators.
  There is no valid basis for Congress to prevent State officials 
charged with protecting their constituents from making decisions about 
purely local or regional issues that would rely on the exemption 
established by H.R. 2201.
  Further, preemption of State review or even notification for the type 
of small, localized offerings contemplated by H.R. 2201 would 
effectively handcuff the regulators best positioned to oversee such 
offerings.
  Public Citizen said this bill ``would permit small offerings with no 
investor protections, such as notice of the offerings. It will enable a 
type of affinity fraud, where the seller can unload dubious securities, 
provided there is some relationship between seller and purchaser. This 
bill assumes that a preexisting relationship will deter abuse, which is 
a tenuous foundation, at best. Further, the relationship can begin with 
the offer.''
  They don't have to have a previous relationship. It would start when 
the offer takes place.
  Public Citizen further stated that ``the bill says the relationship 
must only exist before the purchase.''
  Mr. Speaker, I include in the Record letters from these groups, as 
well as a letter from Americans for Financial Reform.

                                         North American Securities


                             Administrators Association, Inc.,

                                 Washington, DC, November 7, 2017.
     Re H.R. 2201--The Micro-Offering Safe Harbor Act.

     Hon. Paul Ryan,
     Speaker, House of Representatives,
     Washington, DC.
     Hon. Nancy Pelosi,
     Democratic Leader, House of Representatives,
     Washington, DC.
       Dear Speaker Ryan and Leader Pelosi: On behalf of the North 
     American Securities Administrators Association (``NASAA''), I 
     write to express concern and raise specific objections to 
     certain provisions of H.R. 2201, The Micro-Offering Safe 
     Harbor Act, which is scheduled to be considered by the House 
     of Representatives this week. The legislation would amend 
     securities laws in ways that could be profoundly detrimental 
     to investors, and detract from the viability of the 
     marketplace for offerings from new or smaller issuers that 
     are compliant with securities law.
       The Micro-Offering Safe Harbor Act amends Section 4 of the 
     Securities Act of 1933 to create a new exemption from 
     registration. To qualify for the exemption, an offering would 
     have to meet certain criteria regarding the number of 
     purchasers, their relationship to the issuer, and the amount 
     of capital raised. However, as more fully discussed below, 
     the legislation fails to include critical investor protection 
     measures and would preempt state regulatory authority.
       State securities regulators understand the need of small 
     businesses to efficiently raise capital and the role strong 
     investor protection plays in facilitating this goal. 
     Unfortunately, the changes embodied in H.R. 2201, while well 
     intended, are ill-advised and potentially quite dangerous. 
     For example, unregistered securities purchased under the 
     exemption established by H.R. 2201 would not be 
     ``restricted,'' and could thus be sold immediately, exposing 
     investors to classic ``pump and dump'' schemes. Furthermore, 
     NASAA is aware of no evidence to support the proposition that 
     Congress should create a ``safe harbor'' to permit 
     unregistered securities offerings to be offered and sold, 
     including through general solicitation, regardless of 
     investor sophistication or financial wherewithal. Even as the 
     bill stands to introduce new and totally unnecessary risk 
     into securities markets--failing to even disqualify ``bad 
     actors'' from these markets--the goal of the legislation 
     remains unclear and its necessity is, at best, not well-
     established. It is clear, however, from the terms of the 
     exemption, and its failure to impose even the modicum of 
     regulatory oversight that exists for similar ``private'' 
     offerings under SEC Regulation D Rule 506, that offerings 
     made under the new exemption are likely to be 
     disproportionately risky and illiquid. This fact alone should 
     be cause for concern by Congress.
       Beyond stark new risks to investors, this legislation 
     threatens to jeopardize the continued viability of 
     established markets geared to smaller issuers, many of which 
     operate lawfully within existing federal and state securities 
     laws. Such markets include securities sold pursuant to SEC 
     Rule 506, new federal exemptions established by the JOBS Act, 
     and exemptions adopted in many states to permit intrastate 
     crowdfunding. Without effective investor protection measures 
     a potential effect of H.R. 2201 could be to cause investors 
     to abandon the markets for smaller issues.
       In closing, NASAA reiterates strong opposition to the 
     preemption of state registration and notice filing authority 
     in H.R. 2201. There is no valid basis for Congress to prevent 
     states from making decisions about the local or regional 
     issues that H.R. 2201 seeks to encourage. Failure to register 
     or at the very least, to notice file with state regulators 
     results in unknown sales, by unknown actors of unknown 
     enterprises and result in no gatekeeper function to protect 
     retail investors whose only source of recourse for fraudulent 
     sales are the state securities regulators. At a minimum H.R. 
     2201 should:
       1) Include bad actor disqualifications;
       2) Establish a holding period to reduce the likelihood of 
     ``pump and dump'' schemes;
       3) Provide at least a notice filing with state regulators 
     so that in the event of a fraudulent offering, state 
     regulators can begin an investigation to try and protect 
     retail investors;
       4) Limit the sale amount to retail investors so that 
     investors are not ``encouraged'' to place all their eggs in 
     one basket; and
       5) Prohibit or restrict general solicitation of what are 
     clearly high risk securities.
       Thank you for your consideration of NASAA's views.
           Sincerely,
                                                   Joseph P. Borg,
                                       NASAA President and Alabama
                                              Securities Director.

[[Page H8675]]

     
                                  ____
                                               Public Citizen,

                                                 November 7, 2017.
     Hon. Member,
     House of Representatives,
     Washington, DC.
       Dear Honorable Member: On behalf of more than 400,000 
     members and supporters of Public Citizen, we urge you to vote 
     ``NO'' on three bills coming to the floor this week that 
     would weaken financial protections that were put in place to 
     protect American consumers. HR 3911 and HR 2148 will be 
     considered under suspension. HR 2201 will be considered under 
     regular order.


           H.R. 2148, Clarifying Commercial Real Estate Loans

       This bill would reduce the capital requirements for High 
     Volatility Commercial Real Estate (HVCRE). During the recent 
     financial crisis, this sector caused major losses, especially 
     at smaller banks. The U.S. Government Accountability Office 
     (GAO) found that failures of small banks ``were largely 
     driven by credit losses on commercial real estate (CRE) 
     loans, particularly loans secured by real estate to finance 
     land development and construction.'' Further, this sector has 
     grown rapidly in recent years, raising further concerns about 
     prudential lending standards. We must assure that this type 
     of lending remains properly capitalized to prevent against 
     failures that could become economic contagions.


               H.R. 2201, Micro Offering Safe Harbor Act

       This bill removes basic protections from offering 
     securities provided that the purchasers have a preexisting 
     relationship with an officer, director, or shareholder with 
     10 percent or more of the shares of the issuer, and the 
     aggregate amount of all securities sold by the issuer does 
     not exceed $500,000 during a 12-month period. This would 
     permit small offerings with no investor protections, such as 
     a notice of the offering. It will enable a type of affinity 
     fraud, where the seller can unload dubious securities 
     provided there is some relationship between seller and 
     purchaser. The bill assumes that a pre-existing relationship 
     will deter abuse, which is a tenuous foundation, at best. 
     Further, the relationship can begin with the offer. The bill 
     says the relationship must only exist before the purchase. 
     Finally, the bill pre-empts state regulatory oversight. 
     Removing supervisors closest to potential problems is unwise 
     and leaves small investors exposed to exploitation.


         H.R. 3911, Risk-Based Credit Examinations Act of 2017

       This bill would allow the Securities and Exchange 
     Commission (SEC's) Office of Credit Ratings (OCR) to reduce 
     its oversight of nationally recognized statistical rating 
     organizations (NRSROs), also known as credit rating agencies. 
     Credit rating agencies essentially sold their high marks to 
     large banks that were securitizing loans, a major factor 
     leading to the financial crash of 2008. In response to the 
     inflated credit ratings for otherwise toxic securitizations, 
     Congress mandated creation of the OCR and directed it to 
     conduct annual examinations of each NRSRO and make its 
     reports public. It must examine eight areas: (i) whether the 
     NRSRO conducts business in accordance with its policies, 
     procedures, and rating methodologies; (ii) the management of 
     conflicts of interest by the NRSRO; (iii) the implementation 
     of ethics policies by the NRSRO; (iv) the internal 
     supervisory controls of the NRSRO; (v) the governance of the 
     NRSRO; (vi) the activities of the Designated Compliance 
     Officer (DCO) of the NRSRO; (vii) the processing of 
     complaints by the NRSRO; and (viii) the policies of the NRSRO 
     governing the post-employment activities of its former 
     personnel. This bill would allow the SEC to reduce these 
     categories of inspection to save staff resources. The answer 
     is not to reduce inspections, but to increase the funding for 
     the SEC.
       These bills fail to advance investor interests or the 
     safety of the market. Instead, they move in the opposite 
     direction, ignoring the financial trauma from which Main 
     Street is still recovering.
           Sincerely,
     Public Citizen.
                                  ____



                               Americans for Financial Reform,

                                 Washington, DC, November 8, 2017.
       Dear Representative: On behalf of Americans for Financial 
     Reform (AFR), we are writing to urge you to vote against H.R. 
     2201, which is being considered on the House floor today. 
     This legislation would remove crucial investor protections 
     and open the door to affinity fraud in private securities 
     offerings.
       The registration requirement under the Securities Act of 
     1933 has two basic objectives: to allow investors access to 
     information they need to evaluate the securities being 
     offered and ``to prohibit deceit, misrepresentations, and 
     other frauds in the sale of securities.''
       H.R. 2201 would create needless exemptions from those key 
     protections for so-called ``micro-cap offerings''--i.e., 
     offerings valued at $500,000 or less in a single year. This 
     legislation would allow micro offerings to be sold to 
     financially unsophisticated and lower income investors, 
     provided only that the investors have a ``pre-existing 
     relationship'' with an officer, director, or major 
     shareholder of the issuer. These conditions alone do not 
     represent any protection for investors, nor do they guarantee 
     access to minimum essential information to evaluate a private 
     offering and make an informed decision about it.
       H.R. 2201 would dismantle the protections afforded to 
     small-dollar-amount investors by the Securities Act of 1933. 
     Those protections include some minimal disclosures, 
     transparency standards, and access to the information 
     necessary to evaluate potentially risky and illiquid private 
     offerings. The legislation would also eliminate restrictions 
     on rapid sale of the securities, exposing investors in the 
     small offerings market to potential ``pump and dump'' 
     schemes.
       As the state securities administrators (NASAA) point out in 
     their opposition letter to this bill, H.R. 2201 also 
     obstructs primary regulators by preempting state regulatory 
     authorities. This legislation does not include any: limits on 
     purchaser sophistication (e.g. the securities could be sold 
     to non-accredited investors), measures to prevent offerings 
     by bad actors, restrictions on secondary sales, or 
     prohibition on general solicitation. This disturbing lack of 
     protections would permit bad faith actors to direct shady 
     private securities to investors.
       Affinity frauds and Ponzi schemes are typically carried out 
     by individuals who are members of the group or community they 
     are trying to defraud--i.e., those with a ``pre-existing 
     relationship'' with others in their group. Similarly, the 
     SEC's red flags for Ponzi schemes include secretive 
     investments and ``investments that are not registered with 
     the SEC or with state regulators.'' By permitting the sale of 
     unregistered securities not subject to state regulation 
     within groups of investors with a ``pre-existing 
     relationship'', H.R. 2201 would facilitate affinity fraud and 
     Ponzi schemes.
       Congress should not support statutory exemptions that 
     loosen restraints on fraudsters. We urge you to reject this 
     bill.
           Sincerely,
                                   Americans for Financial Reform.

  Ms. MAXINE WATERS of California. Mr. Speaker, I don't understand why 
Members of Congress would disregard what the State regulators are 
saying. State regulators are saying: Don't do this. Don't preempt us. 
Don't pass legislation that would undermine our ability to protect your 
constituents.
  Yet they are ignoring this altogether. I know that they received this 
information. I know that they know that the association had cautioned 
against this legislation. Let me just make sure that everybody knows. 
It is the North American Securities Administrators Association. They 
represent all of the States in cautioning against this legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HENSARLING. Mr. Speaker, I yield myself 10 seconds just to say I 
heard the word ``protection'' often used by my friend, the ranking 
member, but she and her friends on the other side of the aisle had 10 
years to protect paychecks, protect savings, and protect economic 
opportunity and the American Dream, and they failed miserably.
  Mr. Speaker, I yield 2 minutes to the gentleman from Ohio (Mr. 
Davidson), a member of the Financial Services Committee.
  Mr. DAVIDSON. Mr. Speaker, I thank Mr. Emmer for his leadership on 
this bill.
  As a small businessman, prior to coming to Congress, I have raised 
capital for startups, and I can tell you that one option is no option.
  I can tell you that the regulatory framework, particularly made worse 
by Dodd-Frank, is crippling access to capital for small- and medium-
sized businesses. This is a very important thing.
  One option is no option, and it is great to have this for small, 
early-stage companies that are trying to raise capital in private 
placements. Right now, most of this is done for accredited investors.
  Effectively, this protects deal flow for people that are already 
wealthy. It locks people out of access to capital. Importantly, for the 
entrepreneur, sometimes in disadvantaged communities, they don't have 
this vast network of accredited investors to go to. They don't know how 
to access the SEC. They certainly don't have the time or money to spend 
working with the SEC on regulation. They have a business to grow. They 
need to have access to their friends and family and this early-stage 
capital to come in. $500,000 isn't much, but it is a start.
  I hope that we can not just secure this win, but grow the 
protections, so that we can raise even more capital in this way.
  Mr. Speaker, I urge my colleagues to support this bill.
  Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance 
of my time.
  Mr. HENSARLING. Mr. Speaker, I yield 2 minutes to the gentleman from 
Indiana (Mr. Hollingsworth), another member of the Financial Services 
Committee.

[[Page H8676]]

  

  Mr. HOLLINGSWORTH. Mr. Speaker, I thank the chairman for yielding.
  I, too, stand in strong support of this legislation.
  A recent poll out by Ernst & Young showed that millennials are 
starting businesses at a rate that is only one-third of prior 
generations. When asked why they are not starting businesses, those 
millennials responded that they have insufficient financial means in 
order to start businesses, despite a deep desire and will to start 
businesses. Over 78 percent said that they wanted to start a small 
business eventually, but they had insufficient means to do so. This 
bill starts to rectify that problem.
  Those millennials could go to expensive and fancy investment bankers, 
but that is prohibitively expensive. Who they are going to turn to are 
their friends and family, those who most believe not only in the 
product, but in themselves.
  I want to see us enable small businesses to get started back home. 
That is what I continue to hear as I go door to door in the district 
and as I talk to people. They want to be in control of their financial 
future. They want to have all of the opportunities that were afforded 
to their parents and their grandparents.
  This bill begins to push back against a regulatory environment that 
has for too long smothered opportunity in Indiana in favor of more 
opportunity in D.C. We must rectify that. This legislation goes a long 
way towards that.
  I am supportive of the legislation, supportive of small businesses 
back home, and supportive of the many Hoosiers who want to start small 
businesses.
  Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance 
of my time.
  Mr. HENSARLING. Mr. Speaker, I yield 2 minutes to the gentleman from 
South Carolina (Mr. Norman), he is not a member of the Financial 
Services Committee, but we would be proud if he were.
  Mr. NORMAN. Mr. Speaker, as I listen to my liberal colleagues, the 
answer to every business is more government, more regulations. The 
American people are rejecting that.
  As a small-business owner, I can tell you the stifling effects of 
overregulation. That is what this bill takes away. That is what this 
bill accomplishes.
  So I strongly support H.R. 2201, the Micro Offering Safe Harbor Act. 
This bill is a critical step to reduce unnecessary burdens on economic 
growth and ensure that small businesses have access to the capital they 
need. I applaud Representative Emmer for championing this legislation.
  As a member of the House Small Business Committee and a businessman 
myself, I understand the need of the number of challenges faced by 
small businesses, especially if that business wants to grow through 
tapping into the capital markets. Due to onerous SEC regulations, the 
cost of registration is expensive and out of reach for so many of the 
businesses wanting to expand.
  We all know that the SEC provides an important function, which is to 
prevent securities fraud and protect the integrity of the market. 
However, we must be wary of a regulatory regime that fails to provide 
sufficient flexibility for businesses to raise capital while not 
providing any additional protection for investors.

  The central purpose of H.R. 2201 is to strike the proper balance 
between protection and investment. The bill achieves this objective 
through empowering businesses to sell a limited number of securities to 
a limited numbers of investors without needing to comply with a number 
of SEC registration requirements.
  Also, it is important to note that this narrowly tailored exemption 
only applies to investors that have substantive preexisting 
relationships with businesses.
  Finally, nothing in this bill undermines existing investor 
protections. Fraud is still illegal and the SEC and the Department of 
Justice has the authority to prosecute bad actors.
  I urge my colleagues to support this important legislation to 
implement a commonsense solution and stimulate small business growth.
  Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance 
of my time.
  Mr. HENSARLING. Mr. Speaker, I yield 1 minute to the gentleman from 
Wisconsin (Mr. Duffy), the chairman of the Housing and Insurance 
Subcommittee.
  Mr. DUFFY. Mr. Speaker, I thank the gentleman for yielding.
  Mr. Speaker, I thank Mr. Emmer, my colleague and friend from the 
neighboring State of Minnesota, for offering such a commonsense piece 
of legislation.
  I frequently hear horror stories of fraud and abuse. All of us stand 
against fraud and abuse. I have a news flash for everybody: This law 
doesn't change that fraud is illegal. It was illegal before this bill 
and it will be illegal after this bill. Fraud is illegal.
  All we are doing is saying we are going to keep the promise that all 
of us say that we have to small entrepreneurs and startups to make sure 
that they get seed capital and make sure they can thrive and grow and 
create jobs in our community.
  All we are trying to do is give clarity to what constitutes a 
nonpublic offering. What is wrong with clarity? What is wrong with 
bright lines that they know that they can operate in between without 
violating the rule?
  This is simple. It is straightforward, it is common sense, and it 
supports everything we say we support, which is small businesses, and I 
think this is a great piece of legislation.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. HENSARLING. Mr. Speaker, I yield an additional 30 seconds to the 
gentleman from Wisconsin.
  Mr. DUFFY. I would ask all of my colleagues to stand together. Let's 
not play partisanship with the smallest businesses in our communities, 
the ones that we both agree create jobs. This is a time for unity. 
Let's work together, especially when it is common sense.
  I love the passion from the ranking member, but on this one, it is 
passion without a cause. It makes sense. It gives bright lines.
  Let's stand up for small businesses that create jobs in our 
community. Mr. Emmer's bill does that. I ask us all to stand up and 
support small businesses and this bill.
  Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such 
time as I may consume.
  For my colleagues on the opposite side of the aisle who are bemoaning 
the fact that small businesses don't have access to capital, they have 
these relationships with all of these big banks.
  Why don't they get to the big banks and tell them they ought to be 
making loans to small businesses?

                              {time}  1015

  I don't hear them, as a part of, you know, their rhetoric, talking 
about how many of the big banks are not being responsible. And so my 
colleague on the opposite side of the aisle and my friend talk about 
what is common sense. I tell you what is common sense. Common sense is 
not to place vulnerable people in a position where they are going to 
get ripped off.
  Mr. Speaker, H.R. 2201 is a harmful bill that would simply serve as 
an invitation for investment scams. The bill fails to take into account 
the numerous other exemptions we have for small-dollar offerings, 
including under regulation D, regulation A, and crowdfunding rules. 
These exemptions already permit small businesses to raise capital while 
also protecting against fraud.
  In light of these exemptions, there seems to be no reasonable 
explanation for the amount of legislative effort that has been wasted 
on this bill. Instead of H.R. 2201, which is unwarranted and may 
actually harm investors and the integrity of our markets, the House 
should be focused on passing legislation that can actually improve the 
lives of the Americans whom we serve.
  Mr. Speaker, I urge my colleagues to vote ``no'' on H.R. 2201. Don't 
be a part of enacting one more scheme that is going to rip off our 
constituents, and then, you know, a few years later, come back here and 
talk about what a terrible thing it is that people are being ripped off 
by these investors, some of them who are criminals, but nobody knows 
it. The disclosure does not have to take place. They don't know that 
they have people who have already been involved in crimes who are 
coming to them talking about: let me help you earn some profits on this 
investment.

[[Page H8677]]

  We know better. Common sense tells us better. If, in fact, we are 
committed to the proposition that we have a responsibility to protect 
our constituents from rip-offs, from fraud, from being taken advantage 
of, we will not support this bill. And I would hope that my friends on 
the opposite side of the aisle, despite how far they have gone in 
trying to represent that this bill is something that it is not, would 
at least change their minds today and support their constituents and 
vote ``no'' on this bill.
  Mr. Speaker, I yield back the balance of my time.
  Mr. HENSARLING. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, as always, I listen very carefully to my friend, the 
ranking member. I know that she started off her closing remarks by 
saying: We don't need this bill, H.R. 2201, because the big banks can 
loan to the small businesses.
  Well, that is fascinating to me, Mr. Speaker, because of the Dodd-
Frank Act, which she so jealously supports, all of a sudden, the risk-
based capital standards say that the banks have to reserve more for 
small business loans than they do for sovereign debt and municipal 
debt.
  So all of a sudden, it is because of Dodd-Frank. In addition, we know 
that the ranking member supports the Federal Reserve policy of paying 
interest on excess reserves where the Federal Reserve takes taxpayer 
money to pay the big banks not to loan money. So if the ranking member 
was curious why the big banks aren't loaning to the small businesses, 
which they aren't--and prior to the Trump administration, we know that 
small business lending by banks was at a 25-year low--it is the very 
reason, Mr. Speaker, that we need the bill, the legislation of the 
gentleman from Minnesota (Mr. Emmer) so that we can unlock this.
  Again, there is no surprise why, after 8 years of Obamanomics and the 
thinking from my friends on the other side of the aisle, small 
businesses have languished and why the economy has dropped down to a 
1\1/2\ to 2 percent GDP growth. In fact, I think President Obama is one 
of the few Presidents in American history never to enjoy a year of 3 
percent economic growth.
  Now, he may personally have enjoyed it, but the American people 
didn't, Mr. Speaker. But the good news is that there is a change in 
administration and a change of attitude. That is why it is so important 
that we be able to get capital to our entrepreneurs, to our small 
businesses. Let them thrive again on Main Street.
  We hear so often the ranking member decry Wall Street. We are talking 
about offerings of a half a million dollars. No on in Wall Street would 
touch that with a 10-foot pole. This is about Main Street, not Wall 
Street, Mr. Speaker.
  It is interesting, as I listen to my friend, the ranking member, 
decry the fact that someone might be able to raise capital under this 
particular set of circumstances. Well, I have a news flash for all my 
colleagues. Already the SEC can grant a private offering for exactly 
the set of circumstances that my friend, the gentleman from Minnesota, 
puts into his bill. All the gentleman is doing is creating a bright 
line, safe harbor, so that the next Nike or the next Amazon isn't 
stopped from launching their enterprise by having to spend a million 
dollars on lawyers and accountants trying to navigate this uncertain 
murky labyrinth of SEC waters trying to determine what is a private 
offering and what is a public offering. That is all he is doing.
  Again, this is already legal. It simply is discretionary to decide 
what is a private offering and what is a public offering by the 
Securities and Exchange Commission.
  We now, Mr. Speaker, have had two quarters of 3-plus percent economic 
growth. We are seeing working Americans. We are seeing their paychecks 
increase yet again. We are seeing hope and resilience in the American 
Dream yet again, but we have so much more work to do, and that is why 
H.R. 2201 is so critical.
  It takes small businesses today to be the big businesses of tomorrow. 
They are the creators. They are the job engine of America. They are the 
drivers of increased paychecks, greater economic opportunity, and a 
bigger, bolder American Dream. I thank the gentleman from Minnesota for 
this great legislation. I encourage all of my colleagues to adopt it.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. All time for debate on the bill has expired.


                     Amendment Offered by Mr. Emmer

  Mr. EMMER. Mr. Speaker, I have an amendment at the desk.
  The SPEAKER pro tempore. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Page 3, line 14, strike ``The transactions'' and insert the 
     following:
       ``(1) In general.--The transactions''.
       Page 3, line 19, strike ``(1)'' and insert ``(A)'' and 
     adjust the margin 2 ems to the right.
       Page 3, line 24, strike ``(2)'' and insert ``(B)'' and 
     adjust the margin 2 ems to the right.
       Page 4, line 5, strike ``(3)'' and insert ``(C)'' and 
     adjust the margin 2 ems to the right.
       Page 4, line 10, strike the quotation mark and final period 
     and insert after such line the following:
       ``(2) Disqualification.--
       ``(A) In general.--The exemption provided under subsection 
     (a)(8) shall not be available for a transaction involving a 
     sale of securities if any person described in subparagraph 
     (B) would have triggered disqualification pursuant to section 
     230.506(d) of title 17, Code of Federal Regulations.
       ``(B) Persons described.--The persons described in this 
     subparagraph are the following:
       ``(i) The issuer.
       ``(ii) Any predecessor of the issuer.
       ``(iii) Any affiliated issuer.
       ``(iv) Any director, executive officer, other officer 
     participating in the offering, general partner, or managing 
     member of the issuer.
       ``(v) Any beneficial owner of 20 percent or more of the 
     issuer's outstanding voting equity securities, calculated on 
     the basis of voting power.
       ``(vi) Any promoter connected with the issuer in any 
     capacity at the time of such sale.
       ``(vii) Any investment manager of an issuer that is a 
     pooled investment fund.
       ``(viii) Any person that has been or will be paid (directly 
     or indirectly) remuneration for solicitation of purchasers in 
     connection with such sale of securities.
       ``(ix) Any general partner or managing member of any such 
     investment manager or solicitor.
       ``(x) Any director, executive officer, or other officer 
     participating in the offering of any such investment manager 
     or solicitor or general partner or managing member of such 
     investment manager or solicitor.''.

  The SPEAKER pro tempore. Pursuant to House Resolution 609, the 
gentleman from Minnesota (Mr. Emmer) and a Member opposed each will 
control 5 minutes.
  The Chair recognizes the gentleman from Minnesota.
  Mr. EMMER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, the amendment I am offering today will enhance antifraud 
and consumer protections for small businesses and startups seeking to 
take advantage of the micro offering exemption outlined in the 
underlying bill.
  While the legislation itself requires three specific criteria to be 
met simultaneously in order to trigger a safe harbor exemption for a 
security offering, my amendment adds an additional layer of protection 
to further safeguard investors from bad actors.
  Specifically, my amendment prohibits the exemption from being 
available for those who have been disqualified under the bad actor 
disqualification standard established by the SEC. This language was 
included with the support of my colleagues from both sides of the aisle 
during consideration in committee in the 114th Congress, and I am 
hopeful they will support its inclusion again in the 115th.
  I want to reiterate that nothing in the base text of this bill erodes 
or limits the ability of Federal or State regulators to prosecute 
fraud, nor would it prevent private common law causes of action for 
fraud or breach of contract between the interested parties.
  This amendment builds upon these existing protections and drives home 
the point that the Micro Offering Safe Harbor Act is purely focused on 
helping our small businesses and entrepreneurs access the tools they 
need to grow and create jobs in an orderly and legal manner.
  Mr. Speaker, I reserve the balance of my time.
  Ms. MAXINE WATERS of California. Mr. Speaker, I claim the time in 
opposition to the amendment, even though I am not opposed.
  The SPEAKER pro tempore. Without objection, the gentlewoman is 
recognized for 5 minutes.

[[Page H8678]]

  There was no objection.
  Ms. MAXINE WATERS of California. Mr. Speaker, under the current 
language of H.R. 2201, investors could be sold private securities by 
persons who have committed fraud or have violated security laws. 
Representative Emmer's amendment purports to add a layer of investor 
protections by adding a provision to so-called disqualify certain bad 
actors from utilizing the exemption.
  While I applaud Mr. Emmer's attempt to add this most basic guardrail 
to a bill that otherwise creates an unmitigated safe harbor for 
fraudsters, I wonder why this provision was dropped from a similar bill 
that Mr. Emmer introduced last Congress.
  Unfortunately, this amendment is woefully inadequate to address the 
otherwise dangerous new exemption created by H.R. 2201. Because the 
underlying bill requires no disclosure to investors and imposes no 
obligation to notify regulators of the offering, even if amended, H.R. 
2201 would lead convicted fraudsters and lawbreakers to police 
themselves.
  Moreover, the bill ties the hands of State securities regulators, who 
are the primary watchdogs over small, local securities offerings. If 
enacted, H.R. 2201 would leave a gaping hole in oversight of the very 
offerings it permits.
  H.R. 2201 is a misguided attempt to support small businesses that is 
not meaningfully improved by the meager protections of this amendment. 
For these reasons, I continue to oppose this bill, and I urge all of my 
colleagues to vote ``no'' on H.R. 2201.
  Mr. Speaker, I reserve the balance of my time.
  Mr. EMMER. Mr. Speaker, I will close at this point.
  Mr. Speaker, I want to thank the ranking member for her encouragement 
and her compliments, and I want to just point out that the Micro 
Offering Safe Harbor Act was actually improved as a direct result of 
the ranking member's suggestions.
  So, again, I want to thank her for her compliments here today, her 
encouragement in helping us make this an even better bill for 
entrepreneurs and small businesses across the country. At this point, I 
would encourage support for the amendment.
  Mr. Speaker, I yield back the balance of my time.
  Ms. MAXINE WATERS of California. Mr. Speaker, I would like to warn 
the Members of this House not to take the compliments seriously that 
are being given by the gentleman who would have you believe that 
somehow I have totally embraced this amendment because I think it is 
going to change the fact that there is no disclosure to those who would 
be investing and no notice to the SEC.
  So don't take him seriously when he talks about thanking me for 
encouraging and embracing. I have not done that. I am going to tolerate 
this amendment. It is late. It doesn't do what he says it is going to 
do. The bill is still a bad bill. It is a bill that is going to harm 
people. It is a bill that targets the most vulnerable people in our 
society. It is a bill where fraudsters are going to go into churches 
and convince ministers and parishioners that they are out to help them.
  Members of Congress, do the right thing. Today, stand up against 
another attempt by misguided folks who would have you believe that they 
are helping people when, in fact, they are opening up opportunities for 
them to be ripped off one more time, ripped off in ways that could have 
been avoided.
  Mr. Speaker, I oppose this bill. I ask everybody to vote against this 
bill.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. Pursuant to the rule, the previous question 
is ordered on the bill and on the amendment offered by the gentleman 
from Minnesota (Mr. Emmer).
  The question is on the amendment by the gentleman from Minnesota (Mr. 
Emmer).
  The amendment was agreed to.
  The SPEAKER pro tempore. The question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.
  The SPEAKER pro tempore. The question is on the passage of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.
  Ms. MAXINE WATERS of California. 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 question will be postponed.

                          ____________________