[Congressional Record (Bound Edition), Volume 158 (2012), Part 3]
[Senate]
[Pages 3458-3460]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 UNANIMOUS CONSENT AGREEMENT--H.R. 3606

  Mr. REID. Mr. President, I ask unanimous consent that at 11 a.m., 
Thursday, March 15, the Senate proceed to the consideration of Calendar 
No. 334, H.R. 3606, the IPO bill.
  The PRESIDING OFFICER. Is there objection? The Senator from Oregon.
  Mr. MERKLEY. Mr. President, reserving the right to object, I am going 
to explain my concerns. Let me start by quoting George W. Bush. George 
W. Bush said, ``Free markets are not a jungle in which only the 
unscrupulous

[[Page 3459]]

survive, or a financial free-for-all guided only by greed.''
  He continued:

       Tricking an investor into taking a risk is theft by another 
     name.

  We are in the process of considering taking a House bill related to 
the production of capital for small and emerging businesses and 
considering it on the floor of the Senate without due process by the 
Senate Banking Committee. We need that process because the House bill 
is full of problems for investors. It will create a marketplace where 
investors can be deeply damaged.
  It is our responsibility in this body to make sure that as we produce 
a streamlined system for small companies and startup companies to 
access capital that we don't create, basically, a scheme for pump-and-
dump operators seeking to defraud American citizens. That is why we 
need due consideration in committee.
  I can't speak to the challenges with all the portions of the House 
bill, but I can speak to a specific section of the House bill called 
crowdfunding because I have been working with others, including the 
occupant of the chair, Senator Bennet from Colorado, and Scott Brown 
from Massachusetts, to say let's utilize this crowdfunding tool but in 
an effective manner. Crowdfunding is saying let's take the power of the 
Internet, just as we have person-to-person lending facilitated by the 
Internet, let's take that and enable people who see small startup 
companies seeking capital investments and give them a chance to present 
their ideas and for folks to invest in those companies. So they might 
receive thousands of small investments enabling them to take their 
dream forward for the benefit of the investor and the company.
  But what is wrong with the way the House drafted this bill? I will 
give short examples. It enables companies to raise up to $1 million by 
providing no financial information--no financial information. That is 
not an investment market; that is a scam.
  Second, companies do not have to go through a registered 
intermediary. In other words, you or I, tomorrow, could start up a Web 
site and say: Companies, sign up; investors, sign up--with no sort of 
protocol for the registering of information and no system required for 
the protection of investors. That is a major mistake in this 
legislation.
  Third, under the House bill, a person could say: Here are 10 stocks, 
10 potential companies to put your money into. Through that action they 
could take 100 percent of your annual income in one fell swoop. So as 
we create this new, this particularly interesting marketplace, full of 
potential, we don't want it to be a place where no financial 
information occurs, no rules for the intermediaries, and people can be 
taken for their whole annual income in one fell glance. That is no way 
to build this wonderful potential marketplace.
  To continue, the House bill lacks any advance public notice. So a 
company can provide notice to the SEC on the same day they offer the 
stock, and upon getting 60 percent of the amount they are seeking, the 
target amount, they can walk away with the investors' cash just like 
that. In other words, offer it, no chance for the SEC to look at it, 
collect their $1 million, walk away, and they didn't provide one ounce 
of financial information.
  If you haven't seen the movie ``The Boiler Room,'' I encourage you to 
do so because you will see how scams actually not permitted by law were 
used to defraud honest American families. In this case, we are just 
paving the path to predatory investing schemes. So that is a problem.
  The House bill allows anonymous stock promoters so that it encourages 
the opportunity for pump and dump. This is a reference to promoters 
saying how wonderful something is and not identifying themselves to 
having a connection to the company offering the stock. It doesn't 
address the issue of dilution.
  If you had a chance to get in on the start of Starbucks, when they 
said they wanted to start up a coffee company, wouldn't that have been 
great to be in on the ground floor? You say: You bet--and you got 1 
percent of Starbucks stock as a result. You would be very rich today.
  But what about a company that proceeds to use a strategy of diluting 
the original investors so that your initial investment is worth nothing 
when the company actually gets traction as a successful entity? That 
certainly is an issue. These issues have all been wrestled with and 
addressed by the bill Senator Bennet, Senator Brown, and I have put 
together.
  The other sections of the House bill have similar problems. I will 
not speak to those problems because there are other folks who are much 
more knowledgeable about it. I will stick to my section and use it as 
an analogy of why this entire bill should go through the Banking 
Committee.
  Let me read to you a letter from Motaavi. Their slogan is 
``Investment for Everyone.'' Isn't that the perfect slogan for 
crowdfunding, ``Investment for Everyone''?
  They address their letter:

       Dear Senators Reid and McConnell:
       We are a crowdfunding intermediary based in Durham, NC. We 
     understand the Senate will take up the [House bill] shortly. 
     We are very concerned about language in title III. While we 
     appreciate the broad exemption written by the House, the 
     language does not protect investors and puts the crowd 
     funding industry at risk of significant fraud. However, more 
     responsible language does exist.

  Then it refers to the bill the Senate has been working on. Then they 
proceed to list many of the flaws I have just listed.
  So here are folks out in the private sector who want to see a 
successful process, and they want to be an intermediary. They don't 
want to see this potential industry brought to a halt with a terrible 
reputation because it becomes a predatory industry.
  I have another letter from Launcht:

       This latest bill, the CrowdFund Act [the Senate version] is 
     important because unlike previous bills, for the first time 
     we have a Senate bill with bipartisan sponsorship, a balance 
     of oversight and Federal uniformity, industry standards, 
     investor protection, workable funding caps.

  It lays out what this work should be in this bill.
  Finally, I want to note the perspective in the New York Times 
editorial, entitled, ``They Have Very Short Memories''. It is scathing 
in its critique of this process we are engaged in:

       House Republicans, Senate Democrats, and President Obama 
     have found they support: a terrible package of bills that 
     would undo essential investor protections, reduce market 
     transparency and distort the efficient allocation of capital.
  They go on:

       Of course, the supporters don't describe it that way. They 
     say the JOBS Act--for Jumpstart our Business Startups--would 
     remove burdensome regulations that they claim have made it 
     too difficult for companies to raise money from investors.
       Never mind that reams of Congressional testimony, market 
     analysis, and academic research have shown that regulation 
     has not been an impediment to raising capital. In fact, too 
     little regulation has been the root of all recent bubbles and 
     bursts--the dot-com crash, Enron, the mortgage meltdown. 
     Those free-for-alls created jobs and then imploded, causing 
     mass joblessness.

  Wouldn't it have been great if, when those deregulatory efforts that 
didn't deregulate in a positive way, cutting out unnecessary redtape 
but in negative ways, which created a Wild West marketplace with all 
kinds of predatory practices, would it not be nice if the Senate stood 
in and said we are the cooling saucer--I have heard that term ever 
since I came here, that we are the ``cooling saucer.''
  We cooled our heels for 3 weeks with the Transportation bill on the 
floor, and we weren't able to consider one single amendment during that 
3-week period. That is a deep freeze, not a cooling saucer. Now we have 
gone from deep freeze to bullet train. We need to slow this train down. 
We need to have due deliberations to recreate the sort of deregulation 
that is so important for the future growth of the United States and the 
future success of American families.
  I am going to withdraw my objection, Mr. President, because I wanted 
to make a point now that, hopefully, will help guide our deliberations 
over the next couple of days. It is not that we should not be getting 
to this topic; we certainly should. But we need to do so in a manner 
that works for American businesses, small businesses, startups,

[[Page 3460]]

and families, and the House bill doesn't do it.
  I withdraw my objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REID. Mr. President, I appreciate the work done by the Presiding 
Officer and the junior Senator from Oregon on this most important piece 
of legislation, and especially the problems the two Senators I 
mentioned believe is evident with this legislation. I appreciate the 
opportunity I have had to work with the two of them today. We will 
continue to do that.

                          ____________________