[House Report 114-281]
[From the U.S. Government Publishing Office]


114th Congress }                                             {  Report
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                             { 114-281

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



 
  REFORMING ACCESS FOR INVESTMENTS IN STARTUP ENTERPRISES ACT OF 2015

                                _______
                                

October 6, 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. 1839]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1839) to amend the Securities Act of 1933 to 
exempt certain transactions involving purchases by accredited 
investors, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Reforming Access for Investments in 
Startup Enterprises Act of 2015'' or the ``RAISE Act of 2015''.

SEC. 2. EXEMPTED TRANSACTIONS.

  (a) Exempted Transactions.--Section 4 of the Securities Act of 1933 
(15 U.S.C. 77d) is amended--
          (1) in subsection (a), by adding at the end the following new 
        paragraph:
          ``(7) transactions meeting the requirements of subsection 
        (d).'';
          (2) by redesignating the second subsection (b) (relating to 
        securities offered and sold in compliance with Rule 506 of 
        Regulation D) as subsection (c); and
          (3) by adding at the end the following:
  ``(d) Certain Accredited Investor Transactions.--The transactions 
referred to in subsection (a)(7) are transactions meeting the following 
requirements:
          ``(1) Accredited investor requirement.--Each purchaser is an 
        accredited investor, as that term is defined in section 
        230.501(a) of title 17, Code of Federal Regulations (or any 
        successor regulation).
          ``(2) Prohibition on general solicitation or advertising.--
        Neither the seller, nor any person acting on the seller's 
        behalf, offers or sells securities by any form of general 
        solicitation or general advertising.
          ``(3) Information requirement.--In the case of a transaction 
        involving the securities of an issuer that is neither subject 
        to section 13 or 15(d) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78m; 78o(d)), nor exempt from reporting pursuant to 
        section 240.12g3-2(b) of title 17, Code of Federal Regulations, 
        nor a foreign government (as defined in section 230.405 of 
        title 17, Code of Federal Regulations) eligible to register 
        securities under Schedule B, the seller and a prospective 
        purchaser designated by the seller obtain from the issuer, upon 
        request of the seller, and the seller in all cases makes 
        available to a prospective purchaser, the following information 
        (which shall be reasonably current in relation to the date of 
        resale under this section):
                  ``(A) The exact name of the issuer and the issuer's 
                predecessor (if any).
                  ``(B) The address of the issuer's principal executive 
                offices.
                  ``(C) The exact title and class of the security.
                  ``(D) The par or stated value of the security.
                  ``(E) The number of shares or total amount of the 
                securities outstanding as of the end of the issuer's 
                most recent fiscal year.
                  ``(F) The name and address of the transfer agent, 
                corporate secretary, or other person responsible for 
                transferring shares and stock certificates.
                  ``(G) A statement of the nature of the business of 
                the issuer and the products and services it offers, 
                which shall be presumed reasonably current if the 
                statement is as of 12 months before the transaction 
                date.
                  ``(H) The names of the officers and directors of the 
                issuer.
                  ``(I) The names of any persons registered as a 
                broker, dealer, or agent that shall be paid or given, 
                directly or indirectly, any commission or remuneration 
                for such person's participation in the offer or sale of 
                the securities.
                  ``(J) The issuer's most recent balance sheet and 
                profit and loss statement and similar financial 
                statements, which shall--
                          ``(i) be for such part of the two preceding 
                        fiscal years as the issuer has been in 
                        operation;
                          ``(ii) be prepared in accordance with 
                        generally accepted accounting principles or, in 
                        the case of a foreign private issuer, be 
                        prepared in accordance with generally accepted 
                        accounting principles or the International 
                        Financial Reporting Standards issued by the 
                        International Accounting Standards Board;
                          ``(iii) be presumed reasonably current if--
                                  ``(I) with respect to the balance 
                                sheet, the balance sheet is as of a 
                                date less than 16 months before the 
                                transaction date; and
                                  ``(II) with respect to the profit and 
                                loss statement, such statement is for 
                                the 12 months preceding the date of the 
                                issuer's balance sheet; and
                          ``(iv) if the balance sheet is not as of a 
                        date less than 6 months before the transaction 
                        date, be accompanied by additional statements 
                        of profit and loss for the period from the date 
                        of such balance sheet to a date less than 6 
                        months before the transaction date.
                  ``(K) To the extent that the seller is a control 
                person with respect to the issuer, a brief statement 
                regarding the nature of the affiliation, and a 
                statement certified by such seller that they have no 
                reasonable grounds to believe that the issuer is in 
                violation of the securities laws or regulations.
          ``(4) Issuers disqualified.--The transaction is not for the 
        sale of a security where the seller is an issuer or a 
        subsidiary, either directly or indirectly, of the issuer.
          ``(5) Bad actor prohibition.--Neither the seller, nor any 
        person that has been or will be paid (directly or indirectly) 
        remuneration or a commission for their participation in the 
        offer or sale of the securities, including solicitation of 
        purchasers for the seller is subject to an event that would 
        disqualify an issuer or other covered person under Rule 
        506(d)(1) of Regulation D (17 C.F.R. 230.506(d)(1)) or is 
        subject to a statutory disqualification described under section 
        3(a)(39) of the Securities Exchange Act of 1934.
          ``(6) Business requirement.--The issuer is engaged in 
        business, is not in the organizational stage or in bankruptcy 
        or receivership, and is not a blank check, blind pool, or shell 
        company that has no specific business plan or purpose or has 
        indicated that the issuer's primary business plan is to engage 
        in a merger or combination of the business with, or an 
        acquisition of, an unidentified person.
          ``(7) Underwriter prohibition.--The transaction is not with 
        respect to a security that constitutes the whole or part of an 
        unsold allotment to, or a subscription or participation by, a 
        broker or dealer as an underwriter of the security or a 
        redistribution.
          ``(8) Outstanding class requirement.--The transaction is with 
        respect to a security of a class that has been authorized and 
        outstanding for at least 90 days prior to the date of the 
        transaction.
  ``(e) Additional Requirements.--
          ``(1) In general.--With respect to an exempted transaction 
        described under subsection (a)(7):
                  ``(A) Securities acquired in such transaction shall 
                be deemed to have been acquired in a transaction not 
                involving any public offering.
                  ``(B) Such transaction shall be deemed not to be a 
                distribution for purposes of section 2(a)(11).
                  ``(C) Securities involved in such transaction shall 
                be deemed to be restricted securities within the 
                meaning of Rule 144 (17 C.F.R. 230.144).
          ``(2) Rule of construction.--The exemption provided by 
        subsection (a)(7) shall not be the exclusive means for 
        establishing an exemption from the registration requirements of 
        section 5.''.
  (b) Exemption in Connection With Certain Exempt Offerings.--Section 
18(b)(4) of the Securities Act of 1933 (15 U.S.C. 77r(b)(4)) is 
amended--
          (1) by redesignating the second subparagraph (D) and 
        subparagraph (E) as subparagraphs (E) and (F), respectively;
          (2) in subparagraph (E), as so redesignated, by striking ``; 
        or'' and inserting a semicolon;
          (3) in subparagraph (F), as so redesignated, by striking the 
        period and inserting ``; or''; and
          (4) by adding at the end the following new subparagraph:
                  ``(G) section 4(a)(7).''.

                          Purpose and Summary

    Introduced by Representative McHenry, H.R. 1839, the 
``Reforming Access for Investments in Startup Enterprises Act 
of 2015'' or ``RAISE'' Act, amends Section 4 of the Securities 
Act of 1933 to increase market liquidity and resolve legal 
uncertainty that impedes employees of private companies from 
selling their company-issued securities. Currently, a holder of 
securities issued in a private placement may resell the 
securities on a public market after a holding period. However, 
there is not a similar law for the private resale of restricted 
securities. Accordingly, H.R. 1839 codifies a legal framework 
for these transactions to facilitate private company capital 
formation.

                  Background and Need for Legislation

    H.R. 1839, as amended, facilitates the sale of company-
issued securities by employees of private companies by amending 
Section 4 of the Securities Act of 1933 to provide that the 
resale of any securities are ``exempted transactions'' (which 
do not trigger the Act's registration provisions) as long as: 
(1) each purchaser is an accredited investor; (2) the 
securities are not offered by means of general solicitation or 
general advertising; (3) the seller and a prospective purchaser 
obtain from the issuer certain information relating to the 
sale; and (4) the transaction does not involve a public 
offering.
    At an April 29, 2015, Capital Markets Subcommittee hearing, 
Shane Kovacs, Executive Vice President and Chief Executive 
Officer of PTC Therapeutics, Inc., testified that H.R. 1839 
will enhance liquidity in the market for company-issued 
securities and further improvements made by the Jumpstart Our 
Business Startups Act (P.L. 112-106):

        by ensuring that the legal framework at the SEC 
        supports the secondary market for the shares offered 
        and sold in Regulation A+ offerings. Without enhanced 
        liquidity on the secondary market, investors could be 
        hesitant to participate in Regulation A+ offerings--but 
        Representative McHenry has taken the important step to 
        codify the regulatory framework for the resale of 
        restricted securities, enhancing the capital potential 
        of a Regulation A+ offering and ensuring that Title IV 
        of the JOBS Act will have its intended impact.

    At the same hearing, Tom Quaadman of the U.S. Chamber of 
Commerce testified that H.R. 1839 ``would help foster a robust 
secondary market for the resale of restricted securities that 
were acquired in a private placement. While past court 
decisions have had the effect of allowing the resale of certain 
private offerings, restricted securities remain an illiquid 
market and could benefit from a modernization of current SEC 
rules.'' In a June 23, 2015, letter to Chairman Hensarling, 
Sara Hanks, the Co-Founder and CEO of CrowdCheck, Inc., a 
provider of due diligence services for investors looking for 
investments and entrepreneurs seeking funding wrote that, 
``[t]he employees of private companies, as well as founders and 
early investors . . . have an increasing need for some level of 
liquidity before those companies choose to publicly register an 
IPO. Some companies (and CrowdCheck is among them) are unlikely 
to make a registered public offering of their shares for many 
years, if ever.''
    Finally, Steven Bochner of the Palo Alto-based law firm 
Wilson Sonsini Goodrich & Rosati wrote to Chairman Hensarling 
on June 11, 2015, in support of H.R. 1839 that, 
``[f]acilitating shareholder liquidity is critical to the 
overall success of private companies. Private companies . . . 
find it much easier to raise primary capital when prospective 
investors understand that some degree of liquidity will be 
available to them, particularly in the case of private 
companies that wish to remain private and defer their IPOs.''

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 1839 on April 29, 
2015.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
July 28, 2015 and July 29, 2015, and ordered H.R. 1839 to be 
reported favorably to the House as amended by a recorded vote 
of 58 yeas to 0 nays (Record vote no. FC-51), a quorum being 
present. Before the vote to favorably report the measure was 
ordered, the Committee adopted an amendment in the nature of a 
substitute by unanimous consent.

                            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 record vote in committee was a motion by Chairman 
Hensarling to report the bill favorably to the House as 
amended. The motion was agreed to by a recorded vote of 58 yeas 
to 0 nays (Record vote no. FC-51, a quorum being present.

                                              Record vote no. FC-51
----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................        X   ........  .........  Ms. Waters (CA)..        X   ........  .........
Mr. King (NY)..................        X   ........  .........  Mrs. Maloney (NY)        X   ........  .........
Mr. Royce......................        X   ........  .........  Ms. Velazquez....        X   ........  .........
Mr. Lucas......................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Garrett....................        X   ........  .........  Mr. Meeks........        X   ........  .........
Mr. Neugebauer.................        X   ........  .........  Mr. Capuano......        X   ........  .........
Mr. McHenry....................        X   ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Pearce.....................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. Posey......................        X   ........  .........  Mr. Lynch........        X   ........  .........
Mr. Fitzpatrick................        X   ........  .........  Mr. David Scott          X   ........  .........
                                                                 (GA).
Mr. Westmoreland...............        X   ........  .........  Mr. Al Green (TX)        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Cleaver......  ........  ........  .........
Mr. Huizenga (MI)..............        X   ........  .........  Ms. Moore........        X   ........  .........
Mr. Duffy......................        X   ........  .........  Mr. Ellison......        X   ........  .........
Mr. Hurt (VA)..................        X   ........  .........  Mr. Perlmutter...        X   ........  .........
Mr. Stivers....................        X   ........  .........  Mr. Himes........        X   ........  .........
Mr. Fincher....................        X   ........  .........  Mr. Carney.......  ........  ........  .........
Mr. Stutzman...................        X   ........  .........  Ms. Sewell (AL)..        X   ........  .........
Mr. Mulvaney...................        X   ........  .........  Mr. Foster.......        X   ........  .........
Mr. Hultgren...................        X   ........  .........  Mr. Kildee.......        X   ........  .........
Mr. Ross.......................        X   ........  .........  Mr. Murphy (FL)..        X   ........  .........
Mr. Pittenger..................        X   ........  .........  Mr. Delaney......        X   ........  .........
Mrs. Wagner....................        X   ........  .........  Ms. Sinema.......        X   ........  .........
Mr. Barr.......................        X   ........  .........  Mrs. Beatty......        X   ........  .........
Mr. Rothfus....................        X   ........  .........  Mr. Heck (WA)....        X   ........  .........
Mr. Messer.....................        X   ........  .........  Mr. Vargas.......        X   ........  .........
Mr. Schweikert.................        X   ........  .........
Mr. Guinta.....................        X   ........  .........
Mr. Tipton.....................        X   ........  .........
Mr. Williams...................        X   ........  .........
Mr. Poliquin...................        X   ........  .........
Mrs. Love......................        X   ........  .........
Mr. Hill.......................        X   ........  .........
Mr. Emmer......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                      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. 1839 
will facilitate private company capital formation by enhancing 
liquidity in the market for certain securities that are issued 
by such companies and owned by their employees.

   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, August 20, 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. 1839, the 
Reforming Access for Investments in Startup Enterprises Act of 
2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 1839--Reforming Access for Investments in Startup Enterprises Act 
        of 2015

    H.R. 1839 would exempt certain securities from statutory 
requirements that, among other things, they be registered with 
the Securities and Exchange Commission (SEC) prior to being 
offered for sale. To be eligible for the exemption, such 
securities must be offered only in a private sale to accredited 
investors that have received certain information about the 
issuer of the security and the security itself.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 1839 would cost less than $500,000 over the 
2016-2020 period; the agency would not make any changes to 
current regulations as a result of the bill. Under current law, 
the SEC is authorized to collect fees to offset its annual 
appropriation; therefore, assuming appropriation action 
consistent with that authority, CBO estimates that implementing 
the bill would have a negligible effect on net discretionary 
spending. Enacting H.R. 1839 would not affect direct spending 
or revenues; therefore, pay-as-you-go procedures do not apply.
    H.R. 1839 would impose an intergovernmental mandate as 
defined in the Unfunded Mandates Reform Act (UMRA) by 
prohibiting states from requiring the registration or review of 
the sale of securities in some cases. CBO estimates that the 
cost to state governments of complying with the mandate would 
be small and well below the annual threshold established in 
UMRA for intergovernmental mandates ($76 million in 2014, 
adjusted annually for inflation).
    H.R. 1839 contains no private-sector mandates as defined in 
UMRA.
    The CBO staff contacts for this estimate are Susan Willie 
(for federal costs) and Melissa Merrell (for intergovernmental 
mandates). 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. 1839 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. 1839 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. 1839 does not require any 
directed rulemakings.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 1839 as the ``Reforming Access for 
Investment in Startup Enterprises Act of 2015'' or the ``RAISE 
Act of 2015.''

Section 2. Exempted transactions

    This section establishes a class of transactions that are 
exempt from the registration requirements of the Securities Act 
of 1933.

         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):

                         SECURITIES ACT OF 1933


TITLE I--SHORT TITLE

           *       *       *       *       *       *       *



                         exempted transactions

  Sec. 4. (a) The provisions of section 5 shall not apply to--
          (1) transactions by any person other than an issuer, 
        underwriter, or dealer.
          (2) transactions by an issuer not involving any 
        public offering.
          (3) transactions by a dealer (including an 
        underwriter no longer acting as an underwriter in 
        respect of the security involved in such transaction), 
        except--
                  (A) transactions taking place prior to the 
                expiration of forty days after the first date 
                upon which the security was bona fide offered 
                to the public by the issuer or by or through an 
                underwriter,
                  (B) transactions in a security as to which a 
                registration statement has been filed taking 
                place prior to the expiration of forty days 
                after the effective date of such registration 
                statement or prior to the expiration of forty 
                days after the first date upon which the 
                security was bona fide offered to the public by 
                the issuer or by or through an underwriter 
                after such effective date, whichever is later 
                (excluding in the computation of such forty 
                days any time during which a stop order issued 
                under section 8 is in effect as to the 
                security), or such shorter period as the 
                Commission may specify by rules and regulations 
                or order, and
                  (C) transactions as to securities 
                constituting the whole or a part of an unsold 
                allotment to or subscription by such dealer as 
                a participant in the distribution of such 
                securities by the issuer or by or through an 
                underwriter.
        With respect to transactions referred to in clause (B), 
        if securities of the issuer have not previously been 
        sold pursuant to an earlier effective registration 
        statement the applicable period, instead of forty days, 
        shall be ninety days, or such shorter period as the 
        Commission may specify by rules and regulations or 
        order.
          (4) brokers' transactions executed upon customers' 
        orders on any exchange or in the over-the-counter 
        market but not the solicitation of such orders.
          (5) transactions involving offers or sales by an 
        issuer solely to one or more accredited investors, if 
        the aggregate offering price of an issue of securities 
        offered in reliance on this paragraph does not exceed 
        the amount allowed under section 3(b)(1) of this title, 
        if there is no advertising or public solicitation in 
        connection with the transaction by the issuer or anyone 
        acting on the issuer's behalf, and if the issuer files 
        such notice with the Commission as the Commission shall 
        prescribe.
          (6) transactions involving the offer or sale of 
        securities by an issuer (including all entities 
        controlled by or under common control with the issuer), 
        provided that--
                  (A) the aggregate amount sold to all 
                investors by the issuer, including any amount 
                sold in reliance on the exemption provided 
                under this paragraph during the 12-month period 
                preceding the date of such transaction, is not 
                more than $1,000,000;
                  (B) the aggregate amount sold to any investor 
                by an issuer, including any amount sold in 
                reliance on the exemption provided under this 
                paragraph during the 12-month period preceding 
                the date of such transaction, does not exceed--
                          (i) the greater of $2,000 or 5 
                        percent of the annual income or net 
                        worth of such investor, as applicable, 
                        if either the annual income or the net 
                        worth of the investor is less than 
                        $100,000; and
                          (ii) 10 percent of the annual income 
                        or net worth of such investor, as 
                        applicable, not to exceed a maximum 
                        aggregate amount sold of $100,000, if 
                        either the annual income or net worth 
                        of the investor is equal to or more 
                        than $100,000;
                  (C) the transaction is conducted through a 
                broker or funding portal that complies with the 
                requirements of section 4A(a); and
                  (D) the issuer complies with the requirements 
                of section 4A(b).
          (7) transactions meeting the requirements of 
        subsection (d).
  (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.
  [(b)] (c)(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--
---------------------------------------------------------------------------
    \17\The reference to ``section 15(a)(1) of this title'' in 
subsection (b)(1) probably should be a reference to ``section 15(a)(1) 
of the Securities Exchange Act of 1934''.
---------------------------------------------------------------------------
                  (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.
  (d) Certain Accredited Investor Transactions.--The 
transactions referred to in subsection (a)(7) are transactions 
meeting the following requirements:
          (1) Accredited investor requirement.--Each purchaser 
        is an accredited investor, as that term is defined in 
        section 230.501(a) of title 17, Code of Federal 
        Regulations (or any successor regulation).
          (2) Prohibition on general solicitation or 
        advertising.--Neither the seller, nor any person acting 
        on the seller's behalf, offers or sells securities by 
        any form of general solicitation or general 
        advertising.
          (3) Information requirement.--In the case of a 
        transaction involving the securities of an issuer that 
        is neither subject to section 13 or 15(d) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78m; 
        78o(d)), nor exempt from reporting pursuant to section 
        240.12g3-2(b) of title 17, Code of Federal Regulations, 
        nor a foreign government (as defined in section 230.405 
        of title 17, Code of Federal Regulations) eligible to 
        register securities under Schedule B, the seller and a 
        prospective purchaser designated by the seller obtain 
        from the issuer, upon request of the seller, and the 
        seller in all cases makes available to a prospective 
        purchaser, the following information (which shall be 
        reasonably current in relation to the date of resale 
        under this section):
                  (A) The exact name of the issuer and the 
                issuer's predecessor (if any).
                  (B) The address of the issuer's principal 
                executive offices.
                  (C) The exact title and class of the 
                security.
                  (D) The par or stated value of the security.
                  (E) The number of shares or total amount of 
                the securities outstanding as of the end of the 
                issuer's most recent fiscal year.
                  (F) The name and address of the transfer 
                agent, corporate secretary, or other person 
                responsible for transferring shares and stock 
                certificates.
                  (G) A statement of the nature of the business 
                of the issuer and the products and services it 
                offers, which shall be presumed reasonably 
                current if the statement is as of 12 months 
                before the transaction date.
                  (H) The names of the officers and directors 
                of the issuer.
                  (I) The names of any persons registered as a 
                broker, dealer, or agent that shall be paid or 
                given, directly or indirectly, any commission 
                or remuneration for such person's participation 
                in the offer or sale of the securities.
                  (J) The issuer's most recent balance sheet 
                and profit and loss statement and similar 
                financial statements, which shall--
                          (i) be for such part of the two 
                        preceding fiscal years as the issuer 
                        has been in operation;
                          (ii) be prepared in accordance with 
                        generally accepted accounting 
                        principles or, in the case of a foreign 
                        private issuer, be prepared in 
                        accordance with generally accepted 
                        accounting principles or the 
                        International Financial Reporting 
                        Standards issued by the International 
                        Accounting Standards Board;
                          (iii) be presumed reasonably current 
                        if--
                                  (I) with respect to the 
                                balance sheet, the balance 
                                sheet is as of a date less than 
                                16 months before the 
                                transaction date; and
                                  (II) with respect to the 
                                profit and loss statement, such 
                                statement is for the 12 months 
                                preceding the date of the 
                                issuer's balance sheet; and
                          (iv) if the balance sheet is not as 
                        of a date less than 6 months before the 
                        transaction date, be accompanied by 
                        additional statements of profit and 
                        loss for the period from the date of 
                        such balance sheet to a date less than 
                        6 months before the transaction date.
                  (K) To the extent that the seller is a 
                control person with respect to the issuer, a 
                brief statement regarding the nature of the 
                affiliation, and a statement certified by such 
                seller that they have no reasonable grounds to 
                believe that the issuer is in violation of the 
                securities laws or regulations.
          (4) Issuers disqualified.--The transaction is not for 
        the sale of a security where the seller is an issuer or 
        a subsidiary, either directly or indirectly, of the 
        issuer.
          (5) Bad actor prohibition.--Neither the seller, nor 
        any person that has been or will be paid (directly or 
        indirectly) remuneration or a commission for their 
        participation in the offer or sale of the securities, 
        including solicitation of purchasers for the seller is 
        subject to an event that would disqualify an issuer or 
        other covered person under Rule 506(d)(1) of Regulation 
        D (17 C.F.R. 230.506(d)(1)) or is subject to a 
        statutory disqualification described under section 
        3(a)(39) of the Securities Exchange Act of 1934.
          (6) Business requirement.--The issuer is engaged in 
        business, is not in the organizational stage or in 
        bankruptcy or receivership, and is not a blank check, 
        blind pool, or shell company that has no specific 
        business plan or purpose or has indicated that the 
        issuer's primary business plan is to engage in a merger 
        or combination of the business with, or an acquisition 
        of, an unidentified person.
          (7) Underwriter prohibition.--The transaction is not 
        with respect to a security that constitutes the whole 
        or part of an unsold allotment to, or a subscription or 
        participation by, a broker or dealer as an underwriter 
        of the security or a redistribution.
          (8) Outstanding class requirement.--The transaction 
        is with respect to a security of a class that has been 
        authorized and outstanding for at least 90 days prior 
        to the date of the transaction.
  (e) Additional Requirements.--
          (1) In general.--With respect to an exempted 
        transaction described under subsection (a)(7):
                  (A) Securities acquired in such transaction 
                shall be deemed to have been acquired in a 
                transaction not involving any public offering.
                  (B) Such transaction shall be deemed not to 
                be a distribution for purposes of section 
                2(a)(11).
                  (C) Securities involved in such transaction 
                shall be deemed to be restricted securities 
                within the meaning of Rule 144 (17 C.F.R. 
                230.144).
          (2) Rule of construction.--The exemption provided by 
        subsection (a)(7) shall not be the exclusive means for 
        establishing an exemption from the registration 
        requirements of section 5.

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SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.

  (a) Scope of Exemption.--Except as otherwise provided in this 
section, no law, rule, regulation, or order, or other 
administrative action of any State or any political subdivision 
thereof--
          (1) requiring, or with respect to, registration or 
        qualification of securities, or registration or 
        qualification of securities transactions, shall 
        directly or indirectly apply to a security that--
                  (A) is a covered security; or
                  (B) will be a covered security upon 
                completion of the transaction;
          (2) shall directly or indirectly prohibit, limit, or 
        impose any conditions upon the use of--
                  (A) with respect to a covered security 
                described in subsection (b), any offering 
                document that is prepared by or on behalf of 
                the issuer; or
                  (B) any proxy statement, report to 
                shareholders, or other disclosure document 
                relating to a covered security or the issuer 
                thereof that is required to be and is filed 
                with the Commission or any national securities 
                organization registered under section 15A of 
                the Securities Exchange Act of 1934, except 
                that this subparagraph does not apply to the 
                laws, rules, regulations, or orders, or other 
                administrative actions of the State of 
                incorporation of the issuer; or
          (3) shall directly or indirectly prohibit, limit, or 
        impose conditions, based on the merits of such offering 
        or issuer, upon the offer or sale of any security 
        described in paragraph (1).
  (b) Covered Securities.--For purposes of this section, the 
following are covered securities:
          (1) Exclusive federal registration of nationally 
        traded securities.--A security is a covered security if 
        such security is--
                  (A) listed, or authorized for listing, on the 
                New York Stock Exchange or the American Stock 
                Exchange, or listed, or authorized for listing, 
                on the National Market System of the Nasdaq 
                Stock Market (or any successor to such 
                entities);
                  (B) listed, or authorized for listing, on a 
                national securities exchange (or tier or 
                segment thereof) that has listing standards 
                that the Commission determines by rule (on its 
                own initiative or on the basis of a petition) 
                are substantially similar to the listing 
                standards applicable to securities described in 
                subparagraph (A); or
                  (C) a security of the same issuer that is 
                equal in seniority or that is a senior security 
                to a security described in subparagraph (A) or 
                (B).
          (2) Exclusive federal registration of investment 
        companies.--A security is a covered security if such 
        security is a security issued by an investment company 
        that is registered, or that has filed a registration 
        statement, under the Investment Company Act of 1940.
          (3) Sales to qualified purchasers.--A security is a 
        covered security with respect to the offer or sale of 
        the security to qualified purchasers, as defined by the 
        Commission by rule. In prescribing such rule, the 
        Commission may define the term ``qualified purchaser'' 
        differently with respect to different categories of 
        securities, consistent with the public interest and the 
        protection of investors.
          (4) Exemption in connection with certain exempt 
        offerings.--A security is a covered security with 
        respect to a transaction that is exempt from 
        registration under this title pursuant to--
                  (A) paragraph (1) or (3) of section 4, and 
                the issuer of such security files reports with 
                the Commission pursuant to section 13 or 15(d) 
                of the Securities Exchange Act of 1934;
                  (B) section 4(4);
                  (C) section 4(6);
                  (D) a rule or regulation adopted pursuant to 
                section 3(b)(2) and such security is--
                          (i) offered or sold on a national 
                        securities exchange; or
                          (ii) offered or sold to a qualified 
                        purchaser, as defined by the Commission 
                        pursuant to paragraph (3) with respect 
                        to that purchase or sale;
                  [(D)] (E) section 3(a), other than the offer 
                or sale of a security that is exempt from such 
                registration pursuant to paragraph (4), (10), 
                or (11) of such section, except that a 
                municipal security that is exempt from such 
                registration pursuant to paragraph (2) of such 
                section is not a covered security with respect 
                to the offer or sale of such security in the 
                State in which the issuer of such security is 
                located; [or]
                  [(E)] (F) Commission rules or regulations 
                issued under section 4(2), except that this 
                subparagraph does not prohibit a State from 
                imposing notice filing requirements that are 
                substantially similar to those required by rule 
                or regulation under section 4(2) that are in 
                effect on September 1, 1996[.]; or
                  (G) section 4(a)(7).
  (c) Preservation of Authority.--
          (1) Fraud authority.--Consistent with this section, 
        the securities commission (or any agency or office 
        performing like functions) of any State shall retain 
        jurisdiction under the laws of such State to 
        investigate and bring enforcement actions, in 
        connection with securities or securities transactions
                  (A) with respect to--
                          (i) fraud or deceit; or
                          (ii) unlawful conduct by a broker or 
                        dealer; and
                  (B) in connection to a transaction described 
                under section 4(6), with respect to--
                          (i) fraud or deceit; or
                          (ii) unlawful conduct by a broker, 
                        dealer, funding portal, or issuer.
          (2) Preservation of filing requirements.--
                  (A) Notice filings permitted.--Nothing in 
                this section prohibits the securities 
                commission (or any agency or office performing 
                like functions) of any State from requiring the 
                filing of any document filed with the 
                Commission pursuant to this title, together 
                with annual or periodic reports of the value of 
                securities sold or offered to be sold to 
                persons located in the State (if such sales 
                data is not included in documents filed with 
                the Commission), solely for notice purposes and 
                the assessment of any fee, together with a 
                consent to service of process and any required 
                fee.
                  (B) Preservation of fees.--
                          (i) In general.--Until otherwise 
                        provided by law, rule, regulation, or 
                        order, or other administrative action 
                        of any State or any political 
                        subdivision thereof, adopted after the 
                        date of enactment of the National 
                        Securities Markets Improvement Act of 
                        1996, filing or registration fees with 
                        respect to securities or securities 
                        transactions shall continue to be 
                        collected in amounts determined 
                        pursuant to State law as in effect on 
                        the day before such date.
                          (ii) Schedule.--The fees required by 
                        this subparagraph shall be paid, and 
                        all necessary supporting data on sales 
                        or offers for sales required under 
                        subparagraph (A), shall be reported on 
                        the same schedule as would have been 
                        applicable had the issuer not relied on 
                        the exemption provided in subsection 
                        (a).
                  (C) Availability of preemption contingent on 
                payment of fees.--
                          (i) In general.--During the period 
                        beginning on the date of enactment of 
                        the National Securities Markets 
                        Improvement Act of 1996 and ending 3 
                        years after that date of enactment, the 
                        securities commission (or any agency or 
                        office performing like functions) of 
                        any State may require the registration 
                        of securities issued by any issuer who 
                        refuses to pay the fees required by 
                        subparagraph (B).
                          (ii) Delays.--For purposes of this 
                        subparagraph, delays in payment of fees 
                        or underpayments of fees that are 
                        promptly remedied shall not constitute 
                        a refusal to pay fees.
                  (D) Fees not permitted on listed 
                securities.--Notwithstanding subparagraphs (A), 
                (B), and (C), no filing or fee may be required 
                with respect to any security that is a covered 
                security pursuant to subsection (b)(1), or will 
                be such a covered security upon completion of 
                the transaction, or is a security of the same 
                issuer that is equal in seniority or that is a 
                senior security to a security that is a covered 
                security pursuant to subsection (b)(1).
                  (F) Fees not permitted on crowdfunded 
                securities.--Notwithstanding subparagraphs (A), 
                (B), and (C), no filing or fee may be required 
                with respect to any security that is a covered 
                security pursuant to subsection (b)(4)(B), or 
                will be such a covered security upon completion 
                of the transaction, except for the securities 
                commission (or any agency or office performing 
                like functions) of the State of the principal 
                place of business of the issuer, or any State 
                in which purchasers of 50 percent or greater of 
                the aggregate amount of the issue are 
                residents, provided that for purposes of this 
                subparagraph, the term ``State'' includes the 
                District of Columbia and the territories of the 
                United States.
          (3) Enforcement of requirements.--Nothing in this 
        section shall prohibit the securities commission (or 
        any agency or office performing like functions) of any 
        State from suspending the offer or sale of securities 
        within such State as a result of the failure to submit 
        any filing or fee required under law and permitted 
        under this section.
  (d) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Offering document.--The term ``offering 
        document''--
                  (A) has the meaning given the term 
                ``prospectus''' in section 2(a)(10), but 
                without regard to the provisions of 
                subparagraphs (a) and (b) of that section; and
                  (B) includes a communication that is not 
                deemed to offer a security pursuant to a rule 
                of the Commission.
          (2) Prepared by or on behalf of the issuer.--Not 
        later than 6 months after the date of enactment of the 
        National Securities Markets Improvement Act of 1996, 
        the Commission shall, by rule, define the term 
        ``prepared by or on behalf of the issuer'' for purposes 
        of this section.
          (3) State.--The term ``State'' has the same meaning 
        as in section 3 of the Securities Exchange Act of 1934.
          (4) Senior security.--The term ``senior security'' 
        means any bond, debenture, note, or similar obligation 
        or instrument constituting a security and evidencing 
        indebtedness, and any stock of a class having priority 
        over any other class as to distribution of assets or 
        payment of dividends.

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