[Congressional Record (Bound Edition), Volume 158 (2012), Part 3]
[Senate]
[Pages 3985-4000]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  JUMPSTART OUR BUSINESS STARTUPS ACT

  The PRESIDING OFFICER. Under the previous order, the Senate will 
resume consideration of H.R. 3606, which the clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 3606) to increase American job creation and 
     economic growth by improving access to the public capital 
     markets for emerging growth companies.

  Pending:

       Reid (for Merkley) Amendment No. 1884, to amend the 
     securities laws to provide for registration exemptions for 
     certain crowdfunded securities.
       Reid (for Reed) Amendment No. 1931 (to Amendment No. 1884), 
     to improve the bill.

  The PRESIDING OFFICER. Under the previous order, the time until 12:30 
p.m. will be equally divided between the two leaders or their 
designees.
  The Senator from Michigan.
  Mr. LEVIN. Mr. President, I ask unanimous consent that I be yielded 
10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LEVIN. Mr. President, in a few hours, after votes on two 
amendments that I hope we will pass, we are going to vote on final 
passage of the House of Representatives-passed bill, the so-called JOBS 
bill. I am going to vote against passage of this bill because it would 
remain far too deeply flawed even if the two amendments were passed to 
justify passage by the Senate. I am going to vote no on this bill 
because it will significantly weaken existing protections for investors 
against fraud and abuse.
  The supporters of this bill claim it will help to create jobs. They 
have even titled it the JOBS Act, but there is no evidence it will help 
create new jobs. There is not one study that its proponents have shown 
us how repealing provisions that protects us from conflicts of interest 
in the research coverage of companies with up to $1 billion in revenue 
will create jobs; nor is there evidence that removing transparency and 
disclosure requirements for very large companies will create jobs; nor 
is there evidence that allowing unregulated stock sales to those unable 
to assess or withstand high-risk investments will create jobs; nor is 
there much else in this bill that will, even arguably, help create 
jobs. It will, however, take the cop off the beat relative to the 
activities of some huge banks, and it will threaten damage to the 
honesty and integrity of our financial markets.
  That is a mistake in its own right. We should value honesty and 
integrity in markets, as in all things. And legislation that creates 
new opportunities

[[Page 3986]]

for fraud and abuse should be amended or rejected. But the damage done 
by this bill to the integrity of our markets will also work against the 
purported goal of this bill--the encouragement of investment to create 
jobs.
  By making our financial markets less transparent, less honest, and 
less accountable, this legislation threatens to discourage investors 
from participating in capital markets. That damage would make it 
harder--not easier--for companies to attract the capital that they need 
and to hire new workers.
  Our capital markets are the envy of the world, and that is in part 
because we recognize that efficient markets that help businesses raise 
capital and aim to match up investors in companies need transparency 
and they need financial integrity. But this bill will allow companies 
to make fewer disclosures and will remove important investor 
safeguards. This bill will increase many types of risks to investors, 
including the risk of outright fraud. I want to focus on a few of the 
many serious flaws in this bill.
  First, it harms investors by allowing a wide range of companies to 
avoid basic requirements for disclosure and transparency. It does that 
by changing the threshold at which companies are considered large 
enough and their stock is widely enough held to trigger those 
disclosure requirements. Today, companies are generally required to 
register with the SEC and meet basic requirements for financial 
transparency and accountability if they have 500 or more shareholders. 
The bill before us would raise that exemption to 2,000 or even more 
shareholders. It would even raise the level at which banks can 
deregister from 300 to 1,200 or more shareholders regardless of the 
bank's size in terms of assets. These changes will allow even very 
large companies with several thousand shareholders to avoid telling 
regulators, shareholders, and potential shareholders even the most 
basic information about their finances, and to avoid important 
accounting standards.
  Second, this bill harms investors by allowing companies to make 
largely unregulated private stock offerings to members of the public. 
Today, such inherently risky, unregulated offerings cannot be 
advertised to the public and are generally limited to shareholders who 
are financially able to absorb the risks involved. But the House bill 
allows advertisement of these unregulated offerings to the general 
public. It will allow TV ads for get-rich-quick schemes with almost no 
oversight. Advertisers could pitch these risky investments in cold 
calls to senior citizen centers. That is why groups such as AARP are 
deeply concerned about what these changes will do to senior citizens 
who are often the targets of financial fraud and abuse.
  Third, this bill abandons a lesson that we learned all too painfully 
during the dot-com crisis of the 1990s. At that time, investment banks 
seeking to underwrite initial public offerings--which is a lucrative 
line of business--engaged in brazen conflicts of interest. They sought 
this business by promising companies about to go public that their 
research analysts--whom investors depend on for honest and impartial 
advice--would give favorable coverage to their stocks in exchange for 
the underwriting business.
  In company after company, investors were misled about the strength of 
new stocks by investment banks engaging in this conflict of interest. 
This abuse helped to feed a stock bubble that, when it burst, wiped out 
investors, evaporated companies, and it devastated the economy. The 
Nasdaq index still, to this day, has not recovered from that bubble. As 
a result, regulators put up barriers designed to end these conflicts, 
but the House bill before us knocks down those barriers. It is 
astonishing that we would forget these lessons and allow the return of 
such blatant conflicts of interest.
  Fourth, this bill will allow very large companies, companies with up 
to $1 billion in annual revenue, to make initial public offerings 
without complying with basic disclosure and accountability standards. 
These companies would be able to avoid compliance with accounting and 
disclosure rules to help give investors accurate information on the 
company's finances. They would not have to obey standard accounting 
rules or have auditors certify that they have adequate internal 
controls. Many of these rules were adopted in response to high-profile 
accounting frauds, such as Enron and WorldCom. Some were recently 
enacted in the Dodd-Frank Act in the wake of the financial crisis.
  Yet while our economy is still recovering from the damage of the most 
recent crisis that arose, in large part, as a result of deregulation, 
we are about to consider undoing safeguards we created in its wake. The 
$1 billion limit of the House bill will allow nearly 90 percent of the 
IPOs to avoid even the most basic disclosure standards. With these 
provisions, we will essentially ask America's investors to place their 
capital at risk almost blindly, with little if any reliable information 
about the companies seeking their investment. It defies common sense to 
argue that investors will be more likely to put their money at risk and 
therefore help to create jobs in that kind of environment.
  This is a bad bill. Because debate was closed off and amendments 
severely limited, we will not be able to fix nearly enough of it. But 
we will hopefully remedy a few of its flaws in amendments we are going 
to be voting on. Change to the crowdfunding provisions of the House 
bill is welcome, and I commend Senators Merkley, Bennet, and others who 
crafted that provision which Senators Reed, Landrieu, and I also 
incorporated in our substitute bill, which was defeated yesterday. This 
amendment will give investors somewhat greater confidence in a new and 
potentially useful method in establishing capital and in support of 
Senator Reed's amendment to close important loopholes in the current 
law--one the House bill fails to address. With this amendment, it will 
be harder to evade registration and disclosure requirements by using 
shareholders of record who exist only on paper but who hold shares for 
large numbers of actual beneficial owners. This, too, is part of our 
substitute, and its inclusion in the bill would represent an 
improvement.
  But we should not fool ourselves. These improvements, if adopted, 
though welcome, are far from sufficient. We are about to embark upon 
the most sweeping deregulatory effort and assault on investor 
protection in decades. The Council of Institutional Investors warns us 
that ``this legislation will likely create more risks to investors than 
jobs.''
  If we pass this bill, it will allow new opportunities for fraud and 
abuse in capital markets. Rather than growing our economy, we are 
courting the next accounting scandal, the next stock bubble, the next 
financial crisis. If this bill passes, we will look back at our votes 
today with deep regret.
  We should not adopt this bill today. We should return it to 
committee. We should have hearings. We should have opportunities to 
amend this bill. Adopting this bill will put us in a position of the 
most massive and mistaken deregulation of our capital markets in 
decades.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Brown of Ohio). The senior Senator from 
Iowa is recognized.


                               Stock Act

  Mr. GRASSLEY. Mr. President, soon, around the 12:30 hour or on one of 
the seven votes this afternoon, we are going to be voting on cloture on 
the STOCK Act. I have 45 minutes allotted to me to speak about the 
disappointment I have with the way this has been handled and why I 
think the parliamentary procedure is wrong and why the whole process 
irritates me.
  Bipartisanship happens to be alive and well in Washington, DC, where 
most of our constituents believe it is never working. Earlier this 
week, we had the Republican majority leader of the House and the 
Democratic majority leader of the Senate--that is bipartisanship--work 
together to thwart the will of 60 Senators and 286 Members of Congress. 
The end result is, as well-meaning as the people behind this maneuver 
might be--the end result is that 60 Members of the Senate are going to 
be denied an opportunity to pursue

[[Page 3987]]

what they had previously voted for and 286 Members of the House of 
Representatives, cosponsoring the language of my amendment, are not 
going to have a chance to do what 286 Members of the House want to do. 
As I said, this is bipartisanship, but it is not the kind of bipartisan 
cooperation, intended or not, this Nation deserves.
  I will not ascribe motives to anyone in this body, but I know that 
today's action only serves the desires of obscure and powerful Wall 
Street interests, and it undercuts the will of the overwhelming 
majority of Congress I just described. Once again, it is an example of 
Wall Street being heard in Washington and maybe the common persons 
throughout the United States not having their will expressed.
  With this process, they took a commonsense provision, supported by a 
majority of both Houses of Congress, and they simply erased it. In 
other words, we have to remember, when we have a 60-vote requirement in 
the Senate, we know what that 60-vote requirement is meant to do; that 
no amendment under a 60-vote requirement is ever going to be adopted. 
That was surely the motive behind the 60-vote threshold on the 
amendment I got adopted when this bill was first up, because the 
Democratic leader voted against it, the Republican leader voted against 
it, the Democratic manager spoke against it, and the Republican manager 
was against it. Common sense tells us, if we study the Senate, an 
amendment such as that is never supposed to get adopted. But we got the 
60 votes to get it adopted. Frankly, I was surprised we got the 60 
votes to get it adopted. But that is taken out of the bill we are going 
to be voting on this afternoon.
  My amendment simply says that if someone seeks information from 
Congress or the executive branch to trade stocks, Congress, the 
executive branch, and the American people ought to know who they are. 
Nobody is saying they cannot do it, but we ought to know who they are. 
We do that through the process where everybody ought to know who 
lobbyists are--not that lobbying is illegal or wrong, but it ought to 
be transparent. With transparency comes accountability. The same way 
this amendment asks these people who are involved in seeking 
information to register so we know who they are. The amendment makes 
nothing illegal. But we ought to know who these people are who seek 
political and economic espionage. We ought to bring all that out of the 
shadow, into the public's information.
  But the leadership of both parties--the majority in the House and the 
majority in the Senate--went behind closed doors and made that 
provision magically disappear. What they did was truly amazing because 
a handful of Senators and Congressmen overrode the will of 60 Senators 
and 280-plus backers of my amendment in the other body. First, the 
majority leader in the House said the definition of political 
intelligence was so vague he could not possibly figure out how to 
define it. That is the excuse given for stripping any regulation of 
political intelligence, my words, or political and economic espionage 
from the STOCK Act when it was taken up in the House of 
Representatives.
  Let me tell you why that excuse is truly amazing to me and quite a 
surprise. It is because the House of Representatives put in a diluted 
provision that uses the very same definition I had in my bill of what 
political intelligence gathering is. Then, by taking out my language 
and putting in theirs, they got it done because it was an excuse, that 
the language I had in my amendment was so vague. But you know what. 
They took that very same language and put it in their amendment, 
calling for a study of political and economic espionage and political 
intelligence and used it.
  Let me go back to section 7, part b, and quote:

       Definition--for purposes of this section, the term 
     ``political intelligence'' shall mean information that is 
     derived by a person from direct communications with an 
     executive branch employee, a Member of Congress, or an 
     employee of Congress; and provided in exchange for financial 
     compensation to a client who intends, and who is known to 
     intend, to use this information to inform investment 
     decisions.

  That is the definition that they thought we don't know what political 
intelligence is, so we should not be passing this amendment, even 
though 286 Members of the House of Representatives have sponsored a 
bill to do it and take that very same definition that they say is so 
vague and put it in a bill for the purposes of studying something. That 
seems pretty straightforward, doesn't it? That definition seems pretty 
straightforward. Of course, now that definition will only be applied to 
a study, not to legislation with real teeth--because the powerful 
interests of Wall Street are winning out.
  If you think that is bad, this is what happened to the STOCK Act in 
the Senate. By now, I think just about everybody in this body knows how 
strongly I feel about this amendment that was adopted by this body 60 
to 40, under a rule requiring 60 votes because that kills any 
amendment--but it did not kill this one because we were right. I have 
spoken many times about the dangers of unregulated political and 
economic espionage. I have reached out to the leadership to express my 
concern and written a letter with Senator Leahy, the chairman of the 
Judiciary Committee, on the importance of our STOCK Act provisions. I 
said that I was willing, if necessary, to negotiate on the language of 
my amendment, and that would be on the question of what is political 
intelligence. But it seems to me one doesn't need to negotiate that if 
we pass something with that definition in it. The House already has 286 
cosponsors with that definition in it, but they take that same 
definition and put it in the amendment in the other body for a study, 
not an amendment with any real teeth.
  So when I said I was willing to negotiate, what was the response? 
Nothing. I was not even given the courtesy of being notified before 
cloture was filed. So it was kind of like an ambush, plain and simple. 
Just like those people who traffic in political and economic espionage, 
this process has been cloaked in a great deal of secrecy.
  Now the claim is made that the Senate was forced to take up the House 
bill because an unnamed Republican was threatening to object to a 
conference. However, no Republican--or any Senator, for that matter--
has publicly owned up to trying to stop this bill from going to 
conference. But even if we accept this fact, there are still more 
questions. Supposedly we are taking up the House bill because the 
Senate does not have time to take two or more cloture votes. Throughout 
this Congress, we have spent weeks in nothing but quorum calls, but 
suddenly we have run out of time.
  Of course, in less than 10 days we will be leaving Washington, DC, 
for a 2-week recess. I intend to go home and have town meetings, but we 
are not going to be doing business here in Washington, DC. So I have an 
idea for people to consider. With congressional approval ratings in the 
near single digits, why can't we spend part of that time getting the 
STOCK Act right? And by getting it right, I see nothing wrong with the 
basic underlying piece of legislation, but when there is a chance to 
bring transparency and accountability through the registering of people 
who are involved in political and economic espionage, I think we ought 
to do it, and that is what I mean by getting the STOCK Act right.
  The Washington Post said that my amendment, combined with Senator 
Leahy's political corruption amendment, ``transformed the [STOCK Act] 
into the most sweeping ethics legislation Congress had considered since 
2007.'' Maybe you don't agree with the Washington Post all the time, 
and I don't agree with them all the time, but they are looking at 
things on a wider scale, and they are saying that a Congress that 
doesn't have a very good approval rating has a chance, for the first 
time in 5 years, to do sweeping ethics legislation that we need in 
order to improve the Congress's reputation by the public.
  So isn't it worth taking just a couple of extra votes to get it done 
right and to make Congress look better? I think so, but apparently a 
small handful of

[[Page 3988]]

people in the House and the Senate who make the decisions on how we are 
going to do business around here--not taking into consideration the 
votes of 60 Senators supporting this--have other ideas.
  Well, at the end of the day, here is what will happen if we don't 
proceed. There are about 2,000 people working in the completely 
unregulated world of political intelligence or political and economic 
espionage. Right now, these people have to be celebrating because they 
are in the shadows. They want to stay in the shadows. They are 
celebrating because they know it is business as usual. They can 
continue to pass along tips that they get from Members of Congress, 
Senators, and staff, and no one will be the wiser. They pass along 
these tips to hedge funds, private equity firms, and other investors 
who pay them top dollar. The lobbyists get rich, Wall Street traders 
get rich, but the American people lose.
  At one time, these folks who set up these meetings for Members of 
Congress or even in the executive branch--and I have examples to show 
that--used to charge $10,000 for just setting up a meeting. They don't 
charge $10,000 anymore because that information got out and it was too 
embarrassing to them. So now there is kind of a relationship built up 
here between the people who know their way around Congress and people 
who want this information that if there is investment in stock as a 
result of this and there is an increase in the value of the stock, that 
one will do their trading through the company. That is a tragic result 
of this decision by the leadership to leave out the amendment that was 
adopted by 60 Members of this Congress and would do nothing more--not 
make anything illegal--than let us know who these people are.
  Through my oversight investigations, I have learned that political 
intelligence gathering for Wall Street is a growing field ripe for 
abuse. Here are two examples of the type of activity that will continue 
to be kept in the dark.
  In the course of my investigations of a whistleblower's claim, I 
learned that the Center for Medicare and Medicaid Services has closed-
door meetings with Wall Street firms where CMS policies are discussed. 
No record is kept of the meetings, and employees are essentially on the 
honor system to make sure they are not giving investors inside 
information. As an example, the whistleblower who came to us claimed 
that over a dozen CMS employees spent nearly 2 hours briefing Wall 
Street analysts and investigators on the taxpayers' dime. A member of 
the public could not walk in and get that kind of access to that 
information. CMS is supposed to be working for us. Instead, we found 
out that they are working for Wall Street. If my amendment fails, we 
won't know how many of these meetings occur throughout the government 
and who profits from these meetings.
  Another example is an investigation I conducted into the Obama 
administration's Department of Education. The Department of Education 
was getting set up to issue regulations on gainful employment that 
would affect not-for-profit colleges. Several hedge funds had bet big 
that those new regulations would make it harder for for-profit colleges 
to do business. Then news began to leak that those regulators were not 
going to be as tough as was expected. Suddenly, for-profit stocks began 
to rise, and these hedge fund investors reached out to their friends in 
the Department of Education.
  This is from an actual e-mail my investigators uncovered. It was sent 
from Steve Eisman, a hedge fund investor, to David Bergeron. He was 
part of a team in charge of writing these regulations. The e-mail 
reads:

       I know you cannot respond, but FYI education stocks are 
     running because people are hearing DOE is backing down on 
     gainful employment.

  To translate that Wall Street jargon, the term ``running'' means that 
a stock is going up.
  Within minutes this e-mail was marked ``high importance'' and 
forwarded to senior-level political appointees. These appointees 
included James Kvaal, the Deputy Under Secretary, and another policy 
expert at the Department and Phil Martin, the Secretary of Education's 
confidential assistant. To this day we do not know why the Department's 
higher education policy experts needed to know that a hedge fund 
investor was losing money. What we do know is that for-profit stock 
dropped significantly, and if you bet big that these stocks would drop, 
you likely made a lot of money.
  When the Department of Education answered my questions, they admitted 
to my staff that this e-mail was not a proper contact.
  In addition, the Department of Education inspector general is 
investigating the gainful employment rulemaking process.
  These are just two examples in government agencies where reports such 
as these are just the tip of the iceberg. The more power Washington, DC 
has, the more it affects financial markets, and the more it affects 
financial markets, the more people on Wall Street want to pay for 
information about what is going to happen here on this island 
surrounded by reality that we call Washington, DC.
  Usually, the only way any sort of ethics reform gets done around here 
is if someone gets caught. With political intelligence, we have the 
opportunity to create transparency before the next scandal occurs. As 
government grows, this industry is going to grow, with the potential 
for corruption. The question is, What are we going to do about it? 
Transparency is the simplest and least intrusive solution, and if 
transparency doesn't do the job, then you can legislate. But I have 
found out through so many of my investigations over the last 20 years 
that if you bring transparency to something and get it out in the open, 
it tends to correct itself--maybe not completely but to a great degree.
  Originally, in starting investigations, you think you are going to 
have to have a massive amount of legislation, but when you get 
transparency involved and the accountability that goes along with it, 
you find that you don't have to pass a lot of laws, that a lot of 
people know that if somebody is looking over their shoulder, they are 
going to do what is right.
  Now, we can commission another study, as the House of Representatives 
wants to do and we are going to be voting on when we vote on cloture 
here, but that is kicking the can down the road for another year. We 
can act today by defeating cloture and getting to some of these 
amendments that have such widespread support in the Congress of the 
United States. With 60 votes in the Senate and 286 cosponsors in the 
House of Representatives, this is our last chance to make sure the 
Senate speaks with a unified voice against secrecy for political and 
economic espionage people and for transparency in government. We must 
not allow the special interests to operate in the dark. Just bring them 
out of the shadows--not that what they are doing is illegal, but we 
ought to know what it is.
  For these reasons, and to support transparency, to support open 
government, and to support good government, I will oppose cloture on 
the bill, and I hope a lot of my colleagues--in fact, I hope all 60 of 
my colleagues who voted for the amendment in the first place--will 
oppose cloture.
  If cloture is invoked, which is likely, I intend to vote for this 
bill anyway because the underlying bill is a very necessary piece of 
legislation, but it is not much of a victory for the American people. 
As the Washington Post said, if it included the Leahy amendment, if it 
included the Grassley amendment, it would be the most sweeping ethics 
reform in the last 5 years.
  I yield the floor and reserve the remainder of my time. I suggest the 
absence of a quorum.
  The assistant legislative clerk called the roll.
  The PRESIDING OFFICER. The Senator from Rhode Island.
  Mr. REED. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REED. Mr. President, this is a critical moment. The Senate is on 
the

[[Page 3989]]

verge of adopting legislation that could cost the American people 
dearly in the future. The House bill with respect to capital formation, 
which is labeled a jobs bill, but goes more to fundamentally changing 
security laws, is, in effect, another regulatory race to the bottom. 
There has not been a normal committee process in terms of weighing this 
legislation. This is a complicated bill involving the interaction of 
many different securities laws, interactions which have not been sorted 
out or analyzed. As a result, we are rushing to justice--or rushing to 
conclusions.
  Hasty deregulation has repeatedly been the source of financial 
crises--including the savings and loans crisis, the Enron-era crisis, 
the great recession of 2008, and the list goes on. Those who are 
impacted by those crises--those who lost their savings or dealt with 
cleaning them up, experts in this field, and many more--have come out 
in strong opposition to the House proposal: from the Chairman of the 
Securities and Exchange Commission, Mary Schapiro, the North American 
Securities Administrators Association, the State officials charged with 
enforcing securities laws, auditors, financial analysts, pension fund 
managers, and organizations like AARP, all who have spoken out against 
this legislation and supported my efforts to protect investors.
  This capital formation bill is fundamentally flawed, and it should 
not become law in its present form. It undercuts and dilutes investor 
protections and has no real requirements to protect American jobs in 
order to use these new capital raising procedures. That is what is so 
ironic. We have a jobs bill, but actually I see nothing in this bill 
that requires creating American jobs in order to earn the benefits of 
this bill. I think it is, again, misnomered as a jobs bill.
  In addition to the substitute amendment I offered with Senators 
Landrieu, Levin, and others that received a majority vote earlier this 
week, I offered an amendment that we will be voting on later today to 
clarify the shareholder trigger for Exchange Act reporting so that all 
companies count their actual shareholders so they cannot avoid periodic 
reporting requirements.
  Adoption of this amendment would achieve one of the stated goals of 
the legislation, which is ostensibly to have more companies into a 
transparent marketplace, disclosing and/or listing on stock exchanges. 
That was the whole essence of this IPO onramp idea: encourage more 
people to go public so they can disclose information to shareholders, 
so the market can follow them, and so investment advisers can advise 
investors about purchasing the stocks on the market.
  This proposed amendment would close one glaring loophole, but, 
frankly, too many others remain, and I have grave concerns about the 
impact this underlying bill will have on the middle class. Backers say 
it is needed because initial public offerings are down since the 1990s. 
They blame regulation, ignoring evidence that the dot-com bubble 
bursting--which shook the confidence of many investors through lots of 
new IPOs coming on the market quickly with huge multiples in their 
prices and then quickly disappearing and leaving the scene altogether--
and the biggest financial collapse since the Great Depression, 
beginning in 2008 and lingering with us today, have shaken the 
confidence and, frankly, shaken the business calculation of many small 
businesses.
  These small businesses are looking to expand when they see the demand 
out there for their products. If the demand is there, they will, even 
in this environment, go forward with initial public offerings. They 
also repeatedly blame the lack of IPOs on accounting costs and all 
other compliance costs brought on by Sarbanes-Oxley and other laws. 
They conveniently ignore that the single largest cost, by a large 
multiple, is not the Sarbanes-Oxley audit costs or the attorney costs; 
they are the investment bankers' fees, and there is nothing in this 
legislation that will affect those fees whatsoever.
  In the case of Groupon, for example, the investment bankers were paid 
28 times what the auditors were paid. If we ask the shareholders of a 
company's stock whether they would prefer solid auditing practices 
going forward to ensure their investment is being wisely used, I think 
they would say they prefer that to paying large fees to investment 
bankers. In the case of LinkedIn, the underwriters were paid 18 times 
what the auditors were. Groupon paid their accountants and auditors 
$1.5 million, and their investment bankers received $42 million. So the 
notion that these Sarbanes-Oxley auditing costs and accounting 
procedures are what is stopping a business person from deciding to go 
ahead ignores the fact that compared to the investment banking fees 
which they will still have to pay, these costs are somewhat 
insignificant in comparison.
  Theoretically, this bill is supposed to promote the flow of capital 
to emerging businesses. But in practice it will likely promote and 
continue to promote the flow of big fees to investment bankers and 
others to bring these companies public. There is nothing wrong with 
that, but there is nothing in this underlying legislation that is going 
to require discounts in the cost of an IPO because of the reductions in 
accounting costs. There is nothing in this legislation that will change 
that dynamic. However, this legislation could give insiders more ways 
to manipulate the market while average investors are left out in the 
cold.
  There is a difference between cutting redtape and allowing insiders 
to cut corners--undoing the commonsense safeguards that protect people 
who play by the rules. The House bill lowers standards for taking 
companies public and lowers standards for protecting the public from 
investment fraud.
  This so-called IPO onramp desperately needs an offramp, through more 
careful consideration by the Senate and the House in conference so that 
we can improve some provisions which have great merit but need 
improvement. This bill would allow very large companies with up to $1 
billion in revenues per year to avoid financial transparency and 
auditing disclosure designed to ensure they are not manipulating their 
books while enjoying lighter regulation for up to 5 years after the 
IPO.
  If this unbalanced bill becomes, law without these needed 
improvements, it could weaken oversight of Wall Street--oversight that 
in the past has provided investors protections that are extremely 
important. Again, there is merit to the idea of giving small startup 
companies more financing options, but the devil is in the details, and 
the way this bill is written and packaged could have the opposite 
effect and ultimately make it harder to raise capital.
  It opens the spigot to general solicitation and mass marketing of 
what have traditionally been private securities offerings, and we could 
fully expect to have senior citizens and others--through nightly cable 
advertisements, through billboards, cold calls by brokers, or other 
individuals telling them about the special opportunities for investing 
their cash, fall for some of these tactics.
  Retail investors can be solicited through this bill's reg A process 
to raise up to $50 million capital for small businesses. They will hear 
the pitches to make their investment now and get rich.
  Again, there is potential for expanding the use of regulation A--it 
is on the books already at the Securities and Exchange Commission--but 
not without safeguards. For example, as the bill is currently drafted, 
these solicitations can be made without audited financial statements. I 
think as a point of departure, if someone is trying to sell a security, 
they should at least have to provide ordered financials from the 
company they are soliciting on behalf of.
  Now, the crowdfunding amendment, I hope, will be improved 
dramatically by the work of Senator Merkley and Senator Bennet and 
Senator Brown. We will be voting on that later today too. It is a 
substantial improvement, but I think even they themselves will admit 
this is an experiment and perhaps could be improved even further. But I 
commend them and salute them for what they have done, and I hope our

[[Page 3990]]

colleagues will accept the amendment and move forward.
  Over the last few days we have spent a great deal of time talking 
about the shortcomings in this legislation. With the exception of the 
proposals before us, many of these shortcomings still exist, and I 
think they will lead potentially to difficulties and harm to investors.
  People understand investing is risky. They try to make an informed 
choice, and they win some and lose some. But most Americans would agree 
that U.S. financial markets work best when investors have access to 
timely, comprehensive, and accurate public information that allows 
people to make solid investment decisions. In fact, one of the 
principles of the competitive market, if we refer to an economics 101 
textbook, is perfect information.
  That is the assumption for competitive markets: perfect information.
  Well, there is never perfect information. But there has to be 
adequate information. Otherwise it is not a market, it is a casino. 
This legislation undermines some of the decades-long protections we 
have had in place to provide at least adequate information to 
investors.
  By stripping away auditing standards and giving the investing public 
less information in almost every setting, sophisticated players and 
investment banks will have all the advantages. The average investor 
will be operating in much more challenged circumstances.
  Middle-class America will be particularly affected. As USA Today 
noted:

       Banks that manage IPOs will be able to use inside access to 
     past financial results to dominate research on new companies, 
     with incentives to promote their firm's banking clients.

  The American people want big banks and large companies to play fair 
and comply with the basic rules and responsibilities that go with being 
a public company. That is not too much to ask.
  I believe history will judge this misnamed bill quite harshly. 
Instead of rushing to pass this bill, we should be working together to 
protect the interests and economic well-being of the American public. 
We should be focused on creating jobs and helping working families. In 
my estimate, this bill does not do that and, indeed, ironically, it 
could harm our constituents by shattering their faith--and it has been 
tested quite recently by the financial crisis and other crises--in the 
market, rather than reinforcing their confidence that they will be 
protected against fraud and manipulation.
  I believe we are capable of writing better legislation without 
sacrificing important investor protections. I hope we can go forward. I 
am disappointed the substitute amendment, authored by myself and 
Senator Landrieu and Senator Levin, was not accepted. As such, I would 
urge, when we get to final passage, people think very seriously about 
the consequences of the bill. Despite the efforts of Senator Merkley 
and Senator Bennet, Senator Brown of Massachusetts and others, despite 
my efforts, I am afraid the final version of this legislation will not 
protect investors as it should and, therefore, should be rejected.
  Mr. President, I ask unanimous consent that any time remaining in 
quorum calls be equally divided between my Republican colleagues and my 
Democratic colleagues.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The Senator from Pennsylvania is recognized.
  Mr. TOOMEY. Mr. President, I would like to yield myself 5 minutes to 
discuss the JOBS Act.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. TOOMEY. Mr. President, I think we are on the verge of doing 
something very constructive in this body, something very constructive 
for our economy, for the American people, for economic growth, and for 
job creation. After being in a Congress that has thus far been a little 
frustrating for the lack of progress we have made on this front, today 
is a very big day.
  We have a chance to pass a bill that has passed the House 
overwhelmingly with a huge bipartisan majority--a bill that the 
President of the United States has said he will sign into law. We have 
a chance to pass this, to have it signed into law, and to, thereby, 
enable small and growing businesses across America greater access to 
the capital they need to grow, to hire new workers, to help expand this 
economy, to really make some progress at a time when we need it badly.
  The bill I am talking about, of course, is the JOBS Act. It has 
passed the House 390 to 23--an overwhelming majority. It consists of a 
series of component measures I will talk about in a little bit in some 
detail--each of which has either passed the full House almost 
unanimously or at least in committee by overwhelming majorities. This 
is very broad bipartisan support.
  It is important, however, that to get to this point we need to defeat 
the amendment offered by my friend and colleague, whom I respect a 
great deal, the Senator from Rhode Island, who is offering an amendment 
that would have devastating unintended consequences--an amendment that 
does not merely weaken the progress we are going to make with this bill 
but would actually take us backwards from where we are today.
  The way in which it would do that--and I doubt this is the intent, 
but I am sure this is the consequence of this amendment--if it were 
enacted, this amendment would cause companies that are organized as 
private companies, for good and sufficient reasons--many for many 
years; they choose to be private companies because it is what is best 
for their business, their employees, and their customers--it would 
force many of them to become public companies against their will.
  Because a change in the rules, in the regulations by which we count 
the number of shareholders--as the amendment from the Senator from 
Rhode Island would do--would trigger this change in the status of these 
companies, having an enormously detrimental impact on many companies, 
raising their costs of compliance dramatically, making them less 
profitable.
  I am very concerned, for instance, among the many ways this could 
happen--one could be through ESOPs, the employee stock ownership plans. 
I know the Senator from Rhode Island believes they would not trigger 
this. I think it is very likely they would. Not only would this force 
private companies to go public against their will, but it would 
discourage the creation of employee ownership in companies. I think the 
last thing we want to do is discourage a very constructive way of 
compensating employees.
  So if we can defeat the Reed amendment, then we can move on to--I 
think we will have another amendment that will deal with crowdfunding. 
I do not know whether that passes. But either way we will be able to 
expand the opportunity of small companies to raise capital through 
crowdfunding mechanisms. Then we will have a final passage vote on what 
I think might be the most progrowth measure this body will consider 
perhaps this whole year.
  Let me walk through a couple of specific items.
  This is a chart I have in the Chamber that shows just a sampling of 
the organizations and institutions that support this bill. It is a wide 
range of businesses and business associations, folks who are in the 
business of launching new companies, of growing small companies. It is 
a long list. This is an incomplete subset of that list.
  As shown on this next chart, this is an important point I want to 
make; that is, there is a very vast range of investor protections that 
are completely unaddressed, completely unaffected by this legislation.
  The legislation is actually modest in the regulations it changes, and 
the categories it leaves in place to protect investors who are choosing 
to invest in companies--be they public or private--are quite extensive. 
A whole range of antifraud provisions that remain in full force are 
unaffected.
  A full range of SEC disclosure and reporting obligations remain 
entirely still in full force. There are governance rules that are 
unaffected by any of this

[[Page 3991]]

legislation--proxy statements, reporting obligations. We have a very 
extensive body of law and regulation that very precisely controls all 
kinds of reporting and disclosure requirements designed to protect 
investors. It all stays in place.
  Investors remain very well protected if this legislation is enacted.
  I want to touch on the three aspects I think I am most excited about, 
and I will acknowledge my bias. These are three bills I introduced with 
Democratic cosponsors in the Senate, each of which has been rolled up 
into this package, in addition to the crowdfunding piece I alluded to 
earlier and a bill introduced by Senator Thune and others that is also 
part of this package.
  One of the pieces in this jobs package that is very constructive is a 
bill I introduced with Senator Tester. This is a bill that takes the 
existing regulation A in the securities law, the body of law--
regulation A allows companies to issue a security in a streamlined 
regulatory fashion. It streamlines the process. It reduces costs 
somewhat. The problem is, the current limit is only $5 million, making 
it not very practical for the vast majority of companies. Our bill 
would take that limit to $50 million and make this an option to raise 
capital and grow a business that would be available to far more 
companies.
  A second piece that I introduced with Senator Carper, and I am very 
grateful to Senator Carper for his work, is to lift the permissible 
number of shareholders that a small privately held business can have 
without triggering the full, very expensive, and onerous SEC compliance 
regime. Our bill would take that from a current level of 500 up to 
2,000. There are many companies throughout Pennsylvania, across the 
country, that are successful. They are thriving, they are growing, but 
they have a number of shareholders that is bumping up against their 
limit. They are close to 500. They need to raise capital. They do not 
want to go public, and they have plenty of people who would like to 
invest in their successful business so they can grow. But they cannot 
do it because they are so close to the threshold. We would lift that 
threshold to 2,000 so they can raise more money in the private markets 
which is available to them.
  Then, finally, what is in some ways the centerpiece of this 
legislation in my mind is a bill I introduced with Senator Schumer, and 
I thank him for his work. This is a bill that facilitates going public. 
When a company reaches that point in its growth where--in order to grow 
further, in order to hire more workers, in order to expand--it needs to 
become a publicly traded company, we make it more affordable for more 
companies to do that, so they can do it sooner, they can grow sooner, 
they can hire the additional workers sooner.
  We do it with what we call an onramp. It is a process by which a 
company--if it has less than $1 billion in sales, less than $750 
million in market flow--such a company would be able to do a public 
offering without being subject to all of the most expensive parts of 
the SEC regulatory regime. They would be required to comply with a big 
majority of all of the existing reporting requirements, but there would 
be some pieces--especially section 404(b) of the Sarbanes-Oxley Act, 
which is extremely complex and expensive to comply with--they would not 
have to fully comply with that for 5 years or until they reached $1 
billion in sales or $750 million in market flow, whichever came first.
  So what we are doing with this part of the JOBS Act is we are giving 
small and growing companies an opportunity to grow into the ability to 
afford the most expensive regulation to which they would be subject. 
Nobody is exempted permanently. Everybody who goes public would be 
subject to the full panoply of regulations within 5 years or sooner if 
they grow faster, and it is only available to companies that have 
sales, as I said, of less than $1 billion. But that describes a great 
number of companies.
  I can tell you from personal experience, when a company is 
approaching that threshold of asking themselves: Should we go public--
we could grow, we could use the capital, we could deploy it to hire 
more workers, we could make constructive use of it--they also have to 
weigh the cost. The cost of compliance right now is huge, and we have 
seen a huge dropoff in the number of IPOs. We have seen a huge 
extension in the period of time between the successful launch of a 
company and the moment they do an IPO. We have seen that lengthen 
dramatically since we passed Sarbanes-Oxley. It is, in part, because it 
is so expensive to comply.
  So what we will be doing, if we pass this legislation today--which I 
certainly hope we will--is making it a little bit more affordable for 
companies to make that decision sooner, which means hiring workers 
sooner, which means growing sooner, which means more growth for our 
economy, more opportunities for all of the people we represent.
  So I am very optimistic. I am very pleased that we have been able to 
pull together such broad bipartisan support--this overwhelming vote in 
the House, the endorsement of the President of the United States, the 
support and cooperation with individual Democratic Senators who have 
cosponsored key pieces of this legislation.
  I do think it is equally important we defeat the Reed amendment so we 
do not actually go backwards in this process and have the unintended 
consequence of forcing currently private companies to become public 
against their will, forcing them to incur all kinds of costs that are 
actually counterproductive. If we can do that today, then I think we 
can pass this legislation. We know the President of the United States 
will sign it. We should do it as soon as we can. I wish to thank all my 
colleagues who played a role in advancing us to the point we are at 
today.
  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. DURBIN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mrs. Hagan). Without objection, it is so 
ordered.
  Mr. DURBIN. Madam President, how much time is remaining in the debate 
on this measure?
  The PRESIDING OFFICER. There is 23 minutes total; 18 minutes on the 
majority side.
  Mr. DURBIN. Madam President, I see the floor is vacant. I assume the 
time is being taken from both sides at this moment.
  The PRESIDING OFFICER. In the quorum call, the time is being charged 
equally. Right now, it is being charged to the majority.
  Mr. DURBIN. Thank you. I will try to fill that time with something 
interesting. The United States has the best markets in the world. 
Because of strong regulation and oversight by the Securities and 
Exchange Commission and other agencies, our markets are transparent and 
investors get accurate detailed information. One hundred million 
Americans depend on the strong regulated markets when they are making 
their savings for retirement or college. This is a creation that began 
back after the Great Depression, when Franklin Roosevelt said we needed 
to establish the appropriate regulatory agencies to set the economy on 
the right track and keep it there.
  Strong oversight has helped pension fund managers who count on safety 
and transparency so they can provide pension benefits to millions of 
American retirees, and investors from around the world bring their 
money here because of our investor protections. Yet the Senate is 
considering a House-passed capital formation bill that rolls back the 
very protections that make our markets the best in the world.
  Supporters of this bill claim investors will jump at the opportunity 
to invest in a company as soon as we reduce disclosure, auditing, and 
accounting standards. They say this is a perfect way to create jobs. 
But why should investors choose to invest in companies under conditions 
that do less to protect

[[Page 3992]]

their money? Why should investors who were burned during the dot-com 
crash put more capital in companies that are exempt from the same rules 
we put in place to ensure it would never happen again? Why would 
investors who were left with nothing after the financial crisis because 
of risky behavior by executives with golden parachutes find companies 
exempt from compensation standards more attractive?
  The answer is they will not. The ones who do will be more exposed to 
deceit and fraud. The result will not be more jobs, it will be less 
transparency, less accountability. Professor John Coats of Harvard Law 
School agrees. Here is what he said: ``[T]he proposals could not only 
generate front-page scandals, but reduce the very thing they are being 
promoted to increase: job growth.''
  Listen to what SEC Chief Accountant Lynn Turner said:

       The proposed legislation is a dangerous and risky 
     experiment with US capital markets. . . . I do not believe it 
     will add jobs but may certainly result in investor losses.

  The House-passed bill, as written, will not create jobs, but let me 
tell you what it will do. It will exempt firms with more than $1 
billion in revenue--that is 90 percent of the newly public companies--
more than $1 billion of annual revenue exempted from the standards that 
help ensure audits based on facts, not on who is managing the auditor's 
contract. These are the same internal controls we just adopted after 
Enron, after we were burned there, after investors lost their money, 
after pension funds lost their investment, after people lost their 
jobs. We set up standards and said: Let it never happen again.
  In this euphoria, we are going to repeal the Enron standards for 
these companies. This bill would allow companies to use billboards and 
cold calls to lure unsophisticated investors with the promise of making 
a quick buck investing in new companies.
  According to the New York Times, it will allow anyone with an idea to 
post that idea online and raise $1 million without ever providing 
financial statements. This is a scam. How many times have we picked up 
our cell phones to see there is a Nigerian opportunity out there? Be 
prepared after this bill passes. They will not be from Nigeria; they 
may be from next door. We are giving them the opportunity to ask people 
all across America for their hard-earned savings on investments that 
are not backed with financial statements.
  Last Friday, SEC Commissioner Aguilar joined the Chairman of the SEC 
Mary Schapiro in raising concerns about this House-passed bill. Is that 
not fair warning that we ought to at least have a hearing on this bill 
before it passes?
  I ask unanimous consent to have Commissioner Aguilar's statement 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

   [From the U.S. Securities and Exchange Commission, Mar. 16, 2012]

        Investor Protection Is Needed for True Capital Formation

                   (By Commissioner Luis A. Aguilar)

       Last week, the House of Representatives passed H.R. 3606, 
     the ``Jumpstart Our Business Startups Act.'' It is clear to 
     me that H.R. 3606 in its current form weakens or eliminates 
     many regulations designed to safeguard investors. I must 
     voice my concerns because as an SEC Commissioner, I cannot 
     sit idly by when I see potential legislation that could harm 
     investors. This bill seems to impose tremendous costs and 
     potential harm on investors with little to no corresponding 
     benefit.
       H.R. 3606 concerns me for two important reasons. First, the 
     bill would seriously hurt investors by reducing transparency 
     and investor protection and, in turn, make securities law 
     enforcement more difficult. That is bad for ordinary 
     Americans and bad for the American economy. Investors are the 
     source of capital needed to create jobs and expand 
     businesses. True capital formation and economic growth 
     require investors to have both confidence in the capital 
     markets and access to the information needed to make good 
     investment decisions.
       Second, I share the concerns expressed by many others that 
     the bill rests on faulty premises. Supporters claim that the 
     bill would improve capital formation in the United States by 
     reducing the regulatory burden on capital raising. However, 
     there is significant research to support the conclusion that 
     disclosure requirements and other capital markets regulations 
     enhance, rather than impede, capital formation, and that 
     regulatory compliance costs are not a principal cause of the 
     decline in IPO activity over the past decade. Moreover, 
     nothing in the bill requires or even incentivizes issuers to 
     use any capital that may be raised to expand their businesses 
     or create jobs in the U.S.
       Professor John Coates of Harvard Law School has testified 
     that proposals of the type incorporated into H.R. 3606 could 
     actually hurt job growth:
       ``While [the proposals] have been characterized as 
     promoting jobs and economic growth by reducing regulatory 
     burdens and costs, it is better to understand them as 
     changing . . . the balance that existing securities laws and 
     regulations have struck between the transaction costs of 
     raising capital, on the one hand, and the combined costs of 
     fraud risk and asymmetric and unverifiable information, on 
     the other hand. Importantly, fraud and asymmetric information 
     not only have effects on fraud victims, but also on the cost 
     of capital itself. Investors rationally increase the price 
     they charge for capital if they anticipate fraud risk or do 
     not have or cannot verify relevant information. Anti-fraud 
     laws and disclosure and compliance obligations coupled with 
     enforcement mechanisms reduce the cost of capital.
       ``. . . Whether the proposals will in fact increase job 
     growth depends on how intensively they will lower offer 
     costs, how extensively new offerings will take advantage of 
     the new means of raising capital, how much more often fraud 
     can be expected to occur as a result of the changes, how 
     serious the fraud will be, and how much the reduction in 
     information verifiability will be as a result of the changes.
       ``Thus, the proposals could not only generate front-page 
     scandals, but reduce the very thing they are being promoted 
     to increase: job growth.''
       Similarly, Professor Jay Ritter of the University of 
     Florida has testified before the Senate banking committee 
     that such proposals could in fact reduce capital formation:
       ``In thinking about the bills, one should keep in mind that 
     the law of unintended consequences will never be repealed. It 
     is possible that, by making it easier to raise money 
     privately, creating some liquidity without being public, 
     restricting the information that stockholders have access to, 
     restricting the ability of public market shareholders to 
     constrain managers after investors contribute capital, and 
     driving out independent research, the net effects of these 
     bills might be to reduce capital formation and/or the number 
     of small [emerging growth company] IPOs.''
       As drafted, H.R. 3606 would have significant detrimental 
     impacts on the U.S. securities regulatory regime, including 
     the following:
       First, the bill will reduce publicly available information 
     by exempting ``emerging growth companies'' from certain 
     disclosure and other requirements currently required under 
     the Federal securities laws. The bill's definition of 
     ``emerging growth company'' would include every issuer with 
     less than $1 billion in annual revenues (other than large 
     accelerated filers and companies that have issued over $1 
     billion in debt over a three year period) for five years 
     after the company's first registered public offering. It is 
     estimated that this threshold would pick up 98% of IPOs and a 
     large majority of U.S. public companies for that five year 
     period.
       An emerging growth company would only have to provide two 
     years (rather than three years) of audited financial 
     statements, and would not have to provide selected financial 
     data for any period prior to the earliest audited period 
     presented in connection with its initial public offering. It 
     would also be exempt from the requirements for ``Say-on-Pay'' 
     voting and certain compensation-related disclosure. Such 
     reduced financial disclosure may make it harder for investors 
     to evaluate companies in this category by obscuring the 
     issuer's track record and material trends.
       ``Emerging growth companies'' would also be exempt from 
     complying with any new or revised financial accounting 
     standards (other than accounting standards that apply equally 
     to private companies), and from some new standards that may 
     be adopted by the PCAOB. Such wholesale exemptions may result 
     in inconsistent accounting rules that could damage financial 
     transparency, making it difficult for investors to compare 
     emerging companies with other companies in their industry. 
     This could harm investors and, arguably, impede access to 
     capital for emerging companies, as capital providers may not 
     be confident that they have access to all the information 
     they need to make good investment decisions about such 
     companies.
       Second, the bill would greatly increase the number of 
     record holders a company may have, before it is required to 
     publish annual and quarterly reports. Currently, companies 
     with more than 500 shareholders of record

[[Page 3993]]

     are required to register with the SEC pursuant to Section 
     12(g) of the Securities Exchange Act and provide investors 
     with regular financial reports. H.R. 3606 would expand that 
     threshold to 2000 record holders (provided that, in the case 
     of any issuer other than a community bank, the threshold 
     would also be triggered by 500 non-accredited investors). 
     Moreover, the bill would exclude from such counts any 
     shareholders that acquire securities through crowdfunding 
     initiatives and those that acquire securities as eligible 
     employee compensation. Thus, a company could have a virtually 
     unlimited number of record stockholders, without being 
     subject to the disclosure rules applicable to public 
     companies. This effect is magnified by the fact that the 
     reporting threshold only counts records holders, excluding 
     the potentially unlimited number of beneficial owners who 
     hold their shares in ``street name'' with banks and brokerage 
     companies, and thus are not considered record holders.
       This provision of the bill raises concerns because it could 
     significantly reduce the number of companies required to file 
     financial and other information. Such information is critical 
     to investors in determining how to value securities in our 
     markets. Regular financial reporting enhances the allocation 
     of capital to productive companies in our economy.
       Third, the bill would exempt ``emerging growth companies'' 
     from Section 404(b) of the Sarbanes-Oxley Act, which requires 
     the independent audit of a company's internal financial 
     controls. Section 404(b) currently applies only to companies 
     with a market capitalization above $75 million; companies 
     below that threshold have never been subject to the internal 
     controls audit requirement and were exempted from such 
     requirement in the Dodd-Frank Act. The internal controls 
     audit was established following the accounting scandals at 
     Enron, WorldCom and other companies, and is intended to make 
     financial reporting more reliable. Indeed, a report last year 
     by Audit Analytics noted that the larger public companies, 
     known as accelerated filers, that are subject to Section 
     404(b), experienced a 5.1% decline in financial statement 
     restatements from 2009 to 2010; while non-accelerated filers, 
     that are not subject to Section 404(b), experienced a 13.8% 
     increase in such restatements. A study by the SEC's Office of 
     the Chief Accountant recommended that existing investor 
     protections within Section 404(b) be retained for issuers 
     with a market capitalization above $75 million. With the 
     passage of H.R. 3606, an important mechanism for enhancing 
     the reliability of financial statements would be lost for 
     most public companies, during the first five years of public 
     trading.
       Fourth, the bill would benefit Wall Street, at the expense 
     of Main Street, by overriding protections that currently 
     require a separation between research analysts and investment 
     bankers who work in the same firm and impose a quiet period 
     on analyst reports by the underwriters of an IPO. These rules 
     are designed to protect investors from potential conflicts of 
     interests. The research scandals of the dot-com era and the 
     collapse of the dot-com bubble buried the IPO market for 
     years. Investors won't return to the IPO market, if they 
     don't believe they can trust it.
       Fifth, H.R. 3606 would fundamentally change U.S. securities 
     law, by permitting unlimited offers and sales of securities 
     under Rule 506 of Regulation D (which exempts certain non-
     public offerings from registration under the Securities Act), 
     provided only that all purchasers are ``accredited 
     investors''. The bill would specifically permit general 
     solicitation and general advertising in connection with such 
     offerings, obliterating the distinction between public and 
     private offerings.
       This provision may be unnecessary. A recent report by the 
     SEC's Division of Risk, Strategy and Financial Innovation 
     confirms that Regulation D has been effective in meeting the 
     capital formation needs of small businesses, with a median 
     offering size of $1,000,000 and at least 37,000 unique 
     offerings since 2009. Regulation D offerings surpassed $900 
     billion in 2010. The data does not indicate that users of 
     Regulation D have been seriously hampered by the prohibition 
     on general solicitation and advertising.
       I share the concerns expressed by many that this provision 
     of H.R. 3606 would be a boon to boiler room operators, Ponzi 
     schemers, bucket shops, and garden variety fraudsters, by 
     enabling them to cast a wider net, and making securities law 
     enforcement much more difficult. Currently, the SEC and other 
     regulators may be put on notice of potential frauds by 
     advertisements and Internet sites promoting ``investment 
     opportunities.'' H.R. 3606 would put an end to that tool. 
     Moreover, since it is easier to establish a violation of the 
     registration and prospectus requirements of the Securities 
     Act than it is to prove fraud, such scams can often be shut 
     down relatively quickly. H.R. 3606 would make it almost 
     impossible to do so before the damage has been done and the 
     money lost.
       In addition others have noted that the current definition 
     of ``accredited investor'' may not be adequate and that the 
     requirement that purchasers be accredited investors would 
     provide limited protection. For example, an ``accredited 
     investor'' retiree with $1 million in savings, who depends on 
     that money for income in retirement, may easily fall prey for 
     a ``hot'' offering that is continually hyped via the internet 
     or late night commercials.
       These are just a few observations regarding H.R. 3606. It 
     also includes other provisions that require substantial 
     further analysis and review, including among other things the 
     so-called crowdfunding provisions.
       The removal of investor protections in this bill are among 
     the factors that have prompted serious concerns from the 
     Council of Institutional Investors, AARP, the North American 
     Securities Administrators Association, the Consumer 
     Federation of America, and Americans for Financial Reform, 
     among others.


                        Questions Re: H.R. 3606

       As H.R. 3606 is considered, the following is a non-
     exhaustive list of questions that should be addressed:
       1. The bill would define ``emerging growth company'' as any 
     company, within 5 years of its IPO, with less than $1 billion 
     in annual revenue, other than a large accelerated filer or a 
     company that has issued $1 billion in debt over a three-year 
     period.
       What is the basis for the $1 billion revenue trigger?
       Why is revenue the right test? Why is $1 billion the right 
     level?
       It has been estimated that this definition would include 
     98% of all IPOs, and a large majority of all public companies 
     within the 5-year window. Was such a broad scope intended?
       2. As provided in the bill, financial accounting standards, 
     auditing and reporting standards, disclosure requirements, 
     and the period for which historical financial statements is 
     required, could all differ as between ``emerging growth 
     companies'' and all other public companies--including all 
     companies that went public before December 8, 2011.
       How will these differences affect the comparability of 
     financial reporting for these two classes of issuers?
       Will reduced transparency, or lack of comparability, affect 
     the liquidity of emerging growth companies?
       Will reduced transparency or reduced liquidity affect the 
     cost of capital for emerging growth companies? Will investors 
     demand a ``discounted price'' to offset any perceived higher 
     risk resulting from reduced disclosures and protections?
       Will emerging growth companies be required to include risk 
     factors or other disclosure in their registration statements 
     and other filings, regarding transparency, comparability and 
     any potential effects thereof?
       3. The bill would expand the threshold for the number of 
     shareholders an issuer may have, before it is required to 
     file annual and other reports under Section 12(g) of the 
     Exchange Act, from 500 to 2000 (of which no more than 500 may 
     be non-accredited investors, for issuers other than community 
     banks), and would exclude from such counts shareholders that 
     acquire securities through crowdfunding initiatives and those 
     that acquire securities as eligible employee compensation.
       How was the new threshold of 2000 holders determined?
       Is that the right threshold for determining whether the 
     public interest in such securities justifies regulatory 
     oversight?
       How many companies would be exempted from registration and 
     reporting by the bill?
       When shares are held in ``street name'' the number of 
     beneficial owners may greatly exceed the number of record 
     holders. How will the new threshold of 2000 record holders be 
     applied in such cases?
       How would the exclusion of employees and crowdfunding 
     purchasers be applied, if such holders transfer their shares 
     to other investors? How would this be tracked?
       4. To the extent the bill results in reduced transparency 
     and/or reduced liquidity for emerging growth companies, or 
     for companies exempted from Exchange Act reporting by the new 
     thresholds under Section 12(g), such results may impact 
     investment decisions by institutional investors.
       How would mutual fund managers, pension fund 
     administrators, and other investors with fiduciary duties 
     address such reduced transparency or lack of liquidity in 
     making investment decisions?
       Could reduced transparency or reduced liquidity impact the 
     ability of fund managers to meet applicable diversification 
     requirements?
       Could such effects cause managers to increase concentration 
     into fewer US reporting companies? How would such 
     concentration affect market risk? Would the bill result in 
     investor funds being redirected to companies overseas?
       5. The bill is being promoted as a jobs measure, on the 
     grounds that reducing regulation will improve access to 
     capital for small and emerging businesses, allowing them to 
     grow and add employees.
       What is the evidence that regulatory oversight unduly 
     impedes access to capital?
       What is the evidence that companies that are otherwise 
     prepared to grow (that is, they have the appropriate business 
     model, management team, and aspirations) are prevented from 
     growing by an inherent lack of access to potential sources of 
     capital?

[[Page 3994]]

       I understand that the costs of complying with regulatory 
     requirements are a factor underpinning H.R. 3606. How do such 
     costs compare to other costs of raising capital, such as 
     investment banking fees? How do such costs compare to other 
     administrative costs? If reduced transparency, lack of 
     comparability, and other consequences of the bill result in a 
     higher cost of capital for emerging growth companies, will 
     the money saved on compliance be worth it?
       6. Evidence shows that the public companies that are 
     currently exempt from internal controls audit requirements 
     have a higher incidence of financial reporting restatements, 
     and that companies that have restated their financial results 
     produce substantially lower returns for investors.
       How do any perceived benefits from H.R. 3606's exemption of 
     emerging growth companies from the audit of internal controls 
     compare to the likelihood of increased restatements? Would an 
     increase in restatements hamper capital formation?
       Will the lack of an internal controls audit result in 
     greater financial and accounting fraud?
       7. The bill requires the Commission to revise its rules to 
     provide that the prohibition against general solicitation or 
     general advertising contained in Regulation D shall not apply 
     to offers and sales of securities pursuant to Rule 506, 
     provided that all purchasers are accredited investors.
       Given the success of Regulation D as a capital raising 
     mechanism, including its successful use by small and emerging 
     companies, is there any evidence that general solicitation 
     and general advertising are necessary for capital formation?
       Given the current definition of ``accredited investor'', is 
     that the right test for determining who issuers may target, 
     in offers made by general solicitation or advertising?


                               Conclusion

       H.R. 3606 would have a significant impact on the capital 
     markets and raises many questions that have yet to be 
     satisfactorily resolved. I have yet to see credible evidence 
     that justifies the extensive costs and potential harm to 
     investors this bill may impose.
       I urge Congress to undertake the review necessary to 
     resolve these questions, and to ensure that investors, as the 
     providers of the capital that companies need to grow and 
     create jobs, have the protections they need and deserve.

  Mr. DURBIN. Commissioner Aguilar said he shares concerns expressed by 
many that provisions of this bill would be a boon to boiler room 
operators, Ponzi schemers, bucket shops, and garden variety fraudsters 
by enabling them to cast a wider net and make securities law 
enforcement that much more difficult.
  Others have raised concerns. The North American Securities 
Administrators Association, the Consumer Federation of America, the 
Americans for Financial Reform, the Council of Institutional Investors, 
securities experts such as Professor John Coffee and former SEC Chief 
Accountant Lynn Turner, the AARP, concerned that seniors will be bilked 
out of their savings with these phony solicitations for companies that 
may not even exist.
  I share the concerns. I believe there is a path forward to protect 
investors and make it easier for small firms to come up with capital. 
Several of my colleagues had a substitute amendment--Senator Jack Reed, 
Senator Carl Levin, Senator Mary Landrieu--which would have done just 
that, made it easier to raise capital but kept the safeguards in place.
  It was defeated virtually on a party-line vote. It was defeated. It 
would have preserved the Dodd-Frank say-on-pay provisions to allow 
investors to weigh in if executives are getting exorbitant compensation 
and golden parachutes. The amendment would have prohibited companies 
from advertising and selling stock to the unsophisticated, unsuspecting 
investors. It would have included minimum requirements for 
crowdfounding Web sites so investors are not blindly giving money to 
someone with a good-looking Web site that promises a good return that 
will never ever happen.
  In short, the amendment would have responded to investors' concerns--
the very same investors some of my colleagues claim the underlying bill 
will encourage to invest.
  That is not all we have done. The amendment also included a 
reauthorization of the Export-Import Bank, which makes loans to major 
companies and smaller companies too who want to export American-made 
products made by American workers.
  The reauthorization increased the bank's lending cap to $140 billion. 
This is the same Export-Import Bank that received bipartisan support in 
the Banking Committee and was reported out on a voice vote. A similar 
reauthorization was introduced by a Republican the last time around in 
2006. It passed the Senate without even the requirement of a record 
vote.
  However, yesterday, both the Landrieu-Reed-Levin amendment, which was 
the substitute that included the Export-Import Bank reauthorization, 
and the Cantwell amendment failed to obtain enough votes to invoke 
cloture, mostly on a party-line vote. Two Republicans voted to extend 
the Export-Import Bank authorization--two. This is a bank which gives 
our companies in America a fighting chance around the world to compete 
with those companies in other countries that are subsidized by their 
government. We have the Export-Import Bank to help our companies, 
companies in my State such as Boeing and Caterpillar. Good-paying jobs 
right here in America, sustained by exports, helped by the Export-
Import Bank, defeated on the floor of the Senate. Only two Republican 
Senators would step up and vote for that bank, and it used to be 
noncontroversial. We did it because we knew it was so good for our 
economy. It turned out to be a partisan issue.
  Too many things turn out to be partisan issues on the Senate floor 
lately. That is the latest casualty. It is clear that politics and 
theoretical jobs created by a bill that significantly reduces investor 
protections are more important to some of my colleagues than the real 
jobs that would have been created by the Export-Import Bank.
  The Export-Import Bank is responsible for supporting 288,000 American 
jobs at more than 2,700 U.S. companies. One would think it would have 
won more than two Republican votes. Madam President, 113 of these 
companies are located in my State of Illinois and 80 are small 
businesses.
  One of those companies, Holland LP, in Crete, IL, employs 250 people 
and completed a major export transaction with assistance from the 
Export-Import Bank. Holland was able to sell two complete in-track 
welding systems to a company in Brazil.
  The CEO of Holland said: ``Without [the Export-Import Bank], this 
transaction would not have come to life.''
  That is how the Ex-IM Bank can help companies in my State and 
companies around the United States.
  I have to say, there will be an amendment offered soon, this 
afternoon, within the hour, the Merkley-Bennet-Scott Brown amendment, 
which is bipartisan. It would allow small businesses to raise up to $1 
million through crowdfunding Web sites but will put in protections for 
investors from those posing as a business and selling a lot more hope 
than substance.
  The amendment would require all crowdfunding Web sites to register 
with the SEC. That is a step in the right direction. It is one of the 
most important elements that needs to be changed in this bill out of 
about eight elements, and it is the only one we are likely to address 
this afternoon.
  I urge my colleagues to support the amendment of Jack Reed of Rhode 
Island requiring the SEC to revise the definition of ``holder of 
record.'' The financial industry has been working overtime to beat this 
amendment. They have been on the phones calling everybody saying, 
``Stop the Reed amendment.''
  According to John Coffee, a professor at Columbia Law School, the 
shareholder of record concept is archaic and can be gamed.
  State securities regulators also share that same concern. The 
American Securities Administrators Association said in a recent letter 
that it makes little sense to exclude any investor from the count of 
beneficial holders.
  The Reed amendment would require the SEC to update the definition of 
``holder of record'' to revise an outdated definition that may hide the 
true number of shareholders a company might have.
  While I believe the bipartisan Merkley-Bennet and the Reed amendments 
will significantly improve parts of this bill, it doesn't make this a 
good bill. That is why I am prepared to vote no on final passage.

[[Page 3995]]

  This bill, as much as any bill we have ever considered on the Senate 
floor, should have at least had a hearing. We should have at least 
brought in some expert witnesses. I will tell you, we will rue the day 
we ran this thing through the House and Senate without the appropriate 
oversight. I can already predict, having seen this happen time and 
again, there will come a time, after we pass this bill, when we start 
hearing from Americans who are being lured into phony investments, 
losing their life savings and their retirement in the process, and we 
will step back and say: My goodness. How did that happen? Remember, on 
March 22, 2012, we had a chance to make a difference to slow down and 
stop this bill until there was an adequate hearing, until we could put 
safeguards into place, which Americans deserve.
  I am not against investment. I know there is risk associated with it. 
We have said since the 1930s--1932--under the creation of the SEC, that 
we owe to Americans, when they make a decision about an investment, two 
basic elements: Make sure the salesman is telling the truth and make 
sure what he said can be backed up with audited financial statements.
  We can all remember stories about the people who used to blow in, sit 
down and sell penny stocks and $5 stocks and unsuspecting investors 
losing their savings as these folks caught the next train out of town. 
We don't need to return to that in the name of job creation. If we are 
creating the jobs of new charlatans who are offering these investments, 
these are not the kinds of jobs America should encourage.
  I believe the House-passed bill should be defeated today. We should 
take the time to get it right and listen to the Chairman of the SEC and 
put the protections in the law so we can move forward with a bill that 
all of us can be proud of.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Oregon is recognized.
  Mr. MERKLEY. Madam President, I rise to address the amendment on 
crowdfunding that we will be considering shortly on the floor of the 
Senate. Specifically, the goal is to create a solid foundation for 
success of enabling Americans to invest in startup companies, invest in 
small companies through the Internet, and to do so in a fashion that 
does not result in predatory scams but results in capital formation 
that helps small business thrive across our Nation.
  The House bill, as it came over to us, has crowdfunding provisions 
that are simply a pathway to predatory scams, a paved highway to 
predatory scams. What do I mean by that? They say basically that a 
company seeking to raise investment capital doesn't have to give any 
financial information of any kind about their company. If they do 
provide information, they don't have to have accountability for the 
accuracy of that information. By the way, they can hire people to pump 
their stock, and that is OK under the law. In other words, everything 
we associate with the worst boiler rooms, the worst pump-and-dump 
schemes, is made legal by the House legislation. That is why we need to 
fix this on the floor of the Senate.
  We lay out a provision that says, if you raise less than $100,000, 
you as the CEO assert the accuracy of the information you are putting 
out--simple financial statements. If you raise a larger amount of 
funds, you proceed to have an accountant-reviewed statement that you 
can vouch for. If you raise yet more funds, at a higher level, then you 
have an audited financial statement. So it is adjusted in degrees and 
it streamlines it to the appropriate levels, based on the amount of 
investment you are asking.
  This amendment says directors and officers should take responsibility 
for the accuracy of that information. That will give investors a great 
deal more confidence that what they are reading is actually and truly 
the case. That is a foundation for successful investment.
  There are many folks across the country who have looked at these 
crowdfunding positions, different measures. I thought I would read from 
Motaavi, a crowdfunding intermediary based out of North Carolina. On 
the House bill, they say:

       The crowdfunding language in the [House bill] lacks 
     critical investor protection features. It does not require 
     offerings to be conducted through an intermediary, which 
     opens the door to fraudulent activity. . . . 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.
       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 
     [House] language does not provide investors with other 
     alternatives short of giving up on crowdfunding altogether.

  They then comment on the bipartisan amendment we are presenting on 
the floor of the Senate, and they note:

       It 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. The bill has many provisions for appropriate 
     rulemaking, and is written in a way that reflects how 
     crowdfunding actually works.

  Remember, this is a crowdfunding intermediary based in North 
Carolina--one working to occupy this Internet space and wants a 
platform, a structure, that works and makes crowdfunding a legitimate 
strategy for capital formation.
  The letter continues:

       We think crowdfunding can be a valuable and integral part 
     of the capital formation process. The Crowd Funding Act is 
     the right bill [the amendment we are considering today] to 
     make this happen.

  Launcht is a crowdfunding portal provider. They say:

       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.

  Let's turn to the startup exemption--three entrepreneurs who have led 
the charge in our Capitol for flexible provisions for crowdfunding:

       We write to suggest that if you consider the House version 
     of the bill, you consider adding the following crucial 
     components:
       1. Crowdfunding investing intermediaries that are SEC-
     regulated to provide appropriate oversight.
       2. All or nothing financing so that an entrepreneur must 
     hit 100 percent of his funding target, or no funds will be 
     exchanged.
       3. State notification, rather than state registration, so 
     the states are aware of who is crowdfunding in their states. 
     This ensures they retain their enforcement ability while 
     creating an efficient marketplace.

  These provisions are in the amendment we are considering and the 
amendment they have endorsed.
  Finally, we have SoMoLend, a peer-to-peer lending site. Here is their 
commentary, where they say this amendment is:

       . . . robust enough to provide guidance to a new industry, 
     but will also benefit the crowdfunding industry in the long-
     term, as compared to a possible race to the bottom with a 
     ``no regulatory'' approach. The disclosure and regulatory 
     requirements will provide adequate information to investors, 
     advising of risk but also deterring fraud.

  It continues:

       Again, this has long-term benefits to the industry as a 
     whole.

  This hits at the heart of why these investor protections are so 
important. Not only do they deter scams and fraud, not only do they 
protect vulnerable investors, such as seniors and others, who have 
little experience in the investing market, but they build a strong 
capital formation market, a successful platform for capital formation, 
a market that puts capital where citizens would like to put it--the 
wisdom of the crowd, if you will--a market that allows good ideas to 
rise to the top, a market that will create jobs now and in the future.
  I urge my colleagues to support amendment No. 1884 to provide the 
right balance of streamlining and investor protection.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REED. Madam President, I ask unanimous consent that the order for 
the quorum call be rescinded.

[[Page 3996]]

  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REED. Madam President, I ask unanimous consent to speak up to 1 
minute.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 1931

  Mr. REED. Madam President, shortly, we will be voting on my 
amendment, which will maintain the House's increase in the number of 
shareholders at 2,000 in order to remain private. But what I do is 
actually ensure that the shareholders are the real shareholders; that 
there is not an intermediary holding the stock in the name of perhaps 
literally hundreds of shareholders, but they are the real shareholders.
  There has been some criticism about the effect it will have on ESOPs, 
private funds, mutual funds, and others. We have been assured by legal 
experts it doesn't affect any of these funds or entities.
  In addition, the SEC has assured us that it, through rulemaking, can 
clarify that ESOPs, mutual funds, private funds, and other entities 
similar to these will not be affected. I believe if a company has 2,000 
real shareholders, those shareholders should have access to routine 
information on a regular basis, and that is the thrust of this 
amendment.


                         Shareholder Threshold

  Mrs. HUTCHISON. Madam President, one of the six components of the 
House-passed JOBS Act is a measure I sponsored here in the Senate to 
foster capital formation in the community banking industry. I 
appreciate the support of Senator Toomey and twelve additional 
cosponsors, including Senators Pryor, McCaskill and Bill Nelson. Our 
bill would update the threshold before a bank must register its 
securities with the Securities and Exchange Commission from 500 
shareholders to 2,000. It is Title 6 in the JOBS Act before us today. 
My colleague Senator Toomey has a bill contained in the JOBS Act as 
well that would raise the shareholder threshold for all companies. 
Senator Toomey's legislation is contained in Title 5 of the JOBS Act.
  On this point, my understanding is that Sections 501 and 601 of the 
JOBS Act address two distinct classes of issuers. One is a general 
provision for all issuers other than banks and bank holding companies--
and the other one applies to banks and bank holding companies. I ask 
the Senator, is this correct?
  Mr. TOOMEY. Yes, that is my understanding. I thank Senator Hutchison 
for all of her hard work on the bank shareholder bill, and for 
clarifying this point.
  Mrs. FEINSTEN. Madam President, I rise today in strong opposition to 
the JOBS Act. Supporters of this bill insist it will help small 
businesses looking to raise capital, but instead its primary effect 
would be to strip away critical investor protections.
  The House-passed bill applies to more than just small businesses. It 
also exempts large corporations--those with annual revenues up to $1 
billion--from important financial reporting requirements.
  There are many good reasons why public companies are required to 
undergo periodic examinations and disclose financial information, and 
this bill undercuts those protections.
  I remember the massive fraud and financial chicanery that led Enron 
to intentionally shut down powerplants in California in order to pump 
up profits. And all of us remember the lasting damage from the collapse 
of the dot-com bubble.
  Let me go over some of the problems with the House bill.
  It would eliminate the requirement that many companies audit their 
internal controls, a requirement put in place specifically in response 
to the Enron debacle.
  Companies with virtually no operating history could sell stock 
directly to the public over the Internet without going through any 
registered intermediary.
  The bill has no meaningful protections to prevent investors' savings 
from being wiped out on risky investments. Investors could bet 10 
percent of their annual income on any one company, with no limit to how 
much income or savings they could invest in multiple companies' stock 
sold over the Internet with little financial disclosure.
  The JOBS Act would reduce the number of years of audited financial 
statements that companies must publicly disclose.
  It would abolish shareholder advisory votes on executive compensation 
and golden parachutes.
  And it would eliminate the disclosure requirement of CEO-to-median-
worker salary ratio required under the Dodd-Frank Wall Street Reform 
Act.
  It remains unclear why the supporters of the JOBS Act believe 
disclosing executive compensation is an obstacle to companies going 
public.
  Under the JOBS Act, a fraudster could raise up to $1 million in small 
increments from mom-and-pop investors without having to disclose any 
significant financial or legal disclosures. Candidly, this could lead 
to the greatest proliferation of get-rich-quick schemes in history.
  It is a shame this process has unfolded in this manner and at this 
breakneck speed. There are some merits to the underlying goal of the 
bill.
  Reducing compliance costs on actual small businesses seeking to go 
public is a laudable goal. But instead of debating the issues, we are 
rushing through this bill.
  It is important to note that, even under the Sarbanes-Oxley law, 
financial game-playing by big public companies has not gone away. This 
bill would invite even more of that harmful activity, under the guise 
of being good for the public marketplace.
  Congress's recent track record on financial deregulation isn't very 
good. In the past decade or so Congress has eliminated the Glass-
Steagall firewall between commercial and investment banking and 
deregulated the over-the-counter derivatives market. We are still 
paying for those mistakes.
  I had hoped the Senate would be humbled by that experience. Instead, 
we are rushing through changes to decades-old securities laws that 
could have significant negative effects on investor protections.
  I voted against the JOBS Act so we can take the time to truly 
understand the ramifications of this bill for the marketplace, small 
businesses, and investors.
  Mrs. BOXER. Madam President, I wish to explain my opposition to H.R. 
3606, a bill that would undermine regulation of our financial markets 
and leave investors vulnerable to fraud.
  The underlying spirit of this legislation is one that I support: 
improving the ability of smaller companies, especially startups, to 
raise capital. Small companies are essential to our economy, and it is 
critical that they be able to raise capital efficiently. Our financial 
regulations should be up-to-date and pragmatic, realistically 
reflecting the size of new public companies in modern times, and new 
methods of reaching out to potential investors.
  However, I am deeply concerned that the bill goes too far in rolling 
back investor protections. These rules were created for a reason, often 
after hard lessons learned from scandals like Enron and WorldCom. They 
protect ordinary people from losing their retirement savings to 
corporate fraud and mismanagement, and help our markets function 
efficiently, ensuring that investors of all types have meaningful and 
accurate information. All companies benefit when investors have 
confidence in the safety and fairness of the marketplace.
  SEC Chair Mary Schapiro and SEC Commissioner Luis Aguilar have raised 
concerns that this bill will hinder securities law enforcement and 
reduce investor protection. Bloomberg News editorialized that it 
``would be dangerous for investors and could harm already fragile 
financial markets.'' The New York Times Editorial Board said this 
legislation ``would undo essential investor protections, reduce market 
transparency and distort the efficient allocation of capital.'' CalPERS 
and CalSTRS have expressed concerns, as have Americans for Financial 
Reform, AARP, AFL-CIO, AFCSME, Consumer Federation of America, the Main 
Street Alliance, the Sustainable Business Council, and many other well-
respected organizations.

[[Page 3997]]

  It is a mistake to rush this important piece of legislation when the 
possibility of a genuinely bipartisan compromise exists. The Reed-
Landrieu-Levin amendment, which was blocked by Senate Republicans 
despite bipartisan support from 54 Senators, would have greatly 
improved the bill. It would have allowed smaller companies to raise 
capital more easily, without going as far as the underlying bill in 
providing exemptions for companies with annual gross revenue of up to 
$1 billion. I thank my colleagues for their efforts in drafting that 
carefully balanced proposal.
  I am pleased that the bipartisan Merkley-Bennet-Brown amendment 
became part of the bill. It will allow companies to reach investors 
through social media, but with sensible rules to reduce fraud and 
provide meaningful regulatory oversight. Nevertheless, significant 
investor protection problems remain in the other sections of the bill, 
and I cannot support its passage.
  I was also disappointed that reauthorization of the Export-Import 
Bank, which was offered as an amendment by a group of bipartisan 
cosponsors, was blocked by Senate Republicans.
  The Ex-Im Bank keeps American businesses competitive worldwide, 
especially in countries with challenging economic and political 
conditions, and sustains American jobs in the process. The Bank's 
investments helped to support 290,000 export-related American jobs last 
year, including 21,025 in California. As the economic recovery 
continues, now is not the time to take away this support and put our 
companies at a disadvantage.
  This bill clearly was rushed; this bill is risky for investors, and 
that is why I voted no.
  Mr. JOHNSON of South Dakota. Madam President, I rise today to express 
my views on the bill that is before us--H.R. 3606--the Jumpstart Our 
Business Startups Act. This bill is a package of measures intended to 
increase capital formation a goal which I believe Democrats and 
Republicans share. Banking Committee members on both sides of the 
aisle, including Senators Schumer, Crapo, Tester, Vitter, Merkley, 
Toomey, Bennet and Johanns, teamed up to introduce a number of 
bipartisan legislation on this issue, and I commend them for their hard 
work.
  Small businesses are the engine of the American economy. Start-ups 
and small businesses create a majority of new jobs, and they deserve 
every opportunity to take an idea and turn it into an exciting, new 
venture that could lead to the next great American company.
  Investments are often necessary resources that allow start-ups and 
small businesses to grow. Unfortunately, the recent trend is that fewer 
emerging growth companies are entering the U.S. capital markets though 
IPOs. According to the IPO Task Force, 92 percent of job growth 
occurred after a company's IPO, so it makes sense to consider ways to 
facilitate more IPOs in a manner that protects investors. There are 
also novel ideas to help start-ups raise money over the Internet, 
reaching out to their friends through social media and inviting them to 
invest small amounts to help them grow their business.
  So in considering these new ideas to spur job creation in a balanced 
and thoughtful way, the Banking Committee held four hearings since last 
summer. We heard a wide range of views on how best to modernize our 
securities laws to allow new and growing companies to raise capital, 
but in a way that does not undermine investor protections so that 
people will still be willing to invest.
  At our hearings and through our efforts to explore this subject, 
members of the Banking Committee heard concerns about provisions in the 
House bill before us from a number of experts, including the Chairman 
of the Securities and Exchange Commission. One piece of the legislation 
attempts to encourage more companies to pursue an IPO by creating a so-
called ``on-ramp.'' The House bill determines that companies under $1 
billion in annual revenue should be exempt from disclosures for up to 5 
years. Witnesses at the Banking Committee's hearings raised concerns 
about whether this threshold is appropriate and accurately reflects 
those companies that need relief most. The House bill contains a 
provision to restrict the independence of accounting standard-setting 
by the Financial Accounting Standards Board. For many years Congress 
has debated whether we should legislate accounting standards or leave 
it to the experts. I remain unconvinced that interfering with the 
independence of FASB would be an appropriate action for Congress to 
take or would inspire more people to invest in IPOs.
  It is also unclear that eliminating safeguards to reduce conflicts of 
interest between stock research analysts and firms selling stock, as 
the House bill does, will on the whole be beneficial. The absence of 
such safeguards a decade ago led analysts to write conflicted stock 
recommendations which too many Americans believed and relied upon to 
invest, and ultimately lose, their money. Those misleading and 
fraudulent stock recommendations caused many Americans to pull out of 
the market and lose confidence in the integrity of the financial 
system. We must closely monitor this area going forward.
  Crowdfunding is a concept with potential, but I do not think that the 
House bill provides appropriate oversight of the online funding 
platforms to ensure that unsuspecting investors are not ripped off by 
an online scam. Operators of online funding platforms are not required 
to register with the SEC. While there is some information these 
operators are required to share with regulators, it remains unclear if 
this modest sharing of information will be sufficient for regulators to 
monitor these new equity-raising platforms in the same way investments 
on the stock market are monitored. The House bill needlessly limits the 
involvement of State securities regulators to help the SEC oversee new 
crowdfunding operations.
  In response to these concerns on crowdfunding, I was pleased to 
assist Senators Merkley, Bennet and others in crafting an alternative 
approach that strikes a better balance between capital formation and 
investor protection. The Merkley-Bennet amendment requires crowdfunding 
companies to provide basic disclosures, including a business plan and 
financial information to potential investors. It also requires 
companies offering stock online to either register as a broker-dealer 
with the SEC, or pursue a ``funding portal'' registration. This will 
provide greater oversight than the House bill. Among other key 
improvements, the Merkley-Bennet amendment provides for stronger 
Federal-State oversight coordination, and it allows for properly scaled 
investment limits as well as an aggregate investment cap across all 
crowdfunded companies, further protecting investors. For these reasons 
and more, I urge my colleagues to correct the weak House crowdfunding 
title and join me in supporting the Merkley-Bennet amendment.
  Another provision in the underlying House bill modernizes the 
Regulation A threshold by raising the cap on how much money can be 
raised in the capital markets without registering with the SEC. The 
House bill transfers authority away from Congress by requiring the SEC 
to review and potentially raise the threshold every 2 years. This has 
the potential to preclude a rigorous public debate about when and why 
the Regulation A threshold should be raised again.
  The House bill would also expand the ability of companies to 
advertise private offerings to accredited investors, referred to as 
Regulation D. Some have raised concerns that there are not enough 
protections for our seniors, who could be misled into investing in a 
company without a full appreciation of the level of risk they are 
taking on. This will also warrant close attention moving forward to 
ensure seniors are not taken advantage of.
  Finally, while I believe the current 500 Shareholder Rule should be 
updated, it is unclear if the House approach to dramatically raise the 
threshold to 2,000 shareholders of record is a balanced approach. A 
more modest increase seems more appropriate to balance investor 
protection

[[Page 3998]]

and transparency with capital formation.
  Throughout this process I have sought to help address needed investor 
protections in a thoughtful manner while helping to support 
entrepreneurs, grow small businesses, and put Americans back to work.
  But I did not write the underlying House bill before us today, and I 
was pleased to help support my colleagues in drafting the Senate 
substitute amendment. I believe the Senate substitute addresses each of 
the concerns I raised. I am disappointed more of my colleagues did not 
support this alternative that would have increased protections for 
investors.
  That said, no piece of legislation is perfect, and this bill contains 
innovative new solutions that have the potential to boost the economy. 
Small businesses and startups deserve the opportunity to test these new 
ideas, but Congress has chosen to act quickly.
  The House bill received 390 votes in the House, including most House 
Democrats, and the President and the Majority Leader support it. So 
despite my misgivings over a number of these provisions, I will support 
my Leader and the President and vote for this legislation.
  That said, we must all keep an eye on the effects of these changes as 
we plow this new ground. As lawmakers, we seek out the appropriate 
balance in writing laws, doing our best to promote a strong economic 
recovery while protecting the public from abuse and fraud which would 
undermine the confidence in our financial system.
  While I will support this underlying package today, I believe we all 
have a shared responsibility to ensure that going forward the new 
changes that we pass today will truly benefit, and not undermine, both 
start-ups and investors alike.
  Mr. BAUCUS. Madam President, in Taming of the Shrew, William 
Shakespeare wrote:

       There is small choice in rotten apples.

  I am here to talk about the choice we have this afternoon, on voting 
for final passage of H.R. 3606.
  Over the past week, the Senate has been debating a bill the House has 
called the JOBS Act. But as former Securities and Exchange Commission 
chief accountant Lynn E. Turner said recently:

       It won't create jobs, but it will simplify fraud.

  I fully support finding ways to help the private sector create good-
paying jobs.
  Last year, I worked with my colleagues on both sides of the aisle to 
pass the Vets Jobs bill, cutting taxes for small businesses while 
helping veterans get back to work. This Chamber also passed three free 
trade agreements, setting the stage to increase American exports to 
Korea, Colombia, and Panama by an estimated $13 billion a year, 
resulting in tens of thousands of new jobs. And just last week, the 
Senate passed overwhelmingly the highway bill, which will create and 
sustain more than 14,000 American jobs per year.
  But our choice today leaves much to be desired. While this bill 
includes some very positive changes to enhance and encourage small 
business investment, it includes several rotten apples that roll back 
important investor protections and put the integrity of our markets 
into question.
  So quickly we forget the past. Just over a decade ago, a company 
called Enron revealed one of the largest corporate and accounting 
scandals of our time. We all remember the stories of documents 
shredded, shell companies, exaggerated profits, and lax accounting 
rules.
  Within 1 month, shareholders lost nearly $11 billion as Enron stock 
plummeted. Families and employees lost their entire savings in a matter 
of days. Investor confidence in the entire system evaporated.
  Just a few years earlier, the dot-com boom hit a fever pitch. Wall 
Street firms worked frantically to put together initial public 
offerings for fledgling Internet companies. At the same time, these 
firms would agree to release upbeat research reports supporting the 
upcoming IPO in exchange for the company's underwriting business. 
Unassuming investors relied on this public research touting the IPOs, 
while firms failed to fully disclose the inherent conflicts of 
interest.
  Congress and the Securities and Exchange Commission responded to 
these scandals by putting investor protections in place to restore 
confidence in the markets and ensure companies provide comprehensive 
and honest information to the public. Thanks to these protections, 
investors no longer have to wonder whether the accounting and auditing 
disclosures are, in fact, independent and accurate. We can't afford to 
go backward.
  Still, these rules are not perfect. Congress should be looking at 
ways to ensure small businesses are given a level playing field.
  I hear from Montana small businesses that rules under the Sarbanes-
Oxley Act can be costly and time-consuming for small companies which 
simply lack capacity to handle the extra regulation. I agree we must 
also look at what these rules may be doing to hamper growth of U.S. 
small businesses. But we should not forget the past. We should not 
exempt big business carte blanche without fully discerning the 
implications.
  There are several pieces of this legislation with which I agree. I 
commend my colleague and friend from the State of Montana, Senator 
Tester, for his tireless effort to address legitimate concerns with the 
current cap on small business public offerings.
  Senator Tester introduced his bipartisan measure after meeting and 
talking to growing companies in Montana and elsewhere that could 
benefit greatly from raising the cap on regulation A small public 
offerings. Rob Bargatze, founder and CEO of Ligocyte, in Bozeman, MT, 
and chairman of the Montana Bioscience Alliance, testified in the 
Banking Committee last year on ideas to improve access to capital for 
the emerging bio industry.
  Rob rightly points out that the current $5 million cap ``does not 
allow for a large enough capital influx for companies to justify the 
time and expense necessary to satisfy even the relaxed offering and 
disclosure requirements.'' Senator Tester has done extraordinary work 
to shepherd this bill forward. It received considerable support in the 
House, and was included in the Senate substitute amendment that I 
supported on Tuesday.
  However, this straightforward update to regulation A has been folded 
into a broader House package. This package includes enough rotten 
apples to spoil the whole bunch. The House fails to take heed of past 
history. This bill goes too far in relaxing investor protections 
critical to preserving the integrity and transparency our markets 
depend on to function.
  For example, this bill includes a new IPO process to exempt companies 
from many SEC rules for a period of 5 years. The idea is to give small 
emerging companies time to comply with new auditing and reporting 
requirements. However, the House bill applies to all offerings by 
companies with sales less than $1 billion. At this level, even the very 
large, well-established companies will have a free pass for 5 years 
before complying with the very rules put in place to protect investors 
and the markets from another Enron-type scandal.
  Furthermore, the House creates a gaping hole in the rules set up 
after the dot-com bubble to prevent an underwriting bank from 
publishing research reports in support of the upcoming IPO. The House 
bill would now allow underwriting banks to issue such research to 
unsuspecting investors. And it limits the company's responsibility to 
make sure such research is accurate and comprehensive.
  We have seen too many examples lately of what can happen when we 
don't protect the little guys from Wall Street greed--just look at how 
MF Global took advantage of Montana ranchers, and that is when there 
were rules in place. We can't afford to go back to the days when Enron 
was able to swindle thousands of Americans out of their life savings.
  I appreciate the work of my colleagues on this matter, but we owe it 
to American workers and families to

[[Page 3999]]

see to it that this bill preserves investor confidence and integrity in 
our markets.
  I simply cannot support the House package containing so many bad 
apples.
  The PRESIDING OFFICER. Under the previous order, all postcloture time 
has expired.
  The question is on agreeing to the Reed amendment No. 1931.
  The amendment (No. 1931) was rejected.
  The PRESIDING OFFICER. Under the previous order, the motion to 
reconsider is considered made and laid upon the table.


                           Amendment No. 1884

  Under the previous order, there will now be 2 minutes of debate 
equally divided prior to a vote in relation to the Merkley amendment 
No. 1884.
  Who yields time?
  The Senator from Oregon.
  Mr. MERKLEY. Madam President, I have 1 minute?
  The PRESIDING OFFICER. The Senator is correct.
  Mr. MERKLEY. Colleagues, I want to encourage you to adopt amendment 
No. 1884. The House bill, as it came to us, on crowdfunding is a 
pathway to predatory scams. It requires no information to be provided 
by a company; and if the company provides information, it requires no 
responsibility or accountability for the accuracy of that information. 
It allows companies to hire people to pump the stocks, which is exactly 
what we all know, from pump-and-dump schemes, is very devastating to 
any sort of solid financial foundation for capital aggregation, capital 
formation.
  I want to applaud my colleagues Senator Bennet, Senator Landrieu, and 
Senator Brown of Massachusetts, who have worked together to bring this 
bipartisan amendment forward. It provides the right amount of 
streamlining for the companies, the right amount of streamlining for 
portals on the Internet, and the right set of investor protections, 
information, and accountability necessary to make crowdfunding fulfill 
the exciting potential it has.
  I thank the Chair.
  The PRESIDING OFFICER. The Senator's time has expired.
  Who yields time in opposition?
  Mr. KYL. I yield back.
  The PRESIDING OFFICER. All time is yielded back.
  The question is on agreeing to amendment No. 1884.
  The yeas and nays have been ordered.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. KYL. The following Senator is necessarily absent: the Senator 
from Illinois (Mr. Kirk).
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 64, nays 35, as follows:

                      [Rollcall Vote No. 54 Leg.]

                                YEAS--64

     Akaka
     Baucus
     Begich
     Bennet
     Bingaman
     Blumenthal
     Blunt
     Boxer
     Brown (MA)
     Brown (OH)
     Cantwell
     Cardin
     Carper
     Casey
     Coats
     Cochran
     Collins
     Conrad
     Coons
     Cornyn
     Durbin
     Feinstein
     Franken
     Gillibrand
     Grassley
     Hagan
     Harkin
     Hutchison
     Inouye
     Johnson (SD)
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Manchin
     McCaskill
     Menendez
     Merkley
     Mikulski
     Moran
     Murkowski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Whitehouse
     Wicker
     Wyden

                                NAYS--35

     Alexander
     Ayotte
     Barrasso
     Boozman
     Burr
     Chambliss
     Coburn
     Corker
     Crapo
     DeMint
     Enzi
     Graham
     Hatch
     Heller
     Hoeven
     Inhofe
     Isakson
     Johanns
     Johnson (WI)
     Kyl
     Lee
     Lugar
     McCain
     McConnell
     Paul
     Portman
     Risch
     Roberts
     Rubio
     Sessions
     Shelby
     Thune
     Toomey
     Vitter
     Webb

                             NOT VOTING--1

       
     Kirk
       
  The amendment (No. 1884) was agreed to.
  The PRESIDING OFFICER. Under the previous order, the motion to 
reconsider is considered made and laid upon the table.
  The question is on the engrossment of the amendment and third reading 
of the bill.
  The amendment was ordered to be engrossed and the bill to be read a 
third time.
  The bill was read the third time.
  The PRESIDING OFFICER. Under the previous order, there will now be 2 
minutes of debate, equally divided, prior to a vote on passage of H.R. 
3606, as amended.
  The Senator from Rhode Island.
  Mr. REED. Madam President, the House bill has some very promising 
concepts about providing access to capital. What it fails to do is 
adequately protect investors.
  We have tried, through our alternative, to protect investors. That 
alternative has been rejected on a cloture vote by the Senate. We have 
made some improvements with the Merkley proposal, but we are not quite 
to the point yet where I think we can be confident that investors will 
be protected. As such, I think we should vote against this legislation, 
and that we should in fact try again and get it right. That is why the 
head of the Securities Exchange Commission opposes this, and the state 
securities regulators, and former heads of the Securities Exchange 
Commission, and the Council of Institutional Investors, and many 
others.
  We are opening up vast loopholes in our securities laws without 
adequate disclosure for investors. I think we will regret this vote.
  The PRESIDING OFFICER. The Senator from Pennsylvania.
  Mr. TOOMEY. Madam President, I claim the time in support of the 
legislation.
  I suggest that we are on the verge of doing something very 
constructive for our economy, for small businesses, and for job growth, 
and it might be one of the most constructive things we are going to do 
this year in that area.
  This legislation makes it easier and more affordable for young and 
growing companies to go public, to raise the capital they need to grow, 
to hire more workers. It also actually makes it easier for those who 
want to remain private and to attract more investors, and to do so 
without triggering the very onerous and expensive regulations attendant 
to being a public company.
  This is going to create more jobs and more growth in the economy. 
That is why it passed the House with a vote of 390 to 23. That is why 
the President of the United States has endorsed this bill and said he 
will sign it into law. That is why there are dozens and dozens of 
organizations and groups and companies and trade associations that 
support this legislation, so that we can do something right here, right 
now, today, that the President will sign into law, which will help 
small and growing companies raise the capital they need to grow.
  I urge my colleagues to vote yes.
  The PRESIDING OFFICER. The question is, Shall the bill, as amended, 
pass?
  Mr. INHOFE. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be a sufficient second.
  The clerk will call the roll.
  The assistant bill clerk called the roll.
  Mr. KYL. The following Senator is necessarily absent: the Senator 
from Illinois (Mr. Kirk).
  The PRESIDING OFFICER (Mrs. McCaskill). Are there any other Senators 
in the Chamber desiring to vote?
  The result was announced--yeas 73, nays 26, as follows:

                      [Rollcall Vote No. 55 Leg.]

                                YEAS--73

     Alexander
     Ayotte
     Barrasso
     Bennet
     Bingaman
     Blunt
     Boozman
     Brown (MA)
     Burr
     Cantwell
     Carper
     Casey
     Chambliss
     Coats
     Coburn
     Cochran
     Collins
     Coons
     Corker
     Cornyn
     Crapo
     DeMint
     Enzi
     Graham
     Grassley
     Hagan
     Hatch
     Heller
     Hoeven
     Hutchison
     Inhofe
     Inouye
     Isakson
     Johanns
     Johnson (SD)
     Johnson (WI)
     Kerry
     Klobuchar
     Kohl
     Kyl
     Lee
     Lieberman

[[Page 4000]]


     Lugar
     Manchin
     McCain
     McCaskill
     McConnell
     Menendez
     Moran
     Murkowski
     Nelson (NE)
     Nelson (FL)
     Paul
     Portman
     Pryor
     Reid
     Risch
     Roberts
     Rubio
     Schumer
     Sessions
     Shaheen
     Shelby
     Snowe
     Stabenow
     Tester
     Thune
     Toomey
     Udall (CO)
     Vitter
     Warner
     Wicker
     Wyden

                                NAYS--26

     Akaka
     Baucus
     Begich
     Blumenthal
     Boxer
     Brown (OH)
     Cardin
     Conrad
     Durbin
     Feinstein
     Franken
     Gillibrand
     Harkin
     Landrieu
     Lautenberg
     Leahy
     Levin
     Merkley
     Mikulski
     Murray
     Reed
     Rockefeller
     Sanders
     Udall (NM)
     Webb
     Whitehouse

                             NOT VOTING--1

       
     Kirk
       
  The bill (H.R. 3606), as amended, was passed.

                          ____________________