[House Report 112-409]
[From the U.S. Government Publishing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-409

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



 


    PROVIDING FOR CONSIDERATION OF THE BILL (H.R. 3606) TO INCREASE 
 AMERICAN JOB CREATION AND ECONOMIC GROWTH BY IMPROVING ACCESS TO THE 
          PUBLIC CAPITAL MARKETS FOR EMERGING GROWTH COMPANIES

                                _______
                                

   March 6, 2012.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mr. Sessions, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 572]

    The Committee on Rules, having had under consideration 
House Resolution 572, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for consideration of H.R. 3606, the 
Reopening American Capital Markets to Emerging Growth Companies 
Act of 2011, under a structured rule. The resolution provides 
one hour of general debate equally divided and controlled by 
the chair and ranking minority member of the Committee on 
Financial Services. The resolution waives all points of order 
against consideration of the bill. The resolution provides that 
an amendment in the nature of a substitute consisting of the 
text of Rules Committee Print 112-17 shall be considered as 
adopted and the bill, as amended, shall be considered as 
original text for the purpose of amendment and shall be 
considered as read. The resolution waives all points of order 
against provisions in the bill, as amended. The resolution 
makes in order only those further amendments printed in this 
report. Each such amendment may be offered only in the order 
printed in this report, may be offered only by a Member 
designated in this report, shall be considered as read, shall 
be debatable for the time specified in this report equally 
divided and controlled by the proponent and an opponent, shall 
not be subject to amendment, and shall not be subject to a 
demand for division of the question in the House or in the 
Committee of the Whole. The resolution waives all points of 
order against the amendments printed in this report. Finally, 
the resolution provides one motion to recommit with or without 
instructions.

                         EXPLANATION OF WAIVERS

    The waiver of all points of order against consideration of 
the bill includes a waiver of clause 4(a) of rule XIII 
requiring the three-day layover of committee reports. While the 
Financial Services Committee filed H. Rept. 112-406, Part 1, on 
March 1, 2012, the cost estimate for H.R. 3606 prepared by the 
Congressional Budget Office (CBO) was not yet available. The 
Committee on Financial Services filed H. Rept. 112-406, Part 2, 
on March 6, 2012, which includes the CBO estimate. However, the 
resolution provides that an amendment in the nature of a 
substitute consisting of the text of Rules Committee Print 112-
17 shall be considered as adopted. The complete cost estimate 
of Rules Committee Print 112-17 was made available on March 2, 
2012.
    Although the resolution waives all points of order against 
provisions in the bill, as amended, the Committee is not aware 
of any points of order. The waiver is prophylactic in nature.
    Although the resolution waives all points of order against 
the amendments printed in this report, the Committee is not 
aware of any points of order. The waiver is prophylactic in 
nature.

                            COMMITTEE VOTES

    The results of each record vote on an amendment or motion 
to report, together with the names of those voting for and 
against, are printed below:

Rules Committee record vote No. 197

    Motion by Mr. McGovern to report an open rule. Defeated: 4-
7

----------------------------------------------------------------------------------------------------------------
                Majority Members                      Vote               Minority Members               Vote
----------------------------------------------------------------------------------------------------------------
Mr. Sessions....................................          Nay   Ms. Slaughter.....................          Yea
Ms. Foxx........................................          Nay   Mr. McGovern......................          Yea
Mr. Woodall.....................................          Nay   Mr. Hastings of Florida...........          Yea
Mr. Nugent......................................          Nay   Mr. Polis.........................          Yea
Mr. Scott of South Carolina.....................          Nay
Mr. Webster.....................................          Nay
Mr. Dreier, Chairman............................          Nay
----------------------------------------------------------------------------------------------------------------

                SUMMARY OF THE AMENDMENTS MADE IN ORDER

    1. Fincher (TN), Carney (DE): MANAGER'S AMENDMENT Would 
make technical changes to the underlying bill. (10 minutes)
    2. McIntyre (NC): Would adjust the Emerging Growth Company 
definition for inflation, resulting in providing more 
flexibility for businesses. (10 minutes)
    3. Himes (CT), Capuano (MA): Would lower the gross annual 
revenue cap from $1,000,000,000 to $750,000,000 for emerging 
growth companies to remain eligible for the regulatory on-ramp 
and strike the public float requirement for the on-ramp. (10 
minutes)
    4. Jackson Lee (TX): Would add a requirement that a company 
not be considered an ``emerging growth company'' if it has 
issued more than $1 billion in non-convertible debt over the 
prior three years. (10 minutes)
    5. Ellison (MN), Capuano (MA), Lynch (MA): Would require 
Emerging Growth Companies to fully comply with say-on-pay and 
golden parachute shareholder votes. (10 minutes)
    6. Waters (CA), Capuano (MA): Would provide that if a 
broker or dealer is underwriting an initial public offering 
(IPO) for an emerging growth company (EGC) and providing 
research to the public about such IPO, those research reports 
need to be filed with the SEC, and the broker or dealer shall 
be held to stricter liability for their comments. Would also 
provide that if EGCs are communicating, either orally or in 
writing, with potential investors before or following an 
offering, they need to file those communications with the SEC. 
(10 minutes)
    7. Jackson Lee (TX): Would strike language that allows an 
emerging growth company or its underwriter to communicate with 
``institutions that are accredited investors.'' (10 minutes)
    8. Jackson Lee (TX): Would establish new filing fee for Reg 
S-K Forms to discourage frivolous filings. (10 minutes)
    9. Connolly (VA): Would require the Securities and Exchange 
Commission to perform a study, in consultation with the 
Commodities Futures Trading Commission, of the effects on 
emerging growth companies of financial speculation on domestic 
oil and gasoline prices and to forward the results of that 
study to Congress. (10 minutes)
    10. McCarthy, Kevin (CA): Would clarify that general 
advertising under this provision should only apply to 
Regulation D rule 506 offerings, allow for general solicitation 
in the secondary sale of these securities so long as only 
qualified institutional buyers purchase the securities, and 
provide consistency in interpretation that general advertising 
should not cause these offerings to be considered public 
offerings. (10 minutes)
    11. McHenry (NC): Would, for Rule 506 of Regulation D, 
provide an exemption from registration as a broker or dealer 
for trading platforms that do not charge a fee in connection 
with the purchase or sale of the security or permit general 
solicitations, general advertisements, or similar or related 
activities by issuers of such securities. Would also enable the 
marketing of private shares to accredited investors through 
platforms. (10 minutes)
    12. Miller, Brad (NC), Schweikert (AZ): Would increase the 
total number of investors and limit the number of non-
accredited investors allowed to be holders of record before 
registration is required. (10 minutes)
    13. Schweikert (AZ): Would authorize the Securities and 
Exchange Commission to study whether or not it has the 
authority to enforce anti-evasion provisions associated with 
the shareholder threshold. (10 minutes)
    14. Capuano (MA): Would require the SEC to conduct a study 
to address anti-evasion concerns and determine if the term 
``held of record'' should mean beneficial owner of the 
security. (10 minutes)
    15. Peters (MI): Would require publicly traded companies to 
disclose on an annual basis the total number of employees they 
have in each country and the percentage increase or decrease in 
employment in each country. (10 minutes)
    16. Capps (CA): Would require the Securities and Exchange 
Commission to issue a report to the Congress one year after 
enactment on the increase in initial public offerings that 
resulted from the act, including specific increases in filings 
by manufacturing and high-technology companies. (10 minutes)
    17. Loebsack (IA): Would require information to be made 
available online, and outreach to be conducted to small and 
medium-sized businesses, women-owned businesses, veteran-owned 
businesses, and minority-owned businesses to inform them about 
changes put in place by this legislation. (10 minutes)

                    TEXT OF AMENDMENTS MADE IN ORDER

1. An Amendment To Be Offered by Representative Fincher of Tennessee or 
                 His Designee, Debatable for 10 Minutes

  Page 3, line 18, after ``(80)'' insert the following: 
``Emerging growth company.--''.
  Page 9, line 3, strike ``7201(a))'' and insert ``7201(a)))''.
  Page 37, line 3, strike ``is amended'' and insert the 
following: ``, as amended by section 302, is amended in 
subparagraph (A)''.
  Page 37, beginning on line 18, strike ``holders of their 
securities are accredited investors or that''.
  Page 38, line 16, strike ``, as such term is defined in 
section 3(a)(6),''.
  Page 38, line 18, strike ``section (2)'' and insert ``section 
2''.
                              ----------                              


   2. An Amendment To Be Offered by Representative McIntyre of North 
           Carolina or His Designee, Debatable for 10 Minutes

  Page 2, line 11, insert after ``$1,000,000,000'' the 
following: ``(as such amount is indexed for inflation every 5 
years by the Commission to reflect the change in the Consumer 
Price Index for All Urban Consumers published by the Bureau of 
Labor Statistics, setting the threshold to the nearest 
1,000,000)''.
  Page 2, line 18, insert after ``$1,000,000,000'' the 
following: ``(as such amount is indexed for inflation every 5 
years by the Commission to reflect the change in the Consumer 
Price Index for All Urban Consumers published by the Bureau of 
Labor Statistics, setting the threshold to the nearest 
1,000,000)''.
  Page 3, line 20, insert after ``$1,000,000,000'' the 
following: ``(as such amount is indexed for inflation every 5 
years by the Commission to reflect the change in the Consumer 
Price Index for All Urban Consumers published by the Bureau of 
Labor Statistics, setting the threshold to the nearest 
1,000,000)''.
  Page 4, line 3, insert after ``$1,000,000,000'' the 
following: ``(as such amount is indexed for inflation every 5 
years by the Commission to reflect the change in the Consumer 
Price Index for All Urban Consumers published by the Bureau of 
Labor Statistics, setting the threshold to the nearest 
1,000,000)''.
                              ----------                              


3. An Amendment To Be Offered by Representative Himes of Connecticut or 
                 His Designee, Debatable for 10 Minutes

  Page 2, line 11, strike ``$1,000,000,000'' and insert 
``$750,000,000''.
  Page 2, line 18, strike ``$1,000,000,000'' and insert 
``$750,000,000''.
  Page 2, line 18, add ``or'' at the end.
  Page 3, line 5, strike ``; or'' and insert a period.
  Page 3, strike lines 6 through 9.
  Page 3, line 20, strike ``$1,000,000,000'' and insert 
``$750,000,000''.
  Page 4, line 3, strike ``$1,000,000,000'' and insert 
``$750,000,000''.
  Page 4, line 3, add ``or'' at the end.
  Page 4, line 8, strike ``; or'' and insert a period.
  Page 4, strike lines 9 through 12.
                              ----------                              


4. An Amendment To Be Offered by Representative Jackson Lee of Texas or 
                 Her Designee, Debatable for 10 Minutes

  Page 3, line 5, strike ``or''.
  Page 3, after line 5, insert the following:
          ``(C) the date on which such issuer has, during the 
        previous 3-year period, issued more than $1,000,000,000 
        in non-convertible debt; or''.
  Page 3, line 6, strike ``(C)'' and insert ``(D)''.
  Page 4, line 8, strike ``or''.
  Page 4, after line 8, insert the following:
          ``(C) the date on which such issuer has, during the 
        previous 3-year period, issued more than $1,000,000,000 
        in non-convertible debt; or''.
  Page 4, line 9, strike ``(C)'' and insert ``(D)''.
                              ----------                              


5. An Amendment To Be Offered by Representative Ellison of Minnesota or 
                 His Designee, Debatable for 10 Minutes

  Page 5, strike line 7 and all that follows through page 6, 
line 13 (and redesignate succeeding paragraphs accordingly).
                              ----------                              


6. An Amendment To Be Offered by Representative Waters of California or 
                 Her Designee, Debatable for 10 Minutes

  Page 11, line 12, strike ``paragraph (10) of this subsection 
and''.
  Page 11, line 16, insert after the period the following: 
``Any such research report published or distributed by a broker 
or dealer that is participating or will participate in the 
registered offering of the securities of the issuer shall be 
filed with the Commission by the later of the date of the 
filing of such registration statement or the date such report 
is first published or distributed. Such research report shall 
be deemed a prospectus under paragraph (10).''.
  Page 13, line 18, after the first period insert the 
following: ``Any written communication (as such term is defined 
in section 203.405 of title 17, Code of Federal Regulations) 
provided to potential investors in accordance with this 
subsection shall be filed with the Commission by the later of 
the date of the filing of such registration statement or the 
date the written communication is first engaged in. Such 
written communication shall be deemed a prospectus under 
section 2(a)(10).''.
                              ----------                              


7. An Amendment To Be Offered by Representative Jackson Lee of Texas or 
                 Her Designee, Debatable for 10 Minutes

  Page 13, line 10, strike ``or institutions that are 
accredited investors''.
  Page 13, line 11, strike ``terms are respectively'' and 
insert ``term is''.
  Page 13, line 12, strike ``and section 230.501(a)''.
                              ----------                              


8. An Amendment To Be Offered by Representative Jackson Lee of Texas or 
                 Her Designee, Debatable for 10 Minutes

  Page 15, line 16, strike the quotation mark and final period 
and after such line insert the following:
          (3) Additional filing fee.--In order to discourage 
        frivolous filings with the Commission, the Commission 
        shall establish a fee that shall apply to any draft 
        registration statement submitted to the Commission for 
        confidential nonpublic review pursuant to paragraph 
        (1).
                              ----------                              


9. An Amendment To Be Offered by Representative Connolly of Virginia or 
                 His Designee, Debatable for 10 Minutes

  Page 19, after line 2, insert the following new section (and 
conform the table of contents accordingly):

SEC. 109. STUDY ON THE EFFECTS OF MARKET SPECULATION ON EMERGING GROWTH 
                    COMPANIES.

  (a) Study.--The Securities and Exchange Commission, in 
consultation with the Commodity Futures Trading Commission, 
shall carry out an ongoing study on the ability of emerging 
growth companies to raise capital utilizing the exemptions 
provided under this title and the amendments made by this 
title, in light of--
          (1) financial market speculation on domestic oil and 
        gasoline prices; and
          (2) business cost increases caused by such 
        speculation.
  (b) Report.--Not later than the end of the 60-year period 
beginning on the date of the enactment of this Act, and 
annually thereafter, the Securities and Exchange Commission 
shall issue a report to the Congress containing all findings 
and determinations made in carrying out the study required 
under subsection (a).
                              ----------                              


10. An Amendment To Be Offered by Representative McCarthy of California 
               or His Designee, Debatable for 10 Minutes

  Page 19, beginning on line 6, strike ``(a) Removal of 
Restriction.--'' and all that follows through line 11 and 
insert the following:
  (a) Modification of Rules.--
          (1) Not later than 90
  Page 19, line 23, insert after the period the following: 
``Section 230.506 of title 17, Code of Federal Regulations, as 
revised pursuant to this section, shall continue to be treated 
as a regulation issued under section 4(2) of the Securities Act 
of 1933 (15 U.S.C. 77d(2)).''
  Page 19, after line 23, insert the following:
          (2) Not later than 90 days after the date of 
        enactment of this Act, the Securities and Exchange 
        Commission shall revise subsection (d)(1) of section 
        230.144A of title 17, Code of Federal Regulations, to 
        provide that securities sold under such revised 
        exemption may be offered to persons other than 
        qualified institutional buyers, including by means of 
        general solicitation or general advertising, provided 
        that securities are sold only to persons that the 
        seller and any person acting on behalf of the seller 
        reasonably believe is a qualified institutional buyer.
  (c) Consistency in Interpretation.--Section 4 of the 
Securities Act of 1933 (15 U.S.C. 77d) is amended--
          (1) by striking ``The provisions of section 5'' and 
        inserting ``(a) The provisions of section 5''; and
          (2) by adding at the end the following:
  ``(b) Offers and sales exempt under section 230.506 of title 
17, Code of Federal Regulations (as revised pursuant to section 
201 of the Jumpstart Our Business Startups Act) shall not be 
deemed public offerings under the Federal securities laws as a 
result of general advertising or general solicitation.''.
                              ----------                              


   11. An Amendment To Be Offered by Representative McHenry of North 
           Carolina or His Designee, Debatable for 10 Minutes

  Page 19, after line 23, insert the following:
  (c) Explanation of Exemption.--Section 4 of the Securities 
Act of 1933 (15 U.S.C. 77d) is amended--
          (1) by striking ``The provisions of section 5'' and 
        inserting ``(a) The provisions of section 5''; and
          (2) by adding at the end the following:
  ``(b)(1) With respect to securities offered and sold in 
compliance with Rule 506 of Regulation D under this Act, no 
person who meets the conditions set forth in paragraph (2) 
shall be subject to registration as a broker or dealer pursuant 
to section 15(a)(1) of this title, solely because--
          ``(A) that person maintains a platform or mechanism 
        that permits the offer, sale, purchase, or negotiation 
        of or with respect to securities, or permits general 
        solicitations, general advertisements, or similar or 
        related activities by issuers of such securities, 
        whether online, in person, or through any other means;
          ``(B) that person or any person associated with that 
        person co-invests in such securities; or
          ``(C) that person or any person associated with that 
        person provides ancillary services with respect to such 
        securities.
  ``(2) The exemption provided in paragraph (1) shall apply to 
any person described in such paragraph if--
          ``(A) such person and each person associated with 
        that person receives no compensation in connection with 
        the purchase or sale of such security;
          ``(B) such person and each person associated with 
        that person does not have possession of customer funds 
        or securities in connection with the purchase or sale 
        of such security; and
          ``(C) such person is not subject to a statutory 
        disqualification as defined in section 3(a)(39) of this 
        title and does not have any person associated with that 
        person subject to such a statutory disqualification.
  ``(3) For the purposes of this subsection, the term 
`ancillary services' means--
          ``(A) the provision of due diligence services, in 
        connection with the offer, sale, purchase, or 
        negotiation of such security, so long as such services 
        do not include, for separate compensation, investment 
        advice or recommendations to issuers or investors; and
          ``(B) the provision of standardized documents to the 
        issuers and investors, so long as such person or entity 
        does not negotiate the terms of the issuance for and on 
        behalf of third parties and issuers are not required to 
        use the standardized documents as a condition of using 
        the service.''.
                              ----------                              


   12. An Amendment To Be Offered by Representative Miller of North 
           Carolina or His Designee, Debatable for 10 Minutes

  Page 36, line 25, strike ``by 1,000 persons, and'' and insert 
``by either--
                  ``(i) 2,000 persons, or
                  ``(ii) 500 persons who are not accredited 
                investors (as such term is defined by the 
                Commission), and''.
                              ----------                              


13. An Amendment To Be Offered by Representative Schweikert of Arizona 
               or His Designee, Debatable for 10 Minutes

  Page 37, after line 22, insert the following:

SEC. 504. COMMISSION STUDY OF ENFORCEMENT AUTHORITY UNDER RULE 12G5-1.

  The Securities and Exchange Commission shall examine its 
authority to enforce Rule 12g5-1 to determine if new 
enforcement tools are needed to enforce the anti-evasion 
provision contained in subsection (b)(3) of the rule, and 
shall, not later than 120 days after the date of enactment of 
this Act transmit its recommendations to Congress.
  The table of contents in section 2 of the bill is amended by 
inserting after the item relating to section 503 the following 
new item:

Sec. 504. Commission study of enforcement authority under Rule 12g5-1
                              ----------                              


      14. An Amendment To Be Offered by Representative Capuano of 
        Massachusetts or His Designee, Debatable for 10 Minutes

  Page 37, after line 22, insert the following (and amend the 
table of contents accordingly):

SEC. 504. STUDY, REPORT, AND RULEMAKING.

  (a) Study.--The Securities and Exchange Commission shall 
conduct a study regarding whether the term ``held of record'' 
(as defined pursuant to section 12(g)(5) of the Securities 
Exchange Act of 1934) should be changed--
          (1) to mean the beneficial owner of the security; and
          (2) to address anti-evasion concerns, such as those 
        described under section 240.12g5-1(b)(3) of title 17, 
        Code of Federal Regulations.
  (b) Report.--Not later than 6 months after the date of the 
enactment of this Act, the Commission shall submit a report to 
the Congress containing the conclusions of the study carried 
out under subsection (a).
  (c) Rulemaking.--If, based on the study conducted pursuant to 
subsection (a), the Commission concludes that a change to the 
definition of the term ``held of record'' is necessary and 
appropriate in the public interest and for the protection of 
investors, then, not later than 1 year after the date of the 
enactment of this Act, the Commission shall revise such 
definition.
                              ----------                              


15. An Amendment To Be Offered by Representative Peters of Michigan or 
                 His Designee, Debatable for 10 Minutes

  At the end of the bill insert the following:

   TITLE VII--REQUIRED DISCLOSURE OF NUMBER OF DOMESTIC AND FOREIGN 
                               EMPLOYEES

SEC. 701. REQUIRED DISCLOSURE OF NUMBER OF DOMESTIC AND FOREIGN 
                    EMPLOYEES.

  Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 
78m) is amended by adding at the end the following new 
subsection:
  ``(r) Disclosure of Number of Domestic and Foreign 
Employees.--
          ``(1) In general.--Beginning the first full fiscal 
        year that begins after the date of enactment of this 
        subsection, each issuer required to file reports with 
        the Commission pursuant to subsection (a) shall 
        disclose annually to the Commission and to 
        shareholders--
                  ``(A) the total number of employees of the 
                issuer and each consolidated subsidiary of the 
                issuer who are domiciled in the United States 
                and listed by number in each State;
                  ``(B) the total number of such employees 
                physically working in and domiciled in any 
                country other than the United States, listed by 
                number in each country; and
                  ``(C) the percentage increase or decrease in 
                the numbers required under subparagraphs (A) 
                and (B) from the previous reporting year.
          ``(2) Exemptions.--
                  ``(A) Newer public companies.--An issuer 
                shall not be subject to the requirement under 
                paragraph (1) for the first 5 years after the 
                issuer is first required to file reports with 
                the Commission pursuant to subsection (a).
                  ``(B) Emerging growth companies.--An issuer 
                that is an emerging growth company shall not be 
                subject to the requirement under paragraph (1).
          ``(3) Regulations.--The Commission may promulgate 
        such regulations as it considers necessary to implement 
        the requirement set forth in paragraph (1).''.
  Amend the table of contents in section 2 by adding at the end 
the following new items:

    TITLE VII--REQUIRED DISCLOSURE OF NUMBER OF DOMESTIC AND FOREIGN 
                                EMPLOYEES

Sec. 701. Required disclosure of number of domestic and foreign 
          employees
                    ____________________________________________________

16. An Amendment To Be Offered by Representative Capps of California or 
                 Her Designee, Debatable for 10 Minutes

  Add at the end the following (and conform the table of 
contents accordingly):

              TITLE VII--REPORT ON IPOS AND MANUFACTURING

SEC. 701. REPORT.

  After the end of the 1-year period beginning on the date of 
the enactment of this Act, the Securities and Exchange 
Commission shall issue a report to the Congress on the increase 
in initial public offerings that resulted from this Act and the 
amendments made by this Act, including the specific increases 
in offerings by companies in the manufacturing industry and the 
high technology industry.
                              ----------                              


 17. An Amendment To Be Offered by Representative Loebsack of Iowa or 
                 His Designee, Debatable for 10 Minutes

  Add at the end the following (and conform the table of 
contents accordingly):

               TITLE VII--OUTREACH ON CHANGES TO THE LAW

SEC. 701. OUTREACH BY THE COMMISSION.

  The Securities and Exchange Commission shall provide online 
information and conduct outreach to inform small and medium 
sized businesses, women owned businesses, veteran owned 
businesses, and minority owned businesses of the changes made 
by this Act.

                                  
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