[House Report 112-263]
[From the U.S. Government Publishing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    112-263

======================================================================



 
                 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.

           *       *       *       *       *       *       *


                                  
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