[House Report 114-406]
[From the U.S. Government Publishing Office]


114th Congress  }                                            {  Report
                        HOUSE OF REPRESENTATIVES
 2d Session     }                                            {  114-406

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



 
       FAIR INVESTMENT OPPORTUNITIES FOR PROFESSIONAL EXPERTS ACT

                                _______
                                

February 1, 2016.--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. 2187]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2187) to direct the Securities and Exchange 
Commission to revise its regulations regarding the 
qualifications of natural persons as accredited investors, 
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 ``Fair Investment Opportunities for 
Professional Experts Act''.

SEC. 2. DEFINITION OF ACCREDITED INVESTOR.

  Section 2(a)(15) of the Securities Act of 1933 (15 U.S.C. 77b(a)(15) 
is amended--
          (1) by redesignating clauses (i) and (ii) as subparagraphs 
        (A) and (F), respectively;
          (2) in subparagraph (A) (as so redesignated), by striking ``; 
        or'' and inserting a semicolon, and inserting after such 
        subparagraph the following:
                  ``(B) any natural person whose individual net worth, 
                or joint net worth with that person's spouse, exceeds 
                $1,000,000 (which amount, along with the amounts set 
                forth in subparagraph (C), shall be adjusted for 
                inflation by the Commission every five years to the 
                nearest $10,000 to reflect the change in the Consumer 
                Price Index for All Urban Consumers published by the 
                Bureau of Labor Statistics) where, for purposes of 
                calculating net worth under this subparagraph--
                          ``(i) the person's primary residence shall 
                        not be included as an asset;
                          ``(ii) indebtedness that is secured by the 
                        person's primary residence, up to the estimated 
                        fair market value of the primary residence at 
                        the time of the sale of securities, shall not 
                        be included as a liability (except that if the 
                        amount of such indebtedness outstanding at the 
                        time of sale of securities exceeds the amount 
                        outstanding 60 days before such time, other 
                        than as a result of the acquisition of the 
                        primary residence, the amount of such excess 
                        shall be included as a liability); and
                          ``(iii) indebtedness that is secured by the 
                        person's primary residence in excess of the 
                        estimated fair market value of the primary 
                        residence at the time of the sale of securities 
                        shall be included as a liability;
                  ``(C) any natural person who had an individual income 
                in excess of $200,000 in each of the two most recent 
                years or joint income with that person's spouse in 
                excess of $300,000 in each of those years and has a 
                reasonable expectation of reaching the same income 
                level in the current year;
                  ``(D) any natural person who is currently licensed or 
                registered as a broker or investment adviser by the 
                Commission, the Financial Industry Regulatory 
                Authority, or an equivalent self-regulatory 
                organization (as defined in section 3(a)(26) of the 
                Securities Exchange Act of 1934), or the securities 
                division of a State or the equivalent State division 
                responsible for licensing or registration of 
                individuals in connection with securities activities;
                  ``(E) any natural person the Commission determines, 
                by regulation, to have demonstrable education or job 
                experience to qualify such person as having 
                professional knowledge of a subject related to a 
                particular investment, and whose education or job 
                experience is verified by the Financial Industry 
                Regulatory Authority or an equivalent self-regulatory 
                organization (as defined in section 3(a)(26) of the 
                Securities Exchange Act of 1934); or''.

                          Purpose and Summary

    Introduced by Representative Schweikert on April 30, 2015, 
H.R. 2187, the Fair Investment Opportunities for Professional 
Experts Act, amends the definition of accredited investor under 
the Securities Act of 1933 (Securities Act). H.R. 2187 modifies 
the definition to include: (1) persons whose individual net 
worth, including their spouse's, exceeds $1,000,000, excluding 
the value of their primary residence (which amount, together 
with the individual income amounts described below, shall be 
adjusted for inflation every five years); (2) persons with an 
individual income greater than $200,000 or $300,000 for joint 
income; (3) persons who are licensed in the securities industry 
(such as a registered broker or investment adviser) with the 
Securities and Exchange Commission (SEC), the Financial 
Industry Regulatory Authority (FINRA) or the State; and (4) 
persons whom the SEC determines by regulation to have 
demonstrable education or job experience to qualify such person 
as having professional knowledge of a subject related to a 
particular investment. For the latter category, the FINRA would 
verify the person's education or job experience.

                  Background and Need for Legislation

    Smaller companies and emerging companies play a significant 
role as drivers of U.S. economic activity, innovation and job 
creation. According to the SEC Advisory Committee on Small and 
Emerging Companies, the majority of net new jobs in the United 
States are generated by companies less than five years old, 
with these companies continuing to add jobs as they mature. 
Their ability to raise capital in the private markets is 
critical to the economic well-being of the United States.
    Under existing law, companies can raise funds through 
public and private offerings. The Securities Act requires 
companies that are publicly offering securities for investment 
to register the offering of the securities with the SEC and 
provide investors with all material information necessary to 
make an investment decision. Consequently, the statute 
prohibits a company from selling securities unless the company 
has the government's authorization, or is subject to an 
exemption.
    The Securities Act does contain exemptions from 
registration and authorizes the SEC to provide by rule 
additional exemptions in order for companies to raise capital 
through private offerings. Regulation D, which provides such 
exemptions, is based on a Securities Act provision that states 
that the obligation to register with the government will not 
apply to any ``transactions by an issuer not involving any 
public offering.'' The Supreme Court addressed the definition 
of a public offering in 1953. The Court stated that the 
exemption--when an offering would be considered private--should 
turn on whether ``the particular class of persons affected 
needs the protection'' of the securities laws and should be 
utilized only by persons who can ``fend for themselves.''
    Consequently, to codify the concept that only persons who 
can ``fend for themselves'' may participate in a private 
offering, the SEC adopted the term ``accredited investor'' in 
1982. Under the SEC's standards, an investor's financial status 
is a proxy for his ability to fend for himself. Thus, a natural 
person is accredited if that person: (1) earned income that 
exceeded $200,000 (or $300,000 together with a spouse) in each 
of the prior two years, and reasonably expects the same for the 
current year, or (2) has a net worth over $1 million, either 
alone or together with a spouse (excluding the value of the 
person's primary residence).

The Importance of the Regulation D Markets

    Generally, small companies face significant obstacles when 
raising funds in the U.S. public capital markets. These 
obstacles are often attributable to the proportionately larger 
burden that securities regulations--written for large public 
companies--place on small companies when they seek to go 
public. Beyond the costs directly impacting smaller companies 
in accessing capital, the stifling regulatory environment has 
restricted bank and other traditional financing for these 
companies.
    Indeed, the increasing costs of going public in the U.S. 
have impacted the competitiveness of the U.S. capital markets. 
Concerns about the competitiveness of these markets have been 
expressed since before the financial crisis. In 2007, a report 
issued by a bipartisan U.S. Chamber of Commerce committee noted 
that the United States was steadily losing market share to 
other international financial centers. Additionally, in 2006, 
the Committee on Capital Markets Regulation, an independent and 
non-partisan research organization led by Harvard Law School 
Professor Hal Scott, issued a pair of reports calling attention 
to the declining competitiveness of the U.S. securities 
markets. The group cited a significant decline in the U.S. 
share of equity raised in global public markets, a precipitous 
drop in the U.S. share of the twenty largest global Initial 
Public Offerings (IPOs), and a raft of statistics indicating 
that foreign and domestic issuers were taking steps to raise 
capital either privately or in overseas markets rather than in 
the U.S. public equity markets. Recently, the Committee on 
Capital Markets Regulation stated that the competitiveness of 
the U.S. capital markets is at a historic low.
    Robust private markets have helped pick up the slack for an 
IPO process that has grown too burdensome. Today, the private 
securities markets rival the public markets in size, and the 
vast majority of private offerings are conducted in reliance on 
Rule 506 of Regulation D. The SEC's Division of Economic and 
Risk Analysis (DERA) noted that ``amounts raised through 
unregistered securities offerings have outpaced the level of 
capital formation through registered securities offerings 
during recent years, and totaled more than $2 trillion during 
2014.'' Furthermore, DERA has noted that ``the importance of 
the Regulation D market is magnified when considering that 
approximately two-thirds of Reg D offerings represent new 
equity capital . . . which is a more permanent source of 
capital than debt, and thus more likely to reflect new 
investment as opposed to the refinancing of existing 
investment.''
    Small and emerging companies rely on private placements to 
raise capital in a cost-effective manner without being subject 
to SEC rules and regulations that are increasing in burden and 
scope, and which are reducing U.S. competitiveness globally. 
H.R. 2187 recognizes that a robust and enhanced set of private 
offering exemptions under Regulation D is crucial to allow a 
company to access the U.S. capital markets while still 
remaining private as long as it so desires. Accordingly, H.R. 
2187 ensures that the private capital markets will remain a 
cost-effective alternative to the public markets.

The Need To Amend the Definition of Accredited Investor

    Title IV of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) directed the SEC to adjust the 
net worth standard for an accredited investor who is a natural 
person by excluding the value of the investor's primary 
residence from his net worth calculation. This directive 
narrowed the pool of accredited investors by making it more 
difficult for investors to satisfy the net worth test. In 
addition, the Dodd-Frank Act required the SEC to review the 
accredited investor definition every four years and directed 
the Government Accountability Office to conduct a study on the 
appropriate criteria for determining which individuals should 
qualify for accredited investor status. The Dodd-Frank Act also 
established a new Investor Advisor Committee to advise the SEC 
on a number of issues, including a set of recommendations 
related to the accredited investor definition.
    In the fall of 2015, the Investor Advisor Committee 
recommended changes to the definition of accredited investor to 
allow investors to participate in private offerings even though 
they do not satisfy the net worth test. The Committee suggested 
that individuals could be accredited investors if they had 
adequate financial sophistication, education or professional 
credentials, or expertise as demonstrated by the successful 
completion of an exam demonstrating their investment knowledge.
    The SEC Advisory Committee on Small and Emerging Companies 
provided its own set of recommendations regarding the 
definition of accredited investor. The Committee on Small and 
Emerging Companies noted that some have argued that the 
accredited investor financial thresholds should be increased to 
prevent fraud against investors who may be unable to fend for 
themselves. However, the Committee on Small and Emerging 
Companies strongly disagreed with that notion and noted that 
there is no ``substantial evidence suggesting that the current 
definition of accredited investor has contributed to the 
ability of fraudsters to commit fraud or has resulted in 
greater exposure for potential victims.'' Indeed, the Committee 
on Small and Emerging Companies noted that the connection 
between fraud and the current accredited investor threshold is 
``tenuous at best.''
    The SEC has failed to act on capital formation initiatives 
in a timely manner, including to ensure that individuals with 
the risk appetite and ability to understand private offerings 
may be permitted to invest. Accordingly, H.R. 2187 amends the 
definition of accredited investor to account for educational or 
professional expertise.
    Additionally, H.R. 2187 codifies the existing monetary 
thresholds established by the SEC--both with respect to net 
worth and income--and thereby prevents the SEC from increasing 
the financial requirements for the purpose of limiting the pool 
of potential investors that would satisfy the definition of an 
accredited investor. Nevertheless, H.R. 2187 contemplates 
modest adjustments over time to the current thresholds because 
it requires the SEC to adjust such thresholds for inflation 
every five years to the nearest $10,000. If H.R. 2187 is 
enacted into law, the Committee will closely monitor its 
implementation to ensure that, as the SEC adjusts the monetary 
thresholds, persons who previously qualified as accredited 
investors shall not lose such status as a result of any 
inflation adjustment.

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 2187 on June 16, 
2015.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
December 8, 2015 and December 9, 2015, and ordered H.R. 2187 to 
be reported favorably to the House as amended by a recorded 
vote of 54 yeas to 2 nays (recorded vote no. FC-82), a quorum 
being present. The Committee adopted an amendment in the nature 
of a substitute offered by Representative Schweikert, as 
amended as set forth immediately below, by a voice vote. The 
Committee adopted an amendment to the amendment in the nature 
of a substitute offered by Representative Waters by a voice 
vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole record vote 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 54 yeas to 2 nays (recorded 
vote no. FC-82), a quorum being present.


                      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. 2187 
will promote capital formation and increase investment 
opportunities for more Americans by expanding the accredited 
investor definition that exists under current law.

   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, January 15, 2016.
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. 2187, a bill to 
direct the Securities and Exchange Commission to revise its 
regulations regarding the qualifications of natural persons as 
accredited investors.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                        Robert A. Sunshine,
                                        (For Keith Hall, Director).
    Enclosure.

H.R. 2187--A bill to direct the Securities and Exchange Commission to 
        revise its regulations regarding the qualifications of natural 
        persons as accredited investors

    Current law provides a number of exemptions from the 
requirement that securities be registered with the Securities 
and Exchange Commission (SEC) prior to being sold to the 
public. Central to those exemptions is the accredited investor, 
a person with sufficient financial sophistication and ability 
to sustain the risk of loss so as to render the protections 
from the registration process unnecessary. Accredited investors 
may participate in investment opportunities not available to 
non-accredited investors.
    H.R. 2187 would broaden the definition of the accredited 
investor to include licensed brokers or investment advisors and 
individuals with professional knowledge related to a particular 
investment that is verified by certain regulatory authorities.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 2187 would cost less than $500,000 over the 
2016-2020 period for rulemaking activities related to the 
change in definition. Under current law, the SEC is authorized 
to collect fees sufficient to offset its annual appropriation; 
therefore, we estimate that implementing H.R. 2187 would have a 
negligible effect on net discretionary costs, assuming 
appropriation actions consistent with that authority.
    Enacting H.R. 2187 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply. CBO 
estimates that enacting H.R. 2187 would not increase net direct 
spending or on-budget deficits in any of the four consecutive 
10-year periods beginning in 2026.
    H.R. 2187 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
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 section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 2187 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. 2187 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. 2187 contains no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 2187 as the ``Fair Investment 
Opportunities for Professional Experts Act.''

Section 2. Definition of accredited investor

    This section amends the definition of accredited investor 
in Section 2 of the Securities Act of 1933 by inserting four 
additional methods in which a person can be qualified as an 
accredited investor. First, any natural person whose individual 
net worth, or joint net worth with their spouse, exceeds 
$1,000,000 satisfies the definition; however the value of the 
person's primary residence owed individually or jointly with 
his or her spouse is excluded from the net worth calculation. 
Second, a natural person who had an individual income in excess 
of $200,000 in each of the two most recent years or joint 
income with that person's spouse in excess of $300,000, and has 
a reasonable expectation of reaching the same income level in 
the current year, can be an accredited investor. The SEC must 
adjust the net worth and income amounts for inflation every 
five years. Third, any natural person who generally holds a 
current financial services related license registered with the 
SEC, FINRA, or issued by a State, also can be an accredited 
investor. Finally, any natural person that the SEC determines 
by regulation to have demonstrable education or job experience 
to qualify such person as having professional knowledge of a 
subject related to a given investment can be an accredited 
investor. However, FINRA must verify the related education or 
job experience.

         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):

                SECTION 2 OF THE SECURITIES ACT OF 1933


                              definitions

  Sec. 2. (a) Definitions.--When used in this title, unless the 
context otherwise requires--
          (1) The term ``security'' means any note, stock, 
        treasury stock, security future, security-based swap, 
        bond, debenture, evidence of indebtedness, certificate 
        of interest or participation in any profit-sharing 
        agreement, collateral-trust certificate, 
        preorganization certificate or subscription, 
        transferable share, investment contract, voting-trust 
        certificate, certificate of deposit for a security, 
        fractional undivided interest in oil, gas, or other 
        mineral rights, any put, call, straddle, option, or 
        privilege on any security, certificate of deposit, or 
        group or index of securities (including any interest 
        therein or based on the value thereof), or any put, 
        call, straddle, option, or privilege entered into on a 
        national securities exchange relating to foreign 
        currency, or, in general, any interest or instrument 
        commonly known as a ``security'', or any certificate of 
        interest or participation in, temporary or interim 
        certificate for, receipt for, guarantee of, or warrant 
        or right to subscribe to or purchase, any of the 
        foregoing.
          (2) The term ``person'' means an individual, a 
        corporation, a partnership, an association, a joint-
        stock company, a trust, any unincorporated 
        organization, or a government or political subdivision 
        thereof. As used in this paragraph the term ``trust'' 
        shall include only a trust where the interest or 
        interests of the beneficiary or beneficiaries are 
        evidenced by a security.
          (3) The term ``sale'' or ``sell'' shall include every 
        contract of sale or disposition of a security or 
        interest in a security, for value. The term ``offer to 
        sell'', ``offer for sale'', or ``offer'' shall include 
        every attempt or offer to dispose of, or solicitation 
        of an offer to buy, a security or interest in a 
        security, for value. The terms defined in this 
        paragraph and the term ``offer to buy'' as used in 
        subsection (c) of section 5 shall not include 
        preliminary negotiations or agreements between an 
        issuer (or any person directly or indirectly 
        controlling or controlled by an issuer, or under direct 
        or indirect common control with an issuer) and any 
        underwriter or among underwriters who are or are to be 
        in privity of contract with an issuer (or any person 
        directly or indirectly controlling or controlled by an 
        issuer, or under direct or indirect common control with 
        an issuer). Any security given or delivered with, or as 
        a bonus on account of, any purchase of securities or 
        any other thing, shall be conclusively presumed to 
        constitute a part of the subject of such purchase and 
        to have been offered and sold for value. The issue or 
        transfer of a right or privilege, when originally 
        issued or transferred with a security, giving the 
        holder of such security the right to convert such 
        security into another security of the same issuer or of 
        another person, or giving a right to subscribe to 
        another security of the same issuer or of another 
        person, which right cannot be exercised until some 
        future date, shall not be deemed to be an offer or sale 
        of such other security; but the issue or transfer of 
        such other security upon the exercise of such right of 
        conversion or subscription shall be deemed a sale of 
        such other security. Any offer or sale of a security 
        futures product by or on behalf of the issuer of the 
        securities underlying the security futures product, an 
        affiliate of the issuer, or an underwriter, shall 
        constitute a contract for sale of, sale of, offer for 
        sale, or offer to sell the underlying securities. Any 
        offer or sale of a security-based swap by or on behalf 
        of the issuer of the securities upon which such 
        security-based swap is based or is referenced, an 
        affiliate of the issuer, or an underwriter, shall 
        constitute a contract for sale of, sale of, offer for 
        sale, or offer to sell such securities. The publication 
        or distribution by a broker or dealer of a research 
        report about an emerging growth company that is the 
        subject of a proposed public offering of the common 
        equity securities of such emerging growth company 
        pursuant to a registration statement that the issuer 
        proposes to file, or has filed, or that is effective 
        shall be deemed for purposes of paragraph (10) of this 
        subsection and section 5(c) not to constitute an offer 
        for sale or offer to sell a security, even if the 
        broker or dealer is participating or will participate 
        in the registered offering of the securities of the 
        issuer. As used in this paragraph, the term ``research 
        report'' means a written, electronic, or oral 
        communication that includes information, opinions, or 
        recommendations with respect to securities of an issuer 
        or an analysis of a security or an issuer, whether or 
        not it provides information reasonably sufficient upon 
        which to base an investment decision.
          (4) The term ``issuer'' means every person who issues 
        or proposes to issue any security; except that with 
        respect to certificates of deposit, voting-trust 
        certificates, or collateral-trust certificates, or with 
        respect to certificates of interest or shares in an 
        unincorporated investment trust not having a board of 
        directors (or persons performing similar functions) or 
        of the fixed, restricted management, or unit type, the 
        term ``issuer'' means the person or persons performing 
        the acts and assuming the duties of depositor or 
        manager pursuant to the provisions of the trust or 
        other agreement or instrument under which such 
        securities are issued; except that in the case of an 
        unincorporated association which provides by its 
        articles for limited liability of any or all of its 
        members, or in the case of a trust, committee, or other 
        legal entity, the trustees or members thereof shall not 
        be individually liable as issuers of any security 
        issued by the association, trust, committee, or other 
        legal entity; except that with respect to equipment-
        trust certificates or like securities, the term 
        ``issuer'' means the person by whom the equipment or 
        property is or is to be used; and except that with 
        respect to fractional undivided interests in oil, gas, 
        or other mineral rights, the term ``issuer'' means the 
        owner of any such right or of any interest in such 
        right (whether whole or fractional) who creates 
        fractional interests therein for the purpose of public 
        offering.
          (5) The term ``Commission'' means the Securities and 
        Exchange Commission.
          (6) The term ``Territory'' means Puerto Rico, the 
        Virgin Islands, and the insular possessions of the 
        United States.
          (7) The term ``interstate commerce'' means trade or 
        commerce in securities or any transportation or 
        communication relating thereto among the several States 
        or between the District of Columbia or any Territory of 
        the United States and any State or other Territory, or 
        between any foreign country and any State, Territory, 
        or the District of Columbia, or within the District of 
        Columbia.
          (8) The term ``registration statement'' means the 
        statement provided for in section 6, and includes any 
        amendment thereto and any report, document, or 
        memorandum filed as part of such statement or 
        incorporated therein by reference.
          (9) The term ``write'' or ``written'' shall include 
        printed, lithographed, or any means of graphic 
        communication.
          (10) The term ``prospectus'' means any prospectus, 
        notice, circular, advertisement, letter, or 
        communication, written or by radio or television, which 
        offers any security for sale or confirms the sale of 
        any security; except that (a) a communication sent or 
        given after the effective date of the registration 
        statement (other than a prospectus permitted under 
        subsection (b) of section 10) shall not be deemed a 
        prospectus if it is proved that prior to or at the same 
        time with such communication a written prospectus 
        meeting the requirements of subsection (a) of section 
        10 at the time of such communication was sent or given 
        to the person to whom the communication was made, and 
        (b) a notice, circular, advertisement, letter, or 
        communication in respect of a security shall not be 
        deemed to be a prospectus if it states from whom a 
        written prospectus meeting the requirements of section 
        10 may be obtained and, in addition, does no more than 
        identify the security, state the price thereof, state 
        by whom orders will be executed, and contain such other 
        information as the Commission, by rules or regulations 
        deemed necessary or appropriate in the public interest 
        and for the protection of investors, and subject to 
        such terms and conditions as may be prescribed therein, 
        may permit.
          (11) The term ``underwriter'' means any person who 
        has purchased from an issuer with a view to, or offers 
        or sells for an issuer in connection with, the 
        distribution of any security, or participates or has a 
        direct or indirect participation in any such 
        undertaking, or participates or has a participation in 
        the direct or indirect underwriting of any such 
        undertaking; but such term shall not include a person 
        whose interest is limited to a commission from an 
        underwriter or dealer not in excess of the usual and 
        customary distributors' or sellers' commission. As used 
        in this paragraph the term ``issuer'' shall include, in 
        addition to an issuer, any person directly or 
        indirectly controlling or controlled by the issuer, or 
        any person under direct or indirect common control with 
        the issuer.
          (12) The term ``dealer'' means any person who engages 
        either for all or part of his time, directly or 
        indirectly, as agent, broker, or principal, in the 
        business of offering, buying, selling, or otherwise 
        dealing or trading in securities issued by another 
        person.
          (13) The term ``insurance company'' means a company 
        which is organized as an insurance company, whose 
        primary and predominant business activity is the 
        writing of insurance or the reinsuring of risks 
        underwritten by insurance companies, and which is 
        subject to supervision by the insurance commissioner, 
        or a similar official or agency, of a State or 
        territory or the District of Columbia; or any receiver 
        or similar official or any liquidating agent for such 
        company, in his capacity as such.
          (14) The term ``separate account'' means an account 
        established and maintained by an insurance company 
        pursuant to the laws of any State or territory of the 
        United States, the District of Columbia, or of Canada 
        or any province thereof, under which income, gains and 
        losses, whether or not realized, from assets allocated 
        to such account, are, in accordance with the applicable 
        contract, credited to or charged against such account 
        without regard to other income, gains, or losses of the 
        insurance company.
          (15) The term ``accredited investor'' shall mean--
                  [(i)] (A) a bank as defined in section 
                3(a)(2) whether acting in its individual or 
                fiduciary capacity; an insurance company as 
                defined in paragraph (13) of this subsection; 
                an investment company registered under the 
                Investment Company Act of 1940 or a business 
                development company as defined in section 
                2(a)(48) of that Act; a Small Business 
                Investment Company licensed by the Small 
                Business Administration; or an employee benefit 
                plan, including an individual retirement 
                account, which is subject to the provisions of 
                the Employee Retirement Income Security Act of 
                1974, if the investment decision is made by a 
                plan fiduciary, as defined in section 3(21) of 
                such Act, which is either a bank, insurance 
                company, or registered investment adviser[; 
                or];
                  (B) any natural person whose individual net 
                worth, or joint net worth with that person's 
                spouse, exceeds $1,000,000 (which amount, along 
                with the amounts set forth in subparagraph (C), 
                shall be adjusted for inflation by the 
                Commission every five years to the nearest 
                $10,000 to reflect the change in the Consumer 
                Price Index for All Urban Consumers published 
                by the Bureau of Labor Statistics) where, for 
                purposes of calculating net worth under this 
                subparagraph--
                          (i) the person's primary residence 
                        shall not be included as an asset;
                          (ii) indebtedness that is secured by 
                        the person's primary residence, up to 
                        the estimated fair market value of the 
                        primary residence at the time of the 
                        sale of securities, shall not be 
                        included as a liability (except that if 
                        the amount of such indebtedness 
                        outstanding at the time of sale of 
                        securities exceeds the amount 
                        outstanding 60 days before such time, 
                        other than as a result of the 
                        acquisition of the primary residence, 
                        the amount of such excess shall be 
                        included as a liability); and
                          (iii) indebtedness that is secured by 
                        the person's primary residence in 
                        excess of the estimated fair market 
                        value of the primary residence at the 
                        time of the sale of securities shall be 
                        included as a liability;
                  (C) any natural person who had an individual 
                income in excess of $200,000 in each of the two 
                most recent years or joint income with that 
                person's spouse in excess of $300,000 in each 
                of those years and has a reasonable expectation 
                of reaching the same income level in the 
                current year;
                  (D) any natural person who is currently 
                licensed or registered as a broker or 
                investment adviser by the Commission, the 
                Financial Industry Regulatory Authority, or an 
                equivalent self-regulatory organization (as 
                defined in section 3(a)(26) of the Securities 
                Exchange Act of 1934), or the securities 
                division of a State or the equivalent State 
                division responsible for licensing or 
                registration of individuals in connection with 
                securities activities;
                  (E) any natural person the Commission 
                determines, by regulation, to have demonstrable 
                education or job experience to qualify such 
                person as having professional knowledge of a 
                subject related to a particular investment, and 
                whose education or job experience is verified 
                by the Financial Industry Regulatory Authority 
                or an equivalent self-regulatory organization 
                (as defined in section 3(a)(26) of the 
                Securities Exchange Act of 1934); or
                  [(ii)] (F) any person who, on the basis of 
                such factors as financial sophistication, net 
                worth, knowledge, and experience in financial 
                matters, or amount of assets under management 
                qualifies as an accredited investor under rules 
                and regulations which the Commission shall 
                prescribe.
          (16) The terms ``security future'', ``narrow-based 
        security index'', and ``security futures product'' have 
        the same meanings as provided in section 3(a)(55) of 
        the Securities Exchange Act of 1934.
          (17) The terms ``swap'' and ``security-based swap'' 
        have the same meanings as in section 1a of the 
        Commodity Exchange Act (7 U.S.C. 1a).
          (18) The terms ``purchase'' or ``sale'' of a 
        security-based swap shall be deemed to mean the 
        execution, termination (prior to its scheduled maturity 
        date), assignment, exchange, or similar transfer or 
        conveyance of, or extinguishing of rights or 
        obligations under, a security-based swap, as the 
        context may require.
          (19) The term ``emerging growth company'' means an 
        issuer that had total annual gross revenues of less 
        than $1,000,000,000 (as such amount is indexed for 
        inflation every 5 years by the Commission to reflect 
        the change in the Consumer Price Index for All Urban 
        Consumers published by the Bureau of Labor Statistics, 
        setting the threshold to the nearest 1,000,000) during 
        its most recently completed fiscal year. An issuer that 
        is an emerging growth company as of the first day of 
        that fiscal year shall continue to be deemed an 
        emerging growth company until the earliest of--
                  (A) the last day of the fiscal year of the 
                issuer during which it had total annual gross 
                revenues of $1,000,000,000 (as such amount is 
                indexed for inflation every 5 years by the 
                Commission to reflect the change in the 
                Consumer Price Index for All Urban Consumers 
                published by the Bureau of Labor Statistics, 
                setting the threshold to the nearest 1,000,000) 
                or more;
                  (B) the last day of the fiscal year of the 
                issuer following the fifth anniversary of the 
                date of the first sale of common equity 
                securities of the issuer pursuant to an 
                effective registration statement under this 
                title;
                  (C) the date on which such issuer has, during 
                the previous 3-year period, issued more than 
                $1,000,000,000 in non-convertible debt; or
                  (D) the date on which such issuer is deemed 
                to be a ``large accelerated filer'', as defined 
                in section 240.12b-2 of title 17, Code of 
                Federal Regulations, or any successor thereto.
  (b) Consideration of Promotion of Efficiency, Competition, 
and Capital Formation.--Whenever pursuant to this title the 
Commission is engaged in rulemaking and is required to consider 
or determine whether an action is necessary or appropriate in 
the public interest, the Commission shall also consider, in 
addition to the protection of investors, whether the action 
will promote efficiency, competition, and capital formation.