[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.
____________________