[House Report 114-199]
[From the U.S. Government Publishing Office]


114th Congress    }                                      {      Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                      {     114-199

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



 
                    SBIC ADVISERS RELIEF ACT OF 2015

                                _______
                                

 July 14, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 432]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 432) to amend the Investment Advisers Act of 
1940 to prevent duplicative regulation of advisers of small 
business investment companies, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          Purpose and Summary

    H.R. 432, the ``SBIC Advisers Relief Act of 2015,'' amends 
the Investment Advisers Act of 1940 to reduce unnecessary 
regulatory costs and eliminate duplicative regulation of 
advisers to Small Business Investment Companies (SBICs). The 
bill preempts any state registration requirements of those 
advisers solely advising SBIC funds; allows advisers to venture 
capital funds to continue to be ``exempt reporting advisers'' 
if they also advise an SBIC fund; and prevents the inclusion of 
the assets of an SBIC fund in the SEC registration calculation 
of assets under management for those advisers that advise 
private funds in addition to SBIC funds.

                  Background and Need for Legislation

    Private equity funds pool private investors' money and 
invest it as new equity in an enterprise. Private equity funds 
typically hire advisers to counsel the fund on where to deploy 
its resources. The Dodd-Frank Act creates a regulatory regime 
for advisers of private equity funds, including advisers of 
private funds. Under this new system, advisers to private funds 
must register as investment advisers with the SEC. However, 
there are several exemptions from SEC registration for 
advisers. Advisers to smaller private funds are exempted if the 
private funds' ``assets under management'' (AUM) fall below a 
certain threshold. Advisers that solely advise Small Business 
Investment Companies (SBICs) and advisers that solely advise 
venture capital funds are also exempted from registration. 
However, the law is not clear on whether advisors to both 
venture capital funds (or private funds) and SBICs are 
exempted, potentially resulting in new regulatory costs for 
some advisers.
    H.R. 432 amends the Investment Advisers Act of 1940 to 
reduce unnecessary regulatory costs and eliminate duplicative 
regulation of advisers to SBICs. H.R. 432 preempts any state 
registration requirements of advisers solely advising SBIC 
funds; allows advisers to venture capital funds to continue to 
be ``exempt reporting advisers'' if they also advise an SBIC 
fund; and excludes the assets of an SBIC fund from the SEC's 
calculation of AUM in determining whether advisers that advise 
private funds in addition to SBIC funds must register with the 
SEC. Eliminating duplicative regulation will allow the private 
equity funds to focus more of their time and resources to job-
creating small businesses. In the 113th Congress, the House 
passed identical legislation by voice vote.
    Gayle Hughes, Partner and Founder of Merion Investment 
Partners, testified at the April 29, 2015, Capital Markets 
Subcommittee hearing about the duplicative regulation that 
could result under the current system of exemptions:

          The Dodd-Frank Act states that the SEC cannot 
        register advisers that ``solely'' advise SBIC funds. 
        The SEC then applied the term ``solely'' to mean that 
        if an adviser oversaw a single penny outside of SBIC 
        fund assets, then duplicative regulation was triggered. 
        This was not the Congressional intent of Dodd-Frank and 
        serves no practical investor protection or public 
        benefit. As a result, while advisers to venture funds 
        may remain ERA advisers if they only advise a venture 
        fund, if they also enter the SBIC program with another 
        venture fund, they are now required to register--a much 
        more expensive proposition. As a result, venture funds 
        are effectively penalized with additional costs if they 
        choose to add an investment vehicle for domestic small 
        business investments. This legislation would allow 
        venture fund advisers to remain ERAs if they choose 
        also to advise an SBIC fund.
          Due to the tailored nature of this legislation, the 
        necessity to clarify the elements of Dodd-Frank to 
        eliminate duplicative regulation, and the fact that all 
        of these funds will continue to be subject to 
        regulation once this legislation passes, Congress and 
        this Committee should act swiftly to pass the SBIC 
        Advisers Relief Act.

    Tom Quaadman, Vice President of the U.S. Chamber of 
Commerce's Center for Capital Markets Competitiveness, also 
testified at the same hearing on the relief this bill would 
grant SBIC advisers:

          Congress exempted SBIC and venture capital fund 
        advisers for good reason, and there is simply no valid 
        argument for requiring someone to register simply 
        because they advise both. SBICs and venture capital 
        funds are a vital source of capital in our economy, and 
        unnecessary regulatory requirements inhibit their 
        ability to invest in American businesses. This bill 
        would codify Congressional intent and allow SBICs and 
        venture capital funds to continue to play their 
        important role in our economy.

                                Hearings

    The Committee on Financial Services held a hearing on April 
29, 2015, titled ``Legislative Proposals to Enhance Capital 
Formation and Reduce Regulatory Burdens,'' at which this matter 
was examined.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
May 20, 2015, and ordered H.R. 432 to be reported favorably to 
the House without amendment by a recorded vote of 53 yeas to 0 
nays (Record vote no. FC-24), a quorum being present.

                            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. The 
sole vote in committee was a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 53 yeas to 0 nays 
(Record vote no. FC-24), a quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee, based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of 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 states that H.R. 432 
will reduce unnecessary regulatory costs and eliminate 
duplicative regulation by, among other things, ensuring that 
entities need not register as investment advisers with the 
Securities and Exchange Commission by virtue of the fact that 
they advise both Small Business Investment Companies and 
venture capital funds.

   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:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 17, 2015
Hon. Jeb Hensarling,
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. 432, the SBIC 
Advisers Relief Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susan 
Willie and Ben Christopher.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 432--SBIC Advisers Relief Act of 2015

    H.R. 432 would direct the Securities and Exchange 
Commission (SEC) to exempt some investment advisors who advise 
Small Business Investment Companies (SBICs) from requirements 
to register with the agency. Specifically, advisors to venture 
capital funds that also advise SBICs would be exempt from 
registration requirements under the bill. Further, advisors to 
private funds would not be required to count the value of SBICs 
they advise in the calculation used to determine whether an 
advisor is large enough to require such registration.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 432 would not have a significant effect on 
the number of registered investment advisors, and as a result, 
CBO estimates that implementing H.R. 432 would not 
significantly affect discretionary spending. Further, under 
current law, the SEC is authorized to collect fees sufficient 
to offset its appropriation each year; therefore, we estimate 
that the net cost to the SEC would not be significant, assuming 
appropriation action consistent with that authority. Enacting 
H.R. 432 would not affect direct spending or revenues; 
therefore, pay-as-you-go procedures do not apply.
    H.R. 432 would impose intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) by prohibiting state 
governments from requiring some advisers of SBICs to comply 
with registration, licensing, or other qualification 
requirements. Some states require those advisers to pay a fee 
for registration. The cost of the mandate would be the forgone 
revenue that states could no longer collect. Information from 
organizations representing state security commissioners and 
SBICs indicates that both the number of SBIC advisers and the 
registration fees that states currently charge is small. 
Therefore, CBO estimates the annual cost for states to comply 
with the mandate would total less than $1 million and would 
thus fall well below the threshold established in UMRA ($77 
million in 2015, adjusted annually for inflation).
    H.R. 432 contains no private-sector mandates as defined in 
UMRA.
    The CBO staff contacts for this estimate are Susan Willie 
and Ben Christopher (for federal costs) and Melissa Merrell 
(for the intergovernmental mandate). The estimate was approved 
by H. Samuel Papenfuss, 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. 432 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 432 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 432 does not require any 
directed rulemakings.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 432 as the ``SBIC Advisers Relief 
Act of 2015.''

Section 2. Advisers of SBICs and Venture Capital Funds

    This section amends section 203(l) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-3(1)) to provide that the 
term ``venture capital fund'' includes a Small Business 
Investment Company (unless such entity has elected to be 
regulated or is regulated as a business development company 
pursuant to section 54 of the Investment Company Act of 1940).

Section 3. Advisers of SBICs and private funds

    This section amends section 203(m) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-3(m)) to exclude the assets 
of Small Business Investment Companies from the calculation of 
assets under management for purposes of determining whether 
investment advisors that advise both private funds and SBICs 
must register with the Securities and Exchange Commission.

Section 4. Relationship to state law

    This section amends section 203A(b)(1) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-3a(b)(1)) to preempt state 
laws requiring the registration, licensing, or qualification of 
investment advisors or supervised persons of such entities who 
advise Small Business Investment Companies.

         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 (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                    INVESTMENT ADVISERS ACT OF 1940

TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *


                  registration of investment advisers

  Sec. 203. (a) Except as provided in subsection (b) and 
section 203A, it shall be unlawful for any investment adviser, 
unless registered under this section, to make use of the mails 
or any means or instrumentality of interstate commerce in 
connection with his or its business as an investment adviser.
  (b) The provisions of subsection (a) shall not apply to--
          (1) any investment adviser, other than an investment 
        adviser who acts as an investment adviser to any 
        private fund, all of whose clients are residents of the 
        State within which such investment adviser maintains 
        his or its principal office and place of business, and 
        who does not furnish advice or issue analyses or 
        reports with respect to securities listed or admitted 
        to unlisted trading privileges on any national 
        securities exchange;
          (2) any investment adviser whose only clients are 
        insurance companies;
          (3) any investment adviser that is a foreign private 
        adviser;
          (4) any investment adviser that is a charitable 
        organization, as defined in section 3(c)(10)(D) of the 
        Investment Company Act of 1940, or is a trustee, 
        director, officer, employee, or volunteer of such a 
        charitable organization acting within the scope of such 
        person's employment or duties with such organization, 
        whose advice, analyses, or reports are provided only to 
        one or more of the following:
                  (A) any such charitable organization;
                  (B) a fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940; or
                  (C) a trust or other donative instrument 
                described in section 3(c)(10)(B) of the 
                Investment Company Act of 1940, or the 
                trustees, administrators, settlors (or 
                potential settlors), or beneficiaries of any 
                such trust or other instrument;
          (5) any plan described in section 414(e) of the 
        Internal Revenue Code of 1986, any person or entity 
        eligible to establish and maintain such a plan under 
        the Internal Revenue Code of 1986, or any trustee, 
        director, officer, or employee of or volunteer for any 
        such plan or person, if such person or entity, acting 
        in such capacity, provides investment advice 
        exclusively to, or with respect to, any plan, person, 
        or entity or any company, account, or fund that is 
        excluded from the definition of an investment company 
        under section 3(c)(14) of the Investment Company Act of 
        1940;
          (6)(A) any investment adviser that is registered with 
        the Commodity Futures Trading Commission as a commodity 
        trading advisor whose business does not consist 
        primarily of acting as an investment adviser, as 
        defined in section 202(a)(11) of this title, and that 
        does not act as an investment adviser to--
                  (i) an investment company registered under 
                title I of this Act; or
                  (ii) a company which has elected to be a 
                business development company pursuant to 
                section 54 of title I of this Act and has not 
                withdrawn its election; or
  (B) any investment adviser that is registered with the 
Commodity Futures Trading Commission as a commodity trading 
advisor and advises a private fund, provided that, if after the 
date of enactment of the Private Fund Investment Advisers 
Registration Act of 2010, the business of the advisor should 
become predominately the provision of securities-related 
advice, then such adviser shall register with the Commission.
          (7) any investment adviser, other than any entity 
        that has elected to be regulated or is regulated as a 
        business development company pursuant to section 54 of 
        the Investment Company Act of 1940 (15 U.S.C. 80a-54), 
        who solely advises--
                  (A) small business investment companies that 
                are licensees under the Small Business 
                Investment Act of 1958;
                  (B) entities that have received from the 
                Small Business Administration notice to proceed 
                to qualify for a license as a small business 
                investment company under the Small Business 
                Investment Act of 1958, which notice or license 
                has not been revoked; or
                  (C) applicants that are affiliated with 1 or 
                more licensed small business investment 
                companies described in subparagraph (A) and 
                that have applied for another license under the 
                Small Business Investment Act of 1958, which 
                application remains pending.
  (c)(1) An investment adviser, or any person who presently 
contemplates becoming an investment adviser, may be registered 
by filing with the Commission an application for registration 
in such form and containing such of the following information 
and documents as the Commission, by rule, may prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors:
          (A) the name and form of organization under which the 
        investment adviser engages or intends to engage in 
        business; the name of the State or other sovereign 
        power under which such investment adviser is organized; 
        the location of his or its principal office, principal 
        place of business, and branch offices, if any; the 
        names and addresses of his or its partners, officers, 
        directors, and persons performing similar functions or, 
        if such an investment adviser be an individual, of such 
        individual; and the number of his or its employees;
          (B) the education, the business affiliations for the 
        past ten years, and the present business affiliations 
        of such investment adviser and of his or its partners, 
        officers, directors, and persons performing similar 
        functions and of any controlling person thereof;
          (C) the nature of the business of such investment 
        adviser, including the manner of giving advice and 
        rendering analyses or reports;
          (D) a balance sheet certified by an independent 
        public accountant and other financial statements (which 
        shall, as the Commission specifies, be certified);
          (E) the nature and scope of the authority of such 
        investment adviser with respect to clients' funds and 
        accounts;
          (F) the basis or bases upon which such investment 
        adviser is compensated;
          (G) whether such investment adviser, or any person 
        associated with such investment adviser, is subject to 
        any disqualification which would be a basis for denial, 
        suspension, or revocation of registration of such 
        investment adviser under the provisions of subsection 
        (e) of this section; and
          (H) a statement as to whether the principal business 
        of such investment adviser consists or is to consist of 
        acting as investment adviser and a statement as to 
        whether a substantial part of the business of such 
        investment adviser, consists or is to consist of 
        rendering investment supervisory services.
  (2) Within forty-five days of the date of the filing of such 
application (or within such longer period as to which the 
applicant consents) the Commission shall--
          (A) by order grant such registration; or
          (B) institute proceedings to determine whether 
        registration should be denied. Such proceedings shall 
        include notice of the grounds for denial under 
        consideration and opportunity for hearing and shall be 
        concluded within one hundred twenty days of the date of 
        the filing of the application for registration. At the 
        conclusion of such proceedings the Commission, by 
        order, shall grant or deny such registration. The 
        Commission may extend the time for conclusion of such 
        proceedings for up to ninety days if it finds good 
        cause for such extension and publishes its reasons for 
        so finding or for such longer period as to which the 
        applicant consents.
The Commission shall grant such registration if the Commission 
finds that the requirements of this section are satisfied and 
that the applicant is not prohibited from registering as an 
investment adviser under section 203A. The Commission shall 
deny such registration if it does not make such a finding or if 
it finds that if the applicant were so registered, its 
registration would be subject to suspension or revocation under 
subsection (e) of this section.
  (d) Any provision of this title (other than subsection (a) of 
this section) which prohibits any act, practice, or course of 
business if the mails or any means or instrumentality of 
interstate commerce are used in connection therewith shall also 
prohibit any such act, practice, or course of business by any 
investment adviser registered pursuant to this section or any 
person acting on behalf of such an investment adviser, 
irrespective of any use of the mails or any means or 
instrumentality of interstate commerce in connection therewith.
  (e) The Commission, by order, shall censure, place 
limitations on the activities, functions, or operations of, 
suspend for a period not exceeding twelve months, or revoke the 
registration of any investment adviser if it finds, on the 
record after notice and opportunity for hearing, that such 
censure, placing of limitations, suspension, or revocation is 
in the public interest and that such investment adviser, or any 
person associated with such investment adviser, whether prior 
to or subsequent to becoming so associated--
          (1) has willfully made or caused to be made in any 
        application for registration or report required to be 
        filed with the Commission under this title, or in any 
        proceeding before the Commission with respect to 
        registration, any statement which was at the time and 
        in the light of the circumstances under which it was 
        made false or misleading with respect to any material 
        fact, or has omitted to state in any such application 
        or report any material fact which is required to be 
        stated therein.
          (2) has been convicted within ten years preceding the 
        filing of any application for registration or at any 
        time thereafter of any felony or misdemeanor or of a 
        substantially equivalent crime by a foreign court of 
        competent jurisdiction which the Commission finds--
                  (A) involves the purchase or sale of any 
                security, the taking of a false oath, the 
                making of a false report, bribery, perjury, 
                burglary, any substantially equivalent activity 
                however denominated by the laws of the relevant 
                foreign government, or conspiracy to commit any 
                such offense;
                  (B) arises out of the conduct of the business 
                of a broker, dealer, municipal securities 
                dealer, investment adviser, bank, insurance 
                company, government securities broker, 
                government securities dealer, fiduciary, 
                transfer agent, credit rating agency, foreign 
                person performing a function substantially 
                equivalent to any of the above, or entity or 
                person required to be registered under the 
                Commodity Exchange Act or any substantially 
                equivalent statute or regulation;
                  (C) involves the larceny, theft, robbery, 
                extortion, forgery, counterfeiting, fraudulent 
                concealment, embezzlement, fraudulent 
                conversion, or misappropriation of funds or 
                securities or substantially equivalent activity 
                however denominated by the laws of the relevant 
                foreign government; or
                  (D) involves the violation of section 152, 
                1341, 1342, or 1343 or chapter 25 or 47 of 
                title 18, United States Code, or a violation of 
                substantially equivalent foreign statute.
          (3) has been convicted during the 10-year period 
        preceding the date of filing of any application for 
        registration, or at any time thereafter, of--
                  (A) any crime that is punishable by 
                imprisonment for 1 or more years, and that is 
                not described in paragraph (2); or
                  (B) a substantially equivalent crime by a 
                foreign court of competent jurisdiction.
          (4) is permanently or temporarily enjoined by order, 
        judgment, or decree of any court of competent 
        jurisdiction, including any foreign court of competent 
        jurisdiction, from acting as an investment adviser, 
        underwriter, broker, dealer, municipal securities 
        dealer, government securities broker, government 
        securities dealer, transfer agent, credit rating 
        agency, foreign person performing a function 
        substantially equivalent to any of the above, or entity 
        or person required to be registered under the Commodity 
        Exchange Act or any substantially equivalent statute or 
        regulation, or as an affiliated person or employee of 
        any investment company, bank, insurance company, 
        foreign entity substantially equivalent to any of the 
        above, or entity or person required to be registered 
        under the Commodity Exchange Act or any substantially 
        equivalent statute or regulation, or from engaging in 
        or continuing any conduct or practice in connection 
        with any such activity, or in connection with the 
        purchase or sale of any security.
          (5) has willfully violated any provision of the 
        Securities Act of 1933, the Securities Exchange Act of 
        1934, the Investment Company Act of 1940, this title, 
        the Commodity Exchange Act, or the rules or regulations 
        under any such statutes or any rule of the Municipal 
        Securities Rulemaking Board, or is unable to comply 
        with any such provision.
          (6) has willfully aided, abetted, counseled, 
        commanded, induced, or procured the violation by any 
        other person of any provision of the Securities Act of 
        1933, the Securities Exchange Act of 1934, the 
        Investment Company Act of 1940, this title, the 
        Commodity Exchange Act, the rules or regulations under 
        any of such statutes, or the rules of the Municipal 
        Securities Rulemaking Board, or has failed reasonably 
        to supervise, with a view to preventing violations of 
        the provisions of such statutes, rules, and 
        regulations, another person who commits such a 
        violation, if such other person is subject to his 
        supervision. For the purposes of this paragraph no 
        person shall be deemed to have failed reasonably to 
        supervise any person, if--
                  (A) there have been established procedures, 
                and a system for applying such procedures, 
                which would reasonably be expected to prevent 
                and detect, insofar as practicable, any such 
                violation by such other person, and
                  (B) such person has reasonably discharged the 
                duties and obligations incumbent upon him by 
                reason of such procedures and system without 
                reasonable cause to believe that such 
                procedures and system were not being complied 
                with.
          (7) is subject to any order of the Commission barring 
        or suspending the right of the person to be associated 
        with an investment adviser;
          (8) has been found by a foreign financial regulatory 
        authority to have--
                  (A) made or caused to be made in any 
                application for registration or report required 
                to be filed with a foreign securities 
                authority, or in any proceeding before a 
                foreign securities authority with respect to 
                registration, any statement that was at the 
                time and in light of the circumstances under 
                which it was made false or misleading with 
                respect to any material fact, or has omitted to 
                state in any application or report to a foreign 
                securities authority any material fact that is 
                required to be stated therein;
                  (B) violated any foreign statute or 
                regulation regarding transactions in securities 
                or contracts of sale of a commodity for future 
                delivery traded on or subject to the rules of a 
                contract market or any board of trade; or
                  (C) aided, abetted, counseled, commanded, 
                induced, or procured the violation by any other 
                person of any foreign statute or regulation 
                regarding transactions in securities or 
                contracts of sale of a commodity for future 
                delivery traded on or subject to the rules of a 
                contract market or any board of trade, or has 
                been found, by the foreign finanical regulatory 
                authority, to have failed reasonably to 
                supervise, with a view to preventing violations 
                of statutory provisions, and rules and 
                regulations promulgated thereunder, another 
                person who commits such a violation, if such 
                other person is subject to his supervision; or
          (9) is subject to any final order of a State 
        securities commission (or any agency or officer 
        performing like functions), State authority that 
        supervises or examines banks, savings associations, or 
        credit unions, State insurance commission (or any 
        agency or office performing like functions), an 
        appropriate Federal banking agency (as defined in 
        section 3 of the Federal Deposit Insurance Act (12 
        U.S.C. 1813(q))), or the National Credit Union 
        Administration, that--
                  (A) bars such person from association with an 
                entity regulated by such commission, authority, 
                agency, or officer, or from engaging in the 
                business of securities, insurance, banking, 
                savings association activities, or credit union 
                activities; or
                  (B) constitutes a final order based on 
                violations of any laws or regulations that 
                prohibit fraudulent, manipulative, or deceptive 
                conduct.
  (f) The Commission, by order, shall censure or place 
limitations on the activities of any person associated, seeking 
to become associated, or, at the time of the alleged 
misconduct, associated or seeking to become associated with an 
investment adviser, or suspend for a period not exceeding 12 
months or bar any such person from being associated with an 
investment adviser, broker, dealer, municipal securities 
dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization, if the Commission 
finds, on the record after notice and opportunity for hearing, 
that such censure, placing of limitations, suspension, or bar 
is in the public interest and that such person has committed or 
omitted any act or omission enumerated in paragraph (1), (5), 
(6), (8), or (9) of subsection (e) or has been convicted of any 
offense specified in paragraph (2) or (3) of subsection (e) 
within ten years of the commencement of the proceedings under 
this subsection, or is enjoined from any action, conduct, or 
practice specified in paragraph (4) of subsection (e). It shall 
be unlawful for any person as to whom such an order suspending 
or barring him from being associated with an investment adviser 
is in effect willfully to become, or to be, associated with an 
investment adviser without the consent of the Commission, and 
it shall be unlawful for any investment adviser to permit such 
a person to become, or remain, a person associated with him 
without the consent of the Commission, if such investment 
adviser knew, or in the exercise of reasonable care, should 
have known, of such order.
  (g) Any successor to the business of an investment adviser 
registered under this section shall be deemed likewise 
registered hereunder, if within thirty days from its succession 
to such business it shall file an application for registration 
under this section, unless and until the Commission, pursuant 
to subsection (c) or subsection (e) of this section, shall deny 
registration to or revoke or suspend the registration of such 
successor.
  (h) Any person registered under this section may, upon such 
terms and conditions as the Commission finds necessary in the 
public interest or for the protection of investors, withdraw 
from registration by filing a written notice of withdrawal with 
the Commission. If the Commission finds that any person 
registered under this section, or who has pending an 
application for registration filed under this section, is no 
longer in existence, is not engaged in business as an 
investment adviser, or is prohibited from registering as an 
investment adviser under section 203A, the Commission shall by 
order cancel the registration of such person.
  (i) Money Penalties in Administrative Proceedings.--
          (1) Authority of commission.--
                  (A) In general.--In any proceeding instituted 
                pursuant to subsection (e) or (f) against any 
                person, the Commission may impose a civil 
                penalty if it finds, on the record after notice 
                and opportunity for hearing, that such penalty 
                is in the public interest and that such 
                person--
                          (i) has willfully violated any 
                        provision of the Securities Act of 
                        1933, the Securities Exchange Act of 
                        1934, the Investment Company Act of 
                        1940, or this title, or the rules or 
                        regulations thereunder;
                          (ii) has willfully aided, abetted, 
                        counseled, commanded, induced, or 
                        procured such a violation by any other 
                        person;
                          (iii) has willfully made or caused to 
                        be made in any application for 
                        registration or report required to be 
                        filed with the Commission under this 
                        title, or in any proceeding before the 
                        Commission with respect to 
                        registration, any statement which was, 
                        at the time and in the light of the 
                        circumstances under which it was made, 
                        false or misleading with respect to any 
                        material fact, or has omitted to state 
                        in any such application or report any 
                        material fact which was required to be 
                        stated therein; or
                          (iv) has failed reasonably to 
                        supervise, within the meaning of 
                        subsection (e)(6), with a view to 
                        preventing violations of the provisions 
                        of this title and the rules and 
                        regulations thereunder, another person 
                        who commits such a violation, if such 
                        other person is subject to his 
                        supervision;
                  (B) Cease-and-desist proceedings.--In any 
                proceeding instituted pursuant to subsection 
                (k) against any person, the Commission may 
                impose a civil penalty if the Commission finds, 
                on the record, after notice and opportunity for 
                hearing, that such person--
                          (i) is violating or has violated any 
                        provision of this title, or any rule or 
                        regulation issued under this title; or
                          (ii) is or was a cause of the 
                        violation of any provision of this 
                        title, or any rule or regulation issued 
                        under this title.
          (2) Maximum amount of penalty.--
                  (A) First tier.--The maximum amount of 
                penalty for each act or omission described in 
                paragraph (1) shall be $5,000 for a natural 
                person or $50,000 for any other person.
                  (B) Second tier.--Notwithstanding 
                subparagraph (A), the maximum amount of penalty 
                for each such act or omission shall be $50,000 
                for a natural person or $250,000 for any other 
                person if the act or omission described in 
                paragraph (1) involved fraud, deceit, 
                manipulation, or deliberate or reckless 
                disregard of a regulatory requirement.
                  (C) Third tier.--Notwithstanding 
                subparagraphs (A) and (B), the maximum amount 
                of penalty for each such act or omission shall 
                be $100,000 for a natural person or $500,000 
                for any other person if--
                          (i) the act or omission described in 
                        paragraph (1) involved fraud, deceit, 
                        manipulation, or deliberate or reckless 
                        disregard of a regulatory requirement; 
                        and
                          (ii) such act or omission directly or 
                        indirectly resulted in substantial 
                        losses or created a significant risk of 
                        substantial losses to other persons or 
                        resulted in substantial pecuniary gain 
                        to the person who committed the act or 
                        omission.
          (3) Determination of public interest.--In considering 
        under this section whether a penalty is in the public 
        interest, the Commission may consider--
                  (A) whether the act or omission for which 
                such penalty is assessed involved fraud, 
                deceit, manipulation, or deliberate or reckless 
                disregard of a regulatory requirement;
                  (B) the harm to other persons resulting 
                either directly or indirectly from such act or 
                omission;
                  (C) the extent to which any person was 
                unjustly enriched, taking into account any 
                restitution made to persons injured by such 
                behavior;
                  (D) whether such person previously has been 
                found by the Commission, another appropriate 
                regulatory agency, or a self-regulatory 
                organization to have violated the Federal 
                securities laws, State securities laws, or the 
                rules of a self-regulatory organization, has 
                been enjoined by a court of competent 
                jurisdiction from violations of such laws or 
                rules, or has been convicted by a court of 
                competent jurisdiction of violations of such 
                laws or of any felony or misdemeanor described 
                in section 203(e)(2) of this title;
                  (E) the need to deter such person and other 
                persons from committing such acts or omissions; 
                and
                  (F) such other matters as justice may 
                require.
          (4) Evidence concerning ability to pay.--In any 
        proceeding in which the Commission may impose a penalty 
        under this section, a respondent may present evidence 
        of the respondent's ability to pay such penalty. The 
        Commission may, in its discretion, consider such 
        evidence in determining whether such penalty is in the 
        public interest. Such evidence may relate to the extent 
        of such person's ability to continue in business and 
        the collectability of a penalty, taking into account 
        any other claims of the United States or third parties 
        upon such person's assets and the amount of such 
        person's assets.
  (j) Authority To Enter an Order Requiring an Accounting and 
Disgorgement.--In any proceeding in which the Commission may 
impose a penalty under this section, the Commission may enter 
an order requiring accounting and disgorgement, including 
reasonable interest. The Commission is authorized to adopt 
rules, regulations, and orders concerning payments to 
investors, rates of interest, periods of accrual, and such 
other matters as it deems appropriate to implement this 
subsection.
  (k) Cease-and-Desist Proceedings.--
          (1) Authority of the commission.--If the Commission 
        finds, after notice and opportunity for hearing, that 
        any person is violating, has violated, or is about to 
        violate any provision of this title, or any rule or 
        regulation thereunder, the Commission may publish its 
        findings and enter an order requiring such person, and 
        any other person that is, was, or would be a cause of 
        the violation, due to an act or omission the person 
        knew or should have known would contribute to such 
        violation, to cease and desist from committing or 
        causing such violation and any future violation of the 
        same provision, rule, or regulation. Such order may, in 
        addition to requiring a person to cease and desist from 
        committing or causing a violation, require such person 
        to comply, or to take steps to effect compliance, with 
        such provision, rule, or regulation, upon such terms 
        and conditions and within such time as the Commission 
        may specify in such order. Any such order may, as the 
        Commission deems appropriate, require future compliance 
        or steps to effect future compliance, either 
        permanently or for such period of time as the 
        Commission may specify, with such provision, rule, or 
        regulation with respect to any security, any issuer, or 
        any other person.
          (2) Hearing.--The notice instituting proceedings 
        pursuant to paragraph (1) shall fix a hearing date not 
        earlier than 30 days nor later than 60 days after 
        service of the notice unless an earlier or a later date 
        is set by the Commission with the consent of any 
        respondent so served.
          (3) Temporary order.--
                  (A) In general.--Whenever the Commission 
                determines that the alleged violation or 
                threatened violation specified in the notice 
                instituting proceedings pursuant to paragraph 
                (1), or the continuation thereof, is likely to 
                result in significant dissipation or conversion 
                of assets, significant harm to investors, or 
                substantial harm to the public interest, 
                including, but not limited to, losses to the 
                Securities Investor Protection Corporation, 
                prior to the completion of the proceedings, the 
                Commission may enter a temporary order 
                requiring the respondent to cease and desist 
                from the violation or threatened violation and 
                to take such action to prevent the violation or 
                threatened violation and to prevent dissipation 
                or conversion of assets, significant harm to 
                investors, or substantial harm to the public 
                interest as the Commission deems appropriate 
                pending completion of such proceedings. Such an 
                order shall be entered only after notice and 
                opportunity for a hearing, unless the 
                Commission, notwithstanding section 211(c) of 
                this title, determines that notice and hearing 
                prior to entry would be impracticable or 
                contrary to the public interest. A temporary 
                order shall become effective upon service upon 
                the respondent and, unless set aside, limited, 
                or suspended by the Commission or a court of 
                competent jurisdiction, shall remain effective 
                and enforceable pending the completion of the 
                proceedings.
                  (B) Applicability.--This paragraph shall 
                apply only to a respondent that acts, or, at 
                the time of the alleged misconduct acted, as a 
                broker, dealer, investment adviser, investment 
                company, municipal securities dealer, 
                government securities broker, government 
                securities dealer, or transfer agent, or is, or 
                was at the time of the alleged misconduct, an 
                associated person of, or a person seeking to 
                become associated with, any of the foregoing.
          (4) Review of temporary orders.--
                  (A) Commission review.--At any time after the 
                respondent has been served with a temporary 
                cease-and-desist order pursuant to paragraph 
                (3), the respondent may apply to the Commission 
                to have the order set aside, limited, or 
                suspended. If the respondent has been served 
                with a temporary cease-and-desist order entered 
                without a prior Commission hearing, the 
                respondent may, within 10 days after the date 
                on which the order was served, request a 
                hearing on such application and the Commission 
                shall hold a hearing and render a decision on 
                such application at the earliest possible time.
                  (B) Judicial review.--Within--
                          (i) 10 days after the date the 
                        respondent was served with a temporary 
                        cease-and-desist order entered with a 
                        prior Commission hearing, or
                          (ii) 10 days after the Commission 
                        renders a decision on an application 
                        and hearing under subparagraph (A), 
                        with respect to any temporary cease-
                        and-desist order entered without a 
                        prior Commission hearing,
                the respondent may apply to the United States 
                district court for the district in which the 
                respondent resides or has its principal office 
                or place of business, or for the District of 
                Columbia, for an order setting aside, limiting, 
                or suspending the effectiveness or enforcement 
                of the order, and the court shall have 
                jurisdiction to enter such an order. A 
                respondent served with a temporary cease-and-
                desist order entered without a prior Commission 
                hearing may not apply to the court except after 
                hearing and decision by the Commission on the 
                respondent's application under subparagraph (A) 
                of this paragraph.
                  (C) No automatic stay of temporary order.--
                The commencement of proceedings under 
                subparagraph (B) of this paragraph shall not, 
                unless specifically ordered by the court, 
                operate as a stay of the Commission's order.
                  (D) Exclusive review.--Section 213 of this 
                title shall not apply to a temporary order 
                entered pursuant to this section.
          (5) Authority to enter an order requiring an 
        accounting and disgorgement.--In any cease-and-desist 
        proceeding under paragraph (1), the Commission may 
        enter an order requiring accounting and disgorgement, 
        including reasonable interest. The Commission is 
        authorized to adopt rules, regulations, and orders 
        concerning payments to investors, rates of interest, 
        periods of accrual, and such other matters as it deems 
        appropriate to implement this subsection.
  (l) Exemption of Venture Capital Fund Advisers.--[No 
investment adviser]
          (1) In general._No investment adviser that acts as an 
        investment adviser solely to 1 or more venture capital 
        funds shall be subject to the registration requirements 
        of this title with respect to the provision of 
        investment advice relating to a venture capital fund. 
        Not later than 1 year after the date of enactment of 
        this subsection, the Commission shall issue final rules 
        to define the term ``venture capital fund'' for 
        purposes of this subsection. The Commission shall 
        require such advisers to maintain such records and 
        provide to the Commission such annual or other reports 
        as the Commission determines necessary or appropriate 
        in the public interest or for the protection of 
        investors.
          (2) Advisers of sbics.--For purposes of this 
        subsection, a venture capital fund includes an entity 
        described in subparagraph (A), (B), or (C) of 
        subsection (b)(7) (other than an entity that has 
        elected to be regulated or is regulated as a business 
        development company pursuant to section 54 of the 
        Investment Company Act of 1940).
  (m) Exemption of and Reporting by Certain Private Fund 
Advisers.--
          (1) In general.--The Commission shall provide an 
        exemption from the registration requirements under this 
        section to any investment adviser of private funds, if 
        each of such investment adviser acts solely as an 
        adviser to private funds and has assets under 
        management in the United States of less than 
        $150,000,000.
          (2) Reporting.--The Commission shall require 
        investment advisers exempted by reason of this 
        subsection to maintain such records and provide to the 
        Commission such annual or other reports as the 
        Commission determines necessary or appropriate in the 
        public interest or for the protection of investors.
          (3) Advisers of sbics.--For purposes of this 
        subsection, the assets under management of a private 
        fund that is an entity described in subparagraph (A), 
        (B), or (C) of subsection (b)(7) (other than an entity 
        that has elected to be regulated or is regulated as a 
        business development company pursuant to section 54 of 
        the Investment Company Act of 1940) shall be excluded 
        from the limit set forth in paragraph (1).
  (n) Registration and Examination of Mid-sized Private Fund 
Advisers.--In prescribing regulations to carry out the 
requirements of this section with respect to investment 
advisers acting as investment advisers to mid-sized private 
funds, the Commission shall take into account the size, 
governance, and investment strategy of such funds to determine 
whether they pose systemic risk, and shall provide for 
registration and examination procedures with respect to the 
investment advisers of such funds which reflect the level of 
systemic risk posed by such funds.

SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

  (a) Advisers Subject to State Authorities.--
          (1) In general.--No investment adviser that is 
        regulated or required to be regulated as an investment 
        adviser in the State in which it maintains its 
        principal office and place of business shall register 
        under section 203, unless the investment adviser--
                  (A) has assets under management of not less 
                than $25,000,000, or such higher amount as the 
                Commission may, by rule, deem appropriate in 
                accordance with the purposes of this title; or
                  (B) is an adviser to an investment company 
                registered under title I of this Act.
          (2) Treatment of mid-sized investment advisers.--
                  (A) In general.--No investment adviser 
                described in subparagraph (B) shall register 
                under section 203, unless the investment 
                adviser is an adviser to an investment company 
                registered under the Investment Company Act of 
                1940, or a company which has elected to be a 
                business development company pursuant to 
                section 54 of the Investment Company Act of 
                1940, and has not withdrawn the election, 
                except that, if by effect of this paragraph an 
                investment adviser would be required to 
                register with 15 or more States, then the 
                adviser may register under section 203.
                  (B) Covered persons.--An investment adviser 
                described in this subparagraph is an investment 
                adviser that--
                          (i) is required to be registered as 
                        an investment adviser with the 
                        securities commissioner (or any agency 
                        or office performing like functions) of 
                        the State in which it maintains its 
                        principal office and place of business 
                        and, if registered, would be subject to 
                        examination as an investment adviser by 
                        any such commissioner, agency, or 
                        office; and
                          (ii) has assets under management 
                        between--
                                  (I) the amount specified 
                                under subparagraph (A) of 
                                paragraph (1), as such amount 
                                may have been adjusted by the 
                                Commission pursuant to that 
                                subparagraph; and
                                  (II) $100,000,000, or such 
                                higher amount as the Commission 
                                may, by rule, deem appropriate 
                                in accordance with the purposes 
                                of this title.
          (3) Definition.--For purposes of this subsection, the 
        term ``assets under management'' means the securities 
        portfolios with respect to which an investment adviser 
        provides continuous and regular supervisory or 
        management services.
  (b) Advisers Subject to Commission Authority.--
          (1) In general.--No law of any State or political 
        subdivision thereof requiring the registration, 
        licensing, or qualification as an investment adviser or 
        supervised person of an investment adviser shall apply 
        to any person--
                  (A) that is registered under section 203 as 
                an investment adviser, or that is a supervised 
                person of such person, except that a State may 
                license, register, or otherwise qualify any 
                investment adviser representative who has a 
                place of business located within that State; 
                [or]
                  (B) that is not registered under section 203 
                because that person is excepted from the 
                definition of an investment adviser under 
                section 202(a)(11)[.]; or
                  (C) that is not registered under section 203 
                because that person is exempt from registration 
                as provided in subsection (b)(7) of such 
                section, or is a supervised person of such 
                person.
          (2) Limitation.--Nothing in this subsection shall 
        prohibit the securities commission (or any agency or 
        office performing like functions) of any State from 
        investigating and bringing enforcement actions with 
        respect to fraud or deceit against an investment 
        adviser or person associated with an investment 
        adviser.
  (c) Exemptions.--Notwithstanding subsection (a), the 
Commission, by rule or regulation upon its own motion, or by 
order upon application, may permit the registration with the 
Commission of any person or class of persons to which the 
application of subsection (a) would be unfair, a burden on 
interstate commerce, or otherwise inconsistent with the 
purposes of this section.
  (d) State Assistance.--Upon request of the securities 
commissioner (or any agency or officer performing like 
functions) of any State, the Commission may provide such 
training, technical assistance, or other reasonable assistance 
in connection with the regulation of investment advisers by the 
State.

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