[House Report 112-263]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-263
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ACCESS TO CAPITAL FOR JOB CREATORS ACT
_______
October 31, 2011.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Bachus, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 2940]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services to whom was referred
the bill (H.R. 2940) to direct the Securities and Exchange
Commission to eliminate the prohibition against general
solicitation as a requirement for a certain exemption under
Regulation D, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Access to Capital for Job Creators
Act''.
SEC. 2. MODIFICATION OF EXEMPTION.
(a) Removal of Restriction.--Section 4(2) of the Securities Act of
1933 (15 U.S.C. 77d(2)) is amended by adding before the period the
following: ``, whether or not such transactions involve general
solicitation or general advertising''.
(b) Modification of Rules.--Not later than 90 days after the date of
the enactment of this Act, the Securities and Exchange Commission shall
revise its rules issued in section 230.506 of title 17, Code of Federal
Regulations, to provide that the prohibition against general
solicitation or general advertising contained in section 230.502(c) of
such title shall not apply to offers and sales of securities made
pursuant to section 230.506, provided that all purchasers of the
securities are accredited investors. Such rules shall require the
issuer to take reasonable steps to verify that purchasers of the
securities are accredited investors, using such methods as determined
by the Commission.
Purpose and Summary
H.R. 2940, the ``Access to Capital for Job Creators Act,''
makes the exemption under the Securities and Exchange
Commission's (SEC) Regulation D Rule 506 available to issuers
even if the securities are marketed through a general
solicitation or advertising so long as the purchasers are
``accredited investors.'' The legislation would allow companies
greater access to accredited investors and to new sources of
capital to grow and create jobs, without putting less
sophisticated investors at risk. To ensure that only accredited
investors purchase the securities, H.R. 2940 requires the SEC
to write rules on how an issuer would verify that the
purchasers of securities are accredited investors.
Background and Need for Legislation
Capital formation is necessary for job creation. Companies
obtain capital through borrowing or equity financing. Because
banks have tightened their lending standards in the wake of the
economic crisis, there is less credit available to fund growth.
Accordingly, equity financing, in which investors purchase
ownership stakes in a company in exchange for a share of the
company's future profits, is an increasingly essential means of
providing small companies with the capital they need to grow
and create jobs. Unfortunately, regulations such as the
prohibition of general solicitation and advertising in
Regulation D Rule 506 offerings inhibit capital formation.
The Securities Act of 1933 requires that any offer to sell
securities must either be registered with the SEC or meet an
exemption. Regulation D Rule 506 is an exemption that allows
companies to raise capital as long as they do not market their
securities through general solicitations or advertising. This
prohibition on general solicitation and advertising has been
interpreted to mean that potential investors must have an
existing relationship with the company before they can be
notified that unregistered securities are available for
purchase. Requiring potential investors to have an existing
relationship with the company significantly limits the pool of
potential investors and severely hampers the ability of small
companies to raise capital and create jobs.
In addition to eliminating the ban on solicitations and
advertisements by issuers and broker-dealers, H.R. 2940 will
also enable offline and online forums that bring together
investors with companies that need funding to play an
increasingly important role in facilitating capital investment
in small companies. To ensure the continued viability of such
forums, it is important that the SEC not treat these forums as
broker-dealers simply because they are engaged in bringing
investors and issuers together. Rather, the SEC should only
treat these forums as broker-dealers if they receive
transaction-based fees for their activities.
At a legislative hearing on H.R. 2940 held by the
Subcommittee on Capital Markets and Government Sponsored
Enterprises on September 21, 2011, Barry Silbert, Chief
Executive Officer of SecondMarket, Inc., testified that ``the
general solicitation prohibition unnecessarily limits the pool
of potential investors, thereby restricting companies' ability
to raise capital to fuel growth'' and that ``if only accredited
investors are eligible to purchase unregistered securities,
shouldn't we strive to maximize the pool of accredited
investors that have access to the offering?'' Mr. Silbert also
noted that the SEC and Congress ``recognize that sophisticated,
accredited individual and institutional investors have greater
capacity for risk and do not require the enhanced protections
provided to the average retail investor.''
Hearings
On September 21, 2011, the Subcommittee on Capital Markets
and Government Sponsored Enterprises held a hearing entitled
``Legislative Proposals to Facilitate Small Business Capital
Formation and Job Creation,'' to consider H.R. 2940 and four
other bills. The following witnesses testified:
Ms. Meredith Cross, Director, Division of
Corporation Finance, U.S. Securities and Exchange Commission
Mr. Vincent Molinari, Founder and Chief Executive
Officer, GATE Technologies LLC
Mr. Barry E. Silbert, Founder and Chief Executive
Officer, SecondMarket, Inc.
Mr. Matthew H. Williams, Chairman and President,
Gothenburg State Bank, on behalf of the American Bankers
Association
Mr. William D. Waddill, Senior Vice President and
Chief Financial Officer, OncoMed Pharmaceuticals, Inc., on
behalf of the Biotechnology Industry Organization
Mr. A. Heath Abshure, Commissioner, Arkansas
Securities Department on behalf of the North American
Securities Administrators
Ms. Dana Mauriello, President, ProFounder
Committee Consideration
The Subcommittee on Capital Markets and Government
Sponsored Enterprises met in open session on October 5, 2011,
and ordered H.R. 2940, as amended, favorably reported to the
full Committee by voice vote.
The Committee on Financial Services met in open session on
October 26, 2011, and ordered H.R. 2940, as amended, favorably
reported to the House by voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto.
There were no record votes taken on amendments or in connection
with ordering H.R. 2940, as amended, reported to the House. A
motion by Chairman Bachus to report the bill, as amended, to
the House with a favorable recommendation was agreed to by
voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held hearings and
made findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The objective of H.R. 2940, the ``Access to Capital for Job
Creators Act,'' is to make the exemption under the SEC's
Regulation D Rule 506 available to issuers even if the
securities are marketed through a general solicitation or
advertising so long as the purchasers are ``accredited
investors.'' The legislation would allow companies greater
access to accredited investors and to new sources of capital to
grow and create jobs, without putting less sophisticated
investors at risk.
New Budget Authority, Entitlement Authority, and
Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
October 31, 2011.
Hon. Spencer Bachus,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2940, the Access
to Capital for Job Creators Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 2940--Access to Capital for Job Creators Act
Under current law, securities may be sold through private
offerings, that is, sales that are made to a limited number of
eligible investors rather than to the general public, without
being registered with the Securities and Exchange Commission
(SEC). Issuers of securities through such offerings are
prohibited from using general solicitation or advertising to
market the securities. H.R. 2940 would eliminate that
prohibition, allowing an issuer to advertise the availability
of a private offering to the general public, and would require
issuers to verify that purchasers meet eligibility requirements
as defined in the statute.
Based on information from the SEC, CBO estimates that
implementing H.R. 2940 would have a negligible effect on SEC's
workload, and any change in agency spending that is subject to
appropriation would not be significant. Enacting H.R. 2940
would not affect direct spending or revenues; therefore, pay-
as-you-go procedures do not apply.
H.R. 2940 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Susan Willie.
This estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 2940 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section provides a short title to the bill by citing
it as the ``Access to Capital for Job Creators Act.''
Section 2. Modification of exemption
This section amends Section 4(2) of the Securities Act of
1933 and requires the Securities and Exchange Commission (SEC)
to amend its rules governing Section 4(2) offerings to provide
that the prohibition against general solicitation and general
advertising does not apply to SEC Regulation D Rule 506
offerings so long as the purchasers of the securities are
accredited investors. This section also requires the SEC to
write rules on how an issuer would verify that the purchasers
of securities are accredited investors.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
SECURITIES ACT OF 1933
TITLE I--SHORT TITLE
* * * * * * *
EXEMPTED TRANSACTIONS
Sec. 4. The provisions of section 5 shall not apply to--
(1) * * *
(2) transactions by an issuer not involving any
public offering, whether or not such transactions
involve general solicitation or general advertising.
* * * * * * *