[Congressional Record Volume 170, Number 40 (Wednesday, March 6, 2024)]
[House]
[Pages H972-H988]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
EXPANDING ACCESS TO CAPITAL ACT OF 2023
General Leave
Mr. McHENRY. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days in which to revise and extend their remarks
and include extraneous material on the bill, H.R. 2799.
The SPEAKER pro tempore (Mr. Duarte). Is there objection to the
request of the gentleman from North Carolina?
There was no objection.
The SPEAKER pro tempore. Pursuant to House Resolution 1052 and rule
XVIII, the Chair declares the House in the Committee of the Whole House
on the state of the Union for the consideration of the bill, H.R. 2799.
The Chair appoints the gentleman from Ohio (Mr. Wenstrup) to preside
over the Committee of the Whole.
{time} 1631
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the state of the Union for the consideration of the bill
(H.R. 2799) to make reforms to the capital markets of the United
States, and for other purposes, with Mr. Wenstrup in the chair.
The Clerk read the title of the bill.
The CHAIR. Pursuant to the rule, the bill is considered read the
first time.
General debate shall be confined to the bill and shall not exceed 1
hour equally divided and controlled by the
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chair and ranking minority member of the Committee on Financial
Services, or their respective designees.
The gentleman from North Carolina (Mr. McHenry) and the gentlewoman
from California (Ms. Waters) each will control 30 minutes.
The Chair recognizes the gentleman from North Carolina.
Mr. McHENRY. Mr. Chair, I yield myself such time as I may consume.
Mr. Chair, 40 years ago, my father started a small business in our
backyard. Growing up in Gastonia, North Carolina, being the youngest of
five kids, my father started a small business with his friend, who also
had five kids. It didn't change the world and it was just a lawn mowing
business. We mowed other people's grass, and that is what put two
families through school, provided for two families, and eventually
provided for many others as they scaled up and grew the business.
While my dad's small business didn't change the world, it certainly
changed my world and our family's world.
Like other entrepreneurs, though, my dad needed access to affordable
capital to scale his business. When other sources of opportunities for
lending of capital dried up, he relied on a charge card, which we now
call a credit card, to grow his business and to start employing other
folks.
This story isn't unique to my family. We see this playing out across
the country today. Entrepreneurs with new ideas or who are seeking to
grow their businesses are struggling to access affordable credit and
affordable capital. That means that they are not given the same
opportunity to change their lives, their family's lives, or their
community.
This is a loss for all of us. It is a loss for American innovation.
That is where investment capital and this bill come in to help more
entrepreneurs realize their version of the American Dream.
Currently, the venture capital that funds startups are concentrated
in traditional financial hubs, like Silicon Valley, Boston, and New
York City. Those three cities of the country account for almost three-
quarters of all venture funding.
Now, that is not for every business, but it is a very specific group
of startups. This Congress and our committee heard compelling testimony
from folks across the ideological spectrum who urged us to make it
easier for them to raise money from nontraditional sources.
This would allow them not only to build their funds and deploy more
capital, but also share their financial success within their community.
This bill, the Expanding Access to Capital Act, does just that and
more by alleviating the unique fundraising challenges faced by
entrepreneurs and their investors who don't live in Silicon Valley.
This bill will also make improvements to our public markets and
create new opportunities for everyday investors to save and build
wealth and enjoy their version of the American Dream.
This form of capital formation is a critical ingredient for creating
long-term economic growth that has proven enduring here in the United
States. Not to mention, it has traditionally been an area where a
divided Washington can find consensus.
A little more than a decade ago, Congress came together to pass the
JOBS Act, which President Obama then signed into law. It was a
Republican House, a Democrat Senate, and a Democrat in the White House
who put that historic piece of legislation through the process and into
law.
It addressed several hurdles entering our capital markets by
rightsizing onerous regulatory barriers and providing entrepreneurs
access to new levels and streams of funding.
Recognizing the need to build on the success of the JOBS Act, the
House Financial Services Committee embarked on a yearslong mission to
better understand the remaining headwinds hindering capital formation
and legislate real and impactful solutions.
Many of those solutions are found in this legislation we are
considering today, which consist of commonsense, innovative ideas to
accomplish three goals: First, the bill strengthens our public markets
and aims to incentivize companies to go public, undoing the troubling
decline of initial public offerings here in the United States, or IPOs.
IPOs are businesses that average everyday investors can own a piece of.
Why is it important that we attract more companies to the public
markets in the United States?
One, everyday American investors, also known as retail investors, are
limited to investing in publicly traded companies. Most public
companies here in the United States that are of large size and scale
should be available in the public markets. More public companies here
in the United States means more opportunities for the American retail
investor to grow their savings.
Number two, job growth. A 2021 study found that biotech startups
expand their workforce by an average of 150 percent in the first 3
years after undertaking an initial public offering using the JOBS Act
provisions.
To make our public markets more attractive, H.R. 2799, this bill,
includes provisions that rightsize regulatory burdens on public
companies, streamline the process of going public, and allow more
companies to qualify as an emerging growth company.
This is an extension of more key provisions within the bipartisan
JOBS Act that have a proven record of success.
Second, as I said earlier, this legislation supports small businesses
and entrepreneurs who are the true engine of our economy and account
for 99.9 percent of all U.S. businesses.
Among other policies, this bill allows small businesses to raise more
money through offerings. It also addresses limitations on small,
emerging venture fund managers attempting to raise and deploy capital
to startups and entrepreneurs in their communities.
Third, this bill increases access to private markets and allows more
Americans to participate in high-growth investment opportunities that
have been traditionally reserved for the wealthy elite.
Currently, these investment opportunities are reserved for those
qualifying as ``accredited investors,'' which dictates what a person
can invest in based off their wealth or income.
We should all agree that wealth and income should not be a proxy for
sophistication, especially if investors have expertise or experience
that prepares them to invest in private offerings.
This bill includes provisions to expand the accredited investor
definition, allowing everyday Americans to invest where they see
opportunities and where they have expertise. That means new wealth-
building opportunities for American investors who have been arbitrarily
sidelined for too long.
Now, these private markets, that is where we have had the fastest
growing businesses. The greatest wealth creation is ownership in these
private markets. We want to link that up for all Americans to have that
opportunity to invest in those markets where they have expertise.
Let me close with this: Capital formation should not be a partisan
issue.
This legislation builds on the success of the bipartisan JOBS Act and
will benefit Americans in every single one of our districts, either by
growing their retirement savings or through job creation and economic
growth in their community.
This bill is a compilation of several standalone bills introduced by
numerous members of the Financial Services Committee, under the great
leadership of our subcommittee chair on Capital Markets, Ann Wagner of
Missouri.
There are many Members that I wish to recognize, but it would take
too long at this time to go through all of their great work; however,
it is embodied in this bill before us today.
I am grateful for the opportunity to be here on the House floor, and
I am grateful to the House Republican leadership that have prioritized
this help for small businesses and our legislative work in the
Financial Services Committee. I think we can see that we all want to be
unified in helping the American people achieve their dreams in the way
they see fit. For small business folks that want to start a small
business, we need to make things easier for them, not harder. This bill
makes it better for them and easier for them.
Mr. Chair, I yield to the gentlewoman from Missouri (Mrs. Wagner) to
control the balance of my time.
The CHAIR. The gentlewoman from Missouri (Mrs. Wagner) will control
the time.
Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
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Mr. Chair, I rise today in strong opposition to H.R. 2799, a bill
that would cause significant long-term harm to both small businesses
trying to raise money and mom-and-pop investors trying to save for
their retirements.
A primary reason our capital markets are the envy of the world is
because investors have confidence in the financial products that they
are investing in. That confidence is hard won to be sure. It is the
result of a robust disclosure regime that has been in place for decades
and requires public companies to transparently and accurately tell
investors about the inner workings of their businesses, their
financials, and the risk involved with purchasing their shares.
Investor confidence is also rooted in strong legal protections for
investors and their right to have a say in the company's direction
through the proxy process.
And importantly, investor confidence is based on having a strong
enforcer, the Securities and Exchange Commission, or SEC, that sets
clear rules of the road, and keeps fraudsters out of the system.
While our capital markets are far from perfect, trillions of dollars
are invested every year because investors are confident that they won't
be ripped off.
Unfortunately, the bill before us today threatens to undermine that
investor confidence.
First, H.R. 2799 would expand the number of companies that are able
to offer securities without needing to register with the SEC or provide
critical disclosures to ordinary investors.
This expansion will only benefit moderate to large companies rather
than the small businesses this act purports to help. By exempting more
companies from public SEC registration requirements, this bill expands
the size of the private securities markets, which are growing rapidly
and already outnumber the public securities markets 2-1.
Second, this bill makes it easier for financial middlemen to peddle
opaque, illiquid, and high-risk private securities to retail investors
who won't receive the information they need to make informed investment
decisions.
This isn't democratizing finance or creating investment
opportunities; this is Wall Street creating another target to dump its
bottom-of-the-barrel investment products onto retail investors.
Private securities, compared to public securities, are significantly
more risky and more volatile, less transparent, harder to cash out, and
have fewer legal protections.
The bottom-of-the-barrel private securities that will be sold to
retail investors as a result of this bill are especially dangerous
because they will only be offered to retail investors after private
equity and venture capital funds have already passed on them. It is
important to notice that 90 percent of startups fail and private equity
would love to dump these stocks on your constituents.
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Third, H.R. 2799 undermines the ability of State securities
regulators to help small businesses raise capital and stop fraudsters.
State securities regulators are on the front line of our capital
markets, investigating complaints of investor fraud, enforcing State
securities laws, educating investors about their rights, and helping
small businesses raise money to fund their goals and comply with the
law. We should not preempt States by blocking these important overseers
from doing their jobs.
To summarize, H.R. 2799 is a Wall Street wish list that collectively
exempts big corporations and investment funds from transparency and
accountability while gutting critical legal safeguards for Main Street
investors. By weakening investor protections in numerous ways, this
bill would allow fraud to proliferate and retirees and other mom-and-
pop investors to be ripped off by bad actors.
This bill would ultimately harm confidence in our capital markets
while doing nothing to assist the very small businesses the bill
purports to help. In fact, as investors lose confidence in our markets,
small businesses will see their capital costs rise, not fall.
I want to thoroughly debunk the notion that this bill somehow helps
small businesses because the truth is that it would do just the
opposite. I am very supportive of small businesses.
In fact, I have worked extensively this Congress with Chair McHenry
on bipartisan ways that we can help small businesses raise capital. We
have worked together to strengthen crowdfunding and to change the rules
on accredited investors. There are several policy solutions that we
have agreed on that represent targeted ways to increase capital
formation without harming investor protection.
In fact, we worked together to pass 13 bills last year that represent
bipartisan, commonsense reforms that support small businesses, enabling
those who are knowledgeable about the risks of private securities to
make informed investments, while ensuring robust investor protections.
Most of these bills also passed under suspension on the House floor,
so there is a bipartisan way forward on this issue, but instead of
working with Democrats to get these bipartisan bills to the President's
desk, Republicans have packaged together this toxic combination of
partisan bills and are focusing their time and energy here.
Mr. Chair, Democrats on the Financial Services Committee voted
unanimously to oppose this bill at a markup last April. I urge all of
my colleagues to unanimously reject it on the floor today.
Mr. Chair, I reserve the balance of my time.
Mrs. WAGNER. Mr. Chair, I yield myself such time as I may consume.
Mr. Chair, I rise in support of H.R. 2799, the Expanding Access to
Capital Act.
As chair of the Capital Markets Subcommittee, I am so proud of the
hard work of our members in crafting this landmark piece of legislation
that supports America's Main Street businesses and retail investors. I
am also grateful to leadership for affirming that this bill is a
crucial priority and taking action to pass this legislation in the
House today.
This legislation is the culmination of four hearings that the Capital
Markets Subcommittee has held this Congress, where we heard powerful
testimony from 19 witnesses, including founders of both private and
public companies, investors of all sizes, former SEC Commissioners,
securities law practitioners, and even one of the authors of the IPO-
related provisions of the JOBS Act.
As the witnesses at each of these hearings made clear, all the bills
included in H.R. 2799 play a vital role in strengthening our public
markets, improving access to capital for small businesses and
entrepreneurs, and expanding investment opportunities for all
Americans.
For example, Representative Steil's Helping Startups Continue to Grow
Act strengthens our public markets, making them more attractive by
allowing more companies to benefit from emerging growth company status.
Representative Steil's bill also extends the maximum amount of time an
issuer can remain an emerging growth company, helping to rightsize the
regulatory burdens on newly public companies that are working to
achieve their potential. This commonsense provision builds on one of
the most successful and impactful reforms from the JOBS Act of 2012.
Representative Houchin's Regulation A+ Improvement Act improves
access to capital for small businesses by increasing the amount that
small companies can raise under Regulation A from $50 million to $150
million without being subject to burdensome IPO compliance
requirements. In making this adjustment, Regulation A will become a
more attractive pathway for small businesses to raise capital.
Our committee's legislation also expands investment opportunities for
all Americans by revising the accredited investor definition to include
individuals receiving investment advice on a private offering from a
qualified accredited investor.
Amendments to H.R. 2799 include Representative Huizenga's Improving
Disclosure for Investors Act, Representative Lawler's Helping Angels
Lead Our Startups Act, Representative Lucas' Retirement Fairness for
Charities and Educational Institutions Act, and my Increasing Investor
Opportunities Act, which gives investors greater choice and access to
an asset class typically reserved for the wealthy. They are all welcome
and thoughtful additions.
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Together, these policies ensure that our markets are working
efficiently and effectively to provide companies access to the capital
that they need to innovate, grow, and create jobs, not just on the
coasts but in America's heartland as well.
H.R. 2799 offers targeted, commonsense solutions that level the
playing field for Main Street investors looking to save for a new home,
their child's future, or retirement.
Moreover, America's IPO market has been on the decline for years due
to increased regulatory and compliance costs. This package builds on
the success of the JOBS Act and reins in those onerous barriers that
are keeping America's innovators from seeking to enter and stay in our
public markets.
The thoughtfully crafted bills in H.R. 2799 would address a multitude
of inefficiencies within our public and private markets and deliver
sustainable and enduring growth to our economy.
I thank Chairman McHenry for his leadership and tireless efforts in
getting these bills to the floor, and I also thank the Members who have
bills in H.R. 2799 for their incredible work.
Mr. Chair, I urge my colleagues to support this legislation, and I
reserve the balance of my time.
Ms. WATERS. Mr. Chair, I yield such time as she may consume to the
gentlewoman from New York (Ms. Velazquez), the ranking member of the
Small Business Committee.
Ms. VELAZQUEZ. Mr. Chairman, I rise in opposition to H.R. 2799.
As ranking member of the House Small Business Committee, I know that
small businesses are the driving force of the American economy. Access
to capital is the lifeblood of our Nation's small firms. It is what
allows them to expand and hire more workers.
A key method for small businesses to raise capital is seeking
investors through our Nation's capital markets. It is a method I
support. However, raising funds through capital markets cannot come at
the expense of retail investors, employees, and independent
contractors. This bill fails to strike an appropriate balance and
significantly weakens investor protections while dramatically expanding
the number of exempt offerings.
When we created new exemptions in the JOBS Act, they were designed
for smaller firms. Today, large private companies and private equity
funds have misused these exemptions to create an opaque lending market
that is now bigger than our public markets. The lack of transparency
associated with these funds isn't beneficial for small businesses
seeking financing from these funds or retail investors investing in
them.
Private securities offerings are generally deemed as riskier than
public offerings. The lack of disclosures and transparency in this bill
allows retail investors to participate in these offerings without
adequately understanding the dangers, creating the potential for
significant financial loss for working-class investors and retirees.
President Biden has already signaled his opposition to this bill. If
the majority were serious about helping small businesses raise capital
through our private markets, they would pull this bill and work with us
to craft a bipartisan solution that helps small businesses and protects
investors.
Mr. Chair, I encourage my colleagues to vote ``no.''
Mrs. WAGNER. Mr. Chair, I yield 1 minute to the gentleman from Texas
(Mr. Williams), my classmate and good friend and colleague.
Mr. WILLIAMS of Texas. Mr. Chair, I rise today in support of H.R.
2799, the Expanding Access to Capital Act.
This commonsense legislation is critical for long-term, sustainable
economic growth by strengthening our public markets, helping small
businesses and entrepreneurs, and increasing opportunity for all
investors.
The Biden administration has continuously increased obligations and
regulations, which in turn have increased compliance costs for public
companies and businesses. H.R. 2799 would reduce compliance burdens and
allow for companies and markets to thrive.
This important legislation would also benefit small businesses by
reducing regulatory barriers to ensure small business and entrepreneurs
have access to the capital they need to support their operations and
communities.
I thank Chairman McHenry for including language from my legislation
that expands benefits currently reserved for emerging growth companies
to other public companies. The EGC on-ramp has been a key tool in
funding growth and will make public markets more attractive to help
small issuers and level the playing field.
Mr. Chair, I urge my colleagues to support this legislation, the
Expanding Access to Capital Act, to help strengthen public markets. In
God we trust.
Ms. WATERS. Mr. Chair, I yield 4 minutes to the gentleman from
California (Mr. Sherman), who is also the ranking member of the
Subcommittee on Capital Markets.
Mr. SHERMAN. Mr. Chair, I rise in opposition to the bill. It is not a
good bill. We have some amendments that will make it slightly better,
but it still won't be a good bill. All the Democrats on the Financial
Services Committee voted against this bill in committee.
Let's give a little background here. The gold standard is a public
offering of securities. They then become registered securities. They
can trade on an exchange. They provide disclosures to investors and
audited financial statements.
We do have exceptions to this rule--exceptions for small offerings
and exceptions where you are going to have accredited investors who
have the capacity to absorb an enormous amount of risk and the capacity
to evaluate the investments.
The definition of an accredited investor was criticized by the chair
of the full committee when he was here, and I agree that definition
should change. Right now, it is focused too much just on wealth and
income. We need, instead, to also allow people to be accredited
investors if they have the expertise to evaluate the investment and are
not putting too much of their own resources into one illiquid
investment. We also need to take a look at the expertise that an
investor may not have himself or herself but can acquire through truly
independent advisers.
The fact is that the definition of accredited investor should be
improved, and that is why this House passed and sent to the Senate
bills that would improve it, and I hope the Senate will finally take
action on those bipartisan pieces of legislation.
This bill doesn't really improve the definition of accredited
investor. It says that you are an accredited investor if you sign a
piece of paper saying you want to be an accredited investor, self-
certification. That shreds investor protection.
{time} 1700
This bill not only guts investor protection when it comes to the
definition of accredited investor, but it also locks in a system in
which a company can say they are a private company even though they
have thousands of owners--thousands. You can have 2,000 or more owners
because you may have an investment vehicle that has hundreds of
investors of its own, and it counts as only one investor toward that
2,000.
That means that a lot of companies will never go public. That means
that those investors who want investor protection and want the
liquidity of being able to sell their shares on an exchange will never
be able to invest. It means that these companies will not provide the
audited financial statements and the other disclosures that are
required of public companies.
It guts the concept of being a public company. Why is that so
important? Because today, the SEC published climate disclosures
required of public companies, and today, we are considering a bill that
is designed to truncate the number of public companies that we have.
If you care about the economy, vote ``no.'' If you want to protect
investors, vote ``no.'' If you want to protect our climate, vote
``no.''
This bill would open the door to investors placing their entire nest
eggs in private securities with insufficient transparency, no audited
financial statements, and no liquidity. Vote ``no.''
Mrs. WAGNER. Mr. Chair, I yield 1\1/2\ minutes to the gentleman from
South Carolina (Mr. Timmons), my friend and colleague.
Mr. TIMMONS. Mr. Chair, I rise today in support of H.R. 2799, the
Expanding Access to Capital Act. This legislation would provide greater
access to funding by strengthening public
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markets, expanding fundraising opportunities for entrepreneurs, and
increasing investment opportunities for everyday Americans.
This package represents a much-needed stimulant to capital formation
and would empower small businesses throughout the country.
One particular provision contained in this package is my bill, the
Improving Capital Allocation for Newcomers Act, also known as the ICAN
Act, which seeks to generate more regional venture capital
participation outside of Silicon Valley by raising the cap on
qualifying venture capital funds from $10 million to $150 million and
raising the number of permitted investors from 250 to 600.
This would allow venture funds to raise more money from more
individuals, enabling funds to build an investor base outside of
traditional financial centers.
According to the SEC's Advocate for Small Business Capital Formation
report, 78 percent of small business owners are concerned about their
ability to access capital. My bill would alleviate some of this concern
by making it easier for venture capital to expand into new regions and
communities.
Simply put, new venture funds mean new opportunities for small
businesses and innovators to gain the funding they need to develop
their ideas, promote good-paying jobs, and grow their companies.
Mr. Chair, an entrepreneur in Spartanburg, South Carolina, should be
afforded the same opportunities to grow their businesses as an
entrepreneur in Silicon Valley.
I am proud to say this legislation democratizes finances and allows
for more South Carolinians to support local economic ventures,
providing capital outside of traditional venture capital hubs and
bringing these funds from Silicon Valley to the Fourth District of
South Carolina.
Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
Let's be clear. This Wall Street wish list bill is going nowhere in
the Senate, but we have several bipartisan bills that support small
businesses and retail investors that actually have a chance of getting
into law.
Chair McHenry and I have worked together for several years on
legislation to strengthen our capital markets, going back to the JOBS
Act and our efforts on crowdfunding and legislation to support angel
investors.
In fact, this Congress, we worked extensively together on 13
bipartisan bills, including my bill, H.R. 2796, the Promoting
Opportunities for Non-Traditional Capital Formation Act, which requires
the SEC's Office of the Advocate for Small Business Capital Formation
to provide educational resources and host events to promote capital-
raising options for underrepresented small businesses and businesses in
rural areas and to meet annually with representatives of State
securities commissions; Mr. Meeks' bill, H.R. 2795, the Enhancing
Multi-Class Share Disclosures Act, which requires an issuer with the
multi-class share structure to disclose certain information regarding
the voting power of specified persons; Mr. Himes' bill, H.R. 2812, the
Middle Market IPO Underwriting Cost Act, which requires the SEC to
study the costs encountered by small- and medium-sized companies when
undertaking initial public offerings and certain offerings exempt from
securities registration requirements; and Mr. Gottheimer's bill, H.R.
2593, the Senior Security Act, which establishes a senior investor task
force within the SEC. The task force must report on topics relating to
investors over the age of 65 and make recommendations for actions to
address problems encountered by senior investors.
Committee Democrats also supported several more Republican bills that
help promote capital formation. We could have worked together to get
these all included in the NDAA, but Chair McHenry knows why that didn't
happen--Republicans blocked all of these bills from being added.
Today, Republicans are pivoting to a completely partisan approach to
the issue with this bill. This is par for the course with extreme MAGA
Republicans who prefer to pander to their base instead of actually
getting things done.
When Republicans are done wasting their time on this extreme MAGA
bill, Democrats will be ready to get to work on solutions that actually
have a chance of making a difference for small businesses and retail
investors.
Mr. Chair, I reserve the balance of my time.
Mrs. WAGNER. Mr. Chair, I yield 1 minute to the gentleman from
Wisconsin (Mr. Fitzgerald), my friend and colleague.
Mr. FITZGERALD. Mr. Chair, I rise today in strong support of H.R.
2799. American public markets remain the go-to place for innovative
companies to grow and build capital. However, the regulatory
environment has steadily become more burdensome and costly, creating a
real divide between market regulation now and market regulation years
ago.
At a time when the markets and regulatory environment were more
conducive to small- and mid-cap stocks, groundbreaking Wisconsin
companies like Harley-Davidson, Johnson Controls, and Kohler raised
capital by going public. Through the IPOs, these upstart enterprises
raised the funding necessary to expand their workforce and operations.
At the same time, families benefited from the opportunity to invest in
these companies to build savings and wealth.
While Americans have started new businesses at record rates since the
pandemic, many still struggle to meet their own capital needs. The
number of U.S. IPOs has continued to decline since the early 2000s as
the cost and regulatory burdens of going and staying public remain
high.
The Acting CHAIR (Mr. Smucker). The time of the gentleman has
expired.
Mrs. WAGNER. Mr. Chair, I yield an additional 30 seconds to the
gentleman from Wisconsin.
Mr. FITZGERALD. Under President Biden, SEC Chairman Gary Gensler
proposed over 50 rules. This must be reversed, and I urge my colleagues
to vote ``yes'' for this commonsense legislation.
Ms. WATERS. Mr. Chair, the following organizations oppose this bill:
the North American Securities Administrators Association, Consumer
Federation of America, AFL-CIO, AFSCME, Communications Workers of
America, SEIU, Steelworkers, Transport Workers Union of America,
Americans for Financial Reform, Public Citizen, Center for American
Progress, and Main Street Alliance.
Mr. Chair, I reserve the balance of my time.
Mrs. WAGNER. Mr. Chair, I yield 2 minutes to the gentleman from
Wisconsin (Mr. Steil), my friend and colleague.
Mr. STEIL. Mr. Chair, I rise in support of the Expanding Access to
Capital Act. This package would help improve our capital markets to
foster innovation, growth, and job creation here in the United States.
It is a win for workers, investors, and entrepreneurs. It includes
two bills I introduced that would help smaller public companies raise
money.
The first, the Helping Startups Continue to Grow Act, would expand
the IPO on-ramp first established in the bipartisan JOBS Act. It allows
more early-stage companies to keep their emerging growth company status
for longer, and it would update the low caps currently in place. The
provisions ensure more companies can benefit from the rightsized
disclosures and reduce compliance costs that come with EGC status.
Thanks to EGC status, these companies can focus on innovation and job
creation rather than complying with a regulatory regime designed for
larger and more mature firms. This is especially helpful for R&D-
intensive startups that often work for years to develop lifesaving
cures or transformative technologies.
This package also includes my bill to expand the availability of
well-known seasoned issuer status to more small public companies. This
designation allows qualified companies to use the shelf registration
process, saving them time and money when they go to the public markets
to raise capital.
In the two decades since the WKSI construct was created, it has been
shown to be safe and effective. My targeted reform would reduce the
cost of capital for small market companies, spurring more job creation
and growth.
Many of these ideas are in Chairman McHenry's package, and they have
long had bipartisan support and a long bipartisan track record.
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My colleagues on both sides of the aisle should vote to modernize our
capital markets. It is good for workers, investors, and entrepreneurs
seeking to invest in American innovation and build a better future.
Mr. Chair, I urge my colleagues to support this bill.
Ms. WATERS. Mr. Chair, I have no further speakers, and I yield myself
the balance of my time.
Mr. Chair, in all my years in Congress, this is one of the worst
examples I have ever seen of a Wall Street wish list masquerading as a
lifeline for small businesses and ordinary investors.
Let me be clear. This bill does nothing to help small businesses. It
only helps big business avoid transparency and accountability, and that
is why the Biden administration opposes this bill.
This bill does nothing to help ordinary investors. It only helps make
it easier for investors to be duped by conflicted middlemen into
purchasing some of the riskiest securities out there.
Under this bill, these middlemen will have free rein to mask critical
details about investment risk and target elderly people and others with
what they claim is a great investment opportunity that will help them
build wealth but, in reality, is a fraud.
For example, these middlemen will be able to take the failing
businesses off private equity balance sheets and offload them onto Main
Street investors.
This bill also hinders small businesses' ability to raise money by
preempting State law and preventing State securities regulators from
doing their job.
Mr. Chair, we see this bill for what it is: a Wall Street wish list
that throws Main Street investors under the bus.
Mr. Chair, I urge my colleagues to vote for Main Street, not Wall
Street, by voting ``no'' on this bill. I yield back the balance of my
time.
Mrs. WAGNER. Mr. Chair, I yield myself the balance of my time.
I want to quickly and swiftly say that H.R. 2799 has been a wonderful
collaborative effort. There are many bipartisan pieces of legislation
in this bill and amendments that also received bipartisan support out
of the committee.
Mr. Chair, I urge all of my colleagues to join Republicans in
supporting savers, entrepreneurs, and job creators and to give them the
chance to achieve their American Dream by voting ``yes'' on H.R. 2799,
and I yield back the balance of my time.
The Acting CHAIR. All time for general debate has expired.
Pursuant to the rule, the bill shall be considered for amendment
under the 5-minute rule.
The amendment in the nature of a substitute recommended by the
Committee on Financial Services, printed in the bill, modified by the
amendment printed in part A of House Report 118-407, shall be
considered as adopted. The bill, as amended, shall be considered as the
original bill for the purpose of further amendment and shall be
considered as read.
The text of the bill is as follows:
H.R. 2799
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Expanding
Access to Capital Act of 2023''.
(b) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; table of contents.
DIVISION A--STRENGTHENING PUBLIC MARKETS
TITLE I--REMOVE ABERRATIONS IN THE MARKET CAP TEST FOR TARGET COMPANY
FINANCIAL STATEMENTS
Sec. 1101. Avoiding aberrational results in requirements for
acquisition and disposition financial statements.
TITLE II--HELPING STARTUPS CONTINUE TO GROW
Sec. 1201. Short title.
Sec. 1202. Emerging growth company criteria.
TITLE III--SEC AND PCAOB AUDITOR REQUIREMENTS FOR NEWLY PUBLIC
COMPANIES
Sec. 1301. Auditor independence for certain past audits occurring
before an issuer is a public company.
TITLE IV--EXPAND THE PROTECTION FOR RESEARCH REPORTS TO COVER ALL
SECURITIES OF ALL ISSUERS
Sec. 1401. Provision of research.
TITLE V--EXCLUDE QIBS AND IAAS FROM THE RECORD HOLDER COUNT FOR
MANDATORY REGISTRATION
Sec. 1501. Exclusions from mandatory registration threshold.
TITLE VI--EXPAND WKSI ELIGIBILITY
Sec. 1601. Definition of well-known seasoned issuer.
DIVISION B--HELPING SMALL BUSINESSES AND ENTREPRENEURS
TITLE I--UNLOCKING CAPITAL FOR SMALL BUSINESSES
Sec. 2101. Short title.
Sec. 2102. Safe harbors for private placement brokers and finders.
Sec. 2103. Limitations on State law.
TITLE II--SMALL BUSINESS INVESTOR CAPITAL ACCESS
Sec. 2201. Short title.
Sec. 2202. Inflation adjustment for the exemption threshold for certain
investment advisers of private funds.
TITLE III--IMPROVING CAPITAL ALLOCATION FOR NEWCOMERS
Sec. 2301. Short title.
Sec. 2302. Qualifying venture capital funds.
TITLE IV--SMALL ENTREPRENEURS' EMPOWERMENT AND DEVELOPMENT
Sec. 2401. Short title.
Sec. 2402. Micro-offering exemption.
TITLE V--REGULATION A+ IMPROVEMENT
Sec. 2501. Short title.
Sec. 2502. JOBS Act-related exemption.
TITLE VI--DEVELOPING AND EMPOWERING OUR ASPIRING LEADERS
Sec. 2601. Short title.
Sec. 2602. Definitions.
Sec. 2603. Reports.
TITLE VII--IMPROVING CROWDFUNDING OPPORTUNITIES
Sec. 2701. Short title.
Sec. 2702. Crowdfunding revisions.
TITLE VIII--RESTORING THE SECONDARY TRADING MARKET
Sec. 2801. Short title.
Sec. 2802. Exemption from State regulation.
DIVISION C--INCREASING ACCESS TO PRIVATE MARKETS
TITLE I--GIG WORKER EQUITY COMPENSATION
Sec. 3101. Short title.
Sec. 3102. Extension of Rule 701.
Sec. 3104. GAO study.
TITLE II--INVESTMENT OPPORTUNITY EXPANSION
Sec. 3201. Short title.
Sec. 3202. Investment thresholds to qualify as an accredited investor.
TITLE III--RISK DISCLOSURE AND INVESTOR ATTESTATION
Sec. 3301. Short title.
Sec. 3302. Investor attestation.
TITLE IV--ACCREDITED INVESTORS INCLUDE INDIVIDUALS RECEIVING ADVICE
FROM CERTAIN PROFESSIONALS
Sec. 3401. Accredited investors include individuals receiving advice
from certain professionals.
DIVISION A--STRENGTHENING PUBLIC MARKETS
TITLE I--REMOVE ABERRATIONS IN THE MARKET CAP TEST FOR TARGET COMPANY
FINANCIAL STATEMENTS
SEC. 1101. AVOIDING ABERRATIONAL RESULTS IN REQUIREMENTS FOR
ACQUISITION AND DISPOSITION FINANCIAL
STATEMENTS.
The Securities and Exchange Commission shall revise section
210.1-02(w)(1)(i)(A) of title 17, Code of Federal
Regulations, to permit a registrant, in determining the
significance of an acquisition or disposition described in
such section 210.1-02(w)(1)(i)(A), to calculate the
registrant's aggregate worldwide market value based on the
applicable trading value, conversion value, or exchange value
of all of the registrant's outstanding classes of stock
(including preferred stock and non-traded common shares that
are convertible into or exchangeable for traded common
shares) and not just the voting and non-voting common equity
of the registrant.
TITLE II--HELPING STARTUPS CONTINUE TO GROW
SEC. 1201. SHORT TITLE.
This title may be cited as the ``Helping Startups Continue
To Grow Act''.
SEC. 1202. EMERGING GROWTH COMPANY CRITERIA.
(a) Securities Act of 1933.--Section 2(a)(19) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(19)) is amended--
(1) by striking ``$1,000,000,000'' each place such term
appears and inserting ``$1,500,000,000'';
(2) in subparagraph (B)--
(A) by striking ``fifth'' and inserting ``7-year''; and
(B) by adding ``or'' at the end;
(3) in subparagraph (C), by striking ``; or'' and inserting
a period; and
(4) by striking subparagraph (D).
(b) Securities Exchange Act of 1934.--Section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is
amended, in the first paragraph (80) (related to emerging
growth companies)--
(1) by striking ``$1,000,000,000'' each place such term
appears and inserting ``$1,500,000,000'';
(2) in subparagraph (B)--
[[Page H978]]
(A) by striking ``fifth'' and inserting ``7-year''; and
(B) by adding ``or'' at the end;
(3) in subparagraph (C), by striking ``; or'' and inserting
a period; and
(4) by striking subparagraph (D).
TITLE III--SEC AND PCAOB AUDITOR REQUIREMENTS FOR NEWLY PUBLIC
COMPANIES
SEC. 1301. AUDITOR INDEPENDENCE FOR CERTAIN PAST AUDITS
OCCURRING BEFORE AN ISSUER IS A PUBLIC COMPANY.
(a) Auditor Independence Standards of the Public Company
Accounting Oversight Board.--Section 103 of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7213) is amended by adding at
the end the following:
``(e) Auditor Independence for Certain Past Audits
Occurring Before an Issuer Is a Public Company.--With respect
to an issuer that is a public company or an issuer that has
filed a registration statement to become a public company,
the auditor independence rules established by the Board with
respect to audits occurring before the last fiscal year of
the issuer completed before the issuer filed a registration
statement to become a public company shall treat an auditor
as independent if--
``(1) the auditor is independent under standards
established by the American Institute of Certified Public
Accountants applicable to certified public accountants in
United States; or
``(2) with respect to a foreign issuer, the auditor is
independent under comparable standards applicable to
certified public accountants in the issuer's home country.''.
(b) Auditor Independence Standards of the Securities and
Exchange Commission.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended by adding at the end
the following:
``(n) Auditor Independence for Certain Past Audits
Occurring Before an Issuer Is a Public Company.--With respect
to an issuer that is a public company or an issuer that has
filed a registration statement to become a public company,
the auditor independence rules established by the Commission
under the securities laws with respect to audits occurring
before the last fiscal year of the issuer completed before
the issuer filed a registration statement to become a public
company shall treat an auditor as independent if--
``(1) the auditor is independent under standards
established by the American Institute of Certified Public
Accountants applicable to certified public accountants in
United States; or
``(2) with respect to a foreign issuer, the auditor is
independent under comparable standards applicable to
certified public accountants in the issuer's home country.''.
TITLE IV--EXPAND THE PROTECTION FOR RESEARCH REPORTS TO COVER ALL
SECURITIES OF ALL ISSUERS
SEC. 1401. PROVISION OF RESEARCH.
Section 2(a)(3) of the Securities Act of 1933 (15 U.S.C.
77b(a)(3)) is amended--
(a) by striking ``an emerging growth company'' and
inserting ``an issuer'';
(b) by striking ``the common equity'' and inserting
``any''; and
(c) by striking ``such emerging growth company'' and
inserting ``such issuer''.
TITLE V--EXCLUDE QIBS AND IAAS FROM THE RECORD HOLDER COUNT FOR
MANDATORY REGISTRATION
SEC. 1501. EXCLUSIONS FROM MANDATORY REGISTRATION THRESHOLD.
(a) In General.--Section 12(g)(1) of the Securities
Exchange Act of 1934 (15 U.S.C. 78l(g)(1)) is amended--
(1) in subparagraph (A)(i), by inserting after ``persons''
the following: ``(that are not a qualified institutional
buyer or an institutional accredited investor)''; and
(2) in subparagraph (B), by inserting after ``persons'' the
following: ``(that are not a qualified institutional buyer or
an institutional accredited investor)''.
(b) Nonapplicability of General Exemptive Authority.--
Section 36 of the Securities Exchange Act of 1934 (15 U.S.C.
78mm) shall not apply to the matter inserted by the
amendments made by subsection (a).
TITLE VI--EXPAND WKSI ELIGIBILITY
SEC. 1601. DEFINITION OF WELL-KNOWN SEASONED ISSUER.
For purposes of the Federal securities laws, and
regulations issued thereunder, an issuer shall be a ``well-
known seasoned issuer'' if--
(1) the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the issuer is
$250,000,000 or more (as determined under Form S-3 general
instruction I.B.1. as in effect on the date of enactment of
this Act); and
(2) the issuer otherwise satisfies the requirements of the
definition of ``well-known seasoned issuer'' contained in
section 230.405 of title 17, Code of Federal Regulations
without reference to any requirement in such definition
relating to minimum worldwide market value of outstanding
voting and non-voting common equity held by non-affiliates.
DIVISION B--HELPING SMALL BUSINESSES AND ENTREPRENEURS
TITLE I--UNLOCKING CAPITAL FOR SMALL BUSINESSES
SEC. 2101. SHORT TITLE.
This title may be cited as the ``Unlocking Capital for
Small Businesses Act of 2023''.
SEC. 2102. SAFE HARBORS FOR PRIVATE PLACEMENT BROKERS AND
FINDERS.
(a) In General.--Section 15 of the Securities Exchange Act
of 1934 (15 U.S.C. 78o) is amended by adding at the end the
following:
``(p) Private Placement Broker Safe Harbor.--
``(1) Registration requirements.--Not later than 180 days
after the date of the enactment of this subsection the
Commission shall promulgate regulations with respect to
private placement brokers that are no more stringent than
those imposed on funding portals.
``(2) National securities associations.--Not later than 180
days after the date of the enactment of this subsection the
Commission shall promulgate regulations that require the
rules of any national securities association to allow a
private placement broker to become a member of such national
securities association subject to reduced membership
requirements consistent with this subsection.
``(3) Disclosures required.--Before effecting a
transaction, a private placement broker shall disclose
clearly and conspicuously, in writing, to all parties to the
transaction as a result of the broker's activities--
``(A) that the broker is acting as a private placement
broker;
``(B) the amount of any payment or anticipated payment for
services rendered as a private placement broker in connection
with such transaction;
``(C) the person to whom any such payment is made; and
``(D) any beneficial interest in the issuer, direct or
indirect, of the private placement broker, of a member of the
immediate family of the private placement broker, of an
associated person of the private placement broker, or of a
member of the immediate family of such associated person.
``(4) Private placement broker defined.--In this
subsection, the term `private placement broker' means a
person that--
``(A) receives transaction-based compensation--
``(i) for effecting a transaction by--
``(I) introducing an issuer of securities and a buyer of
such securities in connection with the sale of a business
effected as the sale of securities; or
``(II) introducing an issuer of securities and a buyer of
such securities in connection with the placement of
securities in transactions that are exempt from registration
requirements under the Securities Act of 1933; and
``(ii) that is not with respect to--
``(I) a class of publicly traded securities;
``(II) the securities of an investment company (as defined
in section 3 of the Investment Company Act of 1940); or
``(III) a variable or equity-indexed annuity or other
variable or equity-indexed life insurance product;
``(B) with respect to a transaction for which such
transaction-based compensation is received--
``(i) does not handle or take possession of the funds or
securities; and
``(ii) does not engage in an activity that requires
registration as an investment adviser under State or Federal
law; and
``(C) is not a finder as defined under subsection (q).
``(q) Finder Safe Harbor.--
``(1) Nonregistration.--A finder is exempt from the
registration requirements of this Act.
``(2) National securities associations.--A finder shall not
be required to become a member of any national securities
association.
``(3) Finder defined.--In this subsection, the term
`finder' means a person described in paragraphs (A) and (B)
of subsection (p)(4) that--
``(A) receives transaction-based compensation of equal to
or less than $500,000 in any calendar year;
``(B) receives transaction-based compensation in connection
with transactions that result in a single issuer selling
securities valued at equal to or less than $15,000,000 in any
calendar year;
``(C) receives transaction-based compensation in connection
with transactions that result in any combination of issuers
selling securities valued at equal to or less than
$30,000,000 in any calendar year; or
``(D) receives transaction-based compensation in connection
with fewer than 16 transactions that are not part of the same
offering or are otherwise unrelated in any calendar year.''.
(b) Validity of Contracts With Registered Private Placement
Brokers and Finders.--Section 29 of the Securities Exchange
Act of 1934 (15 U.S.C. 78cc) is amended by adding at the end
the following:
``(d) Subsection (b) shall not apply to a contract made for
a transaction if--
``(1) the transaction is one in which the issuer engaged
the services of a broker or dealer that is not registered
under this Act with respect to such transaction;
``(2) such issuer received a self-certification from such
broker or dealer certifying that such broker or dealer is a
registered private placement broker under section 15(p) or a
finder under section 15(q); and
``(3) the issuer either did not know that such self-
certification was false or did not have a reasonable basis to
believe that such self-certification was false.''.
(c) Removal of Private Placement Brokers From Definitions
of Broker.--
(1) Records and reports on monetary instruments
transactions.--Section 5312 of title 31, United States Code,
is amended in
[[Page H979]]
subsection (a)(2)(G) by inserting ``with the exception of a
private placement broker as defined in section 15(p)(4) of
the Securities Exchange Act of 1934 (15 U.S.C. 78o(p)(4))''
before the semicolon at the end.
(2) Securities exchange act of 1934.--Section 3(a)(4) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) is
amended by adding at the end the following:
``(G) Private placement brokers.--A private placement
broker as defined in section 15(p)(4) is not a broker for the
purposes of this Act.''.
SEC. 2103. LIMITATIONS ON STATE LAW.
Section 15(i) of the Securities Exchange Act of 1934 (15
U.S.C. 78o(i)) is amended--
(1) by redesignating paragraphs (3) and (4) as paragraphs
(4) and (5), respectively;
(2) by inserting after paragraph (2) the following:
``(3) Private placement brokers and finders.--
``(A) In general.--No State or political subdivision
thereof may enforce any law, rule, regulation, or other
administrative action that imposes greater registration,
audit, financial recordkeeping, or reporting requirements on
a private placement broker or finder than those that are
required under subsections (p) and (q), respectively.
``(B) Definition of state.--For purposes of this paragraph,
the term `State' includes the District of Columbia and each
territory of the United States.''; and
(3) in paragraph (4), as so redesignated, by striking
``paragraph (3)'' and inserting ``paragraph (5)''.
TITLE II--SMALL BUSINESS INVESTOR CAPITAL ACCESS
SEC. 2201. SHORT TITLE.
This title may be cited as the ``Small Business Investor
Capital Access Act''.
SEC. 2202. INFLATION ADJUSTMENT FOR THE EXEMPTION THRESHOLD
FOR CERTAIN INVESTMENT ADVISERS OF PRIVATE
FUNDS.
Section 203(m) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3(m)) is amended by adding at the end the
following:
``(5) Inflation adjustment.--The Commission shall adjust
the dollar amount described under paragraph (1)--
``(A) upon enactment of this paragraph, to reflect the
change in the Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics of the Department
of Labor between the date of enactment of the Private Fund
Investment Advisers Registration Act of 2010 and the date of
enactment of this paragraph; and
``(B) annually thereafter, to reflect the change in the
Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the Department of Labor.''.
TITLE III--IMPROVING CAPITAL ALLOCATION FOR NEWCOMERS
SEC. 2301. SHORT TITLE.
This title may be cited as the ``Improving Capital
Allocation for Newcomers Act of 2023''.
SEC. 2302. QUALIFYING VENTURE CAPITAL FUNDS.
Section 3(c)(1) of the Investment Company Act of 1940 (15
U.S.C. 80a-3(c)(1)) is amended--
(1) in the matter preceding subparagraph (A), by striking
``250 persons'' and inserting ``600 persons''; and
(2) in subparagraph (C)(i), by striking ``$10,000,000'' and
inserting ``$150,000,000''.
TITLE IV--SMALL ENTREPRENEURS' EMPOWERMENT AND DEVELOPMENT
SEC. 2401. SHORT TITLE.
This title may be cited as the ``Small Entrepreneurs'
Empowerment and Development Act of 2023'' or the ``SEED Act
of 2023''.
SEC. 2402. MICRO-OFFERING EXEMPTION.
(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) 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) where 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 $250,000.''.
(b) Disqualification.--
(1) In general.--Not later than 270 days after the date of
enactment of this Act, the Securities and Exchange Commission
shall, by rule, establish disqualification provisions under
which an issuer shall not be eligible to offer securities
pursuant to section 4(a)(8) of the Securities Act of 1933, as
added by this section.
(2) Inclusions.--Disqualification provisions required by
this subsection shall--
(A) be substantially similar to the provisions of section
230.506(d) of title 17, Code of Federal Regulations (or any
successor thereto); and
(B) disqualify any offering or sale of securities by a
person that--
(i) is subject to a final order of a covered regulator
that--
(I) bars the person from--
(aa) association with an entity regulated by the covered
regulator;
(bb) engaging in the business of securities, insurance, or
banking; or
(cc) engaging in savings association or credit union
activities; or
(II) constitutes a final order based on a violation of any
law or regulation that prohibits fraudulent, manipulative, or
deceptive conduct, if such final order was issued within the
previous 10-year period; or
(ii) has been convicted of any felony or misdemeanor in
connection with the purchase or sale of any security or
involving the making of any false filing with the Commission.
(3) Covered regulator defined.--In this subsection, the
term ``covered regulator'' means--
(A) a State securities commission (or an agency or officer
of a State performing like functions);
(B) a State authority that supervises or examines banks,
savings associations, or credit unions;
(C) a State insurance commission (or an agency or officer
of a State performing like functions);
(D) a Federal banking agency (as defined under section 3 of
the Federal Deposit Insurance Act); and
(E) the National Credit Union Administration.
(c) 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).''.
TITLE V--REGULATION A+ IMPROVEMENT
SEC. 2501. SHORT TITLE.
This title may be cited as the ``Regulation A+ Improvement
Act of 2023''.
SEC. 2502. JOBS ACT-RELATED EXEMPTION.
Section 3(b) of the Securities Act of 1933 (15 U.S.C.
77c(b)) is amended--
(1) in paragraph (2)(A), by striking ``$50,000,000'' and
inserting ``$150,000,000, adjusted for inflation by the
Commission every 2 years to the nearest $10,000 to reflect
the change in the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics''; and
(2) in paragraph (5)--
(A) by striking ``such amount as'' and inserting: ``such
amount, in addition to the adjustment for inflation provided
for under such paragraph (2)(A), as''; and
(B) by striking ``such amount, it'' and inserting ``such
amount, in addition to the adjustment for inflation provided
for under such paragraph (2)(A), it''.
TITLE VI--DEVELOPING AND EMPOWERING OUR ASPIRING LEADERS
SEC. 2601. SHORT TITLE.
This title may be cited as the ``Developing and Empowering
our Aspiring Leaders Act of 2023'' or the ``DEAL Act of
2023''.
SEC. 2602. DEFINITIONS.
Not later than the end of the 180-day period beginning on
the date of the enactment of this Act, the Securities and
Exchange Commission shall, in a manner that facilitates
capital formation without compromising investor protection--
(1) revise the definition of a qualifying investment under
paragraph (c) of section 275.203(l)-1 of title 17, Code of
Federal Regulations--
(A) to include an equity security issued by a qualifying
portfolio company, whether acquired directly from the company
or in a secondary acquisition; and
(B) to specify that an investment in another venture
capital fund is a qualifying investment under such
definition; and
(2) revise paragraph (a) of such section to require, as a
condition of a private fund qualifying as a venture capital
fund under such paragraph, that the qualifying investments of
the private fund are either--
(A) predominantly qualifying investments that were acquired
directly from a qualifying portfolio company; or
(B) predominantly qualifying investments in another venture
capital fund or other venture capital funds.
SEC. 2603. REPORTS.
(a) GAO Report.--The Comptroller General of the United
States shall issue a report to Congress on the risks and
impacts of concentrated sectoral counterparty risk in the
banking sector, in light of the failure of Silicon Valley
Bank.
(b) Advocate for Small Business Capital Formation Report.--
The Advocate for Small Business Capital Formation shall issue
a report to Congress and the Securities and Exchange
Commission--
(1) examining the access to banking services for venture
funds and companies funded by venture capital, in light of
the failure of Silicon Valley Bank, especially those funds
and companies located outside of the established technology
and venture capital hubs of California, Massachusetts, and
New York; and
(2) containing any policy recommendations of the Advocate.
TITLE VII--IMPROVING CROWDFUNDING OPPORTUNITIES
SEC. 2701. SHORT TITLE.
This title may be cited as the ``Improving Crowdfunding
Opportunities Act''.
SEC. 2702. CROWDFUNDING REVISIONS.
(a) Exemption From State Regulation.--Section 18(b)(4)(A)
of the Securities Act of 1933 (15 U.S.C. 77r(b)(4)(A)) is
amended by striking ``pursuant to section'' and all that
follows through the semicolon at the end and inserting the
following: ``pursuant to--
``(i) section 13 or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m, 78o(d)); or
[[Page H980]]
``(ii) section 4A(b) or any regulation issued under that
section;''.
(b) Liability for Material Misstatements and Omissions.--
Section 4A(c) of the Securities Act of 1933 (15 U.S.C. 77d-
1(c)) is amended--
(1) by redesignating paragraph (3) as paragraph (4); and
(2) by inserting after paragraph (2) the following:
``(3) Liability of funding portals.--For the purposes of
this subsection, a funding portal, as that term is defined in
section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)), shall not be considered to be an issuer
unless, in connection with the offer or sale of a security,
the funding portal knowingly--
``(A) makes any untrue statement of a material fact or
omits to state a material fact in order to make the
statements made, in light of the circumstances under which
they are made, not misleading; or
``(B) engages in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon any
person.''.
(c) Applicability of Bank Secrecy Act Requirements.--
(1) Securities act of 1933.--Section 4A(a) of the
Securities Act of 1933 (15 U.S.C. 77d-1(a)) is amended--
(A) in paragraph (11), by striking ``and'' at the end;
(B) in paragraph (12), by striking the period at the end
and inserting ``; and''; and
(C) by adding at the end the following:
``(13) not be subject to the recordkeeping and reporting
requirements relating to monetary instruments under
subchapter II of chapter 53 of title 31, United States
Code.''.
(2) Title 31, united states code.--Section 5312 of title
31, United States Code, is amended by striking subsection (c)
and inserting the following:
``(c) Additional Clarification.--The term `financial
institution' (as defined in subsection (a))--
``(1) includes any futures commission merchant, commodity
trading advisor, or commodity pool operator registered, or
required to register, under the Commodity Exchange Act (7
U.S.C. 1 et seq.); and
``(2) does not include a funding portal, as that term is
defined in section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)).''.
(d) Provision of Impersonal Investment Advice and
Recommendations.--Section 3(a) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)) is amended--
(1) by redesignating the second paragraph (80) (relating to
funding portals) as paragraph (81); and
(2) in paragraph (81)(A), as so redesignated, by inserting
after ``recommendations'' the following: ``(other than by
providing impersonal investment advice by means of written
material, or an oral statement, that does not purport to meet
the objectives or needs of a specific individual or
account)''.
(e) Target Amounts of Certain Exempted Offerings.--The
Securities and Exchange Commission shall amend paragraph
(t)(1) of section 227.201 of title 17, Code of Federal
Regulations so that such paragraph applies with respect to an
issuer offering or selling securities in reliance on section
4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6))
if--
(1) the offerings of such issuer, together with all other
amounts sold under such section 4(a)(6) within the preceding
12-month period, have, in the aggregate, a target amount of
more than $124,000 but not more than $250,000;
(2) the financial statements of such issuer that have
either been reviewed or audited by a public accountant that
is independent of the issuer are unavailable at the time of
filing; and
(3) such issuer provides a statement that financial
information certified by the principal executive officer of
the issuer has been provided instead of financial statements
reviewed by a public accountant that is independent of the
issuer.
(f) Exemption Available to Investment Companies.--Section
4A(f) of the Securities Act of 1933 (15 U.S.C. 77d-1(f)) is
amended--
(1) in paragraph (2), by inserting ``or'' after the
semicolon;
(2) by striking paragraph (3); and
(3) by redesignating paragraph (4) as paragraph (3).
(g) Non-accredited Investor Requirements.--Section 4(a)(6)
of the Securities Act of 1933 (15 U.S.C. 77d(a)(6))) is
amended--
(1) in subparagraph (A), by striking ``$1,000,000'' and
inserting ``$10,000,000''; and
(2) in subparagraph (B), by striking ``does not exceed''
and all that follows through ``more than $100,000'' and
inserting ``does not exceed 10 percent of the annual income
or net worth of such investor''.
(h) Technical Correction.--The Securities Act of 1933 (15
U.S.C. 77a et seq.) is amended--
(1) by striking the term ``section 4(6)'' each place such
term appears and inserting ``section 4(a)(6)'';
(2) by striking the term ``section 4(6)(B)'' each place
such term appears and inserting ``section 4(a)(6)(B)'';
(3) in section 4A(f), by striking ``Section 4(6)'' and
inserting ``Section 4(a)(6)''; and
(4) in section 18(b)(4)(A), by striking ``section 4'' and
inserting ``section 4(a)''.
TITLE VIII--RESTORING THE SECONDARY TRADING MARKET
SEC. 2801. SHORT TITLE.
This title may be cited as the ``Restoring the Secondary
Trading Market Act''.
SEC. 2802. EXEMPTION FROM STATE REGULATION.
Section 18(a) of the Securities Act of 1933 (15 U.S.C.
77r(a)) is amended--
(1) in paragraph (2), by striking ``or'' at the end;
(2) in paragraph (3), by striking the period at the end and
inserting ``; or''; and
(3) by adding at the end the following:
``(4) shall directly or indirectly prohibit, limit, or
impose any conditions upon the off-exchange secondary trading
(as such term is defined by the Commission) in securities of
an issuer that makes current information publicly available,
including--
``(A) the information required in the periodic and current
reports described under paragraph (b) of section 230.257 of
title 17, Code of Federal Regulations; or
``(B) the documents and information required with respect
to Tier 2 offerings, as defined in section 230.251(a) of
title 17, Code of Federal Regulations.''.
DIVISION C--INCREASING ACCESS TO PRIVATE MARKETS
TITLE I--GIG WORKER EQUITY COMPENSATION
SEC. 3101. SHORT TITLE.
This title may be cited as the ``Gig Worker Equity
Compensation Act''.
SEC. 3102. EXTENSION OF RULE 701.
(a) In General.--The exemption provided under section
230.701 of title 17, Code of Federal Regulations, shall apply
to individuals (other than employees) providing goods for
sale, labor, or services for remuneration to either an issuer
or to customers of an issuer to the same extent as such
exemptions apply to employees of the issuer. For purposes of
the previous sentence, the term ``customers'' may, at the
election of an issuer, include users of the issuer's
platform.
(b) Adjustment for Inflation.--The Securities and Exchange
Commission shall annually adjust the dollar figure under
section 230.701(e) of title 17, Code of Federal Regulations,
to reflect the percentage change in the Consumer Price Index
for All Urban Consumers published by the Bureau of Labor
Statistics of the Department of Labor.
(c) Rulemaking.--The Securities and Exchange Commission--
(1) shall revise section 230.701 of title 17, Code of
Federal Regulations, to reflect the requirements of this
section; and
(2) may not revise such section 230.701 in any manner that
would have the effect of restricting access to equity
compensation for employees or individuals described under
subsection (a).
SEC. 3104. GAO STUDY.
Not later than the end of the 3-year period beginning on
the date of enactment of this Act, the Comptroller General of
the United States shall carry out a study on the effects of
this title and submit a report on such study to the Congress.
TITLE II--INVESTMENT OPPORTUNITY EXPANSION
SEC. 3201. SHORT TITLE.
This title may be cited as the ``Investment Opportunity
Expansion Act''.
SEC. 3202. INVESTMENT THRESHOLDS TO QUALIFY AS AN ACCREDITED
INVESTOR.
Section 2(a)(15) of the Securities Act of 1933 (15 U.S.C.
77b(a)(15)) is amended--
(1) by striking ``(15) The term `accredited investor' shall
mean--'' and inserting the following:
``(15) Accredited investor.--
``(A) In general.--The term `accredited investor' means--
'';
(2) in clause (i), by striking ``or'' at the end;
(3) in clause (ii), by striking the period at the end and
inserting a semicolon; and
(4) by adding at the end the following:
``(iii) with respect to a proposed transaction, any
individual whose aggregate investment, at the completion of
such transaction, in securities with respect to which there
has not been a public offering is not more than 10 percent of
the greater of--
``(I) the net assets of the individual; or
``(II) the annual income of the individual;''.
TITLE III--RISK DISCLOSURE AND INVESTOR ATTESTATION
SEC. 3301. SHORT TITLE.
This title may be cited as the ``Risk Disclosure and
Investor Attestation Act''.
SEC. 3302. INVESTOR ATTESTATION.
(a) In General.--Section 2(a)(15) of the Securities Act of
1933 (15 U.S.C. 77b(a)(15)), as amended by section 3202, is
further amended by adding at the end the following:
``(iv) with respect to an issuer, any individual that has
attested to the issuer that the individual understands the
risks of investment in private issuers, using such form as
the Commission shall establish, by rule, but which form may
not be longer than 2 pages in length; or''.
(b) Rulemaking.--Not later than the end of the 1-year
period beginning on the date of enactment of this Act, the
Securities and Exchange Commission shall issue rules to carry
out the amendments made by subsection (a), including
establishing the form required under such amendments.
TITLE IV--ACCREDITED INVESTORS INCLUDE INDIVIDUALS RECEIVING ADVICE
FROM CERTAIN PROFESSIONALS
SEC. 3401. ACCREDITED INVESTORS INCLUDE INDIVIDUALS RECEIVING
ADVICE FROM CERTAIN PROFESSIONALS.
(a) Securities Act of 1933.--Section 2(a)(15) of the
Securities Act of 1933 (15
[[Page H981]]
U.S.C. 77b(a)(15)), as amended by sections 3202 and 3302, is
further amended by adding at the end the following:
``(v) any individual receiving individualized investment
advice or individualized investment recommendations with
respect to the applicable transaction from an individual
described under section 203.501(a)(10) of title 17, Code of
Federal Regulations.
``(B) Definitions.--In subparagraph (A)(v):
``(i) Investment advice.--The term `investment advice'
shall be interpreted consistently with the interpretation of
the phrase `engages in the business of advising others,
either directly or through publications or writings, as to
the value of securities or as to the advisability of
investing in, purchasing, or selling securities' under
section 202(a)(11) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)(11)).
``(ii) Investment recommendation.--The term `investment
recommendation' shall be interpreted consistently with the
interpretation of the term `recommendation' under section
240.15l-1 of title 17, Code of Federal Regulations.''.
(b) Conforming Changes to Regulations.--The Securities and
Exchange Commission shall revise section 203.501(a) of title
17, Code of Federal Regulations, and any other definition of
``accredited investor'' in a rule of the Commission in the
same manner as such definition is revised under subsection
(a).
The Acting CHAIR. No further amendment to the bill, as amended, shall
be in order except those printed in part B of House Report 118-407.
Each such further amendment may be offered only in the order printed in
the report, may be offered only by a Member designated in the report,
shall be considered as read, shall be debatable for the time specified
in the report equally divided and controlled by the proponent and an
opponent, shall not be subject to amendment, and shall not be subject
to a demand for division of the question.
{time} 1715
Amendment No. 1 Offered by Mr. Lawler
The Acting CHAIR. It is now in order to consider amendment No. 1
printed in part B of House Report 118-407.
Mr. LAWLER. Mr. Chair, I have an amendment at the desk.
The Acting CHAIR. The Clerk will designate the amendment.
The text of the amendment is as follows:
Add at the end the following:
DIVISION D--HELPING ANGELS LEAD OUR STARTUPS
SEC. 4001. CLARIFICATION OF GENERAL SOLICITATION.
(a) Definitions.--For purposes of this section and the
revision of rules required under this section:
(1) Angel investor group.--The term ``angel investor
group'' means any group that--
(A) is composed of accredited investors interested in
investing personal capital in early-stage companies;
(B) holds regular meetings and has defined processes and
procedures for making investment decisions, either
individually or among the membership of the group as a whole;
and
(C) is neither associated nor affiliated with brokers,
dealers, or investment advisers.
(2) Issuer.--The term ``issuer'' means an issuer that is a
business, is not in bankruptcy or receivership, is not an
investment company, and is not a blank check, blind pool, or
shell company.
(b) In General.--Not later than 6 months after the date of
enactment of this Act, the Securities and Exchange Commission
shall revise Regulation D (17 CFR 230.500 et seq.) to require
that in carrying out the prohibition against general
solicitation or general advertising contained in section
230.502(c) of title 17, Code of Federal Regulations, the
prohibition shall not apply to a presentation or other
communication made by or on behalf of an issuer which is made
at an event--
(1) sponsored by--
(A) the United States or any territory thereof, the
District of Columbia, any State, a political subdivision of
any State or territory, or any agency or public
instrumentality of any of the foregoing;
(B) a college, university, or other institution of higher
education;
(C) a nonprofit organization;
(D) an angel investor group;
(E) a venture forum, venture capital association, or trade
association; or
(F) any other group, person, or entity as the Securities
and Exchange Commission may determine by rule;
(2) where any advertising for the event does not reference
any specific offering of securities by the issuer;
(3) the sponsor of which--
(A) does not make investment recommendations or provide
investment advice to event attendees;
(B) does not engage in an active role in any investment
negotiations between the issuer and investors attending the
event;
(C) does not charge event attendees any fees other than
reasonable administrative fees;
(D) does not receive any compensation for making
introductions between investors attending the event and
issuers, or for investment negotiations between such parties;
(E) makes readily available to attendees a disclosure not
longer than one page in length, as prescribed by the
Securities and Exchange Commission, describing the nature of
the event and the risks of investing in the issuers
presenting at the event; and
(F) does not receive any compensation with respect to such
event that would require registration of the sponsor as a
broker or a dealer under the Securities Exchange Act of 1934,
or as an investment advisor under the Investment Advisers Act
of 1940; and
(4) where no specific information regarding an offering of
securities by the issuer is communicated or distributed by or
on behalf of the issuer, other than--
(A) that the issuer is in the process of offering
securities or planning to offer securities;
(B) the type and amount of securities being offered;
(C) the amount of securities being offered that have
already been subscribed for; and
(D) the intended use of proceeds of the offering.
(c) Rule of Construction.--Subsection (b) may only be
construed as requiring the Securities and Exchange Commission
to amend the requirements of Regulation D with respect to
presentations and communications, and not with respect to
purchases or sales.
(d) No Pre-existing Substantive Relationship by Reason of
Event.--Attendance at an event described under subsection (b)
shall not qualify, by itself, as establishing a pre-existing
substantive relationship between an issuer and a purchaser,
for purposes of Rule 506(b).
The Acting CHAIR. Pursuant to House Resolution 1052, the gentleman
from New York (Mr. Lawler) and a Member opposed each will control 5
minutes.
The Chair recognizes the gentleman from New York.
Mr. LAWLER. Mr. Chair, today I rise to urge the House to adopt my
amendment, which would include the Helping Angels Lead Our Startups
Act, otherwise known as the HALOS Act, into the underlying bill.
The HALOS Act will promote access to investment capital for small
companies and ensure that startups can continue to generate interest
and connect with investors.
It will do this by ensuring that demo days, pitch competitions, and
community economic development events where there is no specific
investment offering are not considered general solicitation under Reg
D.
In doing so, companies will be able to engage with a wider audience
of investors and spread word of the products and services that they can
offer to help develop a thriving and diverse economy.
Small businesses are facing turbulent economic times. After surviving
COVID, they are still dealing with the impacts of inflation, low
confidence in the economy, and having to contend with many regulations
which can stifle economic growth, prevent entrepreneurs from achieving
their full potential, and frankly, prevent folks from living out their
American Dream.
Entrepreneurs and small businesses drive the American economy. In
2019, the SBA calculated that close to 44 percent of our GDP was the
result of small businesses.
Barriers like the general compliance requirements on general
solicitations can reduce opportunities for small businesses,
entrepreneurs, and everyday investors as they both soak up the amount
of time and resources needed but also deter small businesses who are
afraid of unintentionally violating these laws.
We have seen many successes from and since the passing of the
bipartisan JOBS Act over a decade ago that helped reduce barriers to
investment.
The HALOS Act is a logical next step on the road of clarifying and
modernizing rules that will enable startups to find the resources they
need to grow and thrive.
Angel investors who are defined by this bill not only play a major
role in financing individual efforts to pursue their dream and start a
business, but also often provide a wealth of advice and support for
tens of thousands of startups.
Long-term impact can be seen as companies such as Amazon, Costco,
Facebook, Google, and Starbucks all initially were funded by angel
investors.
By alleviating burdens on businesses, cutting red tape, and making
capital in our public markets easier and less costly for emerging
companies, we will be helping to build a more diverse and inclusive
universe of entrepreneurs and
[[Page H982]]
founders by expanding opportunities to underrepresented entrepreneurs
and communities facing capital formation challenges.
The HALOS Act will simply allow folks to get eyes on their businesses
and potentially find the vital investor they need to succeed.
Once again, I urge all of my colleagues to support this commonsense
and bipartisan amendment to help our small businesses and startups.
Mr. Chair, I reserve the balance of my time.
Ms. WATERS. Mr. Chair, I claim the time in opposition.
The Acting CHAIR. The gentlewoman from California is recognized for 5
minutes.
Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
This amendment sponsored by Mr. Lawler codifies a controversial
Trump-era SEC rule that is opposed by many investor advocates.
The amendment allows high-risk startups to tout their businesses in
front of retail investors. This is currently prohibited in part because
roughly 75 percent of VC-backed startups fail.
The amendment would specifically allow angel investors and issuers to
market their startup ventures to prospective investors at colleges and
nonprofits, including churches.
Broadly marketing your securities to the public in this fashion--
known as a general solicitation--is usually prohibited for private
offerings like these because the public nature of the market
effectively makes the offering itself public, and therefore, requires
registration with the SEC.
At universities and churches, students and congregants gather to
learn, and they generally trust the information they receive. I don't
believe these are spaces where it is appropriate to market highly risky
investment opportunities.
In my own district, a church was the victim of an investment scheme
in which an issuer conned the church out of nearly $6 million. I
previously offered an amendment during our committee's markup last year
that would prevent future frauds like this from happening again--frauds
that would be further enabled by this amendment.
As such, I urge my colleagues to oppose Mr. Lawler's amendment, and I
reserve the balance of my time.
Mr. LAWLER. Mr. Chair, I would just remind the ranking member that
you need to be an accredited investor to invest. Many of the examples
that the gentlewoman highlights are frankly null and void.
Mr. Chair, may I inquire how much time I have remaining?
The Acting CHAIR. The gentleman has 2 minutes remaining.
Mr. LAWLER. Mr. Chair, I yield 2 minutes to the gentlewoman from
Missouri (Mrs. Wagner), the chair of the Capital Markets Subcommittee.
Mrs. WAGNER. Mr. Chair, I rise in support of my friend and colleague
from New York's amendment, which would add his Helping Angels Lead Our
Startups, or HALOS, Act to H.R. 2799.
Mr. Lawler's legislation is a commonsense step to promote capital
formation by permanently reducing certain burdens on U.S. small
businesses and entrepreneurs.
Unfortunately, when implementing the JOBS Act of 2012, the SEC
complicated these events for many startups by classifying demo day
discussions as general solicitations, blocking companies from being
able to use common fundraising practices.
In 2021, then-SEC Chairman Clayton reformed these rules to provide
relief for entrepreneurs throughout our country, and my colleague's
amendment builds on this progress by adding much-needed certainty that
will ensure startups can continue to access demo days without
sacrificing their ability to raise capital through popular and
practical regulatory pathways.
Members of Congress from both sides of the aisle have recognized the
need for this amendment with the current language receiving strong
bipartisan support, once again, from the committee.
Therefore, I urge my colleagues to adopt this commonsense amendment
and help U.S. startups grow their ideas into thriving and successful
businesses.
Ms. WATERS. Mr. Chair, what Mr. Lawler doesn't recognize is that the
underlying bill makes the accredited investor definition meaningless.
All you have to do is check a box, and poof, able to invest.
Mr. Chair, I reserve the balance of my time.
Mr. LAWLER. Mr. Chair, I rise again to urge the House to adopt my
amendment, the Helping Angels Lead Our Startups Act, otherwise known as
the HALOS Act, into the underlying bill.
Ensuring that folks have access to capital is critical, and this
amendment will help ensure that our small businesses, which are the
lifeblood of our economy, have greater access to capital and that
accredited investors will be able to invest in these small startup
businesses.
Mr. Chair, I urge all of my colleagues to support my amendment, and I
yield back the balance of my time.
Ms. WATERS. Mr. Chair, I yield myself the balance of my time to
close.
Simply put, this amendment allows failure-prone startups to market
their private offerings to unaccredited investors who do not fully
understand the risks involved.
Colleges and churches are not the place startups should be raising
money, and in general, we should not make it easier for them to push
their risky private securities on unsuspecting retail investors, as
this provision does.
Mr. Chair, I urge my colleagues to vote ``no,'' and I yield back the
balance of my time.
The Acting CHAIR. The question is on the amendment offered by the
gentleman from New York (Mr. Lawler).
The question was taken; and the Acting Chair announced that the ayes
appeared to have it.
Ms. WATERS. Mr. Chair, I demand a recorded vote.
The Acting CHAIR. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from New York
will be postponed.
Amendment No. 2 Offered by Mr. Huizenga
The Acting CHAIR. It is now in order to consider amendment No. 2
printed in part B of House Report 118-407.
Mr. HUIZENGA. Mr. Chair, I have an amendment at the desk.
The Acting CHAIR. The Clerk will designate the amendment.
The text of the amendment is as follows:
Add at the end the following:
DIVISION D--IMPROVING DISCLOSURE FOR INVESTORS
SEC. 4001. SHORT TITLE.
This division may be cited as the ``Improving Disclosure
for Investors Act of 2024''.
SEC. 4002. ELECTRONIC DELIVERY.
(a) Promulgation of Rules.--Not later than 180 days after
the date of the enactment of this section, the Securities and
Exchange Commission shall propose and, not later than 1 year
after the date of the enactment of this section, the
Commission shall finalize, rules, regulations, amendments, or
interpretations, as appropriate, to allow a covered entity to
satisfy the entity's obligation to deliver regulatory
documents required under the securities laws to investors
using electronic delivery.
(b) Required Provisions.--Rules, regulations, amendments,
or interpretations the Commission promulgates pursuant to
subsection (a) shall:
(1) With respect to investors that do not receive all
regulatory documents by electronic delivery, provide for--
(A) delivery of an initial communication in paper form
regarding electronic delivery;
(B) a transition period not to exceed 180 days until such
regulatory documents are delivered to such investors by
electronic delivery; and
(C) during a period not to exceed 2 years following the
transition period set forth in subparagraph (B), delivery of
an annual notice in paper form solely reminding such
investors of the ability to opt out of electronic delivery at
any time and receive paper versions of regulatory documents.
(2) Set forth requirements for the content of the initial
communication described in paragraph (1)(A).
(3) Set forth requirements for the timing of delivery of a
notice of website availability of regulatory documents and
the content of the appropriate notice described in subsection
(h)(3)(B).
(4) Provide a mechanism for investors to opt out of
electronic delivery at any time and receive paper versions of
regulatory documents.
(5) Require measures reasonably designed to identify and
remediate failed electronic deliveries of regulatory
documents.
(6) Set forth minimum requirements regarding readability
and retainability for regulatory documents that are delivered
electronically.
(7) For covered entities other than brokers, dealers,
investment advisers registered with the Commission, and
investment companies, require measures reasonably designed to
ensure the confidentiality of personal information in
regulatory documents that are delivered to investors
electronically.
[[Page H983]]
(c) Rule of Construction.--Nothing in this section shall be
construed as altering the substance or timing of any
regulatory document obligation under the securities laws or
regulations of a self-regulatory organization.
(d) Treatment of Revisions Not Completed in a Timely
Manner.--If the Commission fails to finalize the rules,
regulations, amendments, or interpretations required under
subsection (a) before the date specified in such subsection--
(1) a covered entity may deliver regulatory documents using
electronic delivery in accordance with subsections (b) and
(c); and
(2) such electronic delivery shall be deemed to satisfy the
obligation of the covered entity to deliver regulatory
documents required under the securities laws.
(e) Other Required Actions.--
(1) Review of rules.--The Commission shall--
(A) within 180 days of the date of enactment of this Act,
conduct a review of the rules and regulations of the
Commission to determine whether any such rules or regulations
require delivery of written documents to investors; and
(B) within 1 year of the date of enactment of this Act,
promulgate amendments to such rules or regulations to provide
that any requirement to deliver a regulatory document ``in
writing'' may be satisfied by electronic delivery.
(2) Actions by self-regulatory organizations.--Each self-
regulatory organization shall adopt rules and regulations, or
amend the rules and regulations of the self-regulatory
organization, consistent with this Act and consistent with
rules, regulations, amendments, or interpretations finalized
by the Commission pursuant to subsection (a).
(3) Rule of application.--This subsection shall not apply
to a rule or regulation issued pursuant to a Federal statute
if that Federal statute specifically requires delivery of
written documents to investors.
(f) Definitions.--In this section:
(1) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(2) Covered entity.--The term ``covered entity'' means--
(A) an investment company (as defined in section 3(a)(1) of
the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)(1)))
that is registered under such Act;
(B) a business development company (as defined in section
2(a) the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)))
that has elected to be regulated as such under such Act;
(C) a registered broker or dealer (as defined in section
3(a)(4) and section 3(a)(5) of the Securities Exchange Act of
1934) (15 U.S.C. 78c(a)(4) & 78c(a)(5));
(D) a registered municipal securities dealer (as defined in
section 3(a)(30) of the Securities Exchange Act of 1934) (15
U.S.C. 78c(a)(30));
(E) a registered government securities broker or government
securities dealer (as defined in section 3(a)(43) and section
3(a)(44) of the Securities Exchange Act of 1934) (15 U.S.C.
78c(a)(43) & 78c(a)(44));
(F) a registered investment adviser (as defined in section
202(a)(11) of the Investment Advisers Act of 1940) (15 U.S.C.
80b-1(a)(11));
(G) a registered transfer agent (as defined in section
3(a)(25) of the Securities Exchange Act of 1934) (15 U.S.C.
78c(a)(25)); or
(H) a registered funding portal (as defined in the second
paragraph (80) of section 3(a) of the Securities Exchange Act
of 1934) (15 U.S.C. 78c(a)(80)).
(3) Electronic delivery.--The term ``electronic delivery'',
with respect to regulatory documents, includes--
(A) the direct delivery of such regulatory document to an
electronic address of an investor;
(B) the posting of such regulatory document to a website
and direct electronic delivery of an appropriate notice of
the availability of the regulatory document to the investor;
and
(C) an electronic method reasonably designed to ensure
receipt of such regulatory document by the investor.
(4) Regulatory documents.--The term ``regulatory
documents'' includes--
(A) prospectuses meeting the requirements of section 10(a)
of the Securities Act of 1933 (15 U.S.C. 77j(a));
(B) summary prospectuses meeting the requirements of--
(i) section 230.498 of title 17, Code of Federal
Regulations; or
(ii) section 230.498A of title 17, Code of Federal
Regulations;
(C) statements of additional information, as described
under section 270.30e-3(h)(3) of title 17, Code of Federal
Regulations;
(D) annual and semi-annual reports to investors meeting the
requirements of section 30(e) of the Investment Company Act
of 1940 (15 U.S.C. 80a-29(e));
(E) notices meeting the requirements under section 270.19a-
1 of title 17, Code of Federal Regulations;
(F) confirmations and account statements meeting the
requirements under section 240.10b-10 of title 17, Code of
Federal Regulations;
(G) proxy statements meeting the requirements under section
240.14a-3 of title 17, Code of Federal Regulations;
(H) privacy notices meeting the requirements of Regulation
S-P under subpart A of part 248 of title 17, Code of Federal
Regulations;
(I) affiliate marketing notices meeting the requirements of
Regulation S-AM under subpart B of part 248 of title 17, Code
of Federal Regulations; and
(J) all other regulatory documents required to be delivered
by covered entities to investors under the securities laws
and the rules and regulations of the Commission and the self-
regulatory organizations.
(5) Securities laws.--The term ``securities laws'' has the
meaning given the term in section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
(6) Self-regulatory organization.--The term ``self-
regulatory organization'' means--
(A) a self-regulatory organization, as defined in section
2(a)(26) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(26)); and
(B) the Municipal Securities Rulemaking Board.
(7) Website.--The term ``website'' means an internet
website or other digital, internet, or electronic-based
information repository, such as a mobile application, to
which an investor of a covered entity has been provided
reasonable access.
The Acting CHAIR. Pursuant to House Resolution 1052, the gentleman
from Michigan (Mr. Huizenga) and a Member opposed each will control 5
minutes.
The Chair recognizes the gentleman from Michigan.
Mr. HUIZENGA. Mr. Chair, I yield myself 2\1/2\ minutes.
Mr. Chair, for 90 years, the Securities and Exchange Commission has
been tasked with three things: protect investors; maintain fair,
orderly, and efficient markets; and finally, facilitate capital
formation.
The amendment before us today does all three.
First, it directs the Securities and Exchange Commission to
promulgate rules with respect to electronic delivery of some required
disclosures to retail investors.
Second, it provides a transition period, allowing an initial paper
communication about the electronic delivery to be sent to existing
investors.
Third, during a period not to exceed 2 years, the amendment requires
delivery of the annual notice in paper solely to remind investors of
the ability to opt out of that and into electronic delivery at any
time.
Lastly--and I can't emphasize this enough--this amendment provides a
mechanism for investors at any time to opt out of e-delivery, and once
again, you will receive paper versions of the documents.
You want paper, Mr. Chair, you get it.
You want e-delivery, you can get that, too.
E-delivery is not a new and radical concept, but frankly, it is long
overdue, and the data supports the facts.
In 2018, the Social Security Administration eliminated paper as its
primary method of delivering benefit statements to individuals. Now,
nearly 45 million Americans who receive benefits from Social Security
have created online accounts to access their information--information
that is more timely and more secure.
Likewise, the Federal Thrift Savings Plan, TSP, which Members and
staff in this Chamber use, began offering statements digitally in 2003,
with 5.5 million or 85 percent of participants currently taking
advantage of this option.
Finally, in 2020, the Department of Labor moved to e-delivery as a
default for all of its workplace plan participants.
I would close by addressing consumer protection. This amendment
appropriately preserves the ability for investors who prefer to receive
paper notices and disclosures to do just that.
Like many of my colleagues, I, too, represent a district that
encompasses rural communities. That is why it was important for today's
amendment to ensure that paper will always be an option if internet
access is an issue.
American financial markets are some of the most sophisticated in the
world with innovation happening at every turn. Yet, for retail
investors, we have decided that defaulting to an outdated mode of
information sharing is in their best interest.
Today's amendment was guided by a commitment to honor consumer choice
while ensuring Americans receive important information.
Madam Chair, I reserve the balance of my time.
{time} 1730
Ms. WATERS. Madam Chair, I claim the time in opposition to the
amendment.
The Acting CHAIR (Mrs. Miller-Meeks). The gentlewoman from California
is recognized for 5 minutes.
[[Page H984]]
Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
This amendment ignores the reality that many investors, particularly
seniors, do not have access to or the ability to review electronic
documents or simply do not prefer electronic delivery of financial
documents. It would require investors to opt in to receive paper
documents, which would effectively prevent individuals who do not have
easy access to the internet from viewing important financial documents
about the securities they invest in.
Several major investor advocate groups strongly oppose this bill,
including the AARP, the North American Securities Administrators
Association, the Consumer Federation of America, Americans for
Financial Reform, and Public Citizen, to name a few.
I strongly urge my colleagues to vote ``no'' on this terrible
amendment.
Madam Chair, I reserve the balance of my time.
Mr. HUIZENGA. Madam Speaker, I yield 2 minutes to the gentleman from
North Carolina (Mr. Nickel).
Mr. NICKEL. Madam Speaker, I rise in support of this bipartisan
amendment with Mr. Huizenga. I also thank my colleagues, Congressman
Steil and Congressman Auchincloss, for cosponsoring this amendment.
This commonsense, probusiness amendment cuts unnecessary red tape and
directs the SEC to make electronic delivery, or eDelivery, the default
communication method for investment companies with their investors. The
amendment aims to modernize the policy, with investors opting in to
paper disclosures instead of opting out while ensuring that paper will
always be an option.
Consumer protection is a cornerstone of this amendment, which is why
it includes a 2-year transition period. Well before any switch to
eDelivery begins, consumers would be given advance notice in the form
of clear and readable paper disclosures about the move to digital
disclosures. On top of that, consumers will be mailed reminders for 2
years that they can opt in to paper disclosures. Paper disclosures will
always be an option for those who want them.
This a long overdue reform, especially when you consider that the
Social Security Administration, the Federal Thrift Savings Plan, the
Department of Labor, and the IRS have already advanced digital-first
policies that have succeeded in providing Americans with more timely,
secure, and engaging communications.
This is a pro-environment amendment. Congress can save millions of
trees with this legislation. With each forest we cut down to deliver a
disclosure to clog up both mailboxes and trash cans, we cause
devastating impacts to our air, water, and the healthy planet future
generations deserve to grow up on.
American financial markets are the most sophisticated in the world.
While some are finding innovative ways to harness the speed and
reliability of today's technology for everyday investors, the SEC's
regulatory construct still uses an outdated mode of sharing
information: paper.
Despite the convenience and security of the internet, we are not
removing paper as an option. That choice remains. I believe it is
incumbent upon Congress to modernize regulations in our capital
markets.
Madam Chair, I urge my colleagues to vote ``yes'' on this amendment,
to do the right thing for consumers, the planet, and the market.
Mr. HUIZENGA. Madam Chair, may I inquire of the time remaining?
The Acting CHAIR. The gentleman from Michigan has 30 seconds
remaining.
Mr. HUIZENGA. Madam Chair, virtually every Federal agency, including
the IRS and the Social Security Administration, have moved to
electronic delivery. Why? Because older Americans have rapidly adopted
internet technology in recent years, including 96 percent of those
between the ages of 50 and 65, of which I am, and over three-quarters
of those over the age of 65.
In fact, in a recent AARP study about retirement plan account
holders' views on electronic versus paper accounts, 91 percent of the
people were comfortable using the internet to log in and view financial
accounts and 94 percent used the internet daily.
I understand the AARP has some concerns with this legislation. We
have attempted to address those through the ranking member.
Unfortunately, their solution so radically changes the scope of the
bill that it undercuts the entire intent of this.
As I have said before, if you want paper, you will receive paper. If
you want an electronic copy, you will receive an electronic copy. It is
disingenuous to say anything else. If you don't have internet access,
or if you choose to receive paper, you will get it.
Madam Chair, I yield back the balance of my time.
Ms. WATERS. Madam Speaker, I yield myself the balance of my time.
The name of this amendment, Improving Disclosure for Investors, is an
oxymoron. It does absolutely nothing to improve disclosure for
investors. Rather, by forcing them to opt in to paper filings, it would
make it more difficult, if not impossible, for many investors to see
what fees they pay for their funds, brokerage accounts, and retirement
savings. Instead of having easy, instant access via paper copies, they
would need to go online to search for that information.
This amendment is more appropriately called the improving Wall Street
profits at the expense of retail investors act.
I strongly urge my colleagues to protect elderly investors and to
vote ``no'' on this amendment.
Madam Chair, I yield back the balance of my time.
The Acting CHAIR. The question is on the amendment offered by the
gentleman from Michigan (Mr. Huizenga).
The question was taken; and the Acting Chair announced that the ayes
appeared to have it.
Mr. HUIZENGA. Madam Chair, I demand a recorded vote.
The Acting CHAIR. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Michigan
will be postponed.
Amendment No. 3 Offered by Mr. Lucas
The Acting CHAIR. It is now in order to consider amendment No. 3
printed in part B of House Report 118-407.
Mr. LUCAS. Madam Chair, I have an amendment at the desk.
The Acting CHAIR. The Clerk will designate the amendment.
The text of the amendment is as follows:
Add at the end the following:
DIVISION D--ENHANCEMENT OF 403(b) PLANS
SEC. 4101. SHORT TITLE.
This division may be cited as the ``Retirement Fairness
for Charities and Educational Institutions Act of 2024''.
SEC. 4102. ENHANCEMENT OF 403(B) PLANS.
(a) Amendments to the Investment Company Act of 1940.--
Section 3(c)(11) of the Investment Company Act of 1940 (15
U.S.C. 80a-3(c)(11)) is amended to read as follows:
``(11) Any--
``(A) employee's stock bonus, pension, or profit-sharing
trust which meets the requirements for qualification under
section 401 of the Internal Revenue Code of 1986;
``(B) custodial account meeting the requirements of
section 403(b)(7) of such Code;
``(C) governmental plan described in section 3(a)(2)(C)
of the Securities Act of 1933;
``(D) collective trust fund maintained by a bank
consisting solely of assets of one or more--
``(i) trusts described in subparagraph (A);
``(ii) government plans described in subparagraph (C);
``(iii) church plans, companies, or accounts that are
excluded from the definition of an investment company under
paragraph (14) of this subsection; or
``(iv) plans which meet the requirements of section
403(b) of the Internal Revenue Code of 1986--
``(I) if--
``(aa) such plan is subject to title I of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1001 et
seq.);
``(bb) any employer making such plan available agrees to
serve as a fiduciary for the plan with respect to the
selection of the plan's investments among which participants
can choose; or
``(cc) such plan is a governmental plan (as defined in
section 414(d) of such Code); and
``(II) if the employer, a fiduciary of the plan, or
another person acting on behalf of the employer reviews and
approves each investment alternative offered under such plan
described under subclause (I)(cc) prior to the investment
being offered to participants in the plan; or
``(E) separate account the assets of which are derived
solely from--
``(i) contributions under pension or profit-sharing plans
which meet the requirements of section 401 of the Internal
Revenue Code of 1986 or the requirements for deduction of the
employer's contribution under section 404(a)(2) of such Code;
[[Page H985]]
``(ii) contributions under governmental plans in
connection with which interests, participations, or
securities are exempted from the registration provisions of
section 5 of the Securities Act of 1933 by section 3(a)(2)(C)
of such Act;
``(iii) advances made by an insurance company in
connection with the operation of such separate account; and
``(iv) contributions to a plan described in clause (iii)
or (iv) of subparagraph (D).''.
(b) Amendments to the Securities Act of 1933.--Section
3(a)(2) of the Securities Act of 1933 (15 U.S.C. 77c(a)(2))
is amended--
(1) by striking ``beneficiaries, or (D)'' and inserting
``beneficiaries, (D) a plan which meets the requirements of
section 403(b) of such Code (i) if (I) such plan is subject
to title I of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1001 et seq.), (II) any employer making such
plan available agrees to serve as a fiduciary for the plan
with respect to the selection of the plan's investments among
which participants can choose, or (III) such plan is a
governmental plan (as defined in section 414(d) of such
Code), and (ii) if the employer, a fiduciary of the plan, or
another person acting on behalf of the employer reviews and
approves each investment alternative offered under any plan
described under clause (i)(III) prior to the investment being
offered to participants in the plan, or (E)'';
(2) by striking ``(C), or (D)'' and inserting ``(C), (D),
or (E)''; and
(3) by striking ``(iii) which is a plan funded'' and all
that follows through ``retirement income account).'' and
inserting ``(iii) in the case of a plan not described in
subparagraph (D) or (E), which is a plan funded by an annuity
contract described in section 403(b) of such Code''.
(c) Amendments to the Securities Exchange Act of 1934.--
Section 3(a)(12)(C) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(12)(C)) is amended--
(1) by striking ``or (iv)'' and inserting ``(iv) a plan
which meets the requirements of section 403(b) of such Code
(I) if (aa) such plan is subject to title I of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1001 et
seq.), (bb) any employer making such plan available agrees to
serve as a fiduciary for the plan with respect to the
selection of the plan's investments among which participants
can choose, or (cc) such plan is a governmental plan (as
defined in section 414(d) of such Code), and (II) if the
employer, a fiduciary of the plan, or another person acting
on behalf of the employer reviews and approves each
investment alternative offered under any plan described under
subclause (I)(cc) prior to the investment being offered to
participants in the plan, or (v)'';
(2) by striking ``(ii), or (iii)'' and inserting ``(ii),
(iii), or (iv)''; and
(3) by striking ``(II) is a plan funded'' and inserting
``(II) in the case of a plan not described in clause (iv), is
a plan funded''.
(d) Conforming Amendment to the Securities Exchange Act
of 1934.--Section 12(g)(2)(H) of the Securities Exchange Act
of 1934 (15 U.S.C. 78l(g)(2)(H)) is amended by striking ``or
(iii)'' and inserting ``(iii) a plan described in section
3(a)(12)(C)(iv) of this Act, or (iv)''.
The Acting CHAIR. Pursuant to House Resolution 1052, the gentleman
from Oklahoma (Mr. Lucas) and a Member opposed each will control 5
minutes.
The Chair recognizes the gentleman from Oklahoma.
Mr. LUCAS. Madam Chair, I yield myself such time as I may consume.
One of the most difficult decisions a worker will ever undertake is
determining how to save for retirement. This requires an individual to
forecast decades into the future, ensuring one has the ability to
navigate through life, family, and economic events.
For many teachers and nonprofit employees, their retirement savings
are through 403(b) plans. However, these public servants in 403(b)
plans are unable to benefit from the same cost-effective investment
products that are available in all other plans, including 401(k) plans,
government 457(b) plans, and the Federal Thrift Savings Plan.
Since the creation of 403(b) retirement plans back in 1958, there
have been many changes to how we save for retirement, both in the law
and the overall economy.
This amendment will allow 403(b) plans the ability to invest in
collective investment trusts, or CITs, and insurance company separate
accounts.
CITs and insurance company separate accounts are both pooled
investment vehicles sponsored and maintained by a bank or trust
company, or an insurance company, respectively.
This measure originated in SECURE 2.0 last Congress, which passed the
House Ways and Means Committee unanimously. The SECURE 2.0 Act that
ultimately became law included the required changes to the tax code but
did not include the necessary changes to securities law.
The data speaks for itself. During the past 10 years, 401(k) plan
assets increased by 88 percent, government 457(b) plans increased by 82
percent, but total assets in 403(b) plans only increased by 46 percent.
We have for too long limited the investment options made available to
public servants, and this bill will allow for much-needed consistency
across retirement plans.
This measure received broad bipartisan support in the Financial
Services Committee, and I thank Congressman Gottheimer of New Jersey
and Congressman Foster of Illinois for joining me on this amendment.
Madam Chair, I urge my colleagues to support the amendment, and I
reserve the balance of my time.
Ms. WATERS. Madam Chair, I claim the time in opposition to the
amendment.
The Acting CHAIR. The gentlewoman from California is recognized for 5
minutes.
Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
This amendment, sponsored by Mr. Lucas, would be better titled the
retirement hazard for charities and educational institutions amendment
because it puts the retirement savings of public interest professionals
at risk.
403(b) retirement plans cater to teachers, school administrators,
professors, nonprofit employees, and healthcare workers. These
individuals dedicate their lives to the public interest. They invest in
the future of our children. They ensure we get the healthcare we need,
even during a global pandemic, and too often, they aren't paid nearly
enough to do the work that they do.
There are current restrictions on how 403(b) plans can invest their
assets, and this is to ensure that these retirement accounts are
generally safe investments. However, this amendment would allow 403(b)
plans to invest in two types of risky, unregistered securities:
collective investment trusts, or CITs, which is a type of pooled
investment vehicle, and insurance products called variable annuities,
both of which are considered fairly risky products for unsophisticated
investors.
Madam Chair, under this amendment, neither of these products would be
subject to regulation or oversight by the SEC.
More than half of all 403(b) plans are not covered by ERISA
protections, meaning that this newly allowed risky investment activity
would also escape the oversight of the Department of Labor.
While Republicans claim they are creating parity with 401(k) plans,
this is simply untrue because all 401(k) plans are, in fact, covered by
ERISA. To create true parity, we would need to restrict the sale of
CITs and variable annuities to only 403(b) plans covered by ERISA.
All in all, this amendment would carve out over $1.4 trillion of
retirement funds from Federal oversight. This would constitute the
single largest deregulation of our capital markets in years.
Ultimately, this amendment would put the hard-earned retirement
savings of public interest professionals at risk. That is why I
strongly oppose it.
Madam Chair, I reserve the balance of my time.
Mr. LUCAS. Madam Chair, I yield such time as she may consume to the
gentleman from Missouri (Mrs. Wagner).
{time} 1745
Mrs. WAGNER. Madam Chair, I rise in support of the gentleman from
Oklahoma's amendment.
Under current law, Americans participating in 401(k) plans through
their employer may invest their retirement accounts in collective
investment trusts, CITs, and insurance company separate accounts that
are exempt from the SEC's registration requirements. This exemption
from SEC registration allows these products to be offered at lower
costs.
However, teachers, nurses, janitors, and charity workers who
participate in 403(b) plans are currently denied access to the cost-
effective investments available to private workers in 401(k) plans.
Importantly, investment options in a 403(b) plan are always selected by
the private or public employer. As such, this amendment does not allow
direct retail sales to individuals.
Moreover, unregistered does not mean unregulated. It simply means
[[Page H986]]
that investment products available to 403(b) plans will not have to
register with the SEC and, thus, will not have to provide a lengthy
prospectus document to accompany the filing, thus keeping costs
appropriately low.
The amendment preserves important protections for investors in 403(b)
plans.
Mr. Lucas' amendment is a thoughtful and balanced bill to allow
employees of nonprofit charities and public educational institutions in
403(b) plans to have access to the same low-cost investments available
to employees of for-profit companies and other employees in 401(k)
plans.
This amendment is co-led in a bipartisan fashion with support from my
colleagues across the aisle, Mr. Gottheimer and Mr. Foster. On top of
that, the bill this amendment is based on, the Retirement Fairness for
Charities and Educational Institutions Act, passed out of the Financial
Services Committee last year with very strong bipartisan support.
Madam Chair, I urge my colleagues to support this amendment.
Ms. WATERS. Madam Chair, I continue to reserve the balance of my
time.
Mr. LUCAS. Madam Chair, I have no further speakers, and I yield
myself the balance of my time.
Madam Chair, I simply wish to say that I have the greatest respect
for the ranking member of the Financial Services Committee, but I would
note we simply disagree on this amendment.
I believe it is a very effective way to provide equity amongst the
various retirement accounts, and it is important that teachers and
public service people have the same opportunity to grow their savings
so that they, too, can enjoy the best possible golden years.
Madam Chair, I yield back the balance of my time.
Ms. WATERS. Madam Chair, I yield myself the balance of my time.
Madam Chair, by allowing unregistered financial professionals to sell
unregistered products to 403(b) plans, this amendment would leave
America's teachers, healthcare workers, and other public interest
professionals vulnerable to losing their retirement funds.
Neither of the two unregistered products contemplated nor the sales
of these products would be subject to regulation or oversight by the
SEC, which allows them to skirt investor protections and exposes plan
participants to greater risk of loss. Congress must do everything in
its power to ensure our teachers and dedicated public servants have a
comfortable retirement, but this amendment would do anything but that.
Madam Chair, I strongly urge my colleagues to vote ``no,'' and I
yield back the balance of my time.
The Acting CHAIR. The question is on the amendment offered by the
gentleman from Oklahoma (Mr. Lucas).
The question was taken; and the Acting Chair announced that the ayes
appeared to have it.
Ms. WATERS. Madam Chair, I demand a recorded vote.
The Acting CHAIR. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Oklahoma
will be postponed.
Amendment No. 4 Offered by Mrs. Wagner
The Acting CHAIR. It is now in order to consider amendment No. 4
printed in part B of House Report Number 118-407.
Mrs. WAGNER. Madam Chair, I have an amendment at the desk.
The Acting CHAIR. The Clerk will designate the amendment.
The text of the amendment is as follows:
Add at the end the following:
DIVISION D--INCREASING INVESTOR OPPORTUNITIES
SEC. 4001. CLOSED-END COMPANY AUTHORITY TO INVEST IN PRIVATE
FUNDS.
(a) In General.--Section 5 of the Investment Company Act of
1940 (15 U.S.C. 80a-5) is amended by adding at the end the
following:
``(d) Closed-End Company Authority to Invest in Private
Funds.--
``(1) In general.--Except as otherwise prohibited or
restricted by this Act (or any rule issued under this Act),
the Commission may not prohibit or otherwise limit a closed-
end company from investing any or all of the assets of the
closed-end company in securities issued by private funds.
``(2) Other restrictions on commission authority.--
``(A) In general.--Except as otherwise prohibited or
restricted by this Act (or any rule issued under this Act) or
to the extent permitted by subparagraph (B), the Commission
may not impose any condition on, restrict, or otherwise
limit--
``(i) the offer to sell, or the sale of, securities issued
by a closed-end company that invests, or proposes to invest,
in securities issued by private funds; or
``(ii) the listing of the securities of a closed-end
company described in clause (i) on a national securities
exchange.
``(B) Unrelated restrictions.--The Commission may impose a
condition on, restrict, or otherwise limit an activity
described in clause (i) or (ii) of subparagraph (A) if that
condition, restriction or limitation is unrelated to the
underlying characteristics of a private fund or the status of
a private fund as a private fund.
``(3) Application.--Notwithstanding section 6(f), this
subsection shall also apply to a closed-end company that
elects to be treated as a business development company
pursuant to section 54.''.
(b) Definition of Private Fund.--Section 2(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is
amended by adding at the end the following:
``(55) The term `private fund' has the meaning given in
section 202(a) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)).''.
(c) Treatment by National Securities Exchanges.--Section 6
of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is
amended by adding at the end the following:
``(m)(1) Except as otherwise prohibited or restricted by
rules of the exchange that are consistent with section 5(d)
of the Investment Company Act of 1940 (15 U.S.C. 80a-5(d)),
an exchange may not prohibit, condition, restrict, or impose
any other limitation on the listing or trading of the
securities of a closed-end company when the closed-end
company invests, or may invest, some or all of the assets of
the closed-end company in securities issued by private funds.
``(2) In this subsection--
``(A) the term `closed-end company'--
``(i) has the meaning given the term in section 5(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-5(a)); and
``(ii) includes a closed-end company that elects to be
treated as a business development company pursuant to section
54 of the Investment Company Act of 1940 (15 U.S.C. 80a-53);
and
``(B) the term `private fund' has the meaning given the
term in section 2(a) of the Investment Company Act of 1940
(15 U.S.C. 80a-2(a))).''.
(d) Investment Limitation.--Section 3(c) of the Investment
Company Act of 1940 (15 U.S.C. 80a-3(c)) is amended--
(1) in paragraph (1), in the matter preceding subparagraph
(A), in the second sentence, by striking ``subparagraphs
(A)(i) and (B)(i)'' and inserting ``subparagraphs (A)(i),
(B)(i), and (C)''; and
(2) in paragraph (7)(D), by striking ``subparagraphs (A)(i)
and (B)(i)'' and inserting ``subparagraphs (A)(i), (B)(i),
and (C)''.
(e) Rules of Construction.--
(1) Nothing in this section or the amendments made by this
section may be construed to limit or amend any fiduciary duty
owed to a closed-end company (as defined in section 5(a)(2)
of the Investment Company Act of 1940 (15 U.S.C. 80a-
5(a)(2))) or by an investment adviser (as defined under
section 2(a) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a))) to a closed-end company.
(2) Nothing in this section or the amendments made by this
section may be construed to limit or amend the valuation,
liquidity, or redemption requirements or obligations of a
closed-end company (as defined in section 5(a)(2) of the
Investment Company Act of 1940 (15 U.S.C. 80a-5(a)(2))) as
required by the Investment Company Act of 1940.
The Acting CHAIR. Pursuant to House Resolution 1052, the gentlewoman
from Missouri (Mrs. Wagner) and a Member opposed each will control 5
minutes.
The Chair recognizes the gentlewoman from Missouri.
Mrs. WAGNER. Madam Chair, I yield myself such time as I may consume.
Madam Chair, closed-end funds are a popular tool for everyday
investors who gain exposure to private markets in a safe, appropriately
regulated way. Approximately 3 million Americans rely on these products
to build wealth and save for retirement.
Like other investment options available to Americans looking to save
for retirement, send their kids to college, or plan for the future,
closed-end funds must comply with the requirements of the Securities
Act of 1933, the Securities Exchange Act of 1934, and the Investment
Company Act of 1940.
To satisfy their regulatory obligations, closed-end funds must, among
other things, register with the SEC, file annual and semiannual
reports, and comply with stringent valuation and disclosure
requirements. They are also subject to the broad antifraud provisions
of the Federal securities laws, which provide additional protections to
investors.
Unfortunately, an SEC staff position prevents registered closed-end
funds from investing more than 15 percent of their total assets in
private funds. This arbitrary restriction is especially harmful to low-
income and middle-
[[Page H987]]
class Americans who rely on appropriately regulated products like
closed-end funds to access high-growth investment opportunities.
In substituting their own judgments for those of financial
professionals, SEC bureaucrats have taken another step toward reserving
safe access to investment opportunities for wealthy, accredited
investors.
My amendment, which mirrors my bipartisan Increasing Investor
Opportunities Act, would remove this arbitrary SEC staff position and
allow investment professionals to determine which investments a closed-
end fund should make. This would increase investment opportunities for
millions of Americans and eliminate unnecessary barriers restricting
investor access.
Madam Chair, I thank my Democratic friends across the aisle,
including Mr. Meeks, Mr. Scott, and Mr. Nickel, for their bipartisan
support of my bill on which this amendment is based.
Last year, the Financial Services Committee passed the same text that
is in this amendment with strong bipartisan support. I am proud of this
legislation and our committee's unwavering commitment to expanding
investment opportunities for all Americans.
Madam Chair, I encourage my colleagues to support this amendment, and
I reserve the balance of my time.
Ms. WATERS. Madam Chair, I claim the time in opposition.
The Acting CHAIR. The gentlewoman from California is recognized for 5
minutes.
Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
Madam Chair, this amendment would be better titled increasing
investor risks.
Currently, closed-end funds, which are a type of mutual fund, are
only allowed to invest up to 15 percent of their assets into private
funds. This current limit of 15 percent gives closed-end funds some
flexibility to invest in private funds but establishes a reasonable
restriction, considering private funds are subject to less regulation
and disclosure. This restriction also accounts for the fact that
private funds invest in fledgling startups and distressed companies,
which are significantly more risky than public securities, and most of
their investments fail.
Mrs. Wagner's amendment would eliminate the restriction on closed-end
fund investments into private funds, allowing them to invest up to 100
percent of their assets into private funds. Moreover, the amendment
provides zero safeguards to mitigate the new risks created by this
blunt deregulation.
Like all the rest of the capital markets-related amendments before us
today, this one is opposed by investor groups, consumer and investor
advocates, and State regulators.
For these reasons, Madam Chair, I oppose this amendment. I urge my
colleagues to do the same, and I reserve the balance of my time.
Mrs. WAGNER. Madam Chair, I yield 1 minute to the gentleman from New
York (Mr. Meeks).
Mr. MEEKS. Madam Chair, at this time, I am pleased to offer this
bipartisan amendment with my friend from Missouri (Mrs. Wagner) along
with the support of my colleagues Mr. Scott and Mr. Nickel.
This amendment would provide opportunities for enhanced exposure to
private funds through closed-end funds, investment vehicles with
comprehensive protections under the 1940 Investment Company Act. These
rules include the mandatory requirement that the fund be managed by an
investment adviser who is required to conduct due diligence on a fund's
investments, answer to independent directors, and adhere to extensive
disclosure and reporting requirements.
This amendment also makes clear that investors should be given access
to the growth opportunities provided in the private markets so long as
they have proper disclosures and risk mitigation.
I am happy to sponsor this bipartisan amendment primarily because it
also broadens opportunities and increases access for people who have
been left out in the past while ensuring that robust rules of the road
are followed.
Ms. WATERS. Madam Chair, I reserve the balance of my time.
Mrs. WAGNER. Madam Chair, the closed-end funds are a very popular
tool for everyday investors who gain exposure to private markets in a
safe, appropriately regulated way.
As I said, approximately 3 million Americans rely on these products
to build wealth and save for retirement.
Madam Chair, I urge all of my colleagues to support this amendment,
and I yield back the balance of my time.
Ms. WATERS. Madam Chair, I yield myself the balance of my time.
Madam Chair, as I stated, the assets that private funds purchase are
significantly more risky than public securities. In fact, 9 out of
every 10 of their investments fail.
Allowing closed-end funds to invest all of their assets into private
funds can be risky for America's retirement savers, who should be able
to trust that these funds are safe investments for them to save for
retirement.
As such, Madam Chair, I strongly urge my colleagues to vote ``no,''
and I yield back the balance of my time.
The Acting CHAIR. The question is on the amendment offered by the
gentlewoman from Missouri (Mrs. Wagner).
The question was taken; and the Acting Chair announced that the ayes
appeared to have it.
Ms. WATERS. Madam Chair, I demand a recorded vote.
The Acting CHAIR. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentlewoman from Missouri
will be postponed.
Amendment No. 5 Offered by Mr. Sherman
The Acting CHAIR. It is now in order to consider amendment No. 5
printed in part B of House Report 118-407.
Mr. SHERMAN. Madam Chair, I have an amendment at the desk.
The Acting CHAIR. The Clerk will designate the amendment.
The text of the amendment is as follows:
Page 38, strike line 21 and all that follows through page
39, line 6 and insert the following:
``(iii) with respect to a proposed transaction involving a
private offering, any individual if--
``(I) the amount of such transaction is not more than 5
percent of the net worth of the individual (excluding the
primary residence of the individual); and
``(II) the aggregate investment of the individual at the
completion of such transaction, in securities with respect to
which there has not been a public offering, is not more than
25 percent of the net worth of the individual (excluding the
primary residence of the individual);''.
The Acting CHAIR. Pursuant to House Resolution 1052, the gentleman
from California (Mr. Sherman) and a Member opposed each will control 5
minutes.
The Chair recognizes the gentleman from California.
Mr. SHERMAN. Madam Chair, in the debate on the bill in chief, the
chair of the full committee correctly criticized the definition of
accredited investor as it occurs under current law.
Accredited investor is an important concept in securities law
because, Madam Chair, when you have a private offering, one that hasn't
gone through the SEC process, the amount that can be raised and the
number of investors you can have are related to, in large part, how
many of your investors are accredited.
The current definition makes you an accredited investor if you earn
over $200,000 a year or have a net worth of more than $1 million.
Frankly, the fact that you have that level of income or that level of
wealth does not show that you have particular expertise or that your
adviser team has particular expertise. While it certainly shows that
you are in a position to absorb a loss, no one can afford to absorb a
loss of 100 percent of their net worth.
We need a different definition of accredited investor, one that does
not limit that status just to those who happen to be wealthy or have a
high income.
The bill before us here does provide that different definition by
saying you are an accredited investor, first, if you acknowledge the
risks that you are taking and, second, if you are investing less than
10 percent of your net worth in the securities offering so that you can
afford a loss on what, after all, is a higher risk--as many people have
pointed out--offering about which you get less information.
The problem with the bill in chief using that 10 percent standard is
twofold. First, it includes in your net
[[Page H988]]
worth your primary residence. If you happen to have a $1 million home,
you could take out a $100,000 mortgage on it and invest all $100,000 in
one relatively risky investment.
{time} 1800
Mr. SHERMAN. You have literally bet your house on an investment that
is of a type that is risky and where you get less information and where
the investment is illiquid. That is not good investor protection.
What this amendment does is it says, yes, we are going to look at
what portion of your net worth you are investing, but we are going to
take a look first at your net worth excluding your primary residence
because very few people feel they can afford to lose their house;
second, that you cannot invest more than 10 percent of your net worth
in any single offering or more than 25 percent of your net worth in all
these private offerings.
Therefore, we look at wealth, excluding your home so you don't risk
losing your home, and we look at not only how much you are investing in
the particular investment, but how much you are investing overall.
I want to correct one thing. This amendment limits it to, excluding
your primary residence, 5 percent of your net worth on any one private
offering, and no more than 25 percent of your net worth, excluding your
primary residence, on all such private offerings.
Madam Chair, I urge adoption of this amendment. I think it gives us a
better definition of those who can afford the risks and the risk of
liquidity that comes with these private investments.
The risk of liquidity is there. You may think, well, I made an
investment and it is going to pan out, but if you need the money and
you can't liquidate the investment on a fair basis, it is almost as if
the investment failed.
Therefore, we are talking higher risk, less liquidity. We limit it
under this amendment to 5 percent of your net worth on any one deal, 25
percent of your net worth on all such deals. Also, when we look at your
net worth, we exclude your personal residence. These are not situations
where you should be betting your home.
Mr. Chairman, I reserve the balance of my time.
Mrs. WAGNER. Madam Chair, I rise in opposition to the amendment.
The Acting CHAIR. The gentlewoman from Missouri is recognized for 5
minutes.
Mrs. WAGNER. Madam Chair, a key tenet of H.R. 2799 is to increase
access to investment opportunities for everyday investors.
Under the guise of investor protection, this amendment would
arbitrarily limit the amount nonaccredited investors can invest in a
private offering to 5 percent of an individual's net worth.
In the Expanding Access to Capital Act, the investment cap for a
single private offering is set at 10 percent of the investor's net
assets or annual income, whichever is greater. Instead of using a
number just pulled out of thin air, the 10 percent cap in the bill is
rooted in precedent.
There is a 10 percent cap for nonaccredited investors through
offerings such as Regulation Crowdfunding and Reg A+. Why would we not
go with the percentage cap that is already proven effective?
Additionally, this amendment would arbitrarily cap aggregate
investments across private offerings for nonaccredited investors to no
more than 25 percent of their net worth. This essentially says to
everyday investors that the government knows better than you how to
invest your hard-earned dollars.
As I previously said, and we heard from several witnesses at
committee, wealth and income should not be a proxy for sophistication.
Similarly, if we want to provide more Americans the opportunity to
build wealth, we cannot keep them on the sidelines.
Private offerings are often the most high-growth investment
opportunities, yet they are largely reserved for high-net-worth
investors. This enshrines inequity and blatantly picks winners and
losers.
If my colleagues on the other side of the aisle are serious about
equity and ownership in the American economy, they will join
Republicans in providing more opportunities to everyday investors, not
less.
Madam Chair, I urge my colleagues to oppose this amendment, and I
reserve the balance of my time.
Mr. SHERMAN. Madam Chair, let me respond to those comments.
The underlying bill acknowledges the fact that the government puts
some restrictions on how much of your net worth you can put into one of
these unregulated, risky, low-information, illiquid investments.
Therefore, to say that we have clashed with some great principle of
personal freedom in my amendment because it says 5 percent, but that it
is consistent with the same great overriding principle of personal
autonomy when you back a bill that says 10 percent, defies logic.
The Acting CHAIR (Mr. LaLota). The time of the gentleman has expired.
Mrs. WAGNER. Mr. Chair, I yield myself the balance of my time.
If my colleagues on the other side of the aisle are serious about
equity and ownership in the American economy, they will join
Republicans in providing more opportunities to everyday investors, not
less.
Mr. Chair, I urge my colleagues to oppose this amendment, and I yield
back the balance of my time.
The Acting CHAIR. The question is on the amendment offered by the
gentleman from California (Mr. Sherman).
The question was taken; and the Acting CHAIR announced that the noes
appeared to have it.
Mrs. WAGNER. Mr. Chair, I demand a recorded vote.
The Acting CHAIR. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from California
will be postponed.
Mrs. WAGNER. Mr. Chair, I move that the Committee do now rise.
The motion was agreed to.
Accordingly, the Committee rose; and the Speaker pro tempore (Mr.
Moore of Utah) having assumed the chair, Mr. LaLota, Acting Chair of
the Committee of the Whole House on the state of the Union, reported
that that Committee, having had under consideration the bill (H.R.
2799) to make reforms to the capital markets of the United States, and
for other purposes, had come to no resolution thereon.
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