[Congressional Record (Bound Edition), Volume 157 (2011), Part 12]
[House]
[Pages 16682-16696]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   ENTREPRENEUR ACCESS TO CAPITAL ACT

  Mr. McHENRY. Mr. Speaker, I ask unanimous consent that all Members 
have 5 legislative days within which to revise and extend their remarks 
on H.R. 2930 and to insert extraneous material thereon.
  The SPEAKER pro tempore (Mr. Garrett). Is there objection to the 
request of the gentleman from North Carolina?
  There was no objection.
  The SPEAKER pro tempore. Pursuant to House Resolution 453 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. 2930.

                              {time}  1545


                     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. 2930) to amend the securities laws to provide for registration 
exemptions for certain crowdfunded securities, and for other purposes, 
with Mr. Bass of New Hampshire 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.
  The gentleman from North Carolina (Mr. McHenry) and the gentleman 
from Colorado (Mr. Perlmutter) each will control 30 minutes.
  The Chair recognizes the gentleman from North Carolina.
  Mr. McHENRY. Mr. Chairman, I yield myself such time as I may consume.
  When I'm at home in western North Carolina, I hear frequently from my 
constituents, from small businesses, that they have a very difficult 
time raising capital in these very challenging times that we're in. And 
over 2 years into an economic recovery that is struggling, America's 
labor and capital markets continue to face unprecedented challenges. 
Nearly 14 million Americans remain officially unemployed, with an 
additional 11 million underemployed. And small businesses continue to 
struggle to access capital despite an endless number of government 
initiatives.
  The origin of these barriers to capital formation rests in two 
Federal securities laws--the Securities Act of 1933 and the Securities 
Exchange Act of 1934--that have not been substantially updated since a 
gallon of gasoline cost 10 cents and only 31 percent of households 
owned a telephone. Today, a gallon of gas, as we know, costs about 35

[[Page 16683]]

times more per gallon than it did then, and nearly every American owns 
a telephone. In fact, most people have the Internet in their pocket.
  So while the comparison of then and now is nostalgic, the 
ramifications of not modernizing our securities regulations have led to 
registration and reporting requirements so onerous and costly that 
small companies have great difficulty raising capital.
  For instance, if a startup company offers an equity stake to 
investors through a medium like Facebook or Twitter, it is presumably 
in violation of SEC regulations for that communication and offering. 
However, soliciting money for one's favorite charity or even a 
political candidate through the same Internet medium is perfectly 
legal. So, clearly, something is not right.
  Furthermore, high net worth individuals can invest in businesses 
before the average family can. And that small business is limited on 
the amount of equity stakes they can provide investors and limited in 
the number of investors they can get. So, clearly, something has to be 
done to open these capital markets to the average investor, and that's 
what the Entrepreneur Access to Capital Act is all about.
  It removes the SEC restrictions on crowdfunding to allow 
entrepreneurs and small businesses to raise capital from everyday 
investors. Already prevalent in Europe and Asia, crowdfunding has 
proven that broadening the communication investment capabilities 
between investors and entrepreneurs can have a positive impact and a 
positive effect on capital formation which is the lifeblood of a strong 
and growing economy.
  Specifically, my bill will allow companies to pool up to $1 million 
without the expense of registering with the SEC or up to $2 million if 
the company provides investors with audited financial statements. 
Individual contributors are limited to $10,000 or 10 percent of the 
investor's annual income, whichever is less.
  In addition, H.R. 2930 creates a regulatory structure of investor 
protection around this new, innovative form of financing with 
substantial intermediary requirements or issue requirements if there is 
no intermediary. This key mandate for investor protection is why the 
bill has received broad bipartisan support both in the Financial 
Services Committee and from President Obama.
  This has been crafted both with Republican and Democrat staffers, 
getting input from my colleagues from across the aisle at a 
subcommittee markup, multiple hearings we've had on the idea of 
crowdfunding, as well as a full committee markup. And we worked 
together and passed it with a bipartisan vote coming out of committee. 
This was a collaborative operation, and I appreciate my colleagues and 
I appreciate the staff of the Financial Services Committee as well as 
the staff on the Oversight and Government Reform Committee and my 
subcommittee where we had a number of hearings on capital formation, 
and out of that came this idea.

                              {time}  1550

  This is the culmination of months of work. The process began for 
crafting this piece of legislation over the summer. When the President 
stood in this Hall, in this room just a couple months ago for his jobs 
bill, and when he included in the proposal this idea of crowdfunding, 
it was a very positive thing--not just to have a good idea that we can 
pass here in the House, but to have a good idea that has the 
possibility of getting through the Senate, where it's a very 
challenging time for them to pass legislation at all. And that way it 
can make it to the President's desk and really give entrepreneurs the 
opportunity to raise this capital, to actually create and grow jobs. 
That's why they need the capital, so we can grow jobs, create jobs and 
provide more opportunity for our constituents and folks across this 
country.
  We can protect and inspire confidence in the investor community as 
well as allow small businesses, those companies most critical to our 
economy, to gain the capital needed to expand, compete, and thrive.
  I urge my colleagues to support this bill that combines both the best 
of microfinance with the power of crowdsourcing and give folks the 
opportunity--the average, everyday investor--the opportunity to have an 
equity stake in their favorite company, not just accredited investors 
and not just so-called high net worth individuals. That's the purpose 
of this legislation. I ask my colleagues to support this legislation, 
and I reserve the balance of my time.

         Executive Office of The President, Office of Management 
           and Budget,
                                 Washington, DC, November 2, 2011.

                   Statement of Administration Policy


             H.R. 2930--Entrepreneur Access to Capital Act

           (Rep. McHenry, R-North Carolina, and 5 cosponsors)

       The Administration supports House passage of H.R. 2930. In 
     the President's September 8th Address to a Joint Session of 
     Congress on jobs and the economy, he called for cutting away 
     the red tape that prevents many rapidly growing startup 
     companies from raising needed capital, including through a 
     ``crowdfunding'' exemption from the requirement to register 
     public securities offerings with the Securities and Exchange 
     Commission. This proposal, which would enable greater 
     flexibility in soliciting relatively small equity 
     investments, grew out of the President's Startup America 
     initiative and has been endorsed by the President's Council 
     on Jobs and Competitiveness. H.R. 2930 is broadly consistent 
     with the President's proposal. This bill will make it easier 
     for entrepreneurs to raise capital and create jobs. The 
     Administration looks forward to continuing to work with the 
     Congress to craft legislation that facilitates capital 
     formation and job growth, and provides appropriate investor 
     protections.

  Mr. PERLMUTTER. Mr. Chairman, I yield myself such time as I may 
consume.
  I thank my friend from North Carolina for bringing this matter to the 
floor, for being the sponsor of this bill and for working with us to 
make this bill better.
  Now, as Mr. McHenry said, this is a bill that really allows money to 
be raised, investments to be made by people without a lot of money. 
They are investors who are going to make smaller investments but in a 
large volume. As my friend said, this isn't 1933, and this isn't 1934 
when those acts were passed. But still, what we've got to remember is 
sales can be made on the Internet now, or this bill will ask that sales 
be made of securities on the Internet. Originally, it could be on the 
phone, it could have been by mail, and it could have been by word of 
mouth. But what we've got to do with this ability to raise money across 
the Internet is ensure that the proper protections are put into place 
so that those who might deceive or defraud or in some other way mislead 
investors who are making these investments can be policed and the laws 
can be enforced if, in fact, there is some type of fraudulent act.
  Now H.R. 2930 enables small companies and individuals to make use of 
Internet-based social networks to raise up to $1 million from friends, 
family, and other interested investors. While the bill caps both the 
total level of securities and the amount investors can invest, 
Democrats expressed strong concerns about the potential harm this new 
market could pose to investors. Originally, the bill provided few 
investor protections and no SEC or State regulatory oversight.
  During the committee markup of H.R. 2930, Democrats added provisions 
requiring crowdfunding. And ``crowdfunding'' is a term that really 
isn't seen in our law to date. And what it is is the sale of 
securities, the solicitation of investments across the Internet in 
small amounts. So Democrats asked that there be notice given to State 
regulators so that they could police the activities against wrongful 
conduct, deception, fraud, embezzlement, or other kinds of misdeeds. 
Democrats successfully added a provision to disqualify bad actors, 
individuals that have been convicted of either State or Federal 
securities law violations or other financial law violations. Democrats 
also requested, and the gentleman from North Carolina and the 
Republicans agreed, to create a regulatory framework for the 
crowdfunding

[[Page 16684]]

Web sites that would provide additional disclosures, safeguards, and 
protections for investors who wanted to buy into one of these 
investments.
  We recently had a financial crisis that we're still continuing to dig 
our way out of. There were Ponzi schemes. Everybody is aware of the 
Madoff Ponzi scheme and others. We need to have protections for 
investors as businesses seek to form and develop capital. We thank the 
gentleman from North Carolina in working with us to place some of those 
investor protections into this bill.
  We know there will be a number of amendments that are proposed that 
will continue to strengthen those investor protections. We thank the 
gentleman from North Carolina for bringing this bill forward.
  I reserve the balance of my time.
  Mr. McHENRY. I thank my colleague from Colorado for working actively 
with me and with my staff to make this bill better, as well as my 
colleagues, Mrs. Maloney from New York, Ms. Waters of California, and 
Mr. Al Green. Thank you so much for your work in working in a 
bipartisan way to improve the bill.
  With that, I would like to yield such time as he may consume to the 
chairman of the Financial Services Committee, the gentleman from 
Alabama (Mr. Bachus).
  Mr. BACHUS. Mr. Chairman, I feel like I'm having a dream, and in that 
dream my colleague, Patrick McHenry, has legislation on the floor, and 
President Obama has endorsed that legislation. I feel like I ought to 
wake up and find out that that was a dream. But in reality, it's 
actually what's happening here today. I told Mr. McHenry that I would 
like unanimous consent to ask that we call this the McHenry-Obama 
friendship bill, but I won't do that.
  Let me say this: The President did issue a statement yesterday, and 
in that statement, it says that the administration supports House 
passage of H.R. 2930. It goes on to say, in the President's September 8 
address to the Joint Session of Congress on jobs and the economy, he 
called for cutting away redtape that prevents many rapidly growing 
startup companies from raising needed capital, including through 
crowdfunding exemption from the requirement to register public 
securities offerings with the Securities and Exchange Commission. He 
goes on to say that he believes that this bill will make it much easier 
for entrepreneurs to raise capital and create jobs. And it will.
  Last night, I was at a Faith & Politics dinner where our friends, 
Congressman Steny Hoyer and Senator Roy Blunt, were receiving the John 
Lewis-Amo Houghton Award. As we know, both those colleagues are bridge 
builders. The gentleman at the table next to me, and these were people 
that were supporting Faith & Politics, said to me, I appreciate the 
fact you're going to bring a crowdfunding bill to the floor of the 
House. And I was somewhat amazed, because a few months ago--I have to 
admit, I'm not a high techie like the President or Congressman 
McHenry--I really didn't know the difference between clown funding and 
crowdfunding before we started talking about this bill.
  I said to him, how do you know about this bill? He said, well, I'm an 
executive with Facebook. And he said many companies similar to 
Facebook, and you mentioned this in your earlier speech, in other 
countries they raise money through crowdfunding. And he said they even 
do it here, but they avoid the law. It is a modern thing to do. It's 
like Facebook, it's like Google, and it's like BlackBerry several years 
ago. It's something that we didn't know about. But we do now, and we do 
need to keep our laws current.
  I do also close by commending Congressman Perlmutter for making this 
bill a better bill and one that protects consumers. With this 
legislation, we'll move this provision into the 21st century and bring 
it up to date with modern ways to finance businesses.

                              {time}  1600

  That will give us an advantage that presently is a disadvantage when 
it comes to competing with some of our foreign competition. We 
certainly want to level that playing field and create jobs, and this 
bill does that.
  Mr. PERLMUTTER. Madam Chair, I yield myself such time as I may 
consume.
  For the record, H.R. 2930 creates a new exemption from registration 
under the Securities Act of 1933 for what we call ``crowdfunding'' 
securities. I think the record should have a definition. Crowdfunding 
refers to a technique for raising money over the Internet in relatively 
small amounts from a large number of people. And that's the exemption 
that's being sought pursuant to this bill, a different way to raise 
money. Would the gentleman agree?
  I yield to my friend from North Carolina.
  Mr. McHENRY. I thank my colleague for submitting that for the record, 
the definition.
  Now, the intention is that you have an Internet portal of sorts, but 
this could be done on any mass basis. But the disclosures have to be 
very clear--which we specify in the legislation--and we've given the 
SEC the ability to specify additional pieces. I have a technical 
amendment to clarify what the Securities and Exchange Commission staff 
thinks is very important to add to this bill. But I do appreciate the 
gentleman offering the definition.
  Mr. PERLMUTTER. I thank my friend.
  One other new term in the bill that we ought to have some discussion 
about is ``intermediary.'' Intermediary in the bill is more or less a 
custodian of funds. Am I correct or not?
  I yield to my friend.
  Mr. McHENRY. I appreciate the gentleman.
  The intention would be that the intermediary is, in essence, the 
conduit of funds. There's the notion of the broker-dealer, which is 
well established in law. What this does is, it's similar to a broker-
dealer; but it is a very low-regulatory, low-cost basis of doing it.
  What this is, in essence, is an intermediary defined as Websters 
would define an intermediary. And I think that's probably the better 
way to describe it.
  Mr. PERLMUTTER. To the degree that the intermediary exists in this, 
they will be subject to the enforcement principles as we go through the 
amendments.
  With that, I yield 3 minutes to my other friend from North Carolina 
(Mr. Miller).
  Mr. MILLER of North Carolina. Madam Chair, exempting this funding 
source from SEC regulation is not all this bill does. It also prohibits 
the States from doing anything. This is not a case where the proponents 
of the bill are saying, let's not let the Federal Government do this; 
let's let the States do this. They say, no, the States can't touch it 
at all.
  The people of the various States, using their right to vote, can't 
decide that in their State they want someone looking at what is being 
offered to mom-and-pop investors to make sure that they're not getting 
flim-flammed. That is a great deal of the investor protections that 
we've had in this country. It has been done at the State level, and 
this takes those cops off the beat altogether.
  So if you think that the people of the States should be able to 
exercise their own judgment about whether they want their States 
looking at what is being offered to mom-and-pop investors, you should 
vote against this bill.
  Mr. McHENRY. Madam Chair, I yield myself such time as I may consume.
  I need to correct the record with regard to what my colleague from 
North Carolina said. What he said is simply not, in fact, what this 
bill does.
  Furthermore, as we know, securities fraud is prosecuted not just at 
the Federal level, but by the States as well. That will continue to 
exist.
  Furthermore, if my colleague from North Carolina would reach out to 
my colleague from Colorado, I'm supporting his amendment which 
preserves the States' rights of action.
  Mr. MILLER of North Carolina. Will the gentleman yield?
  Mr. McHENRY. I yield to the gentleman.
  Mr. MILLER of North Carolina. Yes, that has to do with enforcement. 
But

[[Page 16685]]

the bill prohibits the States from having up-front disclosure 
requirements so that a Secretary of State--who is typically the 
securities law enforcer in most States--can look at it, require 
disclosure, look at what the disclosures are, look at what is being 
offered is really what is there. Yes, the bill does, thanks to the 
gentleman from Colorado's good work----
  Mr. McHENRY. Reclaiming my time, to correct the record, in the State 
of North Carolina, there is no pre-filing requirement. In the State of 
New York, for instance, they actually have up-front filing 
requirements.
  Additionally, in this legislation, how it is crafted is the SEC would 
provide notice of this offering to the States once that offering 
occurs. This is something that my colleague from New York (Mrs. 
Maloney) crafted in the subcommittee. My staff, as well as the 
Financial Services Committee Republican staff, worked diligently with 
the Democrat staff on the Financial Services Committee as well as Mrs. 
Maloney's staff and came up with a three-page amendment, which was 
adopted on a bipartisan basis at the committee--I appreciate my 
colleague from New York offering that--and it has improved the bill.
  Mr. MILLER of North Carolina. If the gentleman will yield, did the 
gentleman not get a letter dated November 3, 2011, from Elaine Marshall 
saying what you just said isn't right?
  Mr. McHENRY. Reclaiming my time, I did not receive that letter. My 
two Democratic colleagues from North Carolina that are on the Financial 
Services Committee did in fact get that letter. My colleague Mel Watt--
a fantastic member--submitted it for the record in the Financial 
Services Committee. I had neither a letter nor a call from my Secretary 
of State raising concerns about that.
  With that, I would be happy to yield such time as he may consume to 
my colleague from New Jersey, the chairman of the Subcommittee on 
Capital Markets in Financial Services, Mr. Garrett.
  Mr. GARRETT. I thank the gentleman from North Carolina for all of his 
work on this legislation, as well as the chairman of the full 
committee, Spencer Bachus, for his leadership on this initiative as 
well.
  To the extent, as with the previous piece of legislation that we had, 
it goes to the overarching theme I think of today--and also during the 
last 10 months of this time in the House--which is job creation for 
this country, what can we do here in the House of Representatives to 
facilitate the creation of more jobs.
  And just like with the last piece of legislation, what we can do is 
help businesses, both small and large, to obtain additional capital, 
capital being at the heart of the ability of a small business to go 
out, to expand, to grow, to hire new employees, and to create jobs in 
this country.
  The legislation before us goes well in that direction. And now, done 
in a bipartisan manner, it, as the sponsor, stands head and shoulders 
above the way it was before because it adds additional provisions for 
safety and soundness to it.
  It allows for equity financing, in which investors can purchase 
ownership stakes in the company in exchange for basically stock or 
shares in those companies to grow in a future direction, to grow larger 
and what have you. And it allows the companies to obtain those funds 
without having to repay specific amounts at any particular time. What 
does that mean? That means it enables the company today to obtain that 
capital today to expand the company and hire new employees.
  Now, through the efforts of the gentleman from North Carolina, what 
they did, in a bipartisan manner, was to add additional--what do you 
want to call it, protections, I guess, it will--and which was part of 
the discussion I think we had in committee at the time. And that was a 
good discussion there. We had the markup in the committee to allow for 
some of these discussions; and I know it went further, after the 
hearing and eventually with markup, to achieve this.
  I think it's important--I'm just going to spend a minute--I know you 
touched on some of these, but I want to take a minute or two to run 
through what the additional protections are that we are providing for 
investors, in no particular order--well, maybe they are, actually. They 
are in the order of page eight and nine of the bill, but in front of me 
here, first: Warning investors of the speculative nature generally 
applicable to investment in startups--and that's what we're talking 
about here, they're startups. And if you're going to invest in a 
startup, it's not a sure thing, it is speculative. So those warnings 
are there.
  Secondly, warning investors that they are subject to the restrictions 
on sale requirements. What that basically means is that if you're 
investing in this today, don't expect necessarily that you can just 
take your money out tomorrow, but that there may be restrictions as to 
when you can take out your money. But that's necessary, as I said 
before, so that the business can have that capital to grow. So it's 
reasonable.
  Thirdly, taking reasonable measures to reduce the risk of fraud with 
respect to such transactions--again, a reasonable measure.
  Fourthly, providing the SEC, the Securities and Exchange Commission, 
with continuous investor-level access to the issuer's Web site. Why? 
Because we want to make sure that that information that is being 
conveyed to whom--the investors in this--is the same information that 
the SEC has. A good provision.
  Fifthly, requiring each investor to answer questions, to do what? To 
demonstrate their abilities--and I think the gentleman from North 
Carolina already went through this as far as what those restrictions 
should be--but, A, recognition of the level of risk generally 
applicable. It goes back to what I said before: If you're going to get 
involved in this, make sure that you understand it. And that's one of 
the questions. B, risk of liquidity. If you're talking about a startup 
company as opposed to something that's traded on one of the exchanges, 
there's not a lot of liquidity out there, generally speaking.

                              {time}  1610

  That means there's not a lot of folks out there who are trading these 
shares on a daily or hourly basis. So you have to understand that there 
is going to be a restriction on liquidity in this marketplace.
  And, C, such areas as the SEC may determine appropriate, so broad 
authority there.
  Sixth out of seventh I'm going to touch upon, and maybe this is the 
point that the gentleman was just referencing in some respects, the 
outsourcing of cash-managing functions to a qualified third-party 
custodian. And I think the gentleman referenced traditional broker-
dealers, but actually this goes into a slightly different caveat from 
that which, I think, is actually the appropriate manner; otherwise, 
what you may be doing with all these restrictions being good, you don't 
want to get too restrictive in this and too costly. If you did do that, 
then you may end up making this just as difficult as if you were in 
some other framework.
  Mr. McHENRY. Will the gentleman yield?
  Mr. GARRETT. I yield to the gentleman from North Carolina.
  Mr. McHENRY. I thank my colleague for yielding.
  This is a very important point of distinction here. These 
intermediaries are not broker-dealers. That is neither the intent on 
either side of the aisle. That is not the description of it. These 
intermediaries are there to have a low-cost conduit for capital 
formation and a means to do that. That is the intention.
  And all the protections outlined in the bill on these intermediaries, 
on how they are to operate, are there to enable it to be both low-cost 
but also preserve individuals' capital and make sure their investment's 
appropriately taken care of.
  Mr. GARRETT. One of the reasons that you do that is because we are 
talking about small companies, companies that may be creative artists 
starting up a business, a nonprofit starting

[[Page 16686]]

up a business, a small entrepreneur, so you're talking about small 
folks, small businesses. You're talking about businesses under $1 
million.
  If you were talking about what we read about in The Wall Street 
Journal, if we were talking about things that may be shortly traded on 
the New York Stock Exchange, that would be more appropriate. But you're 
talking about these much more, smaller type of industries here; right?
  Mr. McHENRY. Absolutely. And I appreciate my colleague yielding.
  The intent is, if you're going to raise $50,000 from 5,000 people, it 
has to be a low-cost basis of doing that; and the traditional broker-
dealer model is not efficient at those lower cost basis fundraising 
opportunities or equity-raising opportunities.
  Mr. GARRETT. Part of the other problem is that you may not find the 
interest actually by the broker-dealers if you're talking about a 
$25,000 or $50,000 or $100,000 enterprise.
  Is that another reason why you went this way?
  Mr. McHENRY. Yes. The idea is that, with the traditional broker-
dealers, they're not in this market. So our intent with these low-
dollar issuances, that has not been a traditional part of the action on 
Wall Street, not in the modern era, and so we're trying to carve out 
this opportunity for small business folks.
  Mr. GARRETT. Before you leave, tied to this is another one of the two 
last points I was going to raise, which perhaps you would like to 
illuminate on.
  The bill also requires that the intermediaries state a target amount 
that you're raising. You just said perhaps $50,000; right? And one of 
the requirements under it, as I understand it, is that you would have 
to withhold the capital formation proceeds, the money that you collect, 
the capital, until you hit a percentage of or that target amount. Is 
that correct?
  Mr. McHENRY. Correct.
  Mr. GARRETT. The point of that is, again, what? Basically investor 
protection here. What you don't want to have happen, I guess, is: Say 
I'm going to go out into the marketplace and start raising money, and 
as soon as the cash starts coming in I can start using it right away, 
even though I was intending to raise $200,000, but I'm going to start 
using it right away. Those proceeds may not go to the point where you 
intended.
  I see the gentleman from Colorado is nodding his head. Is that your 
understanding? Is that the reason why this was included in here?
  Mr. PERLMUTTER. The answer is yes, if my friend from New Jersey is 
yielding to me for a second.
  Mr. GARRETT. Well, I will very briefly. I understand that I've gone 
over the time that I was supposed to be speaking.
  Mr. PERLMUTTER. I will reserve my comments for my time.
  Mr. GARRETT. With that, I rise in complete support of this 
legislation.
  Mr. PERLMUTTER. I would like to ask the Chair what time each side has 
remaining.
  The Acting CHAIR (Mrs. Miller of Michigan). The gentleman from 
Colorado has 23 minutes remaining. The gentleman from North Carolina 
has 9\1/2\ minutes remaining.
  Mr. PERLMUTTER. I yield myself such time as I may consume.
  The gentleman from New Jersey just brought something up. My friend 
from North Carolina is correct, and I misstated it. The intermediary is 
more or less the platform, the conduit. But one of its 
responsibilities, and this is found in 4A, section 10, is to outsource 
the cash management responsibilities to qualified third-party 
custodians such as broker-dealers or insured depository institutions, 
which was a concern that we were all--we all had during the committee 
hearing is, ``Okay. Who's holding the money? Can they be trusted? Will 
they release the money at the right time?'' which was what the 
gentleman from New Jersey was just talking about.
  So I thank my friend from North Carolina for reminding me of that 
section. Again, it's another piece of investor protection and a good 
idea that helps with capital formation. Again, we're trying to blend 
these two concepts.
  I would like to yield 3 minutes to the gentleman from Texas (Mr. Al 
Green).
  Mr. AL GREEN of Texas. Thank you, Mr. Perlmutter, and I thank Mr. 
McHenry.
  I rise in support of H.R. 2930, the Entrepreneur Access to Capital 
Act.
  I'm standing where I'm standing because I'm honored to celebrate the 
bipartisanship associated with this act. For those who are at home who 
may not be able to see and understand, normally I would be standing to 
my right; but I do unconventional things, and I think it's appropriate 
today to stand where I'm standing.
  Mr. McHenry, I'd like to thank you for the spirit that you have shown 
as we have tried to make this a better bill. I'd also like to echo 
these same expressions of appreciation to Mr. Bachus. I think that Mrs. 
Maloney merits an expression of appreciation as well. And I especially, 
notwithstanding all of the other persons that I've had a chance to 
thank, including the ranking member, but I do want to thank the staffs 
who worked with us because they did outstanding work.
  Mr. Grimm and I were able to craft a bipartisan amendment that would 
aid and assist in the effort that Mr. Perlmutter has called to our 
attention, making sure that the persons who handle the dollars, that 
these persons are not persons who have been convicted of either State 
securities fraud or Federal securities fraud. And this amendment would 
require that the SEC construct appropriate measures, regulation or 
rule, to prevent these persons from handling the money, if you will.
  And I'm honored to say that, with this amendment, I find this bill 
much better than it was initially. But I also have to say that Mr. 
McHenry never rejected the bill, the amendment, and I'm grateful that 
it has worked out to the extent that it has.
  So today we will have greater transparency. We will have small 
businesses in a position such that they can use this thing called 
crowdfunding to fund their efforts. And also, we give persons who 
cannot invest in a large way an opportunity to invest in a small way 
and hopefully enter into the capital markets for equity purposes.
  Mr. McHENRY. Madam Chair, I reserve the balance of my time.
  Mr. PERLMUTTER. I yield 3 minutes to the Congresswoman from New York 
(Mrs. Maloney).
  Mrs. MALONEY. I thank the gentleman for yielding and for his 
outstanding work on this bill and so many others.
  I, first of all, want to thank Ranking Member Waters and Ranking 
Member Frank for their hard work on this bill, and to commend Ranking 
Member Frank for his outstanding leadership on the Dodd-Frank 
regulatory reform bill.
  I also applaud the leadership of Chairman Bachus and Chairman Garrett 
and my colleague Mr. McHenry from the great State of North Carolina for 
his work on this really new idea in capital formation, and for working 
so well and being so open to Democratic ideas and working in a very 
professional way with the Democratic staff and Members' staffs and 
Members and literally, in some form or another, accepting every 
Democratic amendment, which I think is a first. So we are grateful for 
that.
  Crowdfunding is a way for small startups to raise capital through the 
Internet. Investors use these Web sites to come together, and on the 
Internet they are able to raise lower dollar amounts to help 
enterprises get off the ground.
  Crowdfunding is a new way of raising capital. It's a new idea, and it 
helps small businesses. In this time of economic hardship, we have 
repeatedly heard from our constituents about the need to help small 
businesses. We have heard from small businesses about the need to have 
more liquidity and more loans.

                              {time}  1620

  We really need to make sure that America's innovators and 
entrepreneurs and researchers have the resources necessary to drive 
economic recovery and to turn their ideas into the

[[Page 16687]]

reality of a company that will create jobs and grow our economy.
  By passing this bill, we will make it easier to provide different 
avenues for startups and smaller businesses to access the capital they 
need to move our economy forward, and it will not only help small 
businesses raise capital, but thanks to the changes and amendments we 
agreed upon in committee, it contains much stronger investor 
protections as well.
  During the committee markup, I offered an amendment that was accepted 
which will require the issuers to provide notice to the SEC that they 
intend to engage in crowdfunding. The SEC must then make that notice 
available to the State's securities regulators. And with that 
knowledge, the States can ensure and better protect investors, and it's 
strengthening, really, investor protection and, really, enforcement.
  The Acting CHAIR. The time of the gentlewoman has expired.
  Mr. PERLMUTTER. I yield 1 additional minute to the gentlelady.
  Mrs. MALONEY. The manager's amendment agreed to in the committee will 
empower the SEC with additional safeguards to make crowdfunding safer 
for investors. It was literally a joint Democratic and Republican 
amendment, and I am very glad we were able to work together to make 
this a better bill.
  I'm really happy about this bill because New York is a center for 
innovators, and many people come from all around the world to build 
their ideas. And this bill will help them do it.
  It was done in a joint effort. And I hope that my friends on the 
other side of the aisle will join us in passing the American Jobs Act, 
which will also put Americans to work and help grow our economy.
  We are not going to cut our way to prosperity. We need to invest in 
growth. The American Jobs Act invests in our infrastructure, in our 
workers, in innovation. It helps build the American Dream. So I hope my 
colleagues will join with us in passing that important bill, too.
  I urge my colleagues to support this bill.
  Mr. McHENRY. I yield myself 20 seconds.
  I thank my colleague from New York for improving this legislation and 
her staff for working so diligently with my staff and the staff on the 
committees as well. Very wonderful and constructive process.
  I think this is a better bill, and I hope the Senate can take it up 
and pass it and send it to the President.
  I reserve the balance of my time.
  Mr. PERLMUTTER. Madam Chair, I yield myself such time as I may 
consume.
  I would like to thank my friend from North Carolina for bringing this 
bill forward.
  It is a good idea. It allows for investments to be made in smaller 
amounts by more people using mass kinds of solicitations through the 
Internet, through some other vehicle that we may not know of at this 
point. And that is a good step. And as we've gone through the process, 
we've built it into a better bill by adding in investor protections 
because this is something where people could be misled. There could be 
misrepresentations, and there has to be some penalty for that. As the 
amendment process goes forward today, we will build those amendments 
into this.
  Now, having said all of that, having listened to the description of 
the bill that preceded us about making it easier to sell securities, 
sell investments, sell deals to accredited investors, that's a nice 
step, too. Again, we need to have investor protection restrictions in 
there just to make sure people don't get defrauded. We just suffered 
through that in 2008 with the likes of Madoff and Stanford and a number 
of other fraudsters, con artists. We want to minimize that if we can as 
we try to make capital available to businesses to grow.
  Now, let's not make any mistake here. These are nice steps, but 
they're not going to put a lot of people back to work.
  My friend, Mr. McHenry, described the President speaking in this very 
Chamber about this bill, but what he was really talking about was the 
American Jobs Act. And the American Jobs Act is what this body needs to 
pass as well. We need to keep teachers on the job. We need to keep 
firefighters on the job. We need to put construction workers back on 
the job.
  There were complaints about the United States Senate slowing things 
down, blocking things. Well, today, the United States Senate, the 
Republicans in the United States Senate, blocked rebuilding the 
infrastructure of this country--the roads, the bridges, the energy 
system, the sewer systems, the basic things that this country needs 
which would put thousands and thousands of construction workers back on 
the job.
  So it would be jobs today, investments for a long time for this 
country.
  We need to keep those teachers on the job. We need to put our 
veterans, as they come home from Iraq and from Afghanistan, we need to 
make sure they have a job. That's part of the Jobs Act. That's what 
needs to be done today. This is a good step in capital formation. But 
it isn't putting people to work right away. That's what this Nation 
needs.
  This Jobs Act that the President proposed when he talked about 
crowdfunding, as we have been in this bill, what he was here for was to 
get the Jobs Act, to get these tax credits passed that would help our 
veterans get to work, to get our infrastructure rebuilt, to rebuild our 
schools and to keep teachers on the job. That's what this Nation needs. 
That's what this Nation wants. That's what our people expect.
  So I thank my friend from North Carolina for bringing this bill 
forward. It's a good idea. He's been willing to work with us to make it 
a better idea, and we thank him. We also ask him and his colleagues on 
the Republican side of the aisle to pass this Jobs Act today. America 
needs it today.
  With that, I yield back the balance of my time.
  Mr. McHENRY. Madam Chair, I yield myself the balance of my time.
  The Entrepreneur Access to Capital Act is about giving entrepreneurs 
the power to raise money, to raise equity stakes in their business or 
their business idea, to grow their business or create a new business. 
That's really what this is about.
  The legislation we have here on the floor today--I know to some of my 
colleagues, as some people talk about, the Internet is just a series of 
tubes, or they refer to the Internet as the ``Internets'' or something 
like that. But we understand and my colleagues understand that the 
Internet can be used in a positive way, in an absolutely positive way.
  With a Web site like eBay, you have individuals exchanging goods that 
don't know each other. But they can tell their reputation. And they can 
exchange these goods and get quality goods for a quality price. And you 
have a lot of choices. We want to take that idea and give investors 
that same idea.
  We have crowdfunding Web sites in the United States today. They help 
raise money for musicians or artists. And what the artists do is say, 
``You know, if you invest in my ability to go into the studio and 
record an album,'' or whatever they call it, ``I'll give you the first 
download, or I'll give you the first CD.''

                              {time}  1630

  So you have folks pony up $50 or $25 for their favorite banks. You 
have folks who are raising money--folks who have a bakery--and they 
say, If you contribute a few bucks, you'll get six whoopie pies.
  People have innovative ways of doing this. We're giving them the 
power, the opportunity; and we're relieving this Federal restriction 
that currently prevents them from having equity stakes in their 
favorite businesses, in their favorite ideas--their local coffee shops 
or their bakeries, their favorite bands or even the next Facebook. 
These are the opportunities that we're going to be able to give 
investors.
  We have fraud protection in this legislation, language which has been 
crafted in a bipartisan way. It's a strong improvement to the bill, and 
I

[[Page 16688]]

look forward to a bipartisan vote. I am very hopeful it will make its 
way intact through the Senate and make its way to the President's desk 
where he can sign it. That way, we can allow entrepreneurs and 
innovators that opportunity.
  We take the best of micro-finance and the best of crowdsourcing and 
combine them in this legislation, and it's a positive thing. We can 
work together on important matters of creating jobs--and we have--and 
this is a first step. I certainly appreciate my colleague's willingness 
to work to improve the bill and to bring us to this day.
  With that, I yield back the balance of my time.
  Ms. JACKSON LEE of Texas. Madam Chair, I rise today in support of 
H.R. 2930, ``Entrepreneur Access to Capital Act'' to amend the 
securities laws to provide for registration exemptions for certain 
crowdfunded securities, and for other purposes. This bill reduces the 
regulatory burdens on capital formation by small businesses and 
addresses regulations on crowdfunding.
  The concept of crowdfunding focuses on collective cooperation where 
investors try to get funding publicly instead of from personal 
contacts. The network is large, and many investors are often found 
through the Internet. It is a valuable tool for startups and other 
fledgling businesses. As I have said time and time again, startups are 
the lifeblood of our economy and American innovation. They provide 
necessary jobs, especially in this sluggish market.
  This bill provides a crowdfunding exemption to the Securities and 
Exchange Commission (SEC) registration requirements for firms raising 
up to $5 million, with individual investments limited to $10,000 or 10 
percent of an investor's income. As per the exemption, limits are 
removed on the number of investors until the first $5 million of 
capital is raised. This exemption provides smaller investors the chance 
to support startups, which is currently not an option under SEC 
regulation. There is a current 499-shareholder cap for private 
companies. The bill excludes crowdfunding investors from the cap for 
private companies and removes the ban on general solicitation that 
exists in many current exemptions.
  I support this bill because its purpose is to ease the regulations 
that implement stipulations on garnering investors and capital. It is a 
measure fledgling small businesses benefit from. Also it should limit 
fraud and promote the jobs America needs.
  Without access to initial investors and capital, Houston native 
Michael Dell would not have been able to start one of the most 
successful computer retail businesses in the world. His $1,000 dollar 
primary investment in the 1980s allowed Dell Computers to become a 
household name. Without this capital, America would not have had one of 
its premier innovators.
  The economic impact of this legislation is encouraging. Businesses 
require investors and capital in order to expand and flourish. When 
businesses are presented with this opportunity, jobs are created that 
in turn, will stimulate economic growth. Dell's headquarters alone 
employs roughly 16,000 people.
  I urge my colleagues to join me in supporting H.R. 2930, 
``Entrepreneur Access to Capital Act,'' this will ease SEC restrictions 
in order to stimulate innovation, and promote regulations that open up 
the sphere for startups that would not have the opportunity to succeed 
without a wide network of investors. This, in turn, promotes economic 
recovery and job creation.
  The Acting CHAIR. All time for general debate has expired.
  Pursuant to the rule, the amendment in the nature of a substitute 
printed in the bill shall be considered as an original bill for the 
purpose of amendment under the 5-minute rule and shall be considered 
read.
  The text of the committee amendment in the nature of a substitute is 
as follows:

                               H.R. 2930

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Entrepreneur Access to 
     Capital Act''.

     SEC. 2. CROWDFUNDING EXEMPTION.

       (a) Securities Act of 1933.--Section 4 of the Securities 
     Act of 1933 (15 U.S.C. 77d) is amended by adding at the end 
     the following:
       ``(6) transactions involving the issuance of securities for 
     which--
       ``(A) the aggregate annual amount raised through the issue 
     of the securities is--
       ``(i) $1,000,000 or less; or
       ``(ii) if the issuer provides potential investors with 
     audited financial statements, $2,000,000 or less;
       ``(B) individual investments in the securities are limited 
     to an aggregate annual amount equal to the lesser of--
       ``(i) $10,000; and
       ``(ii) 10 percent of the investor's annual income;
       ``(C) in the case of a transaction involving an 
     intermediary between the issuer and the investor, such 
     intermediary complies with the requirements under section 
     4A(a); and
       ``(D) in the case of a transaction not involving an 
     intermediary between the issuer and the investor, the issuer 
     complies with the requirements under section 4A(b).''.
       (b) Requirements to Qualify for Crowdfunding Exemption.--
     The Securities Act of 1933 is amended by inserting after 
     section 4 the following:

     ``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL 
                   TRANSACTIONS.

       ``(a) Requirements on Intermediaries.--For purposes of 
     section 4(6), a person acting as an intermediary in a 
     transaction involving the issuance of securities shall comply 
     with the requirements of this subsection if the 
     intermediary--
       ``(1) warns investors, including on the intermediary's 
     website, of the speculative nature generally applicable to 
     investments in startups, emerging businesses, and small 
     issuers, including risks in the secondary market related to 
     illiquidity;
       ``(2) warns investors that they are subject to the 
     restriction on sales requirement described under subsection 
     (e);
       ``(3) takes reasonable measures to reduce the risk of fraud 
     with respect to such transaction;
       ``(4) provides the Commission with the intermediary's 
     physical address, website address, and the names of the 
     intermediary and employees of the person, and keep such 
     information up-to-date;
       ``(5) provides the Commission with continuous investor-
     level access to the intermediary's website;
       ``(6) requires each potential investor to answer questions 
     demonstrating competency in--
       ``(A) recognition of the level of risk generally applicable 
     to investments in startups, emerging businesses, and small 
     issuers;
       ``(B) risk of illiquidity; and
       ``(C) such other areas as the Commission may determine 
     appropriate;
       ``(7) requires the issuer to state a target offering amount 
     and withhold capital formation proceeds until aggregate 
     capital raised from investors other than the issuer is no 
     less than 60 percent of the target offering amount;
       ``(8) carries out a background check on the issuer's 
     principals;
       ``(9) provides the Commission with basic notice of the 
     offering, not later than the first day funds are solicited 
     from potential investors, including--
       ``(A) the issuer's name, legal status, physical address, 
     and website address;
       ``(B) the names of the issuer's principals;
       ``(C) the stated purpose and intended use of the capital 
     formation funds sought by the issuer; and
       ``(D) the target offering amount;
       ``(10) outsources cash-management functions to a qualified 
     third party custodian, such as a traditional broker or dealer 
     or insured depository institution;
       ``(11) maintains such books and records as the Commission 
     determines appropriate;
       ``(12) makes available on the intermediary's website a 
     method of communication that permits the issuer and investors 
     to communicate with one another; and
       ``(13) does not offer investment advice.
       ``(b) Requirements on Issuers if No Intermediary.--For 
     purposes of section 4(6), an issuer who offers securities 
     without an intermediary shall comply with the requirements of 
     this subsection if the issuer--
       ``(1) warns investors, including on the issuer's website, 
     of the speculative nature generally applicable to investments 
     in startups, emerging businesses, and small issuers, 
     including risks in the secondary market related to 
     illiquidity;
       ``(2) warns investors that they are subject to the 
     restriction on sales requirement described under subsection 
     (e);
       ``(3) takes reasonable measures to reduce the risk of fraud 
     with respect to such transaction;
       ``(4) provides the Commission with the issuer's physical 
     address, website address, and the names of the principals and 
     employees of the issuers, and keeps such information up-to-
     date;
       ``(5) provides the Commission with continuous investor-
     level access to the issuer's website;
       ``(6) requires each potential investor to answer questions 
     demonstrating competency in--
       ``(A) recognition of the level of risk generally applicable 
     to investments in startups, emerging businesses, and small 
     issuers;
       ``(B) risk of illiquidity; and
       ``(C) such other areas as the Commission may determine 
     appropriate;
       ``(7) states a target offering amount and withholds capital 
     formation proceeds until the aggregate capital raised from 
     investors other than the issuer is no less than 60 percent of 
     the target offering amount;
       ``(8) provides the Commission with basic notice of the 
     offering, not later than the first day funds are solicited 
     from potential investors, including--
       ``(A) the stated purpose and intended use of the capital 
     formation funds sought by the issuer; and
       ``(B) the target offering amount;

[[Page 16689]]

       ``(9) outsources cash-management functions to a qualified 
     third party custodian, such as a traditional broker or dealer 
     or insured depository institution;
       ``(10) maintains such books and records as the Commission 
     determines appropriate;
       ``(11) makes available on the issuer's website a method of 
     communication that permits the issuer and investors to 
     communicate with one another;
       ``(12) does not offer investment advice; and
       ``(13) discloses to potential investors, on the issuer's 
     website, that the issuer has an interest in the issuance.
       ``(c) Verification of Income.--For purposes of section 
     4(6), an issuer or intermediary may rely on certifications 
     provided by an investor to verify the investor's income.
       ``(d) Information Available to States.--The Commission 
     shall make the notices described under subsections (a)(9) and 
     (b)(8) and the information described under subsections (a)(4) 
     and (b)(4) available to the States.
       ``(e) Restriction on Sales.--With respect to a transaction 
     involving the issuance of securities described under section 
     4(6), an investor may not sell such securities during the 1-
     year period beginning on the date of purchase, unless such 
     securities are sold to--
       ``(1) the issuer of such securities; or
       ``(2) an accredited investor.
       ``(f) Construction.--
       ``(1) No treatment as broker.--With respect to a 
     transaction described under section 4(6) involving an 
     intermediary, such intermediary shall not be treated as a 
     broker under the securities laws solely by reason of 
     participation in such transaction.
       ``(2) No preclusion of other capital raising.--Nothing in 
     this section or section 4(6) shall be construed as preventing 
     an issuer from raising capital through methods not described 
     under section 4(6).''.
       (c) Rulemaking.--Not later than 90 days after the date of 
     the enactment of this Act, the Securities and Exchange 
     Commission shall issue such rules as may be necessary to 
     carry out section 4A of the Securities Act of 1933. In 
     issuing such rules, the Commission shall carry out the cost-
     benefit analysis required under section 2(b) of such Act.
       (d) Disqualification.--Not later than 90 days after the 
     date of the enactment of this Act, the Securities and 
     Exchange Commission shall by rule or regulation establish 
     disqualification provisions under which a person shall not be 
     eligible to utilize the exemption under section 4(6) of the 
     Securities Act of 1933 or to participate in the affairs of an 
     intermediary facilitating the use of that exemption. Such 
     provisions shall be substantially similar to the 
     disqualification provisions contained in the regulations 
     adopted in accordance with section 926 of the Dodd-Frank Wall 
     Street Reform and Consumer Protection Act (15 U.S.C. 77d 
     note).

     SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER 
                   CAP.

       Section 12(g)(5) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78l(g)(5)) is amended--
       (1) by striking ``(5) For the purposes'' and inserting:
       ``(5) Definitions.--
       ``(A) In general.--For the purposes''; and
       (2) by adding at the end the following:
       ``(B) Exclusion for persons holding certain securities.--
     For purposes of this subsection, the term `held of record' 
     shall not include holders of securities issued pursuant to 
     transactions described under section 4(6) of the Securities 
     Act of 1933.''.

     SEC. 4. PREEMPTION OF STATE LAW.

       Section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 
     77r(b)(4)) is amended--
       (1) by redesignating subparagraphs (C) and (D) as 
     subparagraphs (D) and (E), respectively; and
       (2) by inserting after subparagraph (B) the following:
       ``(C) section 4(6);''.

  The Acting CHAIR. No amendment to the committee amendment is in order 
except those printed in part A of House Report 112-265. Each such 
amendment may be offered only in the order printed in the report, by a 
Member designated in the report, shall be considered 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.


                 Amendment No. 1 Offered by Mr. McHenry

  The Acting CHAIR. It is now in order to consider amendment No. 1 
printed in part A of House Report 112-265.
  Mr. McHENRY. 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 5, line 5, strike ``issuance'' and insert ``offer or 
     sale''.
       Page 5, line 6, strike ``for which'' and insert ``by an 
     issuer, provided that''.
       Page 5, beginning on line 7, strike ``annual amount raised 
     through the issue of the securities'' and insert ``amount 
     sold within the previous 12-month period in reliance upon 
     this exemption''.
       Page 5, beginning on line 13, strike ``individual 
     investments in the securities are limited to an aggregate 
     annual amount equal to'' and insert ``the aggregate amount 
     sold to any investor in reliance on this exemption within the 
     previous 12-month period does not exceed''.
       Page 5, line 17, strike ``the'' and insert ``such''.
       Page 6, line 8, strike ``issuance'' and insert ``offer or 
     sale''.
       Page 6, line 12, after ``website'' insert ``used for the 
     offer and sale of such securities''.
       Page 6, line 24, strike ``person'' and insert 
     ``intermediary''.
       Page 7, line 4, strike ``competency in''.
       Page 7, line 5, strike ``recognition'' and insert ``an 
     understanding''.
       Page 7, line 8, before ``risk'' insert ``an understanding 
     of the''.
       Page 7, line 10, before the semicolon insert ``by rule or 
     regulation''.
       Page 7, strike lines 11 through 15 and insert the 
     following:
       ``(7) requires the issuer to state a target offering amount 
     and a deadline to reach the target offering amount and ensure 
     the third party custodian described under paragraph (10) 
     withholds offering proceeds until aggregate capital raised 
     from investors other than the issuer is no less than 60 
     percent of the target offering amount;''.
       Page 7, line 18, strike ``with basic'' and insert ``and 
     potential investors with''.
       Page 7, beginning on line 19, strike ``funds are solicited 
     from'' and insert ``securities are offered to''.
       Page 8, line 2, strike ``capital formation funds'' and 
     insert ``proceeds of the offering''.
       Page 8, line 4, before the semicolon insert ``and the 
     deadline to reach the target offering amount''.
       Page 8, beginning on line 6, strike ``traditional broker or 
     dealer or'' and insert ``broker or dealer registered under 
     section 15(b)(1) of the Securities Exchange Act of 1934 or 
     an''.
       Page 8, line 13, strike ``and'' and insert after such line 
     the following:
       ``(13) provides the Commission with a notice upon 
     completion of the offering, which shall include the aggregate 
     offering amount and the number of purchasers; and''.
       Page 8, line 14, strike ``(13)'' and insert ``(14)''.
       Page 8, line 17, before ``securities'' insert ``or sells''.
       Page 9, line 13, strike ``competency in''.
       Page 9, line 14, strike ``recognition'' and insert ``an 
     understanding''.
       Page 9, line 17, before ``risk'' insert ``an understanding 
     of the''.
       Page 9, line 19, before the semicolon insert ``by rule or 
     regulation''.
       Page 9, beginning on line 20, strike ``withholds capital 
     formation'' and insert ``ensures that the third party 
     custodian described under paragraph (9) withholds offering''.
       Page 10, line 1, strike ``basic''.
       Page 10, beginning on line 2, strike ``funds are solicited 
     from'' and insert ``securities are offered to''.
       Page 10, line 5, strike ``capital formation funds'' and 
     insert ``proceeds of the offering''.
       Page 10, line 7, before the semicolon insert ``and the 
     deadline to reach the target offering amount''.
       Page 10, beginning on line 9, strike ``traditional broker 
     or dealer or'' and insert ``broker or dealer registered under 
     section 15(b)(1) of the Securities Exchange Act of 1934 or 
     an''.
       Page 10, line 16, strike ``and'' and insert after such line 
     the following:
       ``(13) provides the Commission with a notice upon 
     completion of the offering, which shall include the aggregate 
     offering amount and the number of purchasers; and''.
       Page 10, line 17, strike ``(13)'' and insert ``(14)''.
       Page 10, line 22, strike ``provided by an investor'' and 
     insert ``as to annual income provided by the person to whom 
     the securities are sold''.
       Page 11, line 1, strike ``(a)(9) and (b)(8)'' and insert 
     ``(a)(9), (a)(13), (b)(8), and (b)(13)''.
       Page 11, line 5, strike ``an investor may not sell'' and 
     insert ``a purchaser may not transfer''.
       Page 11, strike lines 11 through 15 and insert the 
     following:
       ``(1) No registration as broker.--With respect to a 
     transaction described under section 4(6) involving an 
     intermediary, such intermediary shall not be required to 
     register as a broker under section 15(a)(1) of the Securities 
     Exchange Act of 1934 solely by reason of participation in 
     such transaction.''.
       Page 11, line 21, strike ``90'' and insert ``180''.
       Page 12, beginning on line 1, strike ``carry out the cost-
     benefit analysis required under section 2(b) of such Act'' 
     and insert ``consider the costs and benefits of the action''.
       Page 12, line 3, strike ``90'' and insert ``180''.
       Page 12, line 6, strike ``a person'' and insert ``an 
     issuer''.
       Page 12, beginning on line 8, strike ``or to participate in 
     the affairs of an intermediary facilitating the use of that 
     exemption.'' and insert ``based on the disciplinary history 
     of the issuer or its predecessors, affiliates, officers, 
     directors, or persons fulfilling similar roles. The 
     Commission shall also establish disqualification provisions 
     under which an intermediary shall not be eligible to act as

[[Page 16690]]

     an intermediary in connection with an offering utilizing the 
     exemption under section 4(6) of the Securities Act of 1933 
     based on the disciplinary history of the intermediary or its 
     predecessors, affiliates, officers, directors, or persons 
     fulfilling similar roles.''.
       Page 13, beginning on line 1, strike ``the term `held of 
     record' shall not include holders of securities issued 
     pursuant to transactions described under section 4(6) of the 
     Securities Act of 1933.'' and insert ``securities held by 
     persons who purchase such securities in transactions 
     described under section 4(6) of the Securities Act of 1933 
     shall not be deemed to be `held of record'.''.

  The Acting CHAIR. Pursuant to House Resolution 453, the gentleman 
from North Carolina (Mr. McHenry) and a Member opposed each will 
control 5 minutes.
  The Chair recognizes the gentleman from North Carolina.
  Mr. McHENRY. This is primarily a technical amendment based on post-
markup feedback from the staff of the Securities and Exchange 
Commission. The final language has been negotiated between my staff and 
the majority and minority staffs of the Financial Services Committee.
  The more substantive changes made to this amendment include: 
requiring the issuer to state a target offering amount and a deadline 
to reach the target offering amount; requiring the commission to 
provide a notice upon completion of the offering, which shall include 
the aggregate offering amount and the number of purchasers; clarifying 
the disqualification provision to ensure that both issuers and 
intermediaries, as well as their predecessors, affiliates, officers, 
directors or persons fulfilling similar roles, are disqualified from 
the exemption established in this bill should they have a history of 
committing securities fraud.
  I appreciate the SEC staff lending their technical expertise to this 
amendment, and I appreciate the bipartisan effort from both the 
majority and minority committee staffs to further improve the final 
bill.
  With that, I yield back the balance of my time.
  The Acting CHAIR. The question is on the amendment offered by the 
gentleman from North Carolina (Mr. McHenry).
  The amendment was agreed to.


                 Amendment No. 2 Offered by Mr. Fincher

  The Acting CHAIR. It is now in order to consider amendment No. 2 
printed in part A of House Report 112-265.
  Mr. FINCHER. Madam Chairman, 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 5, line 9, insert after ``$1,000,000'' the following: 
     ``, as such amount is adjusted by the Commission to reflect 
     the annual change in the Consumer Price Index for All Urban 
     Consumers published by the Bureau of Labor Statistics,''.
       Page 5, line 12, insert after ``$2,000,000'' the following: 
     ``, as such amount is adjusted by the Commission to reflect 
     the annual change in the Consumer Price Index for All Urban 
     Consumers published by the Bureau of Labor Statistics,''.

  The Acting CHAIR. Pursuant to House Resolution 453, the gentleman 
from Tennessee (Mr. Fincher) and a Member opposed each will control 5 
minutes.
  The Chair recognizes the gentleman from Tennessee.
  Mr. FINCHER. I want to thank my colleague from North Carolina (Mr. 
McHenry) for his great work on this bill and for trying to put the 
focus on creating jobs. It's not often so many times what we do but 
what we can undo up here in Washington that will let the private sector 
get back in the business of creating jobs.
  Madam Chairman, the amendment I am offering with my colleague from 
California (Mr. Sherman) would simply adjust for inflation the $1 
million and $2 million caps in the underlying bill. This will ensure 
investment opportunities today are just as strong tomorrow.
  As the real value of money decreases over time, small-contribution 
investors may be discouraged from supporting start-up companies in the 
future due to the diminishing buying power of their original 
investments. By indexing the caps in the bill to reflect the annual 
change in the consumer price index, we will continue to allow 
investment opportunities for Main Street Americans, like our teachers, 
police officers and farmers, to pool their money and support 
entrepreneurs in their communities.
  I urge my colleagues to support this amendment.
  Mr. McHENRY. Will the gentleman yield?
  Mr. FINCHER. I yield to my colleague from North Carolina.
  Mr. McHENRY. I thank the gentleman from Tennessee for offering this 
bipartisan amendment. This is a good-government amendment.
  The old adage is ``a million bucks isn't what it used to be.'' Well, 
when reg D-504 of the Securities and Exchange Act of 1934 had a $1 
million exemption that was put in place in 1982, that $1 million would 
be $2.4 million today. So, just in a short period of time, it can show 
you the impact of 30 years of inflation.
  I appreciate my colleague for offering this amendment, as it's a very 
good amendment, and I certainly appreciate your representing the good 
folks of Tennessee.
  Mr. FINCHER. I yield back the balance of my time.
  The Acting CHAIR. The question is on the amendment offered by the 
gentleman from Tennessee (Mr. Fincher).
  The amendment was agreed to.


                 Amendment No. 3 Offered by Mr. Quayle

  The Acting CHAIR. It is now in order to consider amendment No. 3 
printed in part A of House Report 112-265.
  Mr. QUAYLE. 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 5, line 16, insert before the semicolon the following: 
     ``, as such amount is adjusted by the Commission to reflect 
     the annual change in the Consumer Price Index for All Urban 
     Consumers published by the Bureau of Labor Statistics''.

  The Acting CHAIR. Pursuant to House Resolution 453, the gentleman 
from Arizona (Mr. Quayle) and a Member opposed each will control 5 
minutes.
  The Chair recognizes the gentleman from Arizona.
  Mr. QUAYLE. Madam Chair, I yield myself such time as I may consume.
  I want to thank my friend and colleague from North Carolina for 
bringing this bill to the floor, and I want to thank our friends on the 
other side of the aisle for working on this important bill as well.
  Madam Chair, this is a commonsense amendment that will make it easier 
for American companies to raise capital, to expand, and to hire more 
workers.
  I support the gentleman from North Carolina's legislation, which 
removes an unnecessary barrier to allow start-ups and small businesses 
to raise capital through individual investments of up to $10,000, or 10 
percent of an investor's income. My amendment would simply index this 
individual investment cap to inflation.
  Entrepreneurs and new businesses play a vital role in advancing both 
job creation and innovation in our country. Over the last three 
decades, new businesses have created nearly 40 million jobs and have 
been responsible for nearly all net new job creation. Unfortunately, 
the environment for new businesses has grown increasingly unfavorable. 
In the past 3 years, the number of new businesses launched has fallen 
23 percent. Capital investment in start-up companies has decreased, and 
far fewer small companies are holding initial public offerings.
  Madam Chair, too often when legislation is not indexed to inflation, 
Congress must go back and amend current laws. For instance, $10,000 in 
1980 would actually be $27,535 today. The need for small businesses to 
have access to capital is constant. It makes sense that, as the value 
of the dollar fluctuates over time, we should adjust the investment cap 
accordingly.
  This amendment will promote economic growth at no cost to the 
taxpayer. I support H.R. 2930, and I urge my colleagues to support this 
pro-growth amendment.
  I reserve the balance of my time.
  Mr. PERLMUTTER. I claim time in opposition, although I am not opposed 
to the amendment.
  The Acting CHAIR. Without objection, the gentleman from Colorado is 
recognized for 5 minutes.

[[Page 16691]]

  There was no objection.

                              {time}  1640

  Mr. PERLMUTTER. I want my friend from New York to catch her breath. 
That's why I'm going to claim time in opposition. But I also do have a 
question.
  In 2008 when the stock market crashed, when we saw home prices drop 
like a rock, when people lost their jobs, we experienced over a several 
month period deflation--not inflation; deflation. Under the amendments, 
both the preceding one as well as the amendment by my friend from 
Arizona, when I look at it, I think, if the price goes down, this could 
also shrink.
  I yield to my friend North Carolina.
  Mr. McHENRY. I thank my colleague for bringing this up, and it is a 
great concern. I didn't have the opportunity to say, I do, in fact, 
support the gentleman's amendment. I appreciate him offering it. It's a 
very thoughtful amendment.
  I believe, looking at this, when you have it on an annualized basis, 
that does actually allay some of those concerns. But I think you and I 
agree that when we don't address some of these securities laws as 
frequently as we should to update with technology and what happens in 
the market, we should have in place these measures to ensure that 
Congress' intent is followed even 20 years from now and can keep pace 
with what is reasonable in the marketplace.
  I think that your concern is actually a very interesting one. And I 
would be happy to talk with the gentleman more about ways that we can 
update securities laws to deal with some of these struggles.
  Mr. PERLMUTTER. Reclaiming my time, I thank my friend from North 
Carolina. We have no opposition to this amendment. We urge its 
adoption.
  I yield back the balance of my time.
  Mr. QUAYLE. I yield to the gentleman from North Carolina.
  Mr. McHENRY. Madam Chair, I want to thank my colleague from Arizona 
(Mr. Quayle) for offering this amendment. It's a very sharp amendment, 
a very thoughtful approach to securities law, a very thoughtful 
approach to crowdfunding and the idea of allowing average, everyday 
investors the same opportunities that high-net-worth individuals enjoy 
in this country. I thank the gentleman for working on job creation and 
job growth.
  Mr. QUAYLE. I yield back the balance of my time.
  The Acting CHAIR. The question is on the amendment offered by the 
gentleman from Arizona (Mr. Quayle).
  The amendment was agreed to.


                Amendment No. 4 Offered by Ms. Velazquez

  The Acting CHAIR. It is now in order to consider amendment No. 4 
printed in part A of House Report 112-265.
  Ms. VELAZQUEZ. 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 8, line 13, strike ``and''.
       Page 8, line 14, strike the period and insert ``; and''.
       Page 8, after line 14, insert the following:
       ``(14) discloses to potential investors the intermediary's 
     compensation structure for participation in the security 
     offering.''.

  The Acting CHAIR. Pursuant to House Resolution 453, the gentlewoman 
from New York (Ms. Velazquez) and a Member opposed each will control 5 
minutes.
  The Chair recognizes the gentlewoman from New York.
  Ms. VELAZQUEZ. Madam Chair, I yield myself such time as I may 
consume.
  In order for entrepreneurs to continue to fulfill their traditional 
role as job creators, it is essential that they have access to the 
capital they rely upon as fuel for innovation and economic expansion. 
Crowdfunding represents a promising new tool for this service. But in 
order to realize its full potential, investors who buy these securities 
must be able to make fully informed decisions. My amendment will make 
this possible by requiring crowdfunding intermediaries to disclose how 
they are compensated.
  Despite its relatively recent emergence, crowdfunding shares many 
characteristics with ordinary stock investing. In this marketplace, 
however, Web sites and social media will fill the role of brokers and 
dealers. They will act as a conduit between stock insurers and ordinary 
investors. Unlike stockbrokers, these intermediaries may be paid by 
commission, flat fees, or subscriptions. Depending on their 
compensation structure, however, intermediaries may have an incentive 
to advertise the ideas that provide them with the most money, rather 
than what makes the most investment sense. This not only puts ordinary 
investors at risk but also undermines the entire premise of 
crowdfunding, which is supposed to promote those ideas that have the 
most merit.
  Compensation disclosure is not without precedent. It is currently 
required by all securities brokers and dealers. This transparency 
provides investors with the vital information necessary to have the 
confidence that their investment decisions are prudent. Furthermore, 
these disclosures take nothing more than a few lines on an offer sheet 
or a quick conversation. This is a simple commonsense amendment that 
will help ordinary people make informed investment decisions as this 
new industry evolves. If intermediaries are going to fill the role of 
brokers and dealers in crowdfunding operations, it only makes sense 
that just like others in the investment industry, they should be 
subject to similar requirements to protect the investors they will 
solicit.
  I urge Members to vote ``yes'' on the amendment, and I reserve the 
balance of my time.
  Mr. McHENRY. Madam Chair, I claim time in opposition to the 
amendment.
  The Acting CHAIR. The gentleman from North Carolina is recognized for 
5 minutes.
  Mr. McHENRY. Unfortunately, I have to oppose this amendment. In the 
course of a subcommittee legislative hearing, a subcommittee markup, 
and a full committee markup, this amendment was never offered. My 
colleague from New York serves on the Financial Services Committee. As 
my other colleagues have mentioned, I worked diligently across the 
aisle to incorporate every idea my colleagues from across the aisle 
had. They've incorporated them into this bill. It's a better piece of 
legislation because of it.
  My colleague had the opportunity at the full committee markup to 
offer this amendment and didn't. We heard at the capital formation and 
crowdfunding hearing in the Capital Markets Subcommittee--I attended 
that, and all Members of the Financial Services Committee that were 
there that day were allowed to participate. None of the witnesses 
raised a compensation disclosure as a precondition to create successful 
crowdfunding securities offerings. My colleague did not participate in 
the hearing. And when the subject matter of the amendment could have 
been raised with a panel of capital formation experts, it was not 
raised.
  This is an interesting amendment. What we have in this legislation is 
an enormous amount of investor protection. We want crowdfunding 
intermediaries to be able to compete with one another and to innovate 
and to offer the best platform and technology for both issuers and 
investors. Our belief is that businesses will be able to work with 
different intermediaries. If they don't see an intermediary that fits 
with their cost structure or the cost basis they see fit, they can be 
their own intermediary. That's how this bill is constructed. This 
amendment doesn't work technically with the construct of that. By 
forcing intermediaries to disclose the compensation structure to 
potential investors, we believe it will have a chilling effect on 
compensation in the market and the participation of potential 
intermediaries in this mode.
  So unfortunately, I have got to oppose this amendment. Had the 
gentlelady brought this to me during the subcommittee or full committee 
markup, I would have been happy to work with my colleague on trying to 
craft workable language. But here on the floor today, I'm opposed to 
the amendment. I ask my colleagues to vote against this flawed 
amendment.
  I reserve the balance of my time.

[[Page 16692]]


  Ms. VELAZQUEZ. May I inquire as to how much time I have remaining?
  The Acting CHAIR. The gentlewoman from New York has 2\1/2\ minutes 
remaining.
  Ms. VELAZQUEZ. I yield 30 seconds to the gentleman from Colorado (Mr. 
Perlmutter).
  Mr. PERLMUTTER. I thank the gentlelady.
  I would just say to my friend from North Carolina, I appreciate the 
fact that this is new, but I think when we are dealing with these small 
investments and lots of people, just as with a charity, you'd like to 
know that most of it's going to the charity and not to the solicitation 
effort. That is why I would say this is important, so you know that 
it's getting to your investment and not to the sale effort. So I would 
support her amendment.
  Mr. McHENRY. Madam Chair, I yield myself such time as I may consume.
  I would ask my colleagues, do they disclose on their campaign Web 
sites how much it costs to process a credit card contribution?
  Exactly. I don't know if my colleagues are making those disclosures 
when folks are contributing to their campaigns. So this restriction is 
actually a creation of Congress.
  I understand the issue. It's a very powerful issue on compensation. 
This was never raised in the two subcommittee hearings I have had on 
capital formation on the TARP in the Financial Services Subcommittee of 
Oversight and Government Reform, nor in the legislative markup at the 
Subcommittee on Capital Markets, nor during the subcommittee markup nor 
the full committee markup in the Committee on Financial Services.

                              {time}  1650

  Furthermore, I would point my colleague to page 6 of the legislative 
text. We have investor protection requirements for intermediaries that 
go on for, really, three pages. This specifies a lot of investor 
protection. It has received a bipartisan vote. The time for this 
amendment is past. It is not best constructed here on the floor. I ask 
my colleagues to vote ``no.''
  With that, I yield back the balance of my time.
  Ms. VELAZQUEZ. I yield myself the balance of my time.
  It amazes me that given the experience that brought us to this time, 
that brought the economy to its knees with the Wall Street crisis, with 
the Madoff Ponzi scheme, that you come here and say this is not the 
appropriate time. It is the appropriate time to protect investors, and 
that is exactly what we do here.
  Compensation disclosure, for the investors to have the information to 
know who their intermediaries are and how they are going to be 
compensated, this is the appropriate time. This is the right time. It 
is important that we protect investors by them knowing how those 
intermediaries will be compensated, how their money will be invested. 
What makes more sense for an intermediary to invest in this company 
versus this other company, because if he invests in this other company 
he's going to make more money? What is wrong with transparency? What is 
wrong with disclosure? Nothing is wrong.
  You have three pages of protection, but you left the most important 
protection for investors. What is wrong with the investor to know how 
those intermediaries will be compensated? That is the core of my 
amendment. And we should, just like brokers and dealers, they will have 
their own business interest and they will not necessarily be the same 
as investors' interest. Their interest and that of the investors are 
not mutually exclusive. Just like brokers and dealers, intermediaries 
will have discretion to choose which investment they propose.
  I ask for a ``yes'' vote on my amendment.
  The Acting CHAIR. The question is on the amendment offered by 
gentlewoman from New York (Ms. Velazquez).
  The question was taken; and the Acting Chair announced that the noes 
appeared to have it.
  Ms. VELAZQUEZ. 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 New York 
will be postponed.


                 Amendment No. 5 Offered by Mr. Barrow

  The Acting CHAIR. It is now in order to consider amendment No. 5 
printed in part A of House Report 112-265.
  Mr. BARROW. 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 11, after line 9, insert the following:
       ``(f) Website for Crowdfunding Investment Safety Tips.--
       ``(1) In general.--The Commission shall establish a website 
     that provides the public with safety tips for investing in 
     securities described under section 4(6).
       ``(2) Links to website.--The intermediary in a transaction 
     involving the issuance of securities described under section 
     4(6) or, in the case of such transaction not involving an 
     intermediary, the issuer, shall place a link to the website 
     described under paragraph (1) in a prominent location on the 
     main page of the website of such intermediary or issuer that 
     is used to facilitate such transaction.''.
       Page 11, line 10, strike ``(f)'' and insert ``(g)''.

  The Acting CHAIR. Pursuant to House Resolution 453, the gentleman 
from Georgia (Mr. Barrow) and a Member opposed each will control 5 
minutes.
  The Chair recognizes the gentleman from Georgia.
  Mr. BARROW. Madam Chair, I yield myself such time as I may consume.
  Many of the small business owners that I've talked to back home tell 
me that the biggest barrier that they face in starting up a business is 
securing access to capital. When traditional lenders aren't lending, we 
need to find innovative ways to get startup and expansion money in the 
hands of small business job creators.
  This bill uses the Internet to knock down some of the financial 
barriers that get between mom-and-pop startups and willing investors so 
they can get the money they need to grow their businesses and put more 
people to work. However, as with almost everything involving the 
Internet, new opportunities to do good bring new opportunities for 
mischief. We all agree that businesses and investors must understand 
the potential risks that come with these innovations. The bill requires 
that the SEC adopt regulations specifying the warnings and information 
that the issuer has to offer, but it leaves the content and the 
formatting of this information to rulemaking proceedings to be 
completed later, and it leaves open the possibility of inconsistent 
warnings and information for different investment opportunities.
  My amendment takes the bill's basic approach one step further by 
requiring that the offering contain a link to a site maintained by the 
SEC where the SEC will post a comprehensive set of warnings and safety 
tips to anyone who is about to use the Internet to raise capital 
without all of the hassle and the safeguards of a regulated SEC 
offering. This would provide a consistent set of warnings and avoid the 
inconsistent, unclear, or misleading messages that investors might get 
from different Web sites.
  Madam Chair, a word to the wise is sufficient, but too many words can 
obscure the information that folks really need. My amendment offers 
something better than a word--a link to the information that we all 
agree that investors should have available to them before they put 
their money down. Investors don't have to read it and they don't have 
to heed it, but it's there. And that's the least that we should do. 
Small businesses and the investment community stand to gain from this 
system, but only if everyone involved is on the same page about the 
potential benefits and the drawbacks. My amendment will help make sure 
that happens.
  I want to thank my colleagues for their work on this bipartisan bill, 
and I ask for your support in passing this job-creating, investor-
protecting amendment.
  I reserve the balance of my time.
  Mr. McHENRY. Madam Chair, I rise in opposition to the amendment.

[[Page 16693]]

  The Acting CHAIR. The gentleman from North Carolina is recognized for 
5 minutes.
  Mr. McHENRY. Unfortunately, I have to oppose this amendment. I ask my 
colleague from Georgia if he consulted, in the construct of this 
language, with the SEC staff.
  I yield to the gentleman.
  Mr. BARROW. Well, I understand that our staffs have consulted with 
each other about the utility of this. I don't know how far they have 
gone with the SEC. But I can tell you the basic outline of this 
requirement is not to gum up the offering, not to require the issuer to 
put all kinds of stuff in the offering that can actually obscure the 
information that the offerer wants to put to the public and can allow 
the SEC basically to intrude into that offering, but to require one 
simple link where they can go and get all of the information that any 
wise investor needs.
  Mr. McHENRY. Reclaiming my time, we did not see this legislative text 
until it was filed with the Rules Committee. We worked to try to 
accommodate the Member with text that could be acceptable. 
Unfortunately, the construct of this is simply not acceptable and we 
couldn't come to reasonable accommodation on language that would be 
workable.
  Look, the SEC is certainly overburdened. We all know that. I mean, 
they're working very hard. They currently have two Web sites right now. 
What this amendment would do is force them to have a third Web site.
  Furthermore, in the discussion of this amendment, my colleague 
describes this as a public offering. The crowdfunding legislation 
described here is an exempt offering, very different in nature than a 
public offering, and is exempt from the SEC regs.
  On page 6 of the legislation, subsection (a)(1), it mandates that 
individuals, intermediaries in this process, would have to add a 
warning to investors, including the intermediary's Web site, of the 
speculative nature generally applicable to investments in startups, 
emerging businesses, and small issuers, including risks in the 
secondary market related to illiquidity.
  (2) warns investors that they are subject to the restrictions on 
sales requirements described under subsection (e).
  Additionally, (6) requires each potential investor to answer 
questions demonstrating competency in:
  (A) recognition of the level of risk generally applicable to 
investments in startups, emerging businesses, and small issuers;
  (B) risk of illiquidity; and
  (C) such other areas as the Commission may determine appropriate.
  This part of the legislation, my staff as well as the staff of the 
Financial Services Committee, Democrats and Republicans, as well as the 
staff of Mrs. Maloney and Ms. Waters crafted this language in a very 
balanced way. We've included those concerns.
  Unfortunately, the language before us today is deeply flawed, and 
with the nature of securities laws as they are in this country--and in 
the world, for that matter--we want to make sure that it has the 
appropriate balance, that it has been thoroughly vetted through counsel 
and actually has agreement. That is why this amendment is deeply flawed 
and I oppose it.
  I reserve the balance of my time.
  Mr. BARROW. Madam Chair, I yield myself such time as I may consume.
  I understand the gentleman to be concerned about the distinction 
between this type of offering and a public offering, and I wish to 
remind him of what perhaps wasn't clearly understood. The point we're 
trying to make here is an exempt offering. That does not have all of 
the rigamarole and the hassle and the fine print and all of the 
safeguards that go along with a public offering.

                              {time}  1700

  It is because we're trying to provide the ease and convenience of an 
exempt offering while still providing the necessary information that 
folks have to have that we all are concerned about the investment 
warnings that the gentleman thinks we need to have in the bill. I agree 
with that. This is not a public offering. What we're trying to do, 
though, is to make sure that we don't exempt folks from having the 
information they might need to have before they make an investment in 
this entirely new and heretofore unregulated marketplace.
  The gentleman is also concerned about the fact that there is yet 
another Web site. We're just talking about a page here that can be 
readily linked so the person looking at the information that the issuer 
wants to make available to the public, they can just hit on one link, 
and they can go someplace else immediately and get all the information 
that they need or the information they don't need. They can read it or 
not read it.
  Mr. McHENRY. Will the gentleman yield?
  Mr. BARROW. I yield to the gentleman from North Carolina.
  Mr. McHENRY. The legislative text on line 4 specifies, establish a 
Web site.
  Mr. BARROW. Yes, a site on the Internet, on the World Wide Web, can 
be just one page that can have all the information that you need.
  Reclaiming my time, the main concern that I've got is that the 
investment protections the gentleman refers to in the bill suffer from 
the problem of being both overinclusive and underinclusive. On the one 
hand, it gives the SEC comprehensive authority to require that certain 
information be made available and the person be tested and answer 
questions on the information that the SEC requires that they 
demonstrate competence on. This could suffer from underinclusion if the 
SEC doesn't ask or insist that the person have the most minimal 
information. It could be incredibly overinclusive if the SEC wants to 
use the authority given by the bill, as written, to require that the 
investor demonstrate competence on a million things.
  Just think of the terms and conditions in the typical software 
download program; and if someone's got to answer a question about every 
sentence in there, you can actually give the SEC the authority, and 
you're kind of inviting them to go into this offering and to require 
competence on all kinds of stuff the person doesn't need.
  Oftentimes, as Emerson said, a glimpse reveals what the gaze 
obscures. What I think folks need to have is a direct link that takes 
them to the information that anybody ought to have, and they can read 
it or not read it. They can heed it or not heed it. But it won't gum up 
the offering. It won't get between what the issuer wants to make 
available in order to make the sale and the information a person needs 
to have in order to decide whether or not this is the right place for 
them to make this kind of investment.
  With that, I reserve the balance of my time.
  Mr. McHENRY. May I inquire of the Chair the remaining time on both 
sides.
  The Acting CHAIR. The gentleman from North Carolina has 1\3/4\ 
minutes remaining. The gentleman from Georgia has 30 seconds remaining.
  Mr. McHENRY. Madam Chair, I yield myself the balance of my time.
  I certainly appreciate my colleague's intent, but I'm simply 
uncomfortable with requiring facilitators or these intermediaries that 
we create in this legislation of what is an exempt offering under 
securities law to actually link to the SEC's Web site. It gives the 
stamp of approval of sorts, it seems to me, of this exempt offering. It 
actually might create more confusion, not necessarily by the 
gentleman's intent, but by the design of the legislation before us, by 
the legislative text that we have here in this amendment.
  Unfortunately, that is not helpful. Actually, it would be hurtful to 
this matter, and that's why I have to oppose it.
  Now, I am hopeful that when this legislation is signed into law by 
the President that the Securities and Exchange Commission Office of 
Education and Investor Advocacy would create an investor alert, which 
is their standard process, regarding crowdfunding investments like the 
SEC did with the microcap stock, a guide to investors, which is 
available on the SEC's existing Web site.

[[Page 16694]]

  And that's the concern here. We want to make sure that this is done 
appropriately. We currently are operating in securities law that 
originated over 75 years ago, or roughly 75 years ago. So we want to 
make sure we get this right. Unfortunately, this amendment is ill-
crafted, and that's why we have to oppose it.
  I yield back the balance of my time.
  Mr. BARROW. Madam Chair, I yield myself the balance of my time.
  I thank the gentleman for his discussion and for his good-faith 
effort to try and reach an understanding as how we can make the 
investment information more meaningful. I'm concerned, too, about the 
stamp of approval, the so-called Good Housekeeping Seal of Approval 
someone might get from finding something that is heretofore highly 
regulated available now in a totally brand-new marketplace. I'm 
concerned about the opposite impact, that not having the right 
information in the hands of the investor can serve as a Good 
Housekeeping Seal of Approval, what's in front of them now.
  As written, the bill allows the SEC to prescribe all kinds of 
information that the person has to demonstrate a competence in. My bill 
would do a lot better than that. It would get the SEC out of the 
conversation, provide a link where a person can go someplace else and 
see what it is they need to see if they want to see it without getting 
between the issuer and the customer.
  With that, I yield back the balance of my time.
  The Acting CHAIR. The question is on the amendment offered by the 
gentleman from Georgia (Mr. Barrow).
  The amendment was rejected.


               Amendment No. 6 Offered by Mr. Perlmutter

  The Acting CHAIR. It is now in order to consider amendment No. 6 
printed in part A of House Report 112-265.
  Mr. PERLMUTTER. I have an amendment at the desk.
  The Acting CHAIR. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       In section 4, strike ``Section'' and insert the following:
       (a) In General.--Section
       In section 4, add at the end the following:
       (b) Clarification of the Preservation of State Enforcement 
     Authority.--
       (1) In general.--The amendments made by subsection (a) 
     relate solely to State registration, documentation, and 
     offering requirements, as described under section 18(a) of 
     Securities Act of 1933 (15 U.S.C. 77r(a)), and shall have no 
     impact or limitation on other State authority to take 
     enforcement action with regard to an issuer, intermediary, or 
     any other person or entity using the exemption from 
     registration provided by section 4(6) of such Act.
       (2) Clarification of state jurisdiction over unlawful 
     conduct of intermediaries, issuers, and custodians.--Section 
     18(c)(1) of the Securities Act of 1933 is amended by striking 
     ``with respect to fraud or deceit, or unlawful conduct by a 
     broker or dealer, in connection with securities or securities 
     transactions.'' and inserting the following: ``, in 
     connection with securities or securities transactions, with 
     respect to--
       ``(A) fraud or deceit;
       ``(B) unlawful conduct by a broker or dealer; and
       ``(C) with respect to a transaction described under section 
     4(6), unlawful conduct by an intermediary, issuer, or 
     custodian.''.

  The Acting CHAIR. Pursuant to House Resolution 453, the gentleman 
from Colorado (Mr. Perlmutter) and a Member opposed each will control 5 
minutes.
  The Chair recognizes the gentleman from Colorado.
  Mr. PERLMUTTER. Madam Chair, I yield myself such time as I may 
consume.
  This is the amendment we've been visiting about over the course of 
this bill. And what it does, the structure of the bill is such that it 
solicits, an issuer can solicit small investments via the Internet or 
some other mass type of media, and that solicitation then, a 
notification is made to the Securities and Exchange Commission. Once 
that notification is made, then notice of the solicitation on the 
Internet, this crowdfunding so to speak, is then given to each State so 
that the State regulators, the State enforcement authorities, are given 
notice of this solicitation, of this crowdfunding request for sale of 
securities.
  The amendment that Mr. McHenry and I have prepared makes sure that 
when the States get this notice, they can use their police powers, 
their enforcement authority, to make sure that the issuer, or anyone 
involved with the solicitation, anyone involved with this crowdfunding 
which is being used across the Internet, can then, the laws can be 
enforced to stop any kinds of fraud, defalcation of funds, 
embezzlement, misrepresentation, any kinds of bad acts related to the 
solicitation under the crowdfunding.
  This applies to both the issuer and the intermediaries. Anybody 
holding the funds will still be subject to the police powers of the 
State. So we maintain the States' rights for police power.
  Mr. McHENRY. Will the gentleman yield?
  Mr. PERLMUTTER. I yield to my friend from North Carolina.
  Mr. McHENRY. I thank my colleague from Colorado for offering this 
amendment, and I thank my colleague for working diligently across the 
aisle. This was an idea that he had in the full committee markup. We 
worked diligently to get that done at full committee markup. It was not 
able to be done, but the language we have here today is a very good 
amendment.
  The amendment ensures that the States' securities regulators have the 
means to police fraud, deceit, misrepresentation, and other unlawful 
behavior to protect investors. Since States' securities regulators 
already have the resources and expertise, much more so than the SEC, to 
examine unlawful behavior at a micro-level, it is essential that this 
legislation recognize and authorize them to continue to fight unlawful 
conduct. The powers of State securities regulators for crowdfunding are 
no different from what that which they have for any covered security.
  Mr. PERLMUTTER. I reserve the balance of my time.
  Mr. McHENRY. Madam Chair, I claim time in opposition.
  The Acting CHAIR. The gentleman from North Carolina is recognized for 
5 minutes.
  Mr. McHENRY. I am not opposed to this legislation. I thank my 
colleague for offering it.
  Mr. WATT. Will the gentleman yield?
  Mr. McHENRY. I'd be happy to yield to my colleague from North 
Carolina.
  Mr. WATT. I was rising to claim time in opposition because I am 
opposed. But if the gentleman is going to yield me time.
  Mr. McHENRY. I'd be happy to let my colleague--
  The Acting CHAIR. As a true opponent on his feet, the gentleman from 
North Carolina (Mr. Watt) is recognized for 5 minutes in lieu of the 
other gentleman from North Carolina (Mr. McHenry).
  Mr. WATT. I thank the Chair.

                              {time}  1710

  Let me say this: This is kind of an awkward conversation because we 
did have this discussion in committee. We were advised in committee 
that the preemption language would be corrected between the committee 
and the floor. It was revised. And the amendment does take a step in 
the right direction, so I won't ask for a recorded vote on the 
amendment, but it doesn't take a step far enough in the right direction 
because the amendment still preempts States from having the pre-review 
of these offerings that they now have. Even though it reserves to them 
the authority to do something about fraud, it does not reserve to them 
the authority to get involved in the review process. And in that sense, 
it continues to preempt State law.
  I want to applaud my friends, both Mr. McHenry and Mr. Perlmutter, 
for making a step in the right direction, but this still preempts State 
law, and States ought to have the prerogative to be involved in this. 
The State of North Carolina, from which Mr. McHenry hails, the 
Secretary of State is adamantly of the opinion--and I agree with her--
that this amendment does not go far enough.
  When we get back into the full House and I can offer a letter into 
the Record, it will note that the North American Securities 
Administrators Association does not think the amendment goes far enough 
to protect States' rights.

[[Page 16695]]

  I'm not accusing anybody of bad faith. I think they made a good faith 
effort to try to find grounds. But this raises the exact issue that I 
raised in the committee, which was the appropriate place to have done 
this and made this amendment and debated it and thought it out--in the 
committee, not on the floor of the House. And when you leave it to just 
a couple of individuals to work out something between committee and the 
floor of the House, sometimes it doesn't get to where people would like 
for it to be.
  With that, I reserve the balance of my time.

                                         North American Securities


                             Administrators Association, Inc.,

                                 Washington, DC, November 3, 2011.
     Hon. John Boehner,
     Speaker, House of Representatives,
     Washington, DC.
       Dear Mr. Speaker: I am writing on behalf of the North 
     American Securities Administrators Association (NASAA) to 
     express my opposition to H.R. 2930, the Entrepreneur Access 
     to Capital Act, which is scheduled to be voted on by the 
     House of Representatives this week.
       This legislation is well intended, but structurally flawed. 
     While intended to promote an internet-based fundraising 
     technique known as ``crowd-funding'' as a tool for 
     investment, this legislation will needlessly preempt state 
     securities laws and weaken important investor protections.
       Crowd-funding is an online money-raising strategy that 
     began as a way for the public to donate small amounts of 
     money, often through social networking websites, to help 
     artists, musicians, filmmakers and other creative people 
     finance their projects. The concept has recently been 
     promoted as a way of assisting small businesses and start-ups 
     looking for investment capital to help get their business 
     ventures off the ground.
       State securities regulators are acutely aware of today's 
     difficult economic environment and its effects on job growth. 
     Small businesses are important to job growth and to improving 
     the economy. However, by placing unnecessary limits on the 
     ability of state securities regulators to protect retail 
     investors from the risks associated with smaller, speculative 
     investments, Congress is poised to enact policies intended to 
     strengthen the economy that will very likely have precisely 
     the opposite effect. If this legislation is enacted in its 
     present form it will prohibit states from enforcing laws 
     designed to minimize the risks to investors. As currently 
     written, H.R. 2930 would only allow states to address 
     investor losses after they occur. Under this scenario, the 
     public will lose confidence in this business funding method, 
     thus, hurting the efforts to make crowd-funding a viable 
     means for raising capital.


                        Preemption of State Law

       Section 4 of H.R. 2930 would preempt state laws requiring 
     disclosures or reviewing exempted investment offerings before 
     they are sold to the public. The authority to require such 
     filings is critical to the ability of states to get ``under 
     the hood'' of an offering to make sure that it is what it 
     says it is. Moreover, as a matter of principle and policy, 
     NASAA ardently believes that review of offerings of this size 
     should remain primarily the responsibility of the states. As 
     the securities regulators closest to the investing public, 
     and in light of our demonstrated record of effectiveness, 
     states are the most appropriate regulator in this area. State 
     regulators are closer, more accessible, and more in touch 
     with the local and regional economic issues that affect both 
     the issuer and the investor in a small business offering.
       NASAA sincerely appreciates the effort of Congressman Ed 
     Perlmutter (D-CO) to work with the bill's sponsor to produce 
     a bipartisan amendment that would alleviate states concerns 
     with the preemptive provisions of H.R. 2930. Unfortunately, 
     the Perlmutter-McHenry amendment that was made in order by 
     the Rules Committee on November 2 falls far short of this 
     goal. By simply clarifying that states ``retain jurisdiction 
     . . . to investigate and bring enforcement actions with 
     respect to fraud or deceit,'' the amendment essentially 
     restates the preemptive provisions as they existed in the 
     original bill. The Perlmutter-McHenry amendment fails to 
     address the fundamental concern that states have had with 
     H.R. 2930 since its introduction: the preemption of state 
     authority to review securities prior to their offering.
       Congress should refrain from preempting state law. 
     Preempting state authority is a very serious step and not 
     something that should ever be undertaken lightly or without 
     careful consideration, including a thorough examination of 
     all available alternatives. In the case of crowd-funding, 
     state securities regulators are not only capable of acting, 
     but indeed, are acting, and Congress should allow them the 
     opportunity to continue to protect retail investors from the 
     risks associated with smaller, speculative investments.


                       Individual Investment Cap

       One of the fundamental tenets of securities law is that an 
     investor is protected when the seller of securities is 
     required to disclose sufficient information so that an 
     investor can make an informed decision. Post-sale antifraud 
     remedies provide little comfort to an investor who has lost a 
     significant sum of money that is unrecoverable. Any effort to 
     remove or weaken the up-front registration and disclosure 
     process should not happen without adequate alternative 
     safeguards.
       NASAA appreciates that the concept of crowd-funding is 
     appealing in many respects because it provides small, 
     innovative enterprises, access to capital that might not 
     otherwise be available. Indeed, this is precisely the reason 
     that states are now considering adopting a model rule that 
     would establish a more modest exemption for crowd-funding as 
     it is traditionally understood, with individual investments 
     capped at several hundred dollars per investor.
       By contrast, H.R. 2930 goes far beyond anything that is 
     being contemplated by the states or traditional advocates of 
     crowd-funding. By setting an individual investment cap of 10 
     percent of annual income, or $10,000, H.R. 2930 will create 
     an exemption that will expose many more American families to 
     potentially catastrophic financial harm. Given that most U.S. 
     households have a relatively modest amount of savings, a loss 
     of $10,000, in even a single case, can be financially 
     crippling.


                        Aggregate Investment Cap

       H.R. 2930 would permit businesses to solicit investments of 
     up to $2 million, in increments of $10,000 per investment. 
     Such a high cap on aggregate investment makes the bill 
     inconsistent with the expressed rationale for the crowd-
     funding exception. A company that is sufficiently large to 
     warrant the raising of $2 million in investment capital is 
     also a company that can afford to comply with the applicable 
     registration and filing requirements.
       Registration and filing requirements at both the state and 
     federal level exist to protect investors, and any company 
     raising up to $2 million can afford to comply with them.
       Thank you for your consideration of these important issues. 
     If you have any questions, please feel free to contact me or 
     Michael Canning, Co-Director of Policy, at the NASAA 
     Corporate Office at (202) 737-0900.
           Sincerely,
                                                 Jack E. Herstein,
     President.
                                  ____

         State of North Carolina, Department of the Secretary of 
           State,
                                    Raleigh, NC, November 3, 2011.
     Re H.R. 2930--``Entrepreneur Access to Capital Act of 2011''

     Hon. Melvin Watt,
     Rayburn HOB,
     Washington, DC.
       Dear Representative Watt: I am writing to express my 
     concern with H.R. 2930, the Entrepreneur Access to Capital 
     Act, which could be voted on by the House this week. This 
     legislation, intended to promote an internet-based 
     fundraising technique known as ``crowd-funding'' as a tool 
     for investment, will preempt state investor protection laws 
     and weaken important investor protections.
       Crowdfunding is an online money-raising strategy that began 
     as a way for the public to donate small amounts of money, 
     often through social networking websites, to help artists, 
     musicians, filmmakers and other creative people finance their 
     projects. The concept has recently been suggested as a way of 
     assisting small businesses and start-ups looking for 
     investment capital to get their business ventures off the 
     ground.
       Soliciting charitable donations from strangers online to 
     advance a goal or cause is one thing. Selling shares in a 
     business online to strangers who expect to realize a 
     potential return on their investment is something very 
     different.
       H.R. 2930 contains a preemption provision that would 
     prohibit my agency from requiring the filing or disclosure of 
     information about these investment opportunities before they 
     are offered to the public in my state. I believe enacting 
     this preemption would be a serious mistake because, based on 
     our previous experience, many of the crowdfunding 
     opportunities will be targeted at Mom and Pop retail 
     investors. The authority to require filings is critical to my 
     office's ability to ``get under the hood'' of an offering to 
     make sure that it really is what it says it is.
       I appreciate efforts by Congressman Ed Perlmutter (D-CO) to 
     work with the bill's sponsor to produce a bipartisan 
     amendment that would alleviate the states' concern with the 
     preemptive provisions of H.R. 2930. Unfortunately, the 
     Perlmutter-McHenry Amendment made in order by the Rules 
     Committee on November 2 does not achieve this goal. Indeed, 
     by simply clarifying that states ``retain jurisdiction . . . 
     to investigate and bring enforcement actions with respect to 
     fraud or deceit,'' the amendment essentially restates the 
     preemptive provisions as they existed in the original bill.
       H.R. 2930 may be well intended, but I am concerned that it 
     could create serious enforcement challenges and potentially 
     open the door to the possibility of significant increases in 
     investment fraud. Small businesses are vital to job growth 
     and to improving the economy in our state, but by displacing 
     significant safeguards currently provided by the crucial role 
     of state securities

[[Page 16696]]

     regulators, Congress could enact policies intended to 
     strengthen the economy that have precisely the opposite 
     effect.
       As North Carolina's top investor protection official, I 
     urge you not to support H.R. 2930 in its current form. I 
     understand the North American Securities Administrators 
     Association (NASAA), of which I am a member, is already hard 
     at work on a state level model rule on crowdfunding that 
     would preserve a state's ability to prevent scam artists from 
     using crowdfunding offerings as the latest method for ripping 
     off Main Street investors. I urge you to remove the state 
     preemption section from the bill.
       Thank you for your attention to this important matter. 
     Please don't hesitate to contact me if I may be of any 
     assistance, or if you or your staff have questions regarding 
     the legislation in question.
       Sincerely,
                                               Elaine F. Marshall.

  Mr. PERLMUTTER. Madam Chair, how much time remains?
  The Acting CHAIR. The gentleman from Colorado has 2 minutes 
remaining. The gentleman from North Carolina has 2 minutes remaining.
  Mr. McHENRY. Will my colleague yield?
  Mr. PERLMUTTER. I yield to my other friend from North Carolina.
  Mr. McHENRY. I thank my colleague Mr. Perlmutter for working 
diligently with us on this language. He raised significant concerns. 
The language that we have that the gentleman was integral in crafting 
actually is perhaps part of the reason why the President supports the 
legislation. And I appreciate Mr. Perlmutter's working diligently on 
this.
  I would remind my colleagues that in our legislative hearing on this 
bill, the Democrat witness before the committee said that crowdfunding 
will not work but for this exemption from individual State 
registration. It is a very key part of this process. When it costs $150 
to register a security in Connecticut, and all you're trying to do is 
raise $150 from Connecticut, you net zero. And beyond that, asking a 
lawyer to file the paperwork. What we want to do is preserve that anti-
fraud bit that the States do very well at, and we have done that with 
this language.
  I thank my colleague for yielding.
  Mr. PERLMUTTER. I reserve the balance of my time.
  Mr. WATT. Madam Chair, I yield myself the balance of my time, 
although I won't take it.
  I want to express my thanks also to Mr. Perlmutter, and to my 
colleague from North Carolina (Mr. McHenry). As I indicated, they made 
an effort to move this in the right direction. They, in fact, moved it. 
This amendment is better than the underlying bill, which totally 
preempted State law. So it moves in the right direction, it just does 
not move far enough in the right direction. Because of that--I mean, 
I'm not going to vote against the amendment. I'm not even going to ask 
for a recorded vote on the amendment itself. But it will make it 
necessary for me to oppose the bill itself. And I thought it was 
important enough for me to come down and express this because there are 
a significant number of people out there, including a number of State 
Attorneys General and/or Secretaries of State who believe this does not 
go far enough.
  With that, I yield back the balance of my time.
  Mr. PERLMUTTER. In closing, Madam Chair, I appreciate Mr. Watt's 
comments. They're legitimate, except that the purpose of this is to 
have in effect a national solicitation notification nationally to the 
SEC, and then the powers of the States kick in, as opposed to 
individual notification State by State. And I appreciate his concern--
it's legitimate, but to make this work, you have to have a structure 
that allows for the national offering, notice to the States, and then 
the States' police powers kick in. And the SEC has its police powers as 
well if there is any fraud, manipulation, misrepresentation, or the 
like.
  With that, I would urge adoption of the amendment.
  I yield back the balance of my time.
  The Acting CHAIR. The question is on the amendment offered by the 
gentleman from Colorado (Mr. Perlmutter).
  The amendment was agreed to.
  The Acting CHAIR. The Committee will rise informally.
  The Speaker pro tempore (Mr. McHenry) assumed the chair.

                          ____________________