[Congressional Record (Bound Edition), Volume 158 (2012), Part 3]
[Senate]
[Pages 3501-3516]
[From the U.S. Government Publishing Office, www.gpo.gov]




             JUMPSTART OUR BUSINESS STARTUPS ACT--Continued

  The PRESIDING OFFICER. The junior Senator from West Virginia is 
recognized.
  Mr. MANCHIN. Mr. President, I ask unanimous consent to speak as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                            Groh Nomination

  Mr. MANCHIN. Mr. President, I rise to applaud the confirmation of 
Judge Gina Marie Groh to the U.S. District Court for the Northern 
District of West Virginia.
  As then-Governor of West Virginia, I was honored to have the first 
female from the Eastern Panhandle, with the highest of credentials, 
Judge Groh, brought to my attention. I was so proud to appoint her to 
the 23rd Judicial District in 2006, and she has served with great 
distinction ever since.
  I am also very pleased my colleague and friend Senator Jay 
Rockefeller saw the same qualities in Judge Groh that I did and 
recommended her for this prestigious position on the Federal bench. I 
thank him for his steadfast support.
  I wish to take this opportunity to reiterate some of Judge Gina 
Groh's fine qualities and the reasons I know she will be an exceptional 
judge on the U.S. District Court for the Northern District of West 
Virginia.
  Judge Groh is a well-respected and recognized member of her community 
in the Eastern Panhandle of West Virginia, as I have known her for many 
years. In addition to being the first female circuit judge to serve in 
the Eastern Panhandle, Judge Groh is only the third female circuit 
judge to be selected in all of West Virginia.
  Prior to her circuit court appointment, Judge Groh served as 
assistant prosecuting attorney at the prosecuting attorney's offices in 
Berkeley County and Jefferson County, WV. During her 8 years as 
prosecutor, she established a strong record of protecting her fellow 
West Virginians by tirelessly pursuing convictions for such crimes as 
murder, robbery, rape, child abuse, drunk driving, and drug-related 
offenses.
  Judge Groh has not only excelled professionally but has also risen to 
become a true pillar of her community in the Eastern Panhandle of West 
Virginia. She dedicates her time to countless foundations and serves on 
a number of boards. For many years, she has worked for such programs as 
Robes to School and the Meals with Love Ministry and has been very 
involved with her alma mater, Shepherd University, serving both with 
the Wellness Center and as a member of the alumni board.
  Judge Groh graduated summa cum laude from Shepherd University in 
1986, with a bachelor of science degree. She earned the university's 
highest academic honor as a McMurran Scholar, in addition to serving as 
editor-in-chief of the newspaper and vice president of her graduating 
class. Judge Groh went on to earn her J.D. from West Virginia 
University's College of Law in Morgantown, WV.
  I believe Judge Groh's experience, intellect, leadership, 
impartiality, and deep roots in the community make her a prudent choice 
for the vacancy in the Northern District of West Virginia. She 
exemplifies not only the qualities of a talented jurist but also the 
high moral character and sense of justice necessary to make a great 
judge.
  I know it has been exasperating for Judge Groh and her family waiting 
for this confirmation, knowing that she came out of the Senate 
Judiciary Committee without any opposition. It has been very difficult 
that we as a body have gotten to the point of slowing down these 
nominations, and I believe very strongly our system needs to be changed 
so we can get quality judges such as Judge Gina Groh on the bench as 
quickly as possible so they can work to protect the people of the 
United States.
  Again, I thank my colleagues for confirming an exemplary candidate 
for the U.S. District Court for the Northern District of West Virginia, 
Judge Gina Marie Groh.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Rhode Island.
  Mr. REED. Mr. President, the House of Representatives has just passed 
H.R. 3606, which is styled as a capital formation bill, but it is 
fundamentally flawed. As more and more people have looked closely at 
the bill, they have found more and more problems with it--problems that 
could roll back key consumer protections and dramatically decrease the 
transparency of our capital markets.
  One of the fundamental misconceptions in this bill is that we can 
have robust capital formation without good investor protections. My 
view is we can't have one without the other; that the strength of our 
market is the reliance investors have that they will have the right 
information and know enough about the entity they are investing in to 
make judicious, sound economic judgments. The Cantor bill would roll 
back many investor protections, would deny investors critical 
information that is essential to making sound judgments, and would 
ultimately not lead to the proposed goal of the bill--providing more 
access to capital, particularly for small, emerging companies.
  Serious concerns have been raised about the Cantor bill by current 
and former regulators in the last 2 weeks: Mary Shapiro, Chairman of 
the Securities and Exchange Commission; the North American Securities 
Administrators Association; Arthur Levitt, former Chairman of the SEC 
and head of AMEX; and Lynn Turner, former chief economist of the SEC.
  Some of the largest pension plans in the entire country have been 
weighing in through the Council of Institutional Investors, and these 
are the entities most people want to have invest in their companies as 
long-term investors. They have real concerns about the House action.

[[Page 3502]]

  We have been getting phone calls and letters from a diverse array of 
consumer groups, such as the AARP, the Consumer Federation of America, 
the AFL-CIO, and SAFER, the Economists' Committee for Stable, 
Accountable, Fair, and Efficient Financial Reform.
  Academic experts, such as Professor John Coffee of Columbia 
University School of Law, for one, have called the Cantor bill the 
``Boiler Room Preservation Act'' because it will mean more pump-and-
dump schemes, where people are pressured to invest in highly risky 
firms and products. Two other noted securities experts from Harvard 
University Law School and Business School, respectively, John Coates 
and Robert Pozen, have said the bill does more than, in their words, 
``trim regulatory fat; parts of it cut into muscle.'' We need to slow 
down this process and get it right. H.R. 3606 can be improved and 
should be improved. That is why I--together with Senators Mary 
Landrieu, Carl Levin, Sherrod Brown, Jeff Merkley, Daniel Akaka, 
Sheldon Whitehouse, Al Franken, Tom Harkin, and Dick Durbin--am 
introducing a substitute amendment to this bill today. We hope our 
legislation can serve as a base bill for the Senate to discuss and 
amend as we move forward.
  What are some of the most serious flaws we are trying to address in 
the Cantor bill? First and foremost, this bill is unlikely to create 
jobs, despite the title the House has bestowed upon it. In fact, it may 
actually have the opposite effect. By weakening investor confidence, it 
could actually decrease the number of IPOs and lead to fewer 
investments in our capital markets.
  Currently, our markets are considered the most transparent and liquid 
in the world, which has been one of its great strengths--the confidence 
that when an investor puts money into an American financial product and 
American market, he or she has detailed information about the current 
status and the prospects of that investment. Under the Cantor bill, our 
markets would become less transparent and more opaque. Fewer 
protections will be provided to investors. This could actually lead to 
fewer investors investing in the United States, since we are in a 
global economy or increasing competition with capital markets in 
London, Paris, Hong Kong, and Singapore--to name just a few.
  Again, one of the great hallmarks of our markets, starting in 1933 
with the securities legislation of the New Deal, was the feeling that 
investors would be protected, that there would be standards in place, 
information would be made available to them, and they could have 
confidence--as much confidence as they could get--in their investments. 
If we undermine that confidence, eventually we will undermine both our 
appetite and capacity to invest.
  The Cantor bill has more problems. It tries to create a way that 
crowdfunding can be used to raise money for small enterprises, but it 
does this with very few protections for investors and would allow 
unregulated Web sites to peddle stock to ordinary investors without any 
meaningful oversight or liability.
  Crowdfunding is a very interesting new approach to raising capital. 
Our colleagues, Senators Merkley and Bennet have spent a lot of time 
developing very positive legislation which balances improving small 
business access to capital, by tapping into social networks and small 
investors but, at the same time, gives those investors adequate 
protections. The House has not taken this approach. They have 
legislation that could, indeed, create a situation where crowdfunding 
is plagued by fraud, by manipulation, and by people who simply want to 
make a quick buck and move on, hoping they will just disappear into the 
Internet.
  The Craigslist or eBay model may work to enable people to sell 
unwanted clothing, bikes, and other goods, but it certainly doesn't 
work for a financial security that requires a much more careful 
analysis than simply kicking the tires. People with more credit card 
debt than savings will be tempted to put their money into these mass-
marketed, get rich schemes--money which they can't afford, in many 
cases. As the economy continues to grow, stocks will rise--we have seen 
some interesting and very positive developments on Wall Street over the 
last several weeks--but this ride up could be accompanied by bubbles 
with these types of crowdfunding schemes, where people are putting 
money in for a quick return based on, perhaps, the success of one or 
two companies but not having the information, not having the 
appropriate controls on the intermediaries so they can make a sound, 
valid investment.
  There is another aspect of the House legislation, in addition to this 
crowdfunding approach, which is the House IPO on-ramp provisions. An 
IPO, of course, is an initial public offering. This approach, to try to 
streamline access to the public markets for emerging companies, has 
great merit. But once again, what has happened in the House bill is 
they have done this at the expense of necessary protections for 
investors.
  Relaxing standards for very large, new public companies, when no 
evidence supports the idea those standards stand in the way of these 
IPOs and much evidence suggests the standards prevent serious 
accounting problems, is not the way to go. The basic essence of their 
approach--this on-ramp approach--is a very large company, with up to $1 
billion in revenue, for a period of 5 years or so, can avoid some of 
the now standard requirements for public companies. This is not an 
targeted approach for small companies. Companies with $1 billion of 
revenue are substantial economic enterprises. The protections that have 
been put in place over the years not only protect the investors but 
also ensure appropriate audit procedures are in place. Ensuring 
appropriate managerial behavior for a company of that size should not 
be indefinitely waived or waived for a period of 5 years.
  We could literally roll back the clock to pre-Enron, pre-WorldCom, 
where because of creative accounting, because of the lack of adequate 
audit procedures within the company, real abuses occurred. The result 
was Enron collapsed and their shareholders were left with virtually 
nothing. One of the more tragic ironies is that many of their 
shareholders were their employees who had their entire pensions 
invested in the company, particularly in the case of Enron. Ultimately, 
the pain to these people, caused by the lack of good standards--which 
have since been put in place--was significant. If we proceed on this, 
we might, once again, have a situation where we are repeating 
industry--and a history we have seen already.
  Again, as the economy rebounds, as stocks rise, I think there will be 
a variable increase in new public offerings--IPOs. If we look at the 
data, the number of IPOs goes up and down. But the most significant 
factor is simply economic activity. As economic activity goes up, new 
companies have opportunities, IPOs go up. In this boom, there could be 
the temptation for these companies, given these new, very relaxed 
standards, to ignore the problem because they do not have to disclose 
them adequately or to deliberately mislead investors because there is 
no real check on what is being said. The relaxed standards in the House 
bill could allow companies to engage in deception, to raise and waste 
more investment money more quickly.
  There is a way we can dial back this excessive legislation in a way 
that will provide capital formation but will also provide protections 
for investors, and I hope we can proceed in that manner. Increasing 
IPOs is a valuable goal, but it should be done much more cautiously, in 
my estimation, with reforms focused on much smaller companies than 
those with $1 billion in annual revenue, as is indicated in the Cantor 
bill.
  During the course of three hearings in the Senate Banking Committee 
on these issues, it has become even more clear there are problems with 
the way shareholders are being counted. This is another aspect of the 
House bill that is problematic. They have indicated they would like to 
move beyond a number--500--which requires a company register under the 
1934 Securities and Exchange Act with the SEC. This trigger is 
something that should be considered in

[[Page 3503]]

terms of present-day standards. The House bill raises this trigger 
point to 2,000 very quickly, without dealing with the so-called 
beneficial owners problem. If the provision in the House bill was in 
force in the past, two-thirds of current public companies would not 
have been required to register under the 1934 Act. Let me say that 
again.
  If you reach a certain number of shareholders, you are required to 
register and begin to give those shareholders required information on a 
quarterly basis. You are required to file other forms. You are required 
to be subject to other rules and regulations of the SEC.
  If this new House standard of 2,000 shareholders was in place, two-
thirds of current public companies would not have to register with the 
'34 Act. They would be operating in the dark. They would be operating 
with whatever minimal information they might be required to divulge to 
their shareholders under State corporate law or, in some cases, State 
securities law. That is an astounding number of companies.
  Most investors take for granted that when you reach a critical size 
in the number of shareholders, et cetera, that you will begin to 
report. Again, these reports are the lifeblood of the investing 
community because they rely upon them for their information about what 
is going on in the company, and they rely upon them for the standards 
that company has to follow.
  Over time, most investors as a result of registration under the '34 
Act are entitled to receive regular disclosures. Again, these 
provisions raising up the level to 2,000 shareholders would undermine 
the other stated goal of the Cantor bill, to make it easier for 
companies to go public and easier to disclose information. In fact, 
some would describe this as sort of a bipolar piece of legislation.
  On the one hand, they want to relax the standards for going public, 
and on the other hand they want to relax the standards and allow more 
companies to go private. I think we have to be careful in each instance 
to ensure that investors are protected, as well as capital formation is 
enhanced.
  The House bill will eliminate an SEC rule on general solicitation, 
allowing companies to advertise risky, less regulated, unregistered 
private offerings to the public using, for example, billboards along 
highways, cold calls to senior living centers, or other mass marketing 
methods. It also will tear down protections that were put in place 
after the late 1990s Internet stock bubble burst that prevented 
conflicts of interest from tainting the quality of research about 
companies.
  What we found in the wake of the dot-com bubble--with many 
protections in place that would be taken out by this legislation--was 
there were analysts who were touting companies at the same time other 
parts of their business were trying to sell those companies' shares. 
This conflict of interest with someone you hope is giving an objective 
opinion would be encouraged, not discouraged, under the House bill.
  The Cantor bill would allow extremely large corporations to avoid SEC 
oversight. It also would allow banks, with even hundreds of billions of 
dollars in assets, to deregister and stop being subject to SEC 
oversight and critical investor protections.
  Finally, the Cantor bill actually doesn't include provisions that are 
more likely to create jobs for Americans. For example, the House bill 
does not include reauthorization of the Ex-Im Bank. Time is of the 
essence, by the way, to get this Ex-Im Bank reauthorized. The bank's 
temporary extension expires at the end of May and is close to exceeding 
its operating level of $100 million by the end of this month.
  Renewing the Ex-Im Bank's charter with increased lending authority is 
practically the only way of countering the predatory financing 
practices of other trading nations. We spend a lot of time on this 
floor pointing the finger at companies that are using their sovereign 
institutions to undermine American jobs, to get them overseas. Yet one 
of the major institutions in our country that helps American products 
to be sold overseas is literally in danger of going out of business. 
That is something that will, in fact, enhance job creations, and it is 
not in the House bill. In fact, it has been suggested that Ex-Im Bank 
activities supports almost 300,000 jobs in the United States each year.
  It also doesn't include two other programs that would result in the 
creation of more jobs, and these two programs are particularly the 
result of the hard and aggressive and thoughtful work of Senators 
Landrieu and Snowe. One program expands the capacity of the Small 
Business Investment Company program, SBIC. They have proposed 
legislation that would allow another $1 billion in equity-like 
financing for smaller, fast-growing firms. The other program would 
extend for 1 year the SBA's 504 refi loan program to help firms 
refinance commercial real estate into long-term, fixed-rate loans.
  These modifications have created and saved hundreds of thousands of 
American jobs at no cost to the taxpayers. These are tried and true 
ways to increase jobs in America without running the risk of 
undermining the information that investors need to make sound choices 
about where to invest their dollars.
  It is very tempting to suggest we simply have to cut a couple of 
regulations and jobs will expand. That was the theme that was rampant 
here during the Bush administration and, for a while, frankly, it 
looked like it was working. But then, with the sudden and colossal 
collapse, we knew that was not the path to long-term sustained job 
creation. Sound investment based on adequate information in companies 
that produce jobs in the United States is the way to proceed.
  We need to listen to those individuals charged with the supervision 
of our capital markets, the SEC, and now we have both the current 
chairman and a former chairman saying the legislation the House 
proposed is a threat to all investors in this country. The stakes are 
high if we get some of these things wrong. We have been trying to focus 
on these issues intensely for the last few months to bring legislation 
to the floor that will balance capital formation with investor 
protections. You can't get one at the expense of the other. You have to 
have both.
  So I encourage all my colleagues to take a close look at the Reed-
Landrieu-Levin substitute. I believe it is a substantial improvement to 
the House bill. My colleague from Louisiana will speak and, once again, 
I must commend her passion for protecting investors, particularly small 
investors, and her passion for creating jobs through the SBA and other 
organizations as remarkable, commendable, and indeed exceptional.
  Madam President, I yield the floor.
  The PRESIDING OFFICER (Mrs. Shaheen). The Senator from Louisiana.
  Ms. LANDRIEU. Madam President, I thank Senator Reed and Senator Levin 
who have helped to lead this effort to make a bill that is coming over 
from the House much better and much safer for investors, as well as to 
generate opportunities for more capital to flow to some of the good and 
solid ideas that are out there in our marketplace to create jobs.
  I am pleased to join these two Senators and about a dozen to date and 
potentially dozens more of our colleagues as people learn the 
differences--and they are substantial--between the House version of 
what they call an IPO bill and the Senate version we have worked on 
very diligently and carefully over the last 48 hours.
  The three of us are prepared to vote against the House bill as it 
stands now. The only hope of getting our support, and many others here, 
is to try to amend the House bill. That is what our efforts are.
  We are not trying to say no to everything that is in the House bill 
because there are some excellent ideas. Even the President himself and 
the White House and some of the Democrats voted for that bill because 
there are some good ideas in the bill, and some ideas that have come 
from some of the brightest entrepreneurs in our country. We are not 
trying to say no to those ideas. We are trying to say yes to those 
ideas, but do it in a way that protects investors--older investors, 
younger investors, sophisticated investors, and

[[Page 3504]]

your average sort of nonsophisticated investors because the Internet 
has opened a whole new opportunity.
  When these security laws were written 40 years ago, 50 years ago, 60 
years ago and amended, the Internet wasn't what it is today. So that is 
why this crowdfunding bill--which is, in essence, a way for the 
Internet to be used to raise capital that is illegal generally today, 
and there are very specific rules about how people can raise capital 
for their businesses. Some of those regulations are too onerous; some 
of them are right on. But this whole idea of, oh, my goodness, now the 
Internet is here--look what opportunities could be. We can get our 
ideas to the marketplace without having to go through middlemen. We 
have a great idea, a wonderful patent. We want to be able to raise 
money. We are very excited about this. But there is a right way to do 
this and there is a wrong way to do this.
  With the House bill, we know that we are on a little bit of rocky 
ground when they don't really have a name for it. They have called it 
everything from an IPO bill to a jobs bill to a capital expansion bill. 
What I am calling it today--and I will have a poster made over the 
weekend--is an ill-advised political opportunity bill. That is what IPO 
stands for, in my mind.
  It is ill-advised because the safeguards that are required to make 
sure these new ideas happen the way they should are absent from their 
legislation. That is why, when I found out, surprisingly, that the 
Senate of the United States was getting ready to take that bill and 
just adopt it whole hog, I said: Absolutely not. We have to slow this 
down, try to amend it--not kill it but amend it. The reason is because 
there are very respected groups out there that started sending letter 
after letter after letter to the Senate urging us to do just that.
  This isn't about a conservative-liberal fight. This is about the 
right regulations that are necessary before we take a good idea and 
mess it up. Crowdfunding is a good idea. It is an exciting idea. There 
are great entrepreneurs out there. The Internet could be a very 
powerful tool. But everyone knows if you enter into new territory 
without caution and care, you can fall off a cliff that you didn't even 
know was there. That is exactly what the House bill is going to do.
  If you don't want to take my word for it, let's talk about what AARP 
says about it. This is the first letter. I am going to put a dozen 
letters into the Record in the next 10 minutes to try to get the 
attention of the people on the other side of the aisle. This is all an 
attempt to get their attention over the weekend, and I hope the press 
will write about these letters so when they come back on Monday they 
can say: Oh, my gosh. We have a good bill that came from the House, but 
there are some real flaws and we should fix it before we create another 
Wall Street debacle or before we see people ripped off again like we 
just went through in the last 6 years.
  How short is our memory about investors getting stripped, going 
bankrupt because of exactly the same thing: just not being careful, not 
having the right rules in place, not having the right enforcements in 
place. This was like yesterday. That is why when the leadership said we 
were just going to take up the House bill, I said: Wait a minute. No, 
no, no.
  This is what the AARP said, Joyce Rogers:

       I am writing to reiterate our opposition to the lack of 
     investor protections in H.R. 3606--

  Again, the House-passed, ill-advised political opportunity bill. That 
is what I am calling it. That is what it is--

     that soon will be considered on the floor of the Senate 
     floor. AARP's primary concern is that this legislation 
     undermines vital investor protections and threatens market 
     integrity.

  So AARP doesn't urge the Senate to kill the bill.

       AARP urges the Senate to take a more balanced approach, 
     recognizing both an interest in facilitating access to 
     capital for new and small businesses and in preserving 
     essential regulations. . . . We believe the amendment to be 
     offered by Senators Reed, Landrieu and Levin, moves closer to 
     achieving this balance and deserves your support.

  It goes on to say that sometimes the people who are taken advantage 
of are the elderly. So wake up, Senators from Florida. Wake up, 
Senators from Michigan. Wake up, Senators who have big senior 
populations. The AARP is against the House bill, the ill-advised 
political opportunity bill.
  North American Securities Administrators Association--they sent a 
letter yesterday, from Jack Herstein. It is seven pages long. They go 
into great detail:

       On behalf of the North American Securities Administrators 
     Association--

  I don't think this is a liberal think tank. I think this is a very 
well respected, not a leftwing, regulate-everything-that-moves kind of 
group. I think that is correct. He says:

       I am writing to express concerns regarding several 
     provisions, most notably our strong concern with the 
     extraordinary step of pre-empting state law for 
     ``crowdfunding'', contained in [the ill-advised political 
     opportunity bill which was passed by the House.]
       State securities regulators support efforts by Congress to 
     ensure that laws facilitating the raising of capital are 
     modern and efficient, and that Americans are encouraged to 
     raise money to invest in the economy. However, it is critical 
     that in doing so, Congress not discard basic investor 
     protections.

  I am going to submit this letter, without objection, I hope, to the 
Record.
  This is from the Council of Institutional Investors, ``a nonprofit, 
nonpartisan association of public, corporate and union pension plans.'' 
Let me repeat, not just union pension plans but public and corporate 
pension plans. They are writing with questions about the House ill-
advised political opportunity bill, and it goes into great detail. I am 
putting this into the record hoping people will actually read the 
Congressional Record.
  Another letter to Speaker Boehner and Nancy Pelosi. This was 
delivered to the House. It may be a little different from the one to 
the Senate, so I would like to put that into the Record. These are very 
important letters received just recently. That is why I am asking 
people to wake up, pay attention.
  Securities and Exchange Commission, March 13. This is to Chairman 
Johnson and Ranking Member Shelby basically saying:

       Last week, the House of Representatives passed H.R. 3606. . 
     . . As the Senate prepares to debate many of the capital 
     formation initiatives addressed by H.R. 3606, I want to share 
     with you some of my concerns on some important aspects of 
     this significant legislation.

  That is by Mary Schapiro, Chairman, outlining a dozen of her concerns 
because, of course, she thinks there is going to be a debate. She would 
expect a debate on a bill of this nature and magnitude and diversion 
from the ordinary. But we were not going to have a debate. We were just 
going to be told to take the House bill or leave it until a few of us 
said: No, slow this train down. This is no way to run a railroad.
  We are not trying to kill the bill. We are not trying to delay. We 
are trying to have at least a 2- or 3-day debate on an important piece 
of legislation that, if it is not done right, is going to absolutely 
ruin the best chance we have had in decades to actually get capital 
into the hands of businesses.
  Everyone here should now know me well enough as chair of the Small 
Business Committee to know I have spent literally nights, days, and 
weekends on the floor of this Senate trying to figure out ways to get 
capital into the hands of small businesses. Why would I stand here and 
try to stop that? I have spent my whole time as the Senate chairman of 
the Small Business Committee trying to do that. But, again, there is a 
right way to do that and a wrong way.
  If we take the wrong path and fall off of a cliff, we are going to 
ruin the chance we have with this new Internet tool, this very exciting 
opportunity, and we are going to ruin our chance to get this done.
  Who is going to suffer? The same people who suffer all the time, the 
small businesses and the exciting opportunities and entrepreneurs who 
need our help.
  Any bill that is a major bill can stand the scrutiny of time before 
the public, and amendment. If it cannot

[[Page 3505]]

stand that scrutiny, then I suggest there is something terribly flawed 
with it. That is what we are trying to provide, scrutiny.
  This letter comes from the AFL-CIO, from Jeff Hauser, an e-mail:

       America needs jobs. Yet Congress cannot enact such basic 
     legislation as the reauthorization of the surface 
     transportation bill--

  Which we passed, but it has not been completed. He goes on to say:

       Workers' retirement savings will be in greater risk of 
     fraud and speculation if securities market deregulation once 
     again is railroaded through Congress. Once again our economy 
     will be at risk from the folly of policy makers promoting 
     financial bubbles and ignoring the needs of the real economy. 
     The AFL-CIO calls on Congress to set aside the politics of 
     the 1 percent, the old game of special favors for Wall 
     Street.

  They are very strong in their language, probably a lot stronger than 
these other organizations. But I think they have reason to be. Many of 
their members were taken to the cleaners by scams on Wall Street. They 
have yet to recover. Their 401s have yet to recover. Even yesterday, or 
last week, in the paper I saw one of the big companies that failed. I 
think it was MF Global. Did you all see that in the newspaper? They 
failed. Of course, it was a terrible debacle. Lots of people lost 
money. But the CEO is walking away with a $7 million bonus.
  People who work hard all day have a very hard time understanding how 
we in the Congress can allow the CEO to walk away with a bonus of $7 
million when he bankrupted thousands of people. That is a good 
question. Are we going to do that again with this House bill? I hope 
not.
  Let's put the AFL-CIO on record saying slow down.
  This is the next message I want to put in from the secretaries of 
state--and I want to read off who they are: the secretary from 
Missouri, Robin Carnahan; the secretary from Massachusetts, William 
Falvin; the secretary from New Hampshire, William Gardner; the 
secretary from Mississippi--I believe is a Republican--Delbert 
Hosemann; the secretary from North Carolina, secretary of state Elaine 
Marshall; the secretary from Nevada, Ross Miller; the secretary of 
state from Indiana, Charles White; and the secretary of state from 
Illinois, Jesse White.
  Jesse White says the same thing: Beware of the House bill. It is 
flawed. It has some good ideas in it, but those flaws need to be 
corrected.
  That is what the Reed-Landrieu-Levin et al amendment does. We are not 
trying to kill these wonderful, exciting ideas. We are trying to fix it 
so it is better. I hope our Members on the other side will join us in 
doing that, and I would like to submit this to the Record.
  There are two more. Actually, I am sorry, four more--we have so many. 
The next one is from my office of financial institutions from Baton 
Rouge, my commissioner, banking commissioner, who wrote me. He is 
generally in favor of some of the things in the House bill. But he 
said:

       I am writing to urge you to oppose the preemption of 
     Louisiana law to protect investors.

  I would like to put that into the Record.
  The American Sustainable Business Council. It is signed by David 
Levine. Again, I don't believe this is a left-leaning group. I think it 
is a pretty centrist organization. They urge us to take a hard look at 
the House bill.
  Finally, Madam President, I want to have printed in the Record--this 
is when I got nervous: when I started receiving letters in my office 
from crowdfunders themselves against the House bill. The people who 
gave the idea to start up crowdfunding have now said the House bill is 
flawed. Here is what they say:

       I write in favor of the bipartisan compromise CROWDFUNDING 
     Act proposed recently by Senators Merkley, S. Brown, Bennet 
     and Landrieu.

  That is the crowdfunding act that is in this substitute.

       Yesterday evening's introduction--

  This was last week--

     of the first bi-partisan Senate crowdfunding bill is a big 
     step forward in our fight to get equity crowdfunding passed 
     through Congress. I have been to Washington, DC 7 times since 
     mid-November, discussing [this legislation]. The offices of 
     the Senators on the Banking Committee have been very 
     receptive to input from the entrepreneurial community and 
     have adopted many of our suggestions.

  But they go on to say:

       This latest bill . . . is important because, unlike 
     previous bills, for the first time we have a Senate bill with 
     bipartisan sponsorship, a balance of state oversight and 
     federal uniformity, industry standard investor protections, 
     and workable funding caps. This bill has a legitimate chance 
     at quieting those who were previously trumping up fears of 
     fraud [and] bad actors. . . . To date the main issues the 
     opposition raised were regarding fraud and state oversight.

  What they are saying is we are the ones who helped invent this 
concept. We don't think the House bill is where it should be. We are 
supporting the Merkley-Bennet approach, which is in this bill.
  Launcht, we hear you, and we are trying to respond.
  Finally, Motaavi--again, a crowdfunder advocate. People, very 
entrepreneurial, coming up with these ideas saying the same thing.
  I ask unanimous consent to have those letters printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:


                                                         AARP,

                                                   March 15, 2012.
     Re Investor Protection, Market Integrity and the JOBS Act.

       Dear Senator Landrieu: On behalf of AARP, I am writing to 
     reiterate our opposition to the lack of investor protections 
     in H.R. 3606, the House-passed JOBS bill that soon will be 
     considered on the Senate floor. AARP's primary concern is 
     that this legislation undermines vital investor protections 
     and threatens market integrity. The goal of facilitating 
     access to capital for new and small businesses is a worthy 
     one. However, we do not believe that the best way to create 
     jobs is to weaken essential regulatory protections that were 
     put in place to address specific marketplace problems that 
     otherwise would still exist.
       This debate is critical to older Americans, who with a 
     lifetime of savings and investments are disproportionately 
     represented among the victims of investment fraud. We share 
     the concerns--raised by SEC Chair Mary Schapiro, the North 
     American Securities Administrators Association (NASAA), law 
     professors, investor advocates, and others--that absent 
     safeguards ensuring proper oversight and investor protection, 
     the various provisions in H.R. 3606 may well open the 
     floodgates to a repeat of the kind of penny stock and other 
     frauds that ensnared financially unsophisticated and other 
     vulnerable investors in the past. The absence of adequate 
     regulation in the past has undermined the integrity of the 
     markets and damaged investor confidence while having no 
     positive impact on job creation.
       AARP urges the Senate to take a more balanced approach, 
     recognizing both an interest in facilitating access to 
     capital for new and small businesses and in preserving 
     essential regulations that protect investors from fraud and 
     abuse, promote the transparency on which well-functioning 
     markets depend, and ensure a fair and efficient marketplace. 
     We believe the amendment to be offered by Senators Reed, 
     Landrieu and Levin, moves closer to achieving this balance 
     and deserves your support.
       We urge you to vote yes on the Reed-Landrieu-Levin 
     amendment.
       If you have any further questions, please feel free to 
     contact me, or have your staff contact Mary Wallace of our 
     Government Affairs staff.
           Sincerely,

                                              Joyce A. Rogers,

                                            Senior Vice President,
     Government Affairs.
                                  ____

                                         North American Securities


                             Administrators Association, Inc.,

                                   Washington, DC, March 12, 2012.
     Re Senate Companion to H.R. 3606

     Hon. Harry M. Reid,
     Majority Leader, U.S. Senate,
     Washington, DC.
     Hon. Mitch McConnell,
     Minority Leader, U.S. Senate,
     Washington, DC.
       Dear Majority Leader Reid and Minority Leader McConnell: On 
     behalf of the North American Securities Administrators 
     Association (NASAA), I am writing to express concerns 
     regarding several provisions, most notably our strong concern 
     with the extraordinary step of pre-empting state law for 
     ``crowdfunding'', contained in H.R. 3606, the Jumpstart Our 
     Business Startups Act, which was passed by the House of 
     Representatives on March 8, 2011. While NASAA applauds 
     Congress' desire to facilitate access to capital for new and 
     small businesses, the version of the bill that passed the 
     House is deeply flawed. The Senate must now address these 
     problems.
       State securities regulators support efforts by Congress to 
     ensure that laws facilitating the raising of capital are 
     modern and efficient, and that Americans are encouraged to

[[Page 3506]]

     raise money to invest in the economy. However, it is critical 
     that in doing so, Congress not discard basic investor 
     protections. Investment fraud is real, and it can be 
     particularly pervasive in small exempted offerings.
       Expanded access to capital markets for startups and small 
     businesses can be beneficial, but only insofar as investors 
     can be confident that they are protected, that transparency 
     in the marketplace is preserved, and that investment 
     opportunities are legitimate. 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 
     weakening investor protections and placing unnecessary 
     restrictions on the ability of state securities regulators to 
     protect retail investors from the risks associated with 
     smaller, speculative investments, Congress is on the verge of 
     enacting policies that, although intended to strengthen the 
     economy, will in fact only make it more difficult for small 
     businesses to access investment capital.
       The JOBS Act that was passed by the House is a repackaging 
     of what were originally seven bills, reorganized into a 
     single bill, with six distinct Titles and twenty-one 
     sections. While NASAA believes virtually every Title of this 
     bill would benefit from greater scrutiny, we will confine our 
     comments today to those Titles and Sections of H.R. 3606 that 
     pose the most urgent risk to average, ``Main Street'' 
     investors that are NASAA's principal concern.

  Title I: The Reopening American Capital Markets to Emerging Growth 
                             Companies Act

       Title I contains a number of troubling provisions. It 
     creates a new category of issuer referred to as an ``emerging 
     growth company'', defined as a company with annual gross 
     revenues of less than $1 billion in its most recent fiscal 
     year. This status continues until five years after an initial 
     public offering or until the issuer has an annual gross 
     revenue exceeding $1 billion or is designated a ``large 
     accelerated filer.'' Particularly troublesome to NASAA are 
     the exemptions applicable to such companies: for example, 
     they are exempted from Section 404(b) of the Sarbanes-Oxley 
     Act of 2002 (SOX) which requires an independent audit of an 
     assessment of a company's internal controls as well as the 
     requirement to provide three (instead of two) years of 
     audited financials statement in a company's registration 
     materials. S. 1933 also allows brokers and dealers to publish 
     research about emerging growth companies prior to an initial 
     public offering, even where they will participate in the 
     offering itself.
       Title I would give all but the very largest companies 
     direct access to average, unsophisticated investors without 
     being required to provide the normal types of financial and 
     risk disclosures applicable to public reporting companies. 
     The typical retail investor, unlike larger business 
     financiers, does not have the ability to conduct an 
     independent investigation of an emerging growth company and 
     make fully informed investment decisions. Such investors rely 
     on published financial and research data. Section 404(b) of 
     SOX was enacted in response to major accounting scandals that 
     cost investors billions of dollars; rolling back these 
     requirements for companies with annual gross revenues of less 
     than $1 billion could, once again, have devastating 
     consequences.
       Similarly, weakening the standards applicable to research 
     analysts and tearing down the Chinese walls implemented in 
     response to the ``Global Settlement'' scandal could create a 
     conflict of interest resulting in devastating losses for Main 
     Street investors. These barriers were put into place in 
     response to enforcement actions brought by a number of state 
     and federal regulators. Leading brokerage firms agreed to 
     severely limit interactions between equity research analysts 
     and investment bankers, due to conflicts of interest that 
     tainted the investment process. Recent experience teaches us 
     now is the time to strengthen the protection of investors, 
     not weaken these standards.

          Title II: The Access to Capital for Job Creators Act


                 Section 201: Modification of Exemption

       Sec. 201 of the JOBS Act would repeal the SEC's ban on 
     general solicitation under Regulation D Rule 506 to allow 
     general solicitation in transactions ``not involving any 
     public offering, whether or not such transaction involves 
     general solicitation or general advertising.''
       Current law requires securities offered to the general 
     public to be registered with the SEC. Regulation D was built 
     upon the premise that certain offerings should be given 
     special treatment because they are non-public, or 
     ``private.'' This means that the investment is marketed only 
     to people with whom the company has a preexisting 
     relationship. Given their knowledge of the company and its 
     operations, these investors are in a better position than the 
     general public to gauge the risks of the investment. They, 
     therefore, have less need for the protections that flow from 
     the securities registration process. This concept of giving 
     preferential treatment to private offerings is embedded 
     throughout state and federal securities law, and a reversal 
     of this fundamental condition of Rule 506 would have far-
     reaching repercussions.
       The removal of the ``general solicitation'' prohibition 
     contemplated by Section 201 would represent a radical change 
     that would dismantle important rules that govern the offering 
     process for securities. NASAA has repeatedly expressed its 
     concern to Congress about allowing general solicitation in 
     rule 506 (Regulation D) offerings. Since the enactment of the 
     National Securities Markets Improvement Act of 1996, 
     Regulation D, Rule 506 offerings have received virtually no 
     regulatory scrutiny, and have become a haven for investment 
     fraud. Moreover, unlike other types of Regulation D 
     offerings, where the size of the offering is capped, the 
     amount of money that an issuer can raise under Rule 506 is 
     unlimited, and hence the opportunity for fraud on a massive 
     scale is especially acute in this area. Given state 
     experience with Regulation D offerings, and the significant 
     fraud and investor losses associated with them, NASAA opposes 
     Section 201.
       Because many states already allow issuers to use general 
     advertisements to attract accredited investors, NASAA does 
     not oppose outright the underlying goal of Title II. However, 
     NASAA believes such an expansion should be accomplished by 
     the establishment of a new exemption with provisions to 
     protect investors and the markets.


       Section 201: Explanation of Exemption (McHenry Amendment)

       During consideration of H.R. 3606 the House adopted an 
     amendment to Section 201, sponsored by Rep. Patrick McHenry 
     (R-NC) that will exempt from registration as a broker or 
     dealer any trading-platform that serves as intermediary in an 
     exempted Rule 506 offering. The significance of the McHenry 
     Amendment is to prevent ``intermediaries'' that facilitate 
     the sale of securities through ``crowdfunding'' from 
     requirements to register or be regulated as a broker.
       NASAA appreciates that the question of how crowdfunding 
     intermediaries may best be regulated is complex, however 
     categorically exempting these sellers from broker 
     registration requirements, in the absence of a sensible 
     alternative for their licensing and regulation, is foolish 
     and reckless. As amended, Section 201 will leave 
     intermediaries open to conflicts, such inducements to list, 
     de-list, or promote certain offerings. Moreover, as amended, 
     Section 201 will deny any regulator effective means to 
     examine or discipline these sellers.

           Title III: The Entrepreneur Access to Capital Act

       Title III of the JOBS Act is identical to H.R. 2930, the 
     Entrepreneur Access to Capital Act, which was approved by the 
     House last fall. Two separate ``crowdfunding'' bills have 
     been sponsored in the Senate: S. 1791, sponsored by Sen. 
     Scott Brown (R-MA), and S. 1970, sponsored by Sen. Jeff 
     Merkley (D-OR).
       While intending to promote an internet-based fundraising 
     technique known as ``crowdfunding'' as a tool for investment, 
     this legislation will needlessly preempt state securities 
     laws and weaken important investor protections. NASAA 
     appreciates that the concept of crowdfunding 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 crowdfunding as it is 
     traditionally understood.


                Section 301: Individual Investment Limit

       Section 301 contemplates a hard-cap on individual 
     crowdfunding investments that goes far beyond anything that 
     is being contemplated by the states, or even by the 
     overwhelming majority of advocates of crowdfunding. By 
     setting an individual investment cap of 10 percent of annual 
     income, or $10,000, Section 301 will create an exemption that 
     will expose many more American families to potentially 
     devastating financial harm.
       NASAA recognizes that for certain very wealthy individuals, 
     or seasoned investors, a cap of $10,000 may make sense. 
     Unfortunately, Sec. 301 fails to distinguish between these 
     few wealthy, sophisticated investors, and the general 
     investing public, imposing a $10,000 cap on both groups. 
     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.
       NASAA believes a superior method of limiting individual 
     investment amounts would be a scaled approach that would cap 
     most investments at a modest level, but allow experienced 
     investors, Who can afford to sustain higher losses, to invest 
     up to $10,000.


                 Section 301: Aggregate Offering Limit

       Section 301 would also 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 
     crowdfunding exception.
       Registration and filing requirements at both the state and 
     federal level exist to protect investors. 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 at both the state and federal level.

[[Page 3507]]




                  Section 303: Preemption of State Law

       Section 303 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 the review of offerings of this size should 
     remain primarily the responsibility of the states. 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.
       Congress would be rash to preempt states from regulating 
     crowdfunding. Preempting state authority is a very serious 
     step and not something that should be undertaken lightly or 
     without careful deliberation, including a thorough 
     examination of all available alternatives. In this case, 
     preemption for a very new and untested concept to raise 
     capital, without a demonstrable history of reliability, is 
     especially unwarranted, as the states have far more 
     experience with crowdfunding than Congress or the SEC, and as 
     the states have historically been the primary ``cops on the 
     beat'' in the regulation of all areas of small business 
     capital formation.
       For a clear example of the dangers of preempting state 
     securities look no further than the effect of the National 
     Securities Markets Improvement Act (NSMIA). As a result of 
     this Congressional action, private offerings receive 
     virtually no regulatory scrutiny. State securities regulators 
     are prohibited from reviewing these offerings prior to their 
     sale to investors, and federal regulators lack the resources 
     to conduct any meaningful review, so the offerings proceed 
     unquestioned. Today, the exemption is being misused to steal 
     millions of dollars from investors through false and 
     misleading representations in offerings that provide the 
     appearance of legitimacy without any meaningful scrutiny of 
     regulators. In essence, the private offering provisions of 
     Rule 506 are being used by unscrupulous promoters to evade 
     review and fly under the radar of justice.
       Instead of preempting states, Congress should allow the 
     states to take a leading role in implementing an appropriate 
     regulatory framework for crowdfunding. Based on the small 
     size of the offering, the small size of the issuer, and the 
     relatively small investment amounts, it is clear that the 
     states are the only regulators in a position to police this 
     new market and protect its participants. Moreover, and as has 
     already been noted, the states are now in the midst of 
     developing a Model Crowdfunding Exemption.
       As the securities regulators closest to the investing 
     public, and in light of their distinguished record of 
     effective regulation, the States are the most appropriate 
     regulator in this area. State securities regulators are not 
     only capable of acting, but, indeed, are acting in this 
     critical area, and Congress should continue to allow the 
     states to do so.

           Title IV: The Small Company Capital Formation Act

       Title IV of the JOBS Act is identical to S. 1544, which has 
     been sponsored in the Senate by Sens. Jon Tester (D-MT) and 
     Pat Toomey (R-PA).
       Given the risky nature of these offerings, NASAA believes 
     that state oversight is critically important for investor 
     protection. At the same time, NASAA recognizes the costs and 
     difficulty of the typical registration process, and the 
     particular burden it places upon small companies. Indeed, for 
     this reason the states have adopted a streamlined process for 
     an issuer to use in an offering under Regulation A.
       NASAA had significant concerns regarding the original 
     version of this legislation because it stripped away investor 
     protection by preempting state review of Regulation A 
     offerings that are sold through broker-dealers. However, 
     Title IV of H.R. 3606 does not include the preemptive 
     provisions that were in the original version of the bill. 
     While NASAA remains concerned about the dollar amount of 
     potential offerings under Title IV, as well as the bill's 
     nonsensical requirement that the SEC automatically increase 
     the ceiling in the future, every two years, in perpetuity, we 
     believe that the states' ability to review these offerings, 
     along with the SEC's proper exercise of discretion in 
     creating reasonable reporting requirements for issuers, will 
     prove to achieve a proper balance of the issuers' needs with 
     investor protection.

        Title V: The Private Company Flexibility and Growth Act

       Title V of H.R. 3606 would raise the threshold for 
     mandatory registration under the Securities Exchange Act of 
     1934 (the ``Exchange Act'') from 500 shareholders to 1,000 
     shareholders for all companies. This bill would also exclude 
     accredited investors and securities held by shareholders who 
     received such securities under employee compensation plans 
     from the 1,000-shareholder threshold.
       Section 12(g) of the Exchange Act requires issuers to 
     register equity securities with the SEC if those securities 
     are held by 500 or more record holders and the company has 
     total assets of more than $10 million. After a company 
     registers with the SEC under Section 12(g), it must comply 
     with all of the Exchange Act's reporting requirements.
       The states are primarily interested in the issues related 
     to the regulation of small, non-public companies. We give 
     considerable deference to the SEC in the regulation of public 
     companies and secondary trading. However, we do have concerns 
     about drastic changes in the thresholds for reporting 
     companies or the information they must disclose.
       The primary reason for requiring a company to be ``public'' 
     is to facilitate secondary trading of the company's 
     securities by providing easily-accessible information to 
     potential purchasers. The principal concern for states is the 
     facilitation of this secondary trading market with adequate 
     and accurate information. It may be possible to achieve this 
     without full-blown Exchange Act registration and periodic 
     reporting, but the states are wary of changes that may lead 
     to the creation of less informed markets.
       No matter what threshold number is chosen before a company 
     becomes ``public,'' it makes little sense to exclude any 
     investor from the count of beneficial holders. Those that 
     purchased from the issuer were protected by the requirements 
     of the Securities Act. Both the seller and the purchaser 
     benefit from the robust marketplace facilitated by the 
     Exchange Act registration. Accordingly, NASAA believes the 
     registration threshold should be based upon the need to 
     provide for a legitimate secondary trading market. Regardless 
     of where the threshold is set, everyone who is a potential 
     seller in the market should be counted. This would include 
     all beneficial owners, not just holders of record.

                      Title VI: Capital Expansion

       Title VI of H.R. 3606 would raise the threshold for 
     mandatory registration under the Securities Exchange Act of 
     1934 from 500 shareholders to 2,000 shareholders for all 
     banks and bank holding companies, and raises the shareholder 
     deregistration threshold from 300 shareholders to 1,200 
     shareholders.
       NASAA understands the purpose of Title VI is to remedy a 
     specific problem that is today confronting certain community 
     banks. Specifically, as a result of the increasing costs of 
     public company registration, many community banks have 
     determined that deregistration is in the best interests of 
     their shareholders. But in order to deregister, community 
     banks must have fewer than 300 shareholders. As a result, 
     community banks must often buy back shares to deregister, 
     which reduces the access of small banks to capital and 
     deprives small communities of an opportunity to invest in 
     local companies.
       Given the narrow scope of this Title and its application to 
     only banks and bank holding companies, NASAA has no position 
     on Title VI.
       Finally, in view of the significant changes that H.R. 3606 
     would make to our securities laws, and of the fundamentally 
     experimental nature of many of this bill's provisions, NASAA 
     urges that H.R. 3606 proceed through the Senate under regular 
     order, and that the bill be subject to the scrutiny of the 
     Senate Banking Committee and it Securities Subcommittee. 
     Securities regulators, legal scholars, investor advocates, 
     and others have cautioned the Senate about the impact H.R. 
     3606 could have on investors and on our capital markets. The 
     Senate must answer these questions and concerns, thoroughly 
     and to its satisfaction, before it votes on H.R. 3606 or 
     similar legislation.
       Thank you for your consideration of these important issues. 
     If you have any questions, please feel free to contact 
     Michael Canning, Director of Policy, or Anya Coverman, 
     Assistant Director of Policy, at the NASAA Corporate Office.
           Respectfully,
                                                 Jack E. Herstein,
      NASAA President; Assistant Director, Nebraska Department of 
     Banking & Finance, Bureau of Securities.
                                  ____



                           Council of Institutional Investors,

                                    Washington, DC, March 1, 2012.
     Hon. Tim Johnson,
     Chairman, Committee on Banking, Housing, and Urban Affairs, 
         U.S. Senate, Washington, DC.
     Hon. Richard C. Shelby,
     Ranking Member, Committee on Banking, Housing, and Urban 
         Affairs, U.S. Senate, Washington, DC.
       Dear Chairman Johnson and Ranking Member Shelby: As a 
     nonprofit, nonpartisan association of public corporate and 
     union pension plans, and other employee benefit funds, 
     foundations and endowments with combined assets that exceed 
     $3 trillion, the Council of Institutional Investors (Council) 
     is committed to protecting the retirement savings of millions 
     of American workers. With that commitment in mind, and in 
     anticipation of your upcoming March 6 hearing entitled 
     ``Spurring Job Growth Through Capital Formation While 
     Protecting Investors, Part II,'' we would like to share with 
     you some of our concerns and questions about S. 1933, the 
     ``Reopening American Capital Markets to Emerging Growth 
     Companies Act of 2011.''
       Our questions and concerns about S. 1933 are grounded in 
     the Council's membership approved corporate governance best 
     practices. Those policies explicitly reflect our

[[Page 3508]]

     members' view that all companies, including ``companies in 
     the process of going public should practice good corporate 
     governance.'' Thus, we respectfully request that the 
     Committee consider changes to, or removal of, the following 
     provisions of S. 1933:


                              Definitions

       We question the appropriateness of the qualities defining 
     the term ``emerging growth company'' (EGC) as set forth in 
     Sec. 2(a) and 2(b).
       As you are aware, under Sec. 2(a) and 2(b) a company would 
     qualify for special status for up to five years, so long as 
     it has less than $1 billion in annual revenues and not more 
     than $700 million in public float following its initial 
     public offering (IPO). The Council is concerned that those 
     thresholds may be too high in establishing an appropriate 
     balance between facilitating capital formation and protecting 
     investors.
       For example, we note that some of the most knowledgeable 
     and active advocates for small business capital formation 
     have in the past agreed that a company with more than $250 
     million of public float generally has the resources and 
     infrastructure to comply with existing U.S. securities 
     regulations. We, therefore, urge the Committee to reevaluate 
     the basis for the proposed thresholds defining an EGC.


                         Disclosure Obligations

       We have concerns about Sec. 3(a)(1) because it would 
     effectively limit shareowners' ability to voice their 
     concerns about executive compensation practices.
       More specifically, Sec. 3(a)(1) would revoke the right of 
     shareowners, as owners of an EGC, to express their opinion 
     collectively on the appropriateness of executive pay packages 
     and severance agreements.
       The Council's longstanding policy on advisory shareowner 
     votes on executive compensation calls on all companies to 
     ``provide annually for advisory shareowner votes on the 
     compensation of senior executives.'' The Investors Working 
     Group echoed the Council's position in its July 2009 report 
     entitled U.S. Financial Regulatory Reform: The Investors' 
     Perspective.
       Advisory shareowner votes on executive compensation and 
     golden parachutes efficiently and effectively encourage 
     dialogue between boards and shareowners about pay concerns 
     and support a culture of performance, transparency and 
     accountability in executive compensation. Moreover, 
     compensation committees looking to actively rein in executive 
     compensation can utilize the results of advisory shareowner 
     votes to defend against excessively demanding officers or 
     compensation consultants.
       The 2011 proxy season has demonstrated the benefits of 
     nonbinding shareowner votes on pay. As described in Say on 
     Pay: Identifying Investors Concerns:
       Compensation committees and boards have become much more 
     thoughtful about their executive pay programs and pay 
     decisions. Companies and boards in particular are 
     articulating the rationale for these decisions much better 
     than in the past. Some of the most egregious practices have 
     already waned considerably, and may even disappear entirely.
       As the Committee deliberates the appropriateness of 
     disenfranchising certain shareowners from the right to 
     express their views on a company's executive compensation 
     package, we respectfully request that the following factors 
     be considered:
       1. Companies are not required to change their executive 
     compensation programs in response to the outcome of a say on 
     pay or golden parachutes vote. Securities and Exchange 
     Commission (SEC) rules simply require that companies discuss 
     how the vote results affected their executive compensation 
     decisions.
       2. The SEC approved a two-year deferral for the say on pay 
     rule for smaller U.S. companies. As a result, companies with 
     less than $75 million in market capitalization do not have to 
     comply with the rule until 2013, thus the rule's impact on 
     IPO activity is presumably unknown. We, therefore, question 
     whether there is a basis for the claim by some that advisory 
     votes on pay and golden parachutes are an impediment to 
     capital formation or job creation.
       We also have concerns about Sec. 3(a)(2) because it would 
     potentially reduce the ability of investors to evaluate the 
     appropriateness of executive compensation.
       More specifically, Sec. 3(a)(2) would exempt an EGC from 
     Sec. 14(i) of the Securities Exchange Act of 1934, which 
     would require a company to include in its proxy statement 
     information that shows the relationship between executive 
     compensation actually paid and the financial performance of 
     the issuer.
       We note that the SEC has yet to issue proposed rules 
     relating to the disclosure of pay versus performance required 
     by Sec. 14(i). As a result, no public companies are currently 
     required to provide the disclosure. We, therefore, again 
     question whether a disclosure that has not yet even been 
     proposed for public comment is impeding capital formation or 
     job creation.
       Our membership approved policies emphasize that executive 
     compensation is one of the most critical and visible aspects 
     of a company's governance. Executive pay decisions are one of 
     the most direct ways for shareowners to assess the 
     performance of the board and the compensation committee.
       The Council endorses reasonable, appropriately structured 
     pay-for-performance programs that reward executives for 
     sustainable, superior performance over the long-term. It is 
     the job of the board of directors and the compensation 
     committee to ensure that executive compensation programs are 
     effective, reasonable and rational with respect to critical 
     factors such as company performance.
       Transparency of executive compensation is a primary concern 
     of Council members. All aspects of executive compensation, 
     including all information necessary for shareowners to 
     understand how and how much executives are paid should be 
     clearly, comprehensively and promptly disclosed in plain 
     English in the annual proxy statement.
       Transparency of executive pay enables shareowners to 
     evaluate the performance of the compensation committee and 
     the board in setting executive pay, to assess pay-for-
     performance links and to optimize their role in overseeing 
     executive compensation through such means as proxy voting. It 
     is, after all, shareowners, not executives, whose money is at 
     risk.


                   Accounting and Auditing Standards

       We have concerns about Sec. 3(c) and Sec. 5 because those 
     provisions would effectively impair the independence of 
     private sector accounting and auditing standard setting, 
     respectively.
       More specifically, Sec. 3(c) would prohibit the independent 
     private sector Financial Accounting Standards Board from 
     exercising their own expert judgment, after a thorough public 
     due process in which the views of investors and other 
     interested parties are solicited and carefully considered, in 
     determining the appropriate effective date for new or revised 
     accounting standards applicable to EGCs.
       Similarly, Sec. 5 would prohibit the independent private 
     sector Public Company Accounting Oversight Board from 
     exercising their own expert judgment, after a thorough public 
     due process in which the view of investors and other 
     interested parties are solicited and carefully considered, in 
     determining improvements to certain standards applicable to 
     the audits of EGCs.
       The Council's membership ``has consistently supported the 
     view that the responsibility to promulgate accounting and 
     auditing standards should reside with independent private 
     sector organizations.'' Thus, the Council opposes legislative 
     provisions like Sec. 3(a) and Sec. 5 that override or unduly 
     interfere with the technical decisions and judgments 
     (including the timing of the implementation of standards) of 
     private sector standard setters.
       A 2010 joint letter by the Council, the American Institute 
     of Certified Public Accountants, the Center for Audit 
     Quality, the CFA Institute, the Financial Executives 
     International, the Investment Company Institute, and the U.S. 
     Chamber of Commerce explains, in part, the basis for the 
     Council's strong support for the independence of private 
     sector standard setters:
       We believe that interim and annual audited financial 
     statements provide investors and companies with information 
     that is vital to making investment and business decisions. 
     The accounting standards underlying such financial statements 
     derive their legitimacy from the confidence that they are 
     established, interpreted and, when necessary, modified based 
     on independent, objective considerations that focus on the 
     needs and demands of investors--the primary users of 
     financial statements. We believe that in order for investors, 
     businesses and other users to maintain this confidence, the 
     process by which accounting standards are developed must be 
     free--both in fact and appearance--of outside influences that 
     inappropriately benefit any particular participant or group 
     of participants in the financial reporting system to the 
     detriment of investors, business and the capital markets. We 
     believe political influences that dictate one particular 
     outcome for an accounting standard without the benefit of 
     public due process that considers the views of investors and 
     other stakeholders would have adverse impacts on investor 
     confidence and the quality of financial reporting, which are 
     of critical importance to the successful operation of the 
     U.S. capital markets.


                        Internal Controls Audit

       We have concerns about Sec. 4 because that provision would, 
     in our view, unwisely expand the existing exemption for most 
     public companies from the requirement to have effective 
     internal controls.
       More specifically, Sec. 4 would exempt an EGC from the 
     requirements of Section 404(b) of the Sarbanes-Oxley Act of 
     2002 (SOX). That section requires an independent audit of a 
     company's assessment of its internal controls as a component 
     of its financial statement audit.
       The Council has long been a proponent of Section 404 of 
     SOX. We believe that effective internal controls are critical 
     to ensuring investors receive reliable financial information 
     from public companies.
       We note that Section 989G(a) of the Dodd-Frank Wall Street 
     Reform and Consumer Protection Act (Dodd-Frank) already 
     exempts most public companies, including all

[[Page 3509]]

     smaller companies, from the requirements of Section 404(b). 
     We also note that Section 989G(b) of Dodd-Frank required the 
     SEC to conduct a study on ``how the Commission could reduce 
     the burden of complying with section 404(b) . . . while 
     maintaining investor protections. . . .''
       The SEC study, issued April 2011, revealed that (1) there 
     is strong evidence that the provisions of Section 404(b) 
     ``improves the reliability of internal control disclosures 
     and financial reporting overall and is useful to investors,'' 
     and (2) that the ``evidence does not suggest that granting an 
     exemption [from Section 404(b)] . . . would, by itself, 
     encourage companies in the United States or abroad to list 
     their IPOs in the United States.'' Finally, and importantly, 
     the study recommends explicitly against--what Sec. 4 attempts 
     to achieve--a further expansion of the Section 404(b) 
     exemption.


      Availability of Information about Emerging Growth Companies

       Finally, we have concerns about Sec. 6 of S. 1933 because 
     it appears to potentially create conflicts of interest for 
     financial analysts.
       More specifically, we agree with the U.S. Chamber of 
     Commerce that the provisions of Sec. 6 as drafted ``may be a 
     blurring of boundaries that could create potential conflicts 
     of interests between the research and investment components 
     of broker-dealers.'' The Council membership supports the 
     provisions of Section 501 of SOX and the Global Research 
     Analyst Settlement. Those provisions bolstered the 
     transparency, independence, oversight and accountability of 
     research analysts.
       While the Council welcomes further examination of issues, 
     including potential new rules, relating to research analysts 
     as gatekeepers, it generally does not support legislative 
     provisions like Sec. 6 that would appear to weaken the 
     aforementioned investor protections.
       The Council respectfully requests that the Committee 
     carefully consider our questions and concerns about the 
     provisions of S. 1933. If you should have any questions or 
     require any additional information about the Council or the 
     contents of this letter, please feel free to contact me at 
     202.261.7081 or J[email protected], or Senior Analyst Laurel 
     Leitner at 202.658.9431 or L[email protected].
           Sincerely,
                                                     Jeff Mahoney,
     General Counsel.
                                  ____

                                               U.S. Securities and


                                          Exchange Commission,

                                   Washington, DC, March 13, 2012.
     Hon. Tim Johnson,
     Chairman, Committee on Banking, Housing, and Urban Affairs, 
         U.S. Senate, Washington, DC.
     Hon. Richard C. Shelby,
     Ranking Member, Committee on Banking, Housing, and Urban 
         Affairs, U.S. Senate, Washington, DC.
       Dear Chairman Johnson and Ranking Member Shelby: Last week, 
     the House of Representatives passed H.R. 3606, the 
     ``Jumpstart Our Business Startups Act.'' As the Senate 
     prepares to debate many of the capital formation initiatives 
     addressed by H.R. 3606, I wanted to share with you my 
     concerns on some important aspects of this significant 
     legislation.
       The mission of the Securities and Exchange Commission is 
     three-fold: protecting investors; maintaining fair, orderly 
     and efficient markets; and facilitating capital formation. 
     Cost-effective access to capital for companies of all sizes 
     plays a critical role in our national economy, and companies 
     seeking access to capital should not be hindered by 
     unnecessary or overly burdensome regulations. At the same 
     time, we must balance our responsibility to facilitate 
     capital formation with our obligation to protect investors 
     and our markets. Too often, investors are the target of 
     fraudulent schemes disguised as investment opportunities. As 
     you know, if the balance is tipped to the point where 
     investors are not confident that there are appropriate 
     protections, investors will lose confidence in our markets, 
     and capital formation will ultimately be made more difficult 
     and expensive.
       While I recognize that H.R. 3606 is the product of a 
     bipartisan effort designed to facilitate capital formation 
     and includes certain promising approaches, I believe that 
     there are provisions that should be added or modified to 
     improve investor protections that are worthy of the Senate's 
     consideration.


                 Definition of Emerging Growth Company

       The ``IPO On-Ramp'' provisions of H.R. 3606 provide a 
     number of significant regulatory changes for what are defined 
     as ``emerging growth companies.'' While I share the view that 
     it is important to reduce the impediments to smaller 
     businesses conducting initial public offerings in the United 
     States, the definition of ``emerging growth company'' is so 
     broad that it would eliminate important protections for 
     investors in even very large companies, including those with 
     up to $1 billion in annual revenue. I am concerned that we 
     lack a clear understanding of the impact that the 
     legislation's exemptions would have on investor protection. A 
     lower annual revenue threshold would pose less risk to 
     investors and would more appropriately focus benefits 
     provided by the new provisions on those smaller businesses 
     that are the engine of growth for our economy and whose IPOs 
     the bill is seeking to encourage.


             Changes to Research and Research Analyst Rules

       H.R. 3606 also would weaken important protections related 
     to (1) the relationship between research analysts and 
     investment bankers within the same financial institution by 
     eliminating a number of safeguards established after the 
     research scandals of the dot-com era and (2) the treatment of 
     research reports prepared by underwriters of IPOs.
       H.R. 3606 would remove certain important measures put in 
     place to enforce a separation between research analysts and 
     investment bankers who work in the same firm. The rules 
     requiring this separation were designed to address 
     inappropriate conflicts of interest and other objectionable 
     practices--for example, investment bankers promising 
     potential clients favorable research in return for lucrative 
     underwriting assignments--which ultimately severely harmed 
     investor confidence. In addition, H.R. 3606 would overturn 
     SRO rules that establish mandatory quiet periods designed to 
     prevent banks from using conflicted research to reward 
     insiders for selecting the bank as the underwriter. I am 
     concerned that the changes contained in H.R. 3606 could 
     foster a return to those practices and cause real and 
     significant damage to investors.
       In addition, the legislation would allow, for the first 
     time, research reports in connection with an emerging growth 
     company IPO to be published before, during, and after the IPO 
     by the underwriter of that IPO without any such reports being 
     subject to the protections or accountability that currently 
     apply to offering prospectuses. In essence, research reports 
     prepared by underwriters in emerging growth company IPOs 
     would compete with prospectuses for investors' attention, and 
     investors would not have the full protections of the 
     securities laws if misled by the research reports.


              Disclosure, Accounting and Auditing Matters

       H.R. 3606 would allow emerging growth companies to make 
     scaled disclosures, in an approach similar to that currently 
     permitted under our rules for smaller reporting companies, 
     and would provide other relief from specific disclosure 
     requirements, during the 5-year on-ramp period. While there 
     is room for reasonable debate about particular exemptions 
     included in the disclosure on-ramp, on balance I believe 
     allowing some scaled disclosure for emerging growth companies 
     could be a reasonable approach.
       H.R. 3606, however, also would restrict the independence of 
     accounting and auditing standard-setting by the Financial 
     Accounting Standards Board (``FASB'') and the Public Company 
     Accounting Oversight Board (``PCAOB''). These provisions 
     undermine independent standard-setting by these expert 
     boards, and both the FASB and the PCAOB already have the 
     authority to consider different approaches for different 
     classes of issuers, if appropriate.
       Moreover, H.R. 3606 would exempt emerging growth companies 
     from an audit of internal controls set forth in Section 
     404(b) of the Sarbanes Oxley Act during the five-year on-ramp 
     period. IPO companies already have a two-year on-ramp period 
     under current SEC rules before such an audit is required. In 
     addition, the Dodd-Frank Act permanently exempted smaller 
     public companies (generally those with less than $75 million 
     in public float) from the audit requirement, which already 
     covers approximately 60 percent of reporting companies. I 
     continue to believe that the internal controls audit 
     requirement put in place after the Enron and other accounting 
     scandals of the early 2000's has significantly improved the 
     quality and reliability of financial reporting and provides 
     important investor protections, and therefore believe this 
     change is unwarranted.


                     ``Test the Waters'' Materials

       H.R. 3606 would allow emerging growth companies to ``test 
     the waters'' to determine whether investors would be 
     interested in an offering before filing IPO documents with 
     the Commission. This would allow offering and other materials 
     to be provided to accredited investors and qualified 
     institutional buyers before a prospectus--the key disclosure 
     document in an offering--is available.
       There could be real value to permitting these types of pre-
     filing communications: it could save companies time and 
     money, and make it more likely that companies that file for 
     IPOs can complete them. Indeed, there are some SEC rules that 
     permit ``test the waters'' activities already. However, 
     unlike the existing ``test the waters'' provisions, the 
     provisions of H.R. 3606 would not require companies to file 
     with the SEC and take responsibility for the materials they 
     use to solicit investor interest, even after they file for 
     their IPOs. This would result in uneven information for 
     investors who see both the ``test the waters'' materials and 
     the prospectus compared to those who only see the prospectus. 
     In addition, as with the provisions relating to research 
     reports, it could result in investors focusing their 
     attention on the ``test the waters'' materials instead of

[[Page 3510]]

     the prospectuses, without important investor protections 
     being applied to those materials.


           Confidential Filing of IPO Registration Statements

       H.R. 3606 would permit emerging growth companies to submit 
     their registration statements confidentially in draft form 
     for SEC staff review. This reduction in transparency would 
     hamper the staff's ability to provide effective reviews, 
     since the staff benefits in its reviews from the perspectives 
     and insights that the public provides on IPO filings. It also 
     could require significant resources for staff review of 
     offerings that companies are not willing to make public and 
     then abandon before making a public filing. SEC staff 
     recently limited the general practice of permitting foreign 
     issuers to submit IPO registrations in nonpublic draft form 
     because of these concerns, and expanding that program to all 
     IPOs could adversely impact the IPO review program.


                              Crowdfunding

       H.R. 3606 also provides an exemption from Securities Act 
     registration for ``crowdfunding,'' which would permit 
     companies to offer and sell, in some cases, up to $2 million 
     of securities in publicly advertised offerings without 
     preparing a registration statement. For the past several 
     months, the staff has been analyzing crowdfunding, among 
     other capital formation strategies, and also has discussed 
     these strategies with the Commission's newly created Advisory 
     Committee on Small and Emerging Companies.
       I recognize that proponents of crowdfunding believe this 
     method of raising money could help small businesses harness 
     the power of the internet and social media to raise small 
     amounts of very early stage capital from a large number of 
     investors. That said, I believe that the crowdfunding 
     exemption included as part of H.R. 3606 needs additional 
     safeguards to protect investors from those who may seek to 
     engage in fraudulent activities. Without adequate 
     protections, investor confidence in crowdfunding could be 
     significantly undermined and would not achieve its goal of 
     helping small businesses.
       For example, an important safeguard that could be 
     considered to better protect investors in crowdfunding 
     offerings would be to provide for oversight of the industry 
     professionals that intermediate and facilitate these 
     offerings. With Commission oversight, these intermediaries 
     could serve a critical gatekeeper function, running 
     background checks, facilitating small businesses' provision 
     of complete and adequate disclosures to investors, and 
     providing the necessary support for these small businesses. 
     Commission oversight would further enhance customer 
     protections by requiring intermediaries to protect investors' 
     and issuers' funds and securities, for example by requiring 
     funds and securities to be held at an independent bank or 
     broker-dealer.
       Investors also would benefit from a requirement to provide 
     certain basic information about companies seeking 
     crowdfunding investors. H.R. 3606 requires only limited 
     disclosures about the business investors are funding. 
     Additional information that would benefit investors should 
     include a description of the business or the business plan, 
     financial information, a summary of the risks facing the 
     business, a description of the voting rights and other rights 
     of the stock being offered, and ongoing updates on the status 
     of the business.


            Changes to Section 12(g) Registration Thresholds

       H.R. 3606 also would change the rules relating to the 
     thresholds that trigger public reporting by, among other 
     things, increasing the holder of record threshold that 
     triggers public reporting for companies and bank holding 
     companies. The current rules have been in place since 1964, 
     and since that time there have been profound changes in the 
     way shareholders hold their securities and in the capital 
     markets.
       Last spring, I asked our staff to comprehensively study a 
     variety of capital formation-related issues, including the 
     current thresholds for public reporting. At this point, I do 
     not have sufficient data or information to assess whether the 
     thresholds proposed in H.R. 3606 are appropriate. I do 
     recognize that a different treatment may be appropriate for 
     community banks that are already subject to an extensive 
     reporting and regulatory regime.


                               Rulemaking

       H.R. 3606 requires a series of new, significant Commission 
     rulemakings with time limits that are not achievable. For 
     example, the rulemaking for the crowdfunding section has a 
     deadline of 180 days, and it specifically requires the 
     Commission to consider the costs and benefits of the rules. 
     Given (1) that much of the data that would be used to perform 
     such analyses is not readily available and (2) the complexity 
     of such analyses, this time frame is too short to develop 
     proposed rules, perform the required analyses, solicit public 
     comments, review and analyze the public comments, and adopt 
     final rules. I believe a deadline of 18 months would be more 
     appropriate for rules of this magnitude.
       I stand ready to assist Congress as it addresses these 
     important issues. Please call me, at (202) 551 2100, or have 
     your staff call Eric Spitler, Director of the Office of 
     Legislative and Intergovernmental Affairs, at (202) 551 2010, 
     should you have any questions or comments.
           Sincerely,
                                                 Mary L. Schapiro,
     Chairman.
                                  ____


          [From the AFL-CIO Executive Council, Mar. 14, 2012]

    The Jobs Act--A Cynical and Dangerous Return to the Politics of 
                         Financial Deregulation

       America needs jobs. Yet Congress cannot enact such basic 
     legislation as the reauthorization of the Surface 
     Transportation Bill that would create hundreds of thousands 
     of jobs. Instead, this week Congress once again is looking to 
     deregulate Wall Street--this time in the form of the 
     cynically named JOBS Act, which would weaken the ability of 
     the Securities and Exchange Commission to regulate our 
     capital markets and allow companies to sell stock to the 
     public without providing three years of audited financial 
     statements, without having adequate internal controls and 
     without complying with key corporate governance reforms in 
     the recently passed Dodd-Frank Act.
       We still have millions of unemployed workers as a direct 
     result of decades of financial deregulation. Workers' pension 
     funds have yet to recover from the effects of the last time 
     we created a bubble in IPOs during the late 1990s. And yet 
     members of both parties in Congress seem bent on repeating 
     these experiences, even as congressional Republicans block 
     any initiative that might really create jobs and set our 
     economy toward the path of long-term prosperity.
       In case our own ugly history with stock bubbles and 
     financial fraud is not enough, Congress should heed the 
     warnings from other developed countries that recently have 
     experimented with deregulated securities markets. In the 
     1990s, Canadian regulators condemned the ``continuing 
     occurrence of shams, swindles and market manipulations'' on 
     the Vancouver Stock Exchange of loosely regulated small 
     company stocks. More recently, the London Stock Exchange's 
     Alternative Investment Market has been described as a 
     ``casino'' for its highly speculative small company stock 
     listings.
       Workers' retirement savings will be in greater risk of 
     fraud and speculation if securities market deregulation once 
     again is railroaded through Congress. Once again our economy 
     will be at risk from the folly of policymakers promoting 
     financial bubbles and ignoring the needs of the real economy. 
     The AFL-CIO calls on Congress to set aside the politics of 
     the 1%, the old game of special favors for Wall Street, and 
     turn to the business of real job creation. The labor movement 
     strongly opposes the JOBS Act and any other effort to weaken 
     the Dodd-Frank Act.
       We support the efforts of Senate Democrats such as Jack 
     Reed, Carl Levin, and Mary Landrieu to amend the ``JOBS Act'' 
     to lessen the harm it does to investors, pension funds, and 
     the U.S. economy.
       We want jobs, not cynical Wall Street scams.
                                  ____


     A Message From Secretaries of State on Crowdfunding Regulation


                             March 14, 2012

     Re Crowdfunding and H.R. 3606, the Jumpstarting Our Business 
         Startups Act.

     Hon. Tim Johnson,
     Chairman, U.S. Senate Committee on Banking, Housing and Urban 
         Affairs, Dirksen Senate Office Building, Washington, DC.
     Hon. Richard C. Shelby,
     Ranking Member, U.S. Senate Committee on Banking, Housing and 
         Urban Affairs, Dirksen Senate Office Building, 
         Washington, DC.
       Dear Chairman Johnson, Ranking Member Shelby and Members of 
     the Committee: As Secretaries of State with primary 
     securities regulatory jurisdiction, we welcome this 
     opportunity to discuss the developments in ``crowdfunding'' 
     as a useful tool in small business capital formation, and the 
     work of the U.S. Senate to ensure that such a mechanism 
     remains viable for small businesses and safe for investors.
       Crowdfunding is an online, typically grass-roots, money-
     raising strategy that allows the public to use websites to 
     contribute small amounts of money to help artists, musicians, 
     filmmakers and other creative people finance their projects. 
     Recently, crowdfunding financing has been applied to small 
     businesses and start-ups, facilitating their attempts to get 
     their ventures off the ground.
       We applaud the work of Congress, via H.R. 3606, aimed at 
     allowing small businesses greater access to crowdfunding 
     financing through the Internet. We are keenly aware of how 
     critical small businesses are to job growth and to improving 
     the economy.
       However, Congress' attempt to enact laws meant to 
     reinvigorate the economy could, in fact, have a detrimental 
     effect. If passed as currently drafted, Title III of H.R. 
     3606, would prohibit the States from working proactively to 
     enforce laws designed to protect investors.
       State securities regulators are proud of their 100-year 
     history of effectively regulating smaller businesses seeking 
     to raise

[[Page 3511]]

     capital. States securities laws protect investors by 
     requiring registration of securities offerings and preventing 
     the exploitation of investors through unjust or incomplete 
     offerings. State securities regulators are uniquely able to 
     protect investors in that they are not only present in the 
     state, but they are also attuned to the particular state's 
     economic conditions. It would therefore be impractical and a 
     disservice to investors to remove state regulators entirely 
     from this important role. To that end, we recommend the 
     following adjustments to current legislation concerning 
     crowdfunding.
       Currently-proposed Federal legislation would limit state 
     authority to protect their investing citizenry. Specifically, 
     Title III of H.R. 3606--which is identical to H.R. 2930, the 
     crowdfunding bill passed by the House last November--leaves 
     enormous gaps in investor protection. Small businesses and 
     investors alike have suffered from the fraudulent activities 
     of unregistered brokers and unqualified business advisers 
     who, escaping regulatory oversight, seek only to profit by 
     exploiting the legitimate capital formation community and 
     ultimately harm its investors through unchecked and improper 
     practices. Website operators functioning as intermediaries, 
     among others, should complete at least minimal filings with 
     regulators and demonstrate minimum competencies. Congress 
     should preserve the States' ability to address this issue.
       We commend Congress's efforts to be responsive to small 
     business owners' capital formation needs, but we are 
     concerned that Title III of H.R. 3606, by preventing states 
     from acting proactively to deter fraud in this new market, 
     would have precisely the opposite effect.
       The states are currently developing a framework for 
     encouraging and facilitating the formation of small business 
     capital. Last fall, NASAA voted to establish a special 
     committee to propose steps that state securities regulators 
     can take collectively to facilitate small business capital 
     formation. In January, this special committee completed work 
     on an initial draft of a model rule which state securities 
     regulators may adopt to responsibly encourage small business 
     capital formation through a crowdfunding exemption. The NASAA 
     model crowdfunding rule completed the first phase of the 
     rulemaking process, an internal comment period, on February 
     7, and NASAA expects to publish a revised version of the rule 
     for public comment as early as latter this month. We believe 
     that federal legislation should be crafted in a fashion that 
     complements these efforts, and that it can best do so by 
     ensuring that the role of state regulators in this area is 
     addressed in broad parameters.
       State securities regulators understand that technology has 
     vastly improved the methods by which entrepreneurs can 
     communicate with potential investors. We also understand, 
     however, that securities offerings made through the 
     Internet--which Title III of H.R. 3606 is based on--are 
     fraught with risk. In such cases, the need for the state 
     securities laws becomes even more urgent for the protection 
     of investors and legitimate, worthwhile small business 
     offerings. We urge Congress to resist preemption and preserve 
     state securities regulators' authority to protect their 
     investors.
                                  ____

                                               State of Louisiana,


                             Office of Financial Institutions,

                                  Baton Rouge, LA, March 14, 2012.
     Senator Mary Landrieu,
     Dirksen Senate Office Building, Washington, DC.
       Dear Senator Landrieu: I am writing to urge you to oppose 
     the preemption of Louisiana law to protect investors in any 
     ``crowdfunding'' legislation that comes before the Senate. By 
     preempting state law for a new crowdfunding exemption, 
     Congress would be creating a massive hole in the investor 
     protection safety net by needlessly prohibiting the Office of 
     Financial Institutions from working proactively to enforce 
     laws designed to protect Louisiana investors.
       I want to echo the concerns expressed in the March 12, 2012 
     letter sent by North American Securities Administrators 
     Association (NASAA) President Jack Herstein on this important 
     investor protection issue to the Senate leadership. I agree 
     with NASAA that ``preempting state authority is a very 
     serious step and not something that should be undertaken 
     lightly or without careful deliberation, including a thorough 
     examination of all available alternatives.''
       Crowdfunding would give unproven start-up companies, 
     offering risky speculative investments, direct access to 
     small unsophisticated investors, potentially creating a haven 
     for fraud. If state regulatory authority is preempted, states 
     would not be able to review crowdfunding investment 
     opportunities before they are offered to investors. Post-sale 
     anti-fraud remedies provide little comfort to an investor who 
     has lost a significant sum of money that is unrecoverable.
       Expanded access to capital markets is beneficial only when 
     investors remain confident that they are protected, when 
     transparency in the marketplace is preserved, and when 
     investment opportunities are legitimate. As Columbia Law 
     School Professor John Coffee stated, in testimony to the 
     Senate Banking Committee, ``one of these bills (S. 1791) 
     could well be titled `The Boiler Room Legalization Act of 
     2011.'' Such legislation, according to Professor Coffee, ``is 
     likely to be used by early stage issuers that do not yet have 
     an operating history or, possibly, even financial statements. 
     Such issuers are flying on a `wing and prayer,' selling hope 
     more than substance.''
       I appreciate that the concept of crowdfunding is appealing 
     because it provides small, innovative enterprises access to 
     capital that might not otherwise be available. Indeed, this 
     is precisely why states are now considering adopting a model 
     rule that would establish a more modest exemption for 
     crowdfunding as it is traditionally understood, with 
     individual investments capped at several hundred dollars per 
     investor.
       Instead of preempting states, Congress should allow the 
     states to take a leading role in implementing an appropriate 
     regulatory framework for crowdfunding. States are the most 
     appropriate regulator in this area and Congress should allow 
     states the opportunity to continue to protect retail 
     investors from the risks associated with smaller, speculative 
     investments.
       I welcome the opportunity to discuss this matter further 
     and to work together to craft legislation that is beneficial 
     to small business as well as the investing public in 
     Louisiana and throughout the United States.
           Sincerely,
                                                     John Ducrest,
     Commissioner of Securities.
                                  ____

                                              American Sustainable


                                             Business Council,

                                   Washington, DC, March 14, 2012.
     Hon. Harry Reid,
     Office of the Majority Leader, U.S. Capitol, Washington, DC.
     Hon. Mitch McConnell,
     Office of the Minority Leader, U.S. Capitol, Washington, DC.
       Dear Majority Leader Reid and Minority Leader McConnell: 
     The American Sustainable Business Council (ASBC) supports the 
     CROWDFUND Act, S. 2190, authored by Senators Merkley, Bennet, 
     Brown and Landrieu and encourage the Senate to use this bill 
     as the vehicle to move forward on crowdfunding.
       The American Sustainable Business Council is a growing 
     coalition of business organizations and businesses committed 
     to advancing a framework and policies that support a just and 
     sustainable economy. The organizations that have joined in 
     this partnership represent over 100,000 businesses and more 
     than 200,000 business professionals covering the gamut of 
     local and state chambers of commerce, microenterprise, social 
     enterprise, green and sustainable, local living economy, 
     women business leaders, economic development and investor 
     organizations.
       In 2010 ASBC was one of the very few organizations 
     supporting crowdfunding as a vehicle for small businesses to 
     access capital investment without the prohibitive cost and 
     time presently required by the Securities and Exchange 
     Commission (SEC) regulations. That original proposal was to 
     have small individual investments from a large number of 
     people with a relatively low aggregate investment cap. This 
     would minimize individual investor loss and systemic fraud. 
     While the current legislation allows for larger individual 
     and aggregate investments than the original proposal, our 
     initial crowdfunding goals have been addressed.
       While we support appropriate SEC oversight over significant 
     investments, we recognize there will always be risks in the 
     marketplace. This legislation strikes an appropriate balance 
     between those risks and regulatory protection.
       The winners with S. 2190 will not only be individual 
     businesses that will have new avenues to access to capital, 
     but also the national economy by enabling small and medium 
     sized businesses to grow and create jobs. Small businesses 
     are responsible for creating the majority of net new jobs in 
     the country and deserve our support to rebuild the U.S. 
     economy.
       We applaud the leadership of Senators Merkley, Bennet, 
     Brown and Landrieu on this critical issue for small and 
     medium sized businesses. We look forward to working with the 
     U.S. Senate to successfully pass S. 2190 and see its 
     enactment into law.
           Sincerely,
                                                     David Levine,
     Co-Founder and CEO.
                                  ____

     Re Crowdfunding Intermediary in favor of the CROWDFUND Act 
         (S. 1970).

     Senator Harry Reid,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Reid, I write in favor of the bipartisan 
     compromise CROWDFUND Act proposed recently by Senators 
     Merkley, S. Brown, Bennet, and Landrieu.
       Yesterday evening's introduction of the first bi-partisan 
     Senate crowdfunding bill is a big step forward in our fight 
     to get equity crowdfunding passed through Congress. I have 
     been to Washington DC seven times

[[Page 3512]]

     since mid November discussing equity crowdfunding legislation 
     directly with key Senate offices. The offices of the Senators 
     on the Banking Committee have been very receptive to input 
     from the entrepreneurial community and have adopted many of 
     our suggestions in the latest bill.
       This latest bill, the CrowdFund Act, is important because, 
     unlike previous bills, for the first time we have a Senate 
     bill with bipartisan sponsorship, a balance of state 
     oversight and federal uniformity, industry standard investor 
     protections, and workable funding caps. This bill has a 
     legitimate chance at quieting those who were previously 
     trumping up fears of fraud/bad actors as well as the various 
     state oversight concerns. To date the main issues the 
     opposition raised were regarding fraud and state oversight of 
     our new industry. While the opposition is mainly from those 
     protecting the interests of large banks, the earlier House 
     Bill and two partisan Senate bills did little to address the 
     legitimate concerns raised by the opposition. As a 
     compromise, this bill has a real chance at becoming law.
       I hope to see your support of this bipartisan effort in the 
     Senate to pass a functional and balanced CROWDFUND Act.
           Sincerely,
                                                    Freeman White,
     CEO, Launcht.com
                                  ____



                                                      Motaavi,

                                       Durham, NC, March 14, 2012.
     Hon. Harry Reid,
     Hart Senate Office Building,
     Washington, DC.
     Hon. Mitch McConnell,
     Russell Senate Office Building,
     Washington, DC.
       Dear Senators Reid and McConnell: We are a crowdfunding 
     intermediary based in Durham, NC. We understand the Senate 
     will take up the JOBS Act shortly. We are very concerned 
     about language in Title III of While we appreciate the broad 
     exemption written by the House, the language does not protect 
     investors and puts the crowdfunding industry at risk of 
     significant fraud. However, more responsible language does 
     exist. The CROWDFUND Act, cosponsored by Senators Jeff 
     Merkley (OR), Michael Bennet (CO), Scott Brown (MA), and Mary 
     Landrieu (LA), represents an ideal crowdfunding statutory 
     framework.
       The crowdfunding language in the JOBS Act lacks critical 
     investor protection features. It does not require offerings 
     to be conducting through an intermediary, which opens the 
     door for fraudulent activity similar to what was experienced 
     when Rule 504 was changed to allow offer and solicitation in 
     the mid-1990s. It also does not require appropriate 
     disclosures or inspections. The bill does not require the 
     issuer to inform investors of dilution risk or capital 
     structure. There are no provisions for misstatements or 
     omissions that relate specifically to this exemption. 
     Crowdfunding is premised on openness. Without disclosure, 
     investors cannot protect themselves or accurately price the 
     securities they are buying. If issuers are not willing to 
     provide information over and above what is required, the JOBS 
     Act language does not provide investors with other 
     alternatives short of giving up on crowdfunding altogether.
       The CROWDFUND Act addresses our concerns. This bill strikes 
     the right balance between disclosure and flexibility. The 
     language is tightly integrated with existing securities laws 
     to provide investor protection. It places easily met 
     obligations on the issuer and the intermediary to ensure that 
     investors have the information they need to make sound 
     decisions. This bill has many provisions for appropriate 
     rulemaking, and is written in a way that reflects how 
     crowdfunding actually works. We think crowdfunding can be 
     valuable and integral part of the capital formation process. 
     The CROWDFUND Act is the right bill to make this happen.
       We understand that introducing a significant amendment to 
     the JOBS Act may slow down the reconciliation process, but we 
     think the benefits are worth the effort. We urge you to adopt 
     the CROWDFUND Act as the Senate language on crowdfunding and 
     believe the House will also see the value in this well 
     written, investor focused bill.
           Sincerely,
                                               Nick Bhargava, J.D.
                                                     Motaavi, LLC.

  Ms. LANDRIEU. Again to recap so people can see on this chart, AARP 
has written us against the House bill. Consumer Federation of America--
against the House bill. The AFL-CIO--against the House bill. Yes, those 
are some of the left leaning organizations.
  But we also have centrist and right leaning organizations. I am 
talking about the former Securities and Exchange Commissioners' Chief 
Accountant, this is what they say

       There are always paths to improvement for any complex 
     system, the American Stock Exchange included. But how quickly 
     these Congressmen seem to have forgotten why many such 
     regulations were enacted in the first place. Last month 
     marked the 10-year anniversary of the collapse of Enron.

  It has not been 10 years and we are going back to where we were when 
Enron took money out of the pockets of thousands of people in America. 
Why are we doing that

       Regulations that prevent capital multiplying companies that 
     want to go public from doing so are bad. Ones that prevent 
     capital destroying ones from becoming public nuisances are 
     good. No job creation will be generated through the process 
     of socializing capital destruction to the general public.

  But he is saying that the House bill goes too far.
  Again, Eric Schureunberg, editor of Inc.com--they are a very well 
respected voice in the small business community in America today. They 
are saying the House bill is flawed.
  I know we are going to be criticized on the other side by saying it 
is just the same old left wing groups that want more regulation and 
more regulation. But that is not true. That is why I am putting all of 
this in the record today so people can carefully consider it tomorrow, 
and over the weekend on Monday, before we come back here; to look and 
read what is being said about the House bill and to be open and honest 
in our efforts to try to reform it. Again, for the record, Mary 
Shapiro, Chairman of the Securities and Exchange Commission, said: 
While I recognize that H.R. 3606--the ill-advised political opportunity 
bill, those are my words--is the product of a bipartisan effort 
designed to facilitate capital formation and include certain promising 
approaches, I believe there are provisions that should be added or 
modified to improve investor protections that are worthy of the 
Senate's consideration.
  So that is what we have done. We took the bill from the House and 
looked at it very carefully and on Monday I am going to hand this out 
to everyone and we are sending it to everyone's offices now. It has 
kind of become a famous small business blue line that is very easy for 
everyone to understand. It shows the differences between the Senate 
bill and the House bill. As we can see, both bills raise the cap on 
regulation A offerings from $5 million to $50 million. We are happy to 
do that. We improve the transparency of regulation A by requiring an 
audited financial statement.
  You don't need to have graduated from a master's program at Stanford 
or Harvard to understand that if you are getting ready to invest--
whether it is $1,000, $10,000 or $100,000--having an audited financial 
statement about the company you are getting ready to invest in would be 
a basic thing to do. I think we learned about this when we were in 
seventh or eighth grade. You don't have to go to Harvard to know this.
  The audited financial statement requirement is absent from the House 
bill. There is no requirement in the House bill for an audited 
financial statement, so we put an audited financial statement in our 
bill. I don't think that is a radical amendment. It is a simple one; it 
is an important one. In the House version of this IPO on-ramp, they 
exempt companies up to $1 billion in annual revenue. Madam President, 
$1 billion is a lot of money, so everybody wake up. The House bill says 
if you are less than $1 billion, you basically don't have to adhere to 
most of the rules and regulations; you can just go on your merry way.
  That sign is great--``ill-advised political opportunity.'' That is 
what I am calling the House bill. Let me check to see how many 
companies went public that were over $1 billion last year. Only 22 
percent of companies that went public last year were over $1 billion. 
So if my math is correct, the House bill is going to eliminate 78 
percent of the companies from regulation that raise money in the 
public. That is going too far. It is unnecessary. We bring that number 
down to $350 million in our bill, and the author of this provision in 
the Senate has signed on as a supporter, Chuck Schumer. The reason he 
did that is because he realizes--even as the sponsor of this on-ramp 
provision--that the House bill went too far. I am not going to go into 
all the rules and regulations, but it is not that complicated because--
1, 2, 3, 4, 5, 6, 7, 8--

[[Page 3513]]

there are only about eight big differences, but they are important 
differences.
  I am going to wrap up by saying: Please study the record. Please look 
at it. In our Senate bill, which the Chair has been very supportive of, 
as has Senator Cantwell, and I wish to thank both of them publicly, as 
well as Senator Klobuchar--we have the Export-Import Bank in our bill, 
which is not in the House bill. The Chamber of Commerce has written us 
asking us to please support the Export-Import Bank. We also expand the 
SBIC, which is the small business investment program, which the 
President included in his State of the Union Address to authorize that 
program to move from $3 billion to $4 billion. Why? Because we are 
having such success, through the SBIC programs that exist in all our 
States, getting money out to Main Street, to small businesses. So that 
is included in our bill--and one the Chair has particularly been a lead 
on, and that is at no cost to the taxpayer. These things do not cost 
any additional money. There is the SBA 504 refinancing that is going to 
allow to extend for 1 year the ability of the small business loan 
program that has thousands of outstanding loans to extend for another 
year the opportunity to refinance their commercial loans.
  So we have added three provisions to the House bill that make it more 
balanced and better for small business, and we have put a couple 
oversight measures into their provisions that I think--in the words of 
many of even the advocates of this bill--``make the bill better.''
  I don't know if we will be successful, but this is worth a try 
because the damage that could be done in venturing out so far into a 
new way of financing without the proper safeguards could set us back 
decades. We don't want to go backward; we want to go forward. We don't 
want to go back to the days of Enron and Bernie Madoff. Why would 
Republicans, in the face of these scandals, come up with--and some 
Democrats voted for it. I am not quite sure how that happened, but we 
are going to find out. Why would they want to go back to those days? We 
want to go forward with the right protections.
  I see my friend Senator Levin on the floor. He most certainly 
understands this issue in many ways better than I do on the technical 
side of it. He has helped write this bill. I am hoping he will give an 
even better explanation than I have been able to give, but I think I 
have covered it pretty broadly, and he can go into a lot more detail 
about the possibility of fraud in here if it is not locked down.
  I am going to end with a word to my community banks because I have 
tried to become a champion for them. I think they can appreciate it. I 
am not 100 percent sure. I believe in community banks. The Independent 
Community Bankers of America sent a letter supporting the House bill. I 
am going to call them over the weekend and talk with them specifically 
about my concerns and ask them to reconsider their position. I think 
our compromise is very good for our community bankers. I don't know 
whether they will. I know they want to get rid of some of the onerous 
requirements that were placed on them in the Sarbanes-Oxley 
legislation, and I appreciate it. I helped sponsor some of the 
amendments on their behalf.
  But I think this House bill is going too far. I am going to reach out 
to them. We will see what their view is. I do respect the views of my 
community bankers. We are going to have a lot more to talk about next 
week.
  Again, I thank Senator Levin and Senator Reed for joining with me and 
Senator Jack Reed for leading this effort to help put a bill before the 
Senate that is quite balanced and provides the investor protections and 
also opens some exciting opportunities for capital to create new 
businesses in America that are the backbone of our extraordinary--and 
not to be matched--entrepreneurship spirit in the world. We honor that, 
but we want to do it in the right way.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Madam President, before the Senator from Louisiana leaves 
the floor, let me thank her for her leadership in this area and the 
passion she has brought to it. This is a train which has moved with 
great speed from the House of Representatives--much too great a speed--
and her ability, just by the expression of her will and her 
determination to bring this to a point where we can debate it at least 
over a few days and the weekend, is critically important, I believe, to 
future of investors in this country.
  There is no State that has suffered more from the job losses of the 
great recession than my State of Michigan. We don't have to ask a 
Michigander twice if he or she believes Congress should take action to 
increase the speed of the jobs recovery. So I am ready to consider any 
legislation that promises more opportunity for the workers of this 
country, but unfortunately the legislation the House has sent to us, 
which is promoted as a job creation bill, is no such thing. In the name 
of job creation, the House bill would severely weaken investor and 
taxpayer protections in our securities laws.
  In the name of putting Americans to work, the House bill would hand a 
series of special favors to influential special interest groups. It 
also reflects a disturbing failure to learn the lessons of the recent 
and all-too-painful past. It defies belief that after the worst 
financial crisis in generations, a crisis brought on by the failure to 
effectively police our financial markets, Congress would consider 
removing vital obstacles to fraud and abuse. The House bill would take 
a series of steps that would undermine the integrity of our financial 
markets. We should not go down that road. We need not go down that 
road. In working with Senator Jack Reed, Senator Landrieu and Senator 
Sherrod Brown and others, I participated in an effort to make some 
changes in that bill that would give small, innovative companies more 
tools to access the capital they need. We want to do that. We all want 
to do that. But we do that in our bill without putting the stability of 
our economy and the interest of American investors and taxpayers at 
risk.
  I wish to lay out some of the problems with the House bill and how 
our Reed-Landrieu-Levin amendment would address those problems. The 
House bill would lower barriers to fraud that are now present in the 
so-called regulation A stock offerings. These are offerings that are 
exempt from the SEC registration requirements. The House bill would 
expose retail investors--those with no expertise and no resources--to 
assess the risks of participating in the unregulated market to massive 
potential fraud and abuse.
  The bill does not even require that companies making offerings under 
regulation A provide audited financial statements. The regulation A 
process is appropriate for very small companies, but the House bill 
provides few meaningful limits to its use. Instead, it would allow 
larger companies to avoid meaningful oversight year after year.
  I have worked with colleagues to fix this problem by ensuring that 
these offerings are limited, so they are only used once every 3 years--
that is one of the changes we would make--and that investors in the 
offerings get an accurate picture of the company's finances by 
requiring audited financial statements.
  In the name of giving smaller companies greater access to the initial 
public offering market, the House bill would create a new class of 
corporation called an emerging growth company and would strip from 
investors in such companies more than a dozen important investor 
protections. Some of the protections involve transparency. The House 
bill would weaken corporate governance provisions we enacted less than 
2 years ago in the Dodd-Frank Act, including disclosures on executive 
pay. The House bill would exempt these companies from having to comply 
with changes to accounting standards. It would repeal the protections 
we put in place after the dot-com bubble burst. These protections 
require financial firms to separate research analysts

[[Page 3514]]

who advise clients on whether to invest in initial public offerings 
from the sales teams of those same companies.
  There is supposed to be a wall between those two parts of any company 
so the sales teams don't take advantage of what the research teams are 
telling their customers. There are too many opportunities for conflicts 
of interest and front-running and other things if we allow that wall to 
be breached.
  The House bill provides that companies with up to $1 billion in 
annual revenue would not have to get an outside auditor to check their 
internal controls. So what happens if one of these companies is cooking 
the books? Who is going to catch it? We learned with Enron and WorldCom 
why we need meaningful checks on how companies prepare their financial 
statements. The vast majority of financial restatements, which are 
corrections to bad information given to the investing public, are made 
by medium and small companies. Investors in these companies should have 
the confidence that the financial statements on which they base their 
decisions are accurate.
  Now, those provisions in the House bill are bad enough given the 
chronic problem in financial markets with poor and misleading financial 
disclosure but, to make matters worse, the bill would open this 
collection of loopholes with companies of up to $1 billion in annual 
revenues. That is a level which would include well over 80 percent of 
all IPOs. So over 80 percent of all the IPOs that will be issued would 
then be exempt from the protections under the House bill.
  Financial regulators, associations of individual investors, many of 
the largest pension funds in this country, securities experts, and the 
chamber of commerce have raised alarm bells about that $1 billion 
threshold as well as the many problems that would follow from the House 
bill.
  Just this week, the SEC took a series of enforcement actions against 
fraudsters seeking to victimize investors in pre-IPO offerings. One SEC 
official noted, ``The newly emerging secondary market for pre-IPO stock 
presents risks for even savvy investors.'' The House bill threatens to 
bring the same level of risk and instability that plagues pre-IPO 
trading to the IPO market itself--changes that, rather than building 
support for IPOs, might actually make the IPO market so risky that it 
ends up dampening investor interest.
  The amendment some of us have been working on, which is the Reed-
Landrieu-Levin, et al., amendment, accepts the premise that some small, 
newly public companies could benefit from somewhat relaxed requirements 
as they adjust to the public marketplace. But our amendment would limit 
these benefits to smaller companies--those with under $350 million in 
annual revenue--and our amendment would not exempt these companies from 
many of the critical investor protections. For example, we would not 
remove protections designed to protect the integrity of the research 
that is available to investors, nor would we exempt them from any new 
accounting rules, nor would we exempt them from requirements regarding 
important executive pay disclosures and shareholder input on executive 
pay packages. Our amendment would provide flexibility for smaller, 
newly public companies to adjust to the public markets, but we would 
leave in place the investor protections that ensure our public markets 
remain the best in the world.
  The House bill would also allow companies or fraudsters posing as 
legitimate companies to solicit investors directly through the 
Internet. This is one of the really big issues we are going to address 
next week. As written, the House bill would offer investors almost no 
protection from fraudulent schemes and fake investment opportunities. 
Although these Web sites that are often called intermediaries or 
funding portals are the only entities capable of making sure that a 
company seeking to sell its stock on its site is real, the House 
exempts them--exempts the intermediaries and the funding portals--from 
any real regulation or liability. The same is true with the issuing 
company. That is why labor groups, seniors organizations, regulators, 
and security experts all warn us that this measure is an open 
invitation to fraud. One group calls it the ``boiler room legalization 
act.''
  So we have many problems with these provisions in the House bill, but 
we also believe the so-called crowdfunding, in which small startups can 
access pools of capital from small investors, usually over the 
Internet, has the potential to provide opportunity for truly small 
businesses to get additional capital they need to grow. This can be 
done legitimately. That is why we build on the work of Senators Merkley 
and Bennet to create a platform for raising money through the Internet. 
But we make sure, as they do, that it has the necessary investor and 
consumer protections. In fact, legitimate crowdfunding sites have made 
it clear to us that they, like us, are concerned about the House bill. 
So we have legitimate crowdfunding interest groups that want to make 
sure the protections are there for the investors, speaking out against 
some of the excessive provisions in the House bill. They want the 
additional protections we provide. So our amendment makes sure that 
funding portals are subject to meaningful regulation and that the 
companies that use them to raise capital are also subject to meaningful 
regulation.
  Our amendment would, unlike the House bill, require comprehensive 
disclosures to investors about the company and the risks of such 
investments. If this new way of investing in small companies is to 
succeed, then investor protections such as the ones embodied in the 
Merkley-Bennet provisions, which we have included in our amendment, are 
vital to giving investors the confidence to participate.
  The House bill also attempts to remove regulations on so-called 
private offerings. By allowing issuers of private offerings to market 
their stock to the general public--whether it is on billboards and the 
Internet, in visits to retirement homes or late-night television ads--
that provision in the House bill would dangerously lower our defenses 
against frauds. We have seen this movie before. In the 1990s regulators 
lowered the barriers to general solicitation for private offerings and 
within years reversed their error because of widespread fraud and 
abuse.
  Some have complained that the existing restrictions on solicitation 
for private offerings are too narrow and impede businesses' access to 
capital. That seems unlikely given the nearly $1 trillion a year in 
private offering activity. But if there are yet more worthy investments 
that are going unfunded because of unneeded investor protections, the 
SEC regulations should be updated for the Internet age.
  The Reed-Landrieu-Levin amendment would direct the SEC to revise its 
rules to allow companies to offer and sell shares to a credited 
investor, but it then directs the SEC to make sure those who offer or 
sell these securities take reasonable steps to verify that the 
purchasers are actually accredited investors. It requires the SEC to 
revise its rules to make sure these sales tactics are appropriate. 
There are not going to be, under our language, billboards or cold calls 
to senior living centers. I wish I could say the same about the House 
bill.
  There is little evidence that the reduced investor protections and 
invitations to fraud in the House bill will make any meaningful 
contribution to job growth. We do not have one study on any one of the 
provisions in the House bill establishing that even one job would be 
created. If such a study existed, I am sure we would have seen it. The 
simple reality is that repealing Federal securities laws--and that is 
clearly the intent of the House bill--does not create jobs. In fact, 
the former Chief Accountant to the SEC was quoted recently as saying 
that this JOBS bill was no jobs bill at all. He said: ``This would be 
better known as the bucket-shop and penny-stock fraud reauthorization 
act of 2012.''
  Taken together, these and other provisions in the House bill send a 
false message: that in order to grow the economy, we must subject our 
citizens to more fraud, we must put pension funds and church endowments 
at greater risk of fleecing, we must create

[[Page 3515]]

more threats to the financial stability of American families.
  The America that I know and that I believe in is capable of growing 
our economy without these unnecessary risks. Indeed, it is fraud and 
financial abuse that have repeatedly brought our economy to its knees. 
We opened the door to fraud and abuse in the savings and loan industry 
and precipitated a crisis that destroyed 750 financial institutions 
when we did that. We cut the number of new homes built in this country 
by nearly half and devastated entire communities. We dropped the 
barriers to fraud through financial statements and in swaps markets, 
opening the door to the predations of the so-called ``smartest guys in 
the room''--those are the criminal executives of Enron. We lowered the 
barriers to heedless risk and conflicts of interest in the financial 
system, thereby paving the road to the greatest financial crisis since 
the 1930s.
  Over the last 10 years, on a bipartisan basis, my Permanent 
Subcommittee on Investigations has held hearing after hearing and 
issued report after report on the Enron crisis, on accounting and 
securities frauds, and on the more recent subprime mortgage crisis. Our 
investigation has exposed how some American corporations, and their 
accountants and banks, were willing to dupe investors and, even after 
their wrongdoing came to light, walk away with huge paychecks while 
workers, investors, and the American economy at large paid the price.
  Enron was the seventh largest U.S. corporation before its crash 
bankrupted employees, pensions, and investors. It lied about its 
earnings and did so with the help of accountants and banks. Goldman 
Sachs sold securities through public and private offerings that did not 
fully inform investors about what they were buying. The wrongdoing our 
subcommittee has uncovered over the years is as powerful a reminder as 
we can get that investors deserve protection against abuses when they 
invest their hard-earned dollars in U.S. capital markets.
  There is a rising wave of concern among market experts that the 
effect of the House legislation might be precisely the opposite of its 
supporters' stated intent and that instead of boosting the ability of 
companies to find capital so they can grow, these changes would hurt 
the market for investing in new companies by making that market too 
risky. If we remove meaningful transparency and safeguards against 
fraud, SEC Chairman Schapiro wrote just a few days ago that ``investors 
will lose confidence in our markets and capital formation will 
ultimately be made more difficult and expensive.''
  The question for the champions of lower regulatory barriers is this: 
Did those rollbacks of regulatory protections help our economy grow? 
Did those rollbacks which we saw so many of and which I have just 
outlined create jobs? Ask a family who was wiped out in the financial 
crisis. Ask an investor who lost everything to Enron. Ask one of the 
many 8.6 million American workers who lost their jobs in a financial 
crisis created on Wall Street, one we have yet to fully overcome.
  In November of 1999 this body debated another piece of financial 
legislation, one that supporters claimed would lead to boundless new 
economic opportunities for our country. The bill we were debating 
repealed the Glass-Steagall Act. It lowered barriers to concentration 
in the financial industry. It removed the wall that had separated 
investment banking from commercial banking since the aftermath of the 
Great Depression.
  Senator Byron Dorgan came to this floor and he issued a warning: ``It 
may be that I am hopelessly old-fashioned, but I just do not think we 
should ignore the lessons learned in the 1930s . . . I also think that 
we will, in 10 year's time, look back and say: We should not have done 
that because we forgot the lessons of the past.''
  Well, that was 1999. Ten years after Senator Dorgan's remarks, almost 
to the day that he predicted, America's economy hit rock bottom, with 
the lowest mark of employment during the great recession. Well, old-
fashioned sounds pretty good these days. I hope to be as old-fashioned 
as Senator Dorgan, who warned us that lowering the barriers that 
protect us from financial catastrophe can only destroy jobs--not create 
jobs, destroy jobs.
  I hope the Senate will turn away from the House bill that threatens 
more fraud, more abuse, and renewed crisis. I hope the Senate will 
embrace reforms that are present in our substitute amendment that give 
our innovative companies the chance to compete without endangering 
investor confidence or the stability of our economy.
  Madam President, I yield the floor, and I note the absence of a 
quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mrs. SHAHEEN. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Manchin). Without objection, it is so 
ordered.
  Mrs. SHAHEEN. Mr. President, when I talk to owners, operators, and 
employees of small businesses in New Hampshire, one thing I hear 
consistently is that access to capital is a real challenge. While our 
community banks have increased their lending, capital access from large 
banks and other entities has been very hard to come by. As a result, 
small businesses fighting to grow and create jobs continue to be 
constrained in their efforts.
  I am glad the Senate is planning to move forward with this 
legislation that will address capital formation and will take some 
additional steps to help those small companies get the financing they 
need to grow, but as we take that step forward, it is equally important 
that we do not also take a step back. That is why I believe it is 
critical for the Senate to extend two venues of small business 
financing as part of this debate: the Export-Import Bank and the Small 
Business Administration's 504 refinancing program. These programs, 
which bring no cost to the taxpayers--let me say that again: these 
programs bring no cost to taxpayers--provide financing options for so 
many small businesses in New Hampshire, in West Virginia, and across 
our country.
  We have an important opportunity to ensure that such important 
avenues to capital remain available in the coming years by extending 
these programs as part of the small business capital package we are 
currently debating. So first let me begin with the Export-Import Bank, 
which is a vital agency that helps many small businesses secure the 
financing they need for export deals. This is critical because exports 
are such an important part of the markets that are available to 
businesses today. Mr. President, 95 percent of markets exist outside of 
the United States, but only 1 percent of small and medium-sized 
businesses are doing business outside of the United States. So 
businesses need access to these international markets.
  Last August, Senator Ayotte and I held a Small Business Committee 
field hearing in New Hampshire, and it was on small business exporting. 
We heard how difficult it can be for a small company to sell its 
products overseas. It is particularly challenging for a small business 
to get financing for its foreign deals. That is where the Export-Import 
Bank makes such a significant impact. Mr. President, 87 percent of the 
Export-Import Bank's transactions support small businesses. So I think 
there is a misconception about whom the Ex-Im Bank really helps. 
Eighty-seven percent of their transactions support small businesses.
  Last year alone, the bank helped finance more than $6 billion in 
export sales from small companies in the United States. It has set a 
goal of increasing this volume by an additional $3 billion in the 
coming years, and it has created a new Global Access for Small Business 
Initiative which is designed to dramatically increase the number of 
small companies taking advantage of its programs. In fact, I think this 
new initiative is terrific. The Ex-Im Bank came to New Hampshire and 
unveiled this initiative. Again, this bank assists small businesses at 
no cost to the taxpayer.
  Unfortunately, right now this no-cost small business program is in 
jeopardy.

[[Page 3516]]

Unless we act soon to reauthorize the Export-Import Bank, it will hit 
its lending cap and it will be forced to cut off its support for small 
businesses. We just cannot afford to let that happen. Without the bank 
small businesses will lose a significant amount of foreign sales and 
the jobs they maintain. Last year the bank supported over 288,000 
American jobs. As more small companies become aware of the bank's 
programs, more businesses will be able to access new markets and create 
new jobs.
  So I want to give an example because, as I said, last year we had the 
Chair of the Export-Import Bank in Portsmouth, NH. They unveiled their 
new small business initiative, and they met with a number of small 
businesses that were interested in exporting.
  One of those small businesses was a company called Skelley Medical, 
which is a medical equipment company that is based in Hollis, NH. 
Before our event, Skelley Medical was unaware of the programs the 
Export-Import Bank offered. Two weeks later, just 2 weeks after this 
event, Skelley took out a policy with the bank. That put Skelley in a 
position to expand its sales overseas. Right now, Skelley Medical is 
looking to finance deals in as many as five international markets. That 
is all thanks to the help of the Export-Import Bank. Without the 
Export-Import Bank, that kind of small business success story will not 
happen. It would be a real mistake for this Senate to pass a capital 
access bill without this critical reauthorization.
  The second program I would like to talk about is another no-cost 
program that deserves to be extended. That is the Small Business 
Administration's section 504 refinancing program.
  With bipartisan support, the Senate passed the Small Business Jobs 
Act 2 years ago--well, about a year and a half ago. That Small Business 
Jobs Act created this 504 program to help small businesses refinance 
existing loans under the SBA's 504 lending program.
  Again, what we are hearing, as my colleagues know, as I am sure the 
Presiding Officer knows, is that this difficult real estate market we 
are in has made it challenging for many successful businesses to 
refinance their real estate deals. They cannot get access to capital 
right now, particularly in the real estate industry, which has been so 
hard hit during this recession. What this SBA program allows is for 
small businesses to lock in long-term, stable financing so they can 
free up capital to invest in their companies and hire new workers.
  Although this program got off to a slow start, the Small Business 
Administration has made important changes to ensure that it is working 
better now for small businesses and for banks. As a result, we are 
starting to see a significant increase in volume.
  In New Hampshire, lenders see this program becoming a real success in 
the near future. Alan Abraham, who is the president of the Granite 
State Development Corporation in New Hampshire, has said that ``banks 
and borrowers are now understanding the significant benefits of the 
program.'' He told me:

       We are starting to field many [more] phone calls requesting 
     information on the policies, and we anticipate dozens of New 
     Hampshire small businesses could benefit from extending this 
     program.

  We should not cut this program off at the knees just as we are 
beginning to see substantial returns--again, without costs to 
taxpayers.
  This program is scheduled to sunset in September. I believe it is 
important for the lending community to know as soon as possible that 
the program will continue into 2013 so that they can devote the 
resources necessary to continue this initiative's budding success and 
also so that we can provide the certainty so many companies tell us 
they need.
  We should extend this program. We should address the Export-Import 
Bank's reauthorization. That is why, as we look at the Landrieu-Reed-
Levin substitute amendment, it includes these provisions. It includes 
reauthorization of the Export-Import Bank, and it includes the 
extension of the SBA 504 program. It also includes a number of other 
provisions that address some of the concerns that have been expressed 
by the House-passed capital formation bill.
  Senators Landrieu, Reed, and Levin were on the floor earlier and very 
eloquently elaborated on those changes. I urge my colleagues to support 
that substitute amendment to reauthorize the Export-Import Bank and to 
extend SBA's 504 Loan Program.
  I ask unanimous consent that I be added as a cosponsor to that 
Landrieu-Reed-Levin amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. SHAHEEN. Mr. President, I yield the floor, and I suggest the 
absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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