[House Report 114-661]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-661
======================================================================
FIX CROWDFUNDING ACT
_______
July 5, 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. 4855]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4855) to amend provisions in the securities laws
relating to regulation crowdfunding to raise the dollar amount
limit and to clarify certain requirements and exclusions for
funding portals established by such Act, 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 ``Fix Crowdfunding Act''.
SEC. 2. CROWDFUNDING VEHICLES.
(a) Amendments to the Securities Act of 1933.--The Securities Act of
1933 (15 U.S.C. 77a et seq.) is amended--
(1) in section 4A(f)(3), by inserting ``by any of paragraphs
(1) through (14) of'' before ``section 3(c)''; and
(2) in section 4(a)(6)(B), by inserting after ``any
investor'' the following: ``, other than a crowdfunding vehicle
(as defined in section 2(a) of the Investment Company Act of
1940),''.
(b) Amendments to the Investment Company Act of 1940.--The Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) is amended--
(1) in section 2(a), by adding at the end the following:
``(55) The term `crowdfunding vehicle' means a company--
``(A) whose purpose (as set forth in its
organizational documents) is limited to acquiring,
holding, and disposing securities issued by a single
company in one or more transactions and made pursuant
to section 4(a)(6) of the Securities Act of 1933;
``(B) which issues only one class of securities;
``(C) which receives no compensation in connection
with such acquisition, holding, or disposition of
securities;
``(D) no associated person of which receives any
compensation in connection with such acquisition,
holding or disposition of securities unless such person
is acting as or on behalf of an investment adviser
registered under the Investment Advisers Act of 1940;
``(E) the securities of which have been issued in a
transaction made pursuant to section 4(a)(6) of the
Securities Act of 1933, where both the crowdfunding
vehicle and the company whose securities it holds are
co-issuers;
``(F) which is current in its ongoing disclosure
obligations under Rule 202 of Regulation Crowdfunding
(17 C.F.R. 227.202);
``(G) the company whose securities it holds is
current in its ongoing disclosure obligations under
Rule 202 of Regulation Crowdfunding (17 C.F.R.
227.202); and
``(H) is advised by an investment adviser registered
under the Investment Advisers Act of 1940.''; and
(2) in section 3(c), by adding at the end the following:
``(15) Any crowdfunding vehicle.''.
SEC. 3. CROWDFUNDING EXEMPTION FROM REGISTRATION.
Section 12(g)(6) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(g)(6) is amended--
(1) by striking ``The Commission'' and inserting the
following:
``(A) In general.--The Commission'';
(2) by striking ``section 4(6)'' and inserting ``section
4(a)(6)''; and
(3) by adding at the end the following:
``(B) Treatment of securities issued by certain
issuers.--An exemption under subparagraph (A) shall be
unconditional for securities offered by an issuer that
had a public float of less than $75,000,000 as of the
last business day of the issuer's most recently
completed semiannual period, computed by multiplying
the aggregate worldwide number of shares of the
issuer's common equity securities held by non-
affiliates by the price at which such securities were
last sold (or the average bid and asked prices of such
securities) in the principal market for such securities
or, in the event the result of such public float
calculation is zero, had annual revenues of less than
$50,000,000 as of the issuer's most recently completed
fiscal year.''.
Purpose and Summary
Introduced by Representative McHenry on March 23, 2016,
H.R. 4855, the ``Fix Crowdfunding Act,'' would amend provisions
in the securities laws governing crowdfunding and would fix
some of the problematic requirements included in the final
crowdfunding rule promulgated by the Securities and Exchange
Commission (SEC) pursuant to Title III of the Jumpstart Our
Business Startups (JOBS) Act.
To increase the number and scope of investors that can
invest in startups, H.R. 4855 defines a Special Purpose Vehicle
(SPV) and provides that SPVs are authorized investors in
crowdfunding offerings. SPVs can enable a group of investors to
unify and pool their resources to invest in startups that want
to raise capital through crowdfunding. To qualify as a SPV and
participate in crowdfunding, the SPV must satisfy several legal
requirements, including:
The purpose is limited to acquiring,
holding, and disposing of securities in a single
company for only one class of securities;
The SPV receives no compensation in
connection with the acquisition, holding, or
disposition of securities;
Any associated person to the SPV does not
receive any compensation unless the person is ``acting
as or on behalf of an investment adviser;''
The rights and investor protections under
Section 4(a)(6) of the Securities Act of 1933 apply to
the SPV; and
The disclosure requirements of Title III of
the JOBS Act apply to the SPV.
H.R. 4855 also amends Title III of the JOBS Act to increase
the dollar amount thresholds of what a company can raise
through crowdfunding before triggering the registration and
reporting obligations contained in Section 12(g) of the
Securities Exchange Act of 1934 (Exchange Act). Specifically,
H.R. 4855 amends Section 12(g) of the Exchange Act to raise the
cap from $25 million to $75 million for entities that have
reported revenues, and from $25 million to $50 million for
companies that do not yet have revenue.
Background and Need for Legislation
When the SEC adopted its final rules for Regulation
Crowdfunding on October 30, 2015, SEC Commissioner Michael
Piwowar dissented. In his dissenting statement, he noted a
number of important issues and concerns:
While crowdfunding was intended to be a treat for the
smallest and least sophisticated companies seeking to
raise capital, today's rules are full of tricks. The
rules will spin a complex web of provisions and
requirements for compliance. I fear that many traps for
the unwary are hidden in the regulations, creating
potential nightmares for small business owners that
fail to place regulatory compliance at the top of their
business plans. Such burdens will spook many small
businesses from pursuing crowdfunding as a viable path
to raising capital.
A number of concerns have already been raised as to
whether our rules are too restrictive or too
burdensome.
H.R. 4855 addresses some of the Commissioner's concerns and
would ensure that capital formation through crowdfunding is a
viable option for small businesses. In particular, the two
largest hurdles for entities to use crowdfunding as a viable
funding source are the SEC's current treatment of SPVs and the
monetary thresholds maintained in Section 12(g) of the Exchange
Act that once crossed, trigger SEC reporting.
Kevin Laws from AngelList noted in his written testimony
before the Subcommittee on Capital Markets and Government
Sponsored Enterprises that the SEC's ``final crowdfunding
regulations contained a provision that required companies to
register, similar to a public company, within 2 years of
crossing $25 million in assets if they had 500 or more
unaccredited investors (the so-called `12g problem'). That
would dissuade later investors from investing in fast-growing
companies if doing so would put the company in a 24-month path
to meeting public company requirements; the very companies
[that] need money to grow would be dissuaded from raising it
because of the earlier registration requirements.''
Consequently, the Fix Crowdfunding Act addresses this
significant concern by raising the monetary threshold that
triggers the onerous SEC registration and reporting
obligations. This will allow and encourage small businesses to
use crowdfunding as a way to raise capital and eliminates the
chilling effect for companies that fear they may hit that
threshold from participating in a crowdfunding offering.
Additionally, the current JOBS Act provisions related to
crowdfunding unfortunately limit the use of ``syndicates'' or
special purpose vehicles, which closes investment opportunities
to an ordinary or retail investor. The ``Fix Crowdfunding Act''
will enable greater retail investor participation in
crowdfunding by enabling SPVs to be established and invest in
startups. SPVs offer the ability for retail investors to invest
alongside a more experienced lead investor and thereby enjoy
greater participation. Moreover, by enabling SPVs to
participate in crowdfunding, companies that are in critical
need of funding have a greater pool of potential investors.
Hearings
The Committee on Financial Services' Subcommittee on
Capital Markets and Government Enterprises held a hearing
examining matters relating to H.R. 4855 on April 14, 2016.
Committee Consideration
The Committee on Financial Services met in open session on
June 15 and June 16, 2016. An amendment in the nature of a
substitute offered by Mr. McHenry and Ms. Waters was agreed to
by voice vote. The Committee ordered H.R. 4854 to be reported
favorably to the House, as amended, by a recorded vote of 57
yeas to 2 nays (recorded vote no. FC-111), a quorum being
present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole record vote in committee was a motion by Chairman
Hensarling to report the bill favorably to the House as
amended. That motion was agreed to by a recorded vote of 57
yeas to 2 nays (Record vote no. FC-111), 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. 4855
will facilitate capital formation by updating the rules for
``crowdfunding'' to raise the dollar amount limit on funds that
can be raised via crowdfunding and clarifying certain
requirements and exclusions for funding portals.
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, July 1, 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. 4855, the Fix
Crowdfunding Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall.
Enclosure.
H.R. 4855--Fix Crowdfunding Act
Under current law, the Securities and Exchange Commission
(SEC) requires certain issuers of securities to register as an
investment company and regulates aspects of their operations.
H.R. 4855 would define the term ``crowdfunding vehicle'' and
exempt those companies that qualify under that term from
registering as an investment company. It also would expand a
current exemption for a particular class of securities from
registration requirements. Finally, H.R. 4855 would change how
the total sales of securities by an issuer is calculated when
determining requirements to register securities with the SEC.
That total is used to determine whether or not those securities
are exempt from registration with the SEC.
On the basis of information from the SEC about the level of
effort needed to implement the changes in this bill, CBO
estimates that implementing H.R. 4855 would have no significant
effect on the agency's costs or operations. Moreover, the SEC
is authorized to collect fees sufficient to offset its annual
appropriation; therefore, CBO estimates that the net effect on
discretionary spending would be negligible, assuming
appropriations actions consistent with that authority. Enacting
H.R. 4855 would not affect direct spending or revenues;
therefore, pay-as-you-go procedures do not apply.
CBO estimates that enacting H.R. 4855 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2027.
H.R. 4855 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 Stephen Rabent.
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. 4855 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. 4855 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. 4855 contains no directed
rulemaking.
Section-by-Section Analysis of the Legislation
Section 1: Short title
This section cites H.R. 4855 as the ``Fix Crowdfunding
Act''.
Section 2: Crowdfunding vehicles
This section amends The Securities Act of 1933 to clarify
exemptions for crowdfunding vehicles.
Additionally, this section amends the Investment Company
Act of 1940 by defining the term ``crowdfunding vehicle'' to
include: a company whose purpose is limited to acquiring,
holding, and disposing securities in a single company for only
one class of securities; a company who receives no compensation
in connection with the acquisition, holding, or disposition of
securities; a company in which any associated person does not
receive any compensation unless the person is ``acting as or on
behalf of an investment adviser.'' This section preserves the
applicability of both 4(a)(6) of the Securities Act of 1933 and
the disclosure requirements of Title III of the JOBS Act.
Section 3: Crowdfunding exemption from registration
This section amends section 12(g) of the Securities
Exchange Act of 1934, to increase the cap from $25 million to
$75 million for entities that have reported revenues, and from
$25 million to $50 million for companies that do not yet have
revenue.
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, other than a crowdfunding vehicle (as
defined in section 2(a) of the Investment
Company Act of 1940), 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.
(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--
(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 2
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 CFR 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 CFR
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.
SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.
(a) Requirements on Intermediaries.--A person acting as an
intermediary in a transaction involving the offer or sale of
securities for the account of others pursuant to section 4(6)
shall--
(1) register with the Commission as--
(A) a broker; or
(B) a funding portal (as defined in section
3(a)(80) of the Securities Exchange Act of
1934);
(2) register with any applicable self-regulatory
organization (as defined in section 3(a)(26) of the
Securities Exchange Act of 1934);
(3) provide such disclosures, including disclosures
related to risks and other investor education
materials, as the Commission shall, by rule, determine
appropriate;
(4) ensure that each investor--
(A) reviews investor-education information,
in accordance with standards established by the
Commission, by rule;
(B) positively affirms that the investor
understands that the investor is risking the
loss of the entire investment, and that the
investor could bear such a loss; and
(C) answers questions demonstrating--
(i) an understanding of the level of
risk generally applicable to
investments in startups, emerging
businesses, and small issuers;
(ii) an understanding of the risk of
illiquidity; and
(iii) an understanding of such other
matters as the Commission determines
appropriate, by rule;
(5) take such measures to reduce the risk of fraud
with respect to such transactions, as established by
the Commission, by rule, including obtaining a
background and securities enforcement regulatory
history check on each officer, director, and person
holding more than 20 percent of the outstanding equity
of every issuer whose securities are offered by such
person;
(6) not later than 21 days prior to the first day on
which securities are sold to any investor (or such
other period as the Commission may establish), make
available to the Commission and to potential investors
any information provided by the issuer pursuant to
subsection (b);
(7) ensure that all offering proceeds are only
provided to the issuer when the aggregate capital
raised from all investors is equal to or greater than a
target offering amount, and allow all investors to
cancel their commitments to invest, as the Commission
shall, by rule, determine appropriate;
(8) make such efforts as the Commission determines
appropriate, by rule, to ensure that no investor in a
12-month period has purchased securities offered
pursuant to section 4(6) that, in the aggregate, from
all issuers, exceed the investment limits set forth in
section 4(6)(B);
(9) take such steps to protect the privacy of
information collected from investors as the Commission
shall, by rule, determine appropriate;
(10) not compensate promoters, finders, or lead
generators for providing the broker or funding portal
with the personal identifying information of any
potential investor;
(11) prohibit its directors, officers, or partners
(or any person occupying a similar status or performing
a similar function) from having any financial interest
in an issuer using its services; and
(12) meet such other requirements as the Commission
may, by rule, prescribe, for the protection of
investors and in the public interest.
(b) Requirements for Issuers.--For purposes of section 4(6),
an issuer who offers or sells securities shall--
(1) file with the Commission and provide to investors
and the relevant broker or funding portal, and make
available to potential investors--
(A) the name, legal status, physical address,
and website address of the issuer;
(B) the names of the directors and officers
(and any persons occupying a similar status or
performing a similar function), and each person
holding more than 20 percent of the shares of
the issuer;
(C) a description of the business of the
issuer and the anticipated business plan of the
issuer;
(D) a description of the financial condition
of the issuer, including, for offerings that,
together with all other offerings of the issuer
under section 4(6) within the preceding 12-
month period, have, in the aggregate, target
offering amounts of--
(i) $100,000 or less--
(I) the income tax returns
filed by the issuer for the
most recently completed year
(if any); and
(II) financial statements of
the issuer, which shall be
certified by the principal
executive officer of the issuer
to be true and complete in all
material respects;
(ii) more than $100,000, but not more
than $500,000, financial statements
reviewed by a public accountant who is
independent of the issuer, using
professional standards and procedures
for such review or standards and
procedures established by the
Commission, by rule, for such purpose;
and
(iii) more than $500,000 (or such
other amount as the Commission may
establish, by rule), audited financial
statements;
(E) a description of the stated purpose and
intended use of the proceeds of the offering
sought by the issuer with respect to the target
offering amount;
(F) the target offering amount, the deadline
to reach the target offering amount, and
regular updates regarding the progress of the
issuer in meeting the target offering amount;
(G) the price to the public of the securities
or the method for determining the price,
provided that, prior to sale, each investor
shall be provided in writing the final price
and all required disclosures, with a reasonable
opportunity to rescind the commitment to
purchase the securities;
(H) a description of the ownership and
capital structure of the issuer, including--
(i) terms of the securities of the
issuer being offered and each other
class of security of the issuer,
including how such terms may be
modified, and a summary of the
differences between such securities,
including how the rights of the
securities being offered may be
materially limited, diluted, or
qualified by the rights of any other
class of security of the issuer;
(ii) a description of how the
exercise of the rights held by the
principal shareholders of the issuer
could negatively impact the purchasers
of the securities being offered;
(iii) the name and ownership level of
each existing shareholder who owns more
than 20 percent of any class of the
securities of the issuer;
(iv) how the securities being offered
are being valued, and examples of
methods for how such securities may be
valued by the issuer in the future,
including during subsequent corporate
actions; and
(v) the risks to purchasers of the
securities relating to minority
ownership in the issuer, the risks
associated with corporate actions,
including additional issuances of
shares, a sale of the issuer or of
assets of the issuer, or transactions
with related parties; and
(I) such other information as the Commission
may, by rule, prescribe, for the protection of
investors and in the public interest;
(2) not advertise the terms of the offering, except
for notices which direct investors to the funding
portal or broker;
(3) not compensate or commit to compensate, directly
or indirectly, any person to promote its offerings
through communication channels provided by a broker or
funding portal, without taking such steps as the
Commission shall, by rule, require to ensure that such
person clearly discloses the receipt, past or
prospective, of such compensation, upon each instance
of such promotional communication;
(4) not less than annually, file with the Commission
and provide to investors reports of the results of
operations and financial statements of the issuer, as
the Commission shall, by rule, determine appropriate,
subject to such exceptions and termination dates as the
Commission may establish, by rule; and
(5) comply with such other requirements as the
Commission may, by rule, prescribe, for the protection
of investors and in the public interest.
(c) Liability for Material Misstatements and Omissions.--
(1) Actions authorized.--
(A) In general.--Subject to paragraph (2), a
person who purchases a security in a
transaction exempted by the provisions of
section 4(6) may bring an action against an
issuer described in paragraph (2), either at
law or in equity in any court of competent
jurisdiction, to recover the consideration paid
for such security with interest thereon, less
the amount of any income received thereon, upon
the tender of such security, or for damages if
such person no longer owns the security.
(B) Liability.--An action brought under this
paragraph shall be subject to the provisions of
section 12(b) and section 13, as if the
liability were created under section 12(a)(2).
(2) Applicability.--An issuer shall be liable in an
action under paragraph (1), if the issuer--
(A) by the use of any means or instruments of
transportation or communication in interstate
commerce or of the mails, by any means of any
written or oral communication, in the offering
or sale of a security in a transaction exempted
by the provisions of section 4(6), makes an
untrue statement of a material fact or omits to
state a material fact required to be stated or
necessary in order to make the statements, in
the light of the circumstances under which they
were made, not misleading, provided that the
purchaser did not know of such untruth or
omission; and
(B) does not sustain the burden of proof that
such issuer did not know, and in the exercise
of reasonable care could not have known, of
such untruth or omission.
(3) Definition.--As used in this subsection, the term
``issuer'' includes any person who is a director or
partner of the issuer, and the principal executive
officer or officers, principal financial officer, and
controller or principal accounting officer of the
issuer (and any person occupying a similar status or
performing a similar function) that offers or sells a
security in a transaction exempted by the provisions of
section 4(6), and any person who offers or sells the
security in such offering.
(d) Information Available to States.--The Commission shall
make, or shall cause to be made by the relevant broker or
funding portal, the information described in subsection (b) and
such other information as the Commission, by rule, determines
appropriate, available to the securities commission (or any
agency or office performing like functions) of each State and
territory of the United States and the District of Columbia.
(e) Restrictions on Sales.--Securities issued pursuant to a
transaction described in section 4(6)--
(1) may not be transferred by the purchaser of such
securities during the 1-year period beginning on the
date of purchase, unless such securities are
transferred--
(A) to the issuer of the securities;
(B) to an accredited investor;
(C) as part of an offering registered with
the Commission; or
(D) to a member of the family of the
purchaser or the equivalent, or in connection
with the death or divorce of the purchaser or
other similar circumstance, in the discretion
of the Commission; and
(2) shall be subject to such other limitations as the
Commission shall, by rule, establish.
(f) Applicability.--Section 4(6) shall not apply to
transactions involving the offer or sale of securities by any
issuer that--
(1) is not organized under and subject to the laws of
a State or territory of the United States or the
District of Columbia;
(2) is subject to the requirement to file reports
pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934;
(3) is an investment company, as defined in section 3
of the Investment Company Act of 1940, or is excluded
from the definition of investment company by section
3(b) or by any of paragraphs (1) through (14) of
section 3(c) of that Act; or
(4) the Commission, by rule or regulation, determines
appropriate.
(g) Rule of Construction.--Nothing in this section or section
4(6) shall be construed as preventing an issuer from raising
capital through methods not described under section 4(6).
(h) Certain Calculations.--
(1) Dollar amounts.--Dollar amounts in section 4(6)
and subsection (b) of this section shall be adjusted by
the Commission not less frequently than once every 5
years, by notice published in the Federal Register to
reflect any change in the Consumer Price Index for All
Urban Consumers published by the Bureau of Labor
Statistics.
(2) Income and net worth.--The income and net worth
of a natural person under section 4(6)(B) shall be
calculated in accordance with any rules of the
Commission under this title regarding the calculation
of the income and net worth, respectively, of an
accredited investor.
* * * * * * *
----------
INVESTMENT COMPANY ACT OF 1940
TITLE I--INVESTMENT COMPANIES
* * * * * * *
general definitions
Sec. 2. (a) When used in this title, unless the context
otherwise requires--
(1) ``Advisory board'' means a board, whether elected
or appointed, which is distinct from the board of
directors or board of trustees, of an investment
company, and which is composed solely of persons who do
not serve such company in any other capacity, whether
or not the functions of such board are such as to
render its members ``directors'' within the definition
of that term, which board has advisory functions as to
investments but has no power to determine that any
security or other investment shall be purchased or sold
by such company.
(2) ``Affiliated company'' means a company which is
an affiliated person.
(3) ``Affiliated person'' of another person means (A)
any person directly or indirectly owning, controlling,
or holding with power to vote, 5 per centum or more of
the outstanding voting securities of such other person;
(B) any person 5 per centum or more of whose
outstanding voting securities are directly or
indirectly owned, controlled, or held with power to
vote, by such other person; (C) any person directly or
indirectly controlling, controlled by, or under common
control with, such other person; (D) any officer,
director, partner, copartner, or employee of such other
person; (E) if such other person is an investment
company, any investment adviser thereof or any member
of an advisory board thereof; and (F) if such other
person is an unincorporated investment company not
having a board of directors, the depositor thereof.
(4) ``Assignment'' includes any direct or indirect
transfer or hypothecation of a contract or chose in
action by the assignor, or of a controlling block of
the assignor's outstanding voting securities by a
security holder of the assignor; but does not include
an assignment of partnership interests incidental to
the death or withdrawal of a minority of the members of
the partnership having only a minority interest in the
partnership business or to the admission to the
partnership of one or more members who, after such
admission, shall be only a minority of the members and
shall have only a minority interest in the business.
(5) ``Bank'' means (A) a depository institution (as
defined in section 3 of the Federal Deposit Insurance
Act) or a branch or agency of a foreign bank (as such
terms are defined in section 1(b) of the International
Banking Act of 1978), (B) a member bank of the Federal
Reserve System, (C) any other banking institution or
trust company, whether incorporated or not, doing
business under the laws of any State or of the United
States, a substantial portion of the business of which
consists of receiving deposits or exercising fiduciary
powers similar to those permitted to national banks
under the authority of the Comptroller of the Currency,
and which is supervised and examined by State or
Federal authority having supervision over banks, and
which is not operated for the purpose of evading the
provisions of this title, and (D) a receiver,
conservator, or other liquidating agent of any
institution or firm included in clause (A), (B), or (C)
of this paragraph.
(6) The term ``broker'' has the same meaning as given
in section 3 of the Securities Exchange Act of 1934,
except that such term does not include any person
solely by reason of the fact that such person is an
underwriter for one or more investment companies.
(7) ``Commission'' means the Securities and Exchange
Commission.
(8) ``Company'' means a corporation, a partnership,
an association, a joint-stock company, a trust, a fund,
or any organized group of persons whether incorporated
or not; or any receiver, trustee in a case under title
11 of the United States Code or similar official or any
liquidating agent for any of the foregoing, in his
capacity as such.
(9) ``Control'' means the power to exercise a
controlling influence over the management or policies
of a company, unless such power is solely the result of
an official position with such company.
Any person who owns beneficially, either directly or
through one or more controlled companies, more than 25
per centum of the voting securities of a company shall
be presumed to control such company. Any person who
does not so own more than 25 per centum of the voting
securities of any company shall be presumed not to
control such company. A natural person shall be
presumed not to be a controlled person within the
meaning of this title. Any such presumption may be
rebutted by evidence, but except as hereinafter
provided, shall continue until a determination to the
contrary made by the Commission by order either on its
own motion or on application by an interested person.
If an application filed hereunder is not granted or
denied by the Commission within sixty days after filing
thereof, the determination sought by the application
shall be deemed to have been temporarily granted
pending final determination of the Commission thereon.
The Commission, upon its own motion or upon
application, may by order revoke or modify any order
issued under this paragraph whenever it shall find that
the determination embraced in such original order is no
longer consistent with the facts.
(10) ``Convicted'' includes a verdict, judgment, or
plea of guilty, or a finding of guilt on a plea of nolo
contendere, if such verdict, judgment, plea, or finding
has not been reversed, set aside, or withdrawn, whether
or not sentence has been imposed.
(11) The term ``dealer'' has the same meaning as
given in the Securities Exchange Act of 1934, but does
not include an insurance company or investment company.
(12) ``Director'' means any director of a corporation
or any person performing similar functions with respect
to any organization, whether incorporated or
unincorporated, including any natural person who is a
member of a board of trustees of a management company
created as a common-law trust.
(13) ``Employees' securities company'' means any
investment company or similar issuer all of the
outstanding securities of which (other than short-term
paper) are beneficially owned (A) by the employees or
persons on retainer of a single employer or of two or
more employers each of which is an affiliated company
of the other, (B) by former employees of such employer
or employers, (C) by members of the immediate family of
such employees, persons on retainer, or former
employees, (D) by any two or more of the foregoing
classes of persons, or (E) by such employer or
employers together with any one or more of the
foregoing classes of persons.
(14) ``Exchange'' means any organization,
association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange.
(15) ``Face-amount certificate'' means any
certificate, investment contract, or other security
which represents an obligation on the part of its
issuer to pay a stated or determinable sum or sums at a
fixed or determinable date or dates more than twenty-
four months after the date of issuance, in
consideration of the payment of periodic installments
of a stated or determinable amount (which security
shall be known as a face-amount certificate of the
``installment type''); or any security which represents
a similar obligation on the part of a face-amount
certificate company, the consideration for which is the
payment of a single lump sum (which security shall be
known as a ``fully paid'' face-amount certificate).
(16) ``Government security'' means any security
issued or guaranteed as to principal or interest by the
United States, or by a person controlled or supervised
by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by
the Congress of the United States; or any certificate
of deposit for any of the foregoing.
(17) ``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 any receiver or
similar official or any liquidating agent for such a
company, in his capacity as such.
(18) ``Interstate commerce'' means trade, commerce,
transportation, or communication among the several
States, or between any foreign country and any State,
or between any State and any place or ship outside
thereof.
(19) ``Interested person'' of another person means--
(A) when used with respect to an investment
company--
(i) any affiliated person of such
company,
(ii) any member of the immediate
family of any natural person who is an
affiliated person of such company,
(iii) any interested person of any
investment adviser of or principal
underwriter for such company,
(iv) any person or partner or
employee of any person who at any time
since the beginning of the last two
completed fiscal years of such company
has acted as legal counsel for such
company,
(v) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
executed any portfolio transactions
for, engaged in any principal
transactions with, or distributed
shares for--
(I) the investment company;
(II) any other investment
company having the same
investment adviser as such
investment company or holding
itself out to investors as a
related company for purposes of
investment or investor
services; or
(III) any account over which
the investment company's
investment adviser has
brokerage placement discretion,
(vi) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
loaned money or other property to--
(I) the investment company;
(II) any other investment
company having the same
investment adviser as such
investment company or holding
itself out to investors as a
related company for purposes of
investment or investor
services; or
(III) any account for which
the investment company's
investment adviser has
borrowing authority, and
(vii) any natural person whom the
Commission by order shall have
determined to be an interested person
by reason of having had, at any time
since the beginning of the last two
completed fiscal years of such company,
a material business or professional
relationship with such company or with
the principal executive officer of such
company or with any other investment
company having the same investment
adviser or principal underwriter or
with the principal executive officer of
such other investment company:
Provided, That no person shall be deemed to be
an interested person of an investment company
solely by reason of (aa) his being a member of
its board of directors or advisory board or an
owner of its securities, or (bb) his membership
in the immediate family of any person specified
in clause (aa) of this proviso; and
(B) when used with respect to an investment
adviser of or principal underwriter for any
investment company--
(i) any affiliated person of such
investment adviser or principal
underwriter,
(ii) any member of the immediate
family of any natural person who is an
affiliated person of such investment
advisor or principal underwiter,
(iii) any person who knowingly has
any direct or indirect beneficial
interest in, or who is designated as
trustee, executor, or guardian of any
legal interest in, any security issued
either by such investment adviser or
principal underwriter or by a
controlling person of such investment
adviser or principal underwriter,
(iv) any person or partner or
employee of any person who at any time
since the beginning of the last two
completed fiscal years of such
investment company has acted as legal
counsel for such investment adviser or
principal underwriter,
(v) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
executed any portfolio transactions
for, engaged in any principal
transactions with, or distributed
shares for--
(I) any investment company
for which the investment
adviser or principal
underwriter serves as such;
(II) any investment company
holding itself out to
investors, for purposes of
investment or investor
services, as a company related
to any investment company for
which the investment adviser or
principal underwriter serves as
such; or
(III) any account over which
the investment adviser has
brokerage placement discretion,
(vi) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
loaned money or other property to--
(I) any investment company
for which the investment
adviser or principal
underwriter serves as such;
(II) any investment company
holding itself out to
investors, for purposes of
investment or investor
services, as a company related
to any investment company for
which the investment adviser or
principal underwriter serves as
such; or
(III) any account for which
the investment adviser has
borrowing authority, and
(vii) any natural person whom the
Commission by order shall have
determined to be an interested person
by reason of having had at any time
since the beginning of the last two
completed fiscal years of such
investment company a material business
or professional relationship with such
investment adviser or principal
underwriter or with the principal
executive officer or any controlling
person of such investment adviser or
principal underwriter.
For the purposes of this paragraph (19),
``member of the immediate family'' means any
parent, spouse of a parent, child, spouse of a
child, spouse, brother, or sister, and includes
step and adoptive relationships. The Commission
may modify or revoke any order issued under
clause (vii) of subparagaph (A) or (B) of this
paragraph whenever it finds that such order is
no longer consistent with the facts. No order
issued pursuant to clause (vii) of subparagraph
(A) or (B) of this paragraph shall become
effective until at least sixty days after the
entry thereof, and no such order shall affect
the status of any person for the purposes of
this title or for any other purpose for any
period prior to the effective date of such
order.
(20) ``Investment adviser'' of an investment company
means (A) any person (other than a bona fide officer,
director, trustee, member of an advisory board, or
employee of such company, as such) who pursuant to
contract with such company regularly furnishes advice
to such company with respect to the desirability of
investing in, purchasing or selling securities or other
property, or is empowered to determine what securities
or other property shall be purchased or sold by such
company, and (B) any other person who pursuant to
contract with a person described in clause (A)
regularly performs substantially all of the duties
undertaken by such person described in clause (A); but
does not include (i) a person whose advice is furnished
solely through uniform publications distributed to
subscribers thereto, (ii) a person who furnishes only
statistical and other factual information, advice
regarding economic factors and trends, or advice as to
occasional transactions in specific securities, but
without generally furnishing advice or making
recommendations regarding the purchase or sale of
securities, (iii) a company furnishing such services at
cost to one or more investment companies, insurance
companies, or other financial institutions, (iv) any
person the character and amount of whose compensation
for such services must be approved by a court, or (v)
such other persons as the Commission may by rules and
regulations or order determine not to be within the
intent of this definition.
(21) ``Investment banker'' means any person engaged
in the business of underwriting securities issued by
other persons, but does not include an investment
company, any person who acts as an underwriter in
isolated transactions but not as a part of a regular
business, or any person solely by reason of the fact
that such person is an underwriter for one or more
investment companies.
(22) ``Issuer'' means every person who issues or
proposes to issue any security, or has outstanding any
security which it has issued.
(23) ``Lend'' includes a purchase coupled with an
agreement by the vendor to repurchase; ``borrow''
includes a sale coupled with a similar agreement.
(24) ``Majority-owned subsidiary'' of a person means
a company 50 per centum or more of the outstanding
voting securities of which are owned by such person, or
by a company which, within the meaning of this
paragraph, is a majority-owned subsidiary of such
person.
(25) ``Means or instrumentality of interstate
commerce'' includes any facility of a national
securities exchange.
(26) ``National securities exchange'' means an
exchange registered under section 6 of the Securities
Exchange Act of 1934.
(27) ``Periodic payment plan certificate'' means (A)
any certificate, investment contract, or other security
providing for a series of periodic payments by the
holder, and representing an undivided interest in
certain specified securities or in a unit or fund of
securities purchased wholly or partly with the proceeds
of such payments, and (B) any security the issuer of
which is also issuing securities of the character
described in clause (A) and the holder of which has
substantially the same rights and privileges as those
which holders of securities of the character described
in clause (A) have upon completing the periodic
payments for which such securities provide.
(28) ``Person'' means a natural person or a company.
(29) ``Principal underwriter'' of or for any
investment company other than a closed-end company, or
of any security issued by such a company, means any
underwriter who as principal purchases from such
company, or pursuant to contract has the right (whether
absolute or conditional) from time to time to purchase
from such company, any such security for distribution,
or who as agent for such company sells or has the right
to sell any such security to a dealer or to the public
or both, but does not include a dealer who purchases
from such company through a principal underwriter
acting as agent for such company. ``Principal
underwriter'' of or for a closed-end company or any
issuer which is not an investment company, or of any
security issued by such a company or issuer, means any
underwriter who, in connection with a primary
distribution of securities, (A) is in privity of
contract with the issuer or an affiliated person of the
issuer; (B) acting alone or in concert with one or more
other persons, initiates or directs the formation of an
underwriting syndicate; or (C) is allowed a rate of
gross commission, spread, or other profit greater than
the rate allowed another underwriter participating in
the distribution.
(30) ``Promoter'' of a company or a proposed company
means a person who, acting alone or in concert with
other persons, is initiating or directing, or has
within one year initiated or directed, the organization
of such company.
(31) ``Prospectus'', as used in section 22, means a
written prospectus intended to meet the requirements of
section 10(a) of the Securities Act of 1933 and
currently in use. As used elsewhere, ``prospectus''
means a prospectus as defined in the Securities Act of
1933.
(32) ``Redeemable security'' means any security,
other than short-term paper, under the terms of which
the holder, upon its presentation to the issuer or to a
person designated by the issuer, is entitled (whether
absolutely or only out of surplus) to receive
approximately his proportionate share of the issuer's
current net assets, or the cash equivalent thereof.
(33) ``Reorganization'' means (A) a reorganization
under the supervision of a court of competent
jurisdiction; (B) a merger or consolidation; (C) a sale
of 75 per centum or more in value of the assets of a
company; (D) a restatement of the capital of a company,
or an exchange of securities issued by a company for
any of its own outstanding securities; (E) a voluntary
dissolution or liquidation of a company; (F) a
recapitalization or other procedure or transaction
which has for its purpose the alteration, modification,
or elimination of any of the rights, preferences, or
privileges of any class of securities issued by a
company, as provided in its charter or other instrument
creating or defining such rights, preferences, and
privileges; (G) an exchange of securities issued by a
company for outstanding securities issued by another
company or companies, preliminary to and for the
purpose of effecting or consummating any of the
foregoing; or (H) any exchange of securities by a
company which is not an investment company for
securities issued by a registered investment company.
(34) ``Sale'', ``sell'', ``offer to sell'', or
``offer for sale'' includes every contract of sale or
disposition of, attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest
in a security, for value. 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 sold for
value.
(35) ``Sales load'' means the difference between the
price of a security to the public and that portion of
the proceeds from its sale which is received and
invested or held for investment by the issuer (or in
the case of a unit investment trust, by the depositor
or trustee), less any portion of such difference
deducted for trustee's or custodian's fee, insurance
premiums, issue taxes, or administrative expenses or
fees which are not properly chargeable to sales or
promotional activities. In the case of a periodic
payment plan certificate, ``sales load'' includes the
sales load on any investment company securities in
which the payments made on such certificate are
invested, as well as the sales load on the certificate
itself.
(36) ``Security'' means any note, stock, treasury
stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subsciption, 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 (including a certificate
of deposit) or on any 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.
(37) ``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, 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.
(38) ``Short-term paper'' means any note, draft, bill
of exchange, or banker's acceptance payable on demand
or having a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or
any renewal thereof payable on demand or having a
maturity likewise limited; and such other classes of
securities, of a commercial rather than an investment
character, as the Commission may designate by rules and
regulations.
(39) ``State'' means any State of the United States,
the District of Columbia, Puerto Rico, the Virgin
Islands, or any other possession of the United States.
(40) ``Underwriter'' means any person who has
purchased from an issuer with a view to, 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 distributor's or
seller's 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. When the distribution
of the securities in respect of which any person is an
underwriter is completed such person shall cease to be
an underwriter in respect of such securities or the
issuer thereof.
(41) ``Value'', with respect to assets of registered
investment companies, except as provided in subsection
(b) of section 28 of this title, means--
(A) as used in sections 3, 5, and 12 of this
title, (i) with respect to securities owned at
the end of the last preceding fiscal quarter
for which market quotations are readily
available, the market value at the end of such
quarter; (ii) with respect to other securities
and assets owned at the end of the last
preceding fiscal quarter, fair value at the end
of such quarter, as determined in good faith by
the board of directors; and (iii) with respect
to securities and other assets acquired after
the end of the last preceding fiscal quarter,
the cost thereof; and
(B) as used elsewhere in this title, (i) with
respect to securities for which market
quotations are readily available, the market
value of such securities; and (ii) with respect
to other securities and assets, fair value as
determined in good faith by the board of
directors;
in each case as of such time or times as determined
pursuant to this title, and the rules and regulations
issued by the Commission hereunder. Notwithstanding the
fact that market quotations for securities issued by
controlled companies are available, the board of
directors may in good faith determine the value of such
securities: Provided, That the value so determined is
not in excess of the higher of market value or asset
value of such securities in the case of majority-owned
subsidiaries, and is not in excess of market value in
the case of other controlled companies.
For purposes of the valuation of those assets of a registered
diversified company which are not subject to the limitations
provided for in section 5(b)(1), the Commission may, by rules
and regulations or orders, permit any security to be carried at
cost, if it shall determine that such procedure is consistent
with the general intent and purposes of this title. For
purposes of sections 5 and 12, in lieu of values determined as
provided in clause (A) above, the Commission shall by rules and
regulations permit valuation of securities at cost or other
basis in cases where it may be more convenient for such company
to make its computations on such basis by reason of the
necessity or desirability of complying with the provisions of
any United States revenue laws or rules and regulations issued
thereunder, or the laws or the rules and regulations issued
thereunder of any State in which the securities of such company
may be qualified for sale.
The foregoing definition shall not derogate from the
authority of the Commission with respect to the reports,
information, and documents to be filed with the Commission by
any registered company, or with respect to the accounting
policies and principles to be following by any such company, as
provided in sections 8, 30, and 31.
(42) ``Voting security'' means any security presently
entitling the owner or holder thereof to vote for the
election of directors of a company. A specified
percentage of the outstanding voting securities of a
company means such amount of its outstanding voting
securities as entitles the holder or holders thereof to
cast said specified percentage of the aggregate votes
which the holders of all the outstanding voting
securities of such company are entitled to cast. The
vote of a majority of the outstanding voting securities
of a company means the vote, at the annual or a special
meeting of the security holders of such company duly
called, (A) of 67 per centum or more of the voting
securities present at such meeting, if the holders of
more than 50 per centum of the outstanding voting
securities of such company are present or represented
by proxy; or (B) of more than 50 per centum of the
outstanding voting securities of such company,
whichever is the less.
(43) ``Wholly-owned subsidiary'' of a person means a
company 95 per centum or more of the outstanding voting
securities of which are owned by such person, or by a
company which, within the meaning of this paragraph, is
a wholly-owned subsidiary of such person.
(44) ``Securities Act of 1933'', ``Securities
Exchange Act of 1934'', and ``Trust Indenture Act of
1939'' means those Acts, respectively, as heretofore or
hereafter amended.
(45) ``Savings and loan association'' means a savings
and loan association, building and loan association,
cooperative bank, homestead association, or similar
institution, which is supervised and examined by State
or Federal authority having supervision over any such
institution, and a receiver, conservator, or other
liquidating agent of any such institution.
(46) ``Eligible portfolio company'' means any issuer
which--
(A) is organized under the laws of, and has
its principal place of business in, any State
or States;
(B) is neither an investment company as
defined in section 3 (other than a small
business investment company which is licensed
by the Small Business Administration to operate
under the Small Business Investment Act of 1958
and which is a wholly-owned subsidiary of the
business development company) nor a company
which would be an investment company except for
the exclusion from the definition of investment
company in section 3(c); and
(C) satisfies one of the following:
(i) it does not have any class of
securities with respect to which a
member of a national securities
exchange, broker, or dealer may extend
or maintain credit to or for a customer
pursuant to rules or regulations
adopted by the Board of Governors of
the Federal Reserve System under
section 7 of the Securities Exchange
Act of 1934;
(ii) it is controlled by a business
development company, either alone or as
part of a group acting together, and
such business development company in
fact exercises a controlling influence
over the management or policies of such
eligible portfolio company and, as a
result of such control, has an
affiliated person who is a director of
such eligible portfolio company;
(iii) it has total assets of not more
than $4,000,000, and capital and
surplus (shareholders' equity less
retained earnings) of not less than
$2,000,000, except that the Commission
may adjust such amounts by rule,
regulation, or order to reflect changes
in 1 or more generally accepted indices
or other indicators for small
businesses; or
(iv) it meets such other criteria as
the Commission may, by rule, establish
as consistent with the public interest,
the protection of investors, and the
purposes fairly intended by the policy
and provisions of this title.
(47) ``Making available significant managerial
assistance'' by a business development company means--
(A) any arrangement whereby a business
development company, through its directors,
officers, employees, or general partners,
offers to provide, and, if accepted, does so
provide, significant guidance and counsel
concerning the management, operations, or
business objectives and policies of a portfolio
company;
(B) the exercise by a business development
company of a controlling influence over the
management or policies of a portfolio company
by the business development company acting
individually or as part of a group acting
together which controls such portfolio company;
or
(C) with respect to a small business
investment company licensed by the Small
Business Administration to operate under the
Small Business Investment Act of 1958, the
making of loans to a portfolio company.
For purposes of subparagraph (A), the requirement that
a business development company make available
significant managerial assistance shall be deemed to be
satisfied with respect to any particular portfolio
company where the business development company
purchases securities of such portfolio company in
conjunction with one or more other persons acting
together, and at least one of the persons in the group
makes available significant managerial assistance to
such portfolio company, except that such requirement
will not be deemed to be satisfied if the business
development company, in all cases, makes available
significant managerial assistance solely in the manner
described in this sentence.
(48) ``Business development company'' means any
closed-end company which--
(A) is organized under the laws of, and has
its principal place of business in, any State
or States;
(B) is operated for the purpose of making
investments in securities described in
paragraphs (1) through (3) of section 55(a),
and makes available significant managerial
assistance with respect to the issuers of such
securities, provided that a business
development company must make available
significant managerial assistance only with
respect to the companies which are treated by
such business development company as satisfying
the 70 per centum of the value of its total
assets condition of section 55; and provided
further that a business development company
need not make available significant managerial
assistance with respect to any company
described in paragraph (46)(C)(iii), or with
respect to any other company that meets such
criteria as the Commission may by rule,
regulation, or order permit, as consistent with
the public interest, the protection of
investors, and the purposes of this title; and
(C) has elected pursuant to section 54(a) to
be subject to the provisions of sections 55
through 65.
(49) ``Foreign securities authority'' means any
foreign government or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(50) ``Foreign financial regulatory authority'' means
any (A) foreign securities authority, (B) other
governmental body or foreign equivalent of a self-
regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate the participation of
its members in activities listed above.
(51)(A) ``Qualified purchaser'' means--
(i) any natural person (including any person
who holds a joint, community property, or other
similar shared ownership interest in an issuer
that is excepted under section 3(c)(7) with
that person's qualified purchaser spouse) who
owns not less than $5,000,000 in investments,
as defined by the Commission;
(ii) any company that owns not less than
$5,000,000 in investments and that is owned
directly or indirectly by or for 2 or more
natural persons who are related as siblings or
spouse (including former spouses), or direct
lineal descendants by birth or adoption,
spouses of such persons, the estates of such
persons, or foundations, charitable
organizations, or trusts established by or for
the benefit of such persons;
(iii) any trust that is not covered by clause
(ii) and that was not formed for the specific
purpose of acquiring the securities offered, as
to which the trustee or other person authorized
to make decisions with respect to the trust,
and each settlor or other person who has
contributed assets to the trust, is a person
described in clause (i), (ii), or (iv); or
(iv) any person, acting for its own account
or the accounts of other qualified purchasers,
who in the aggregate owns and invests on a
discretionary basis, not less than $25,000,000
in investments.
(B) The Commission may adopt such rules and
regulations applicable to the persons and trusts
specified in clauses (i) through (iv) of subparagraph
(A) as it determines are necessary or appropriate in
the public interest or for the protection of investors.
(C) The term ``qualified purchaser'' does not include
a company that, but for the exceptions provided for in
paragraph (1) or (7) of section 3(c), would be an
investment company (hereafter in this paragraph
referred to as an ``excepted investment company''),
unless all beneficial owners of its outstanding
securities (other than short-term paper), determined in
accordance with section 3(c)(1)(A), that acquired such
securities on or before April 30, 1996 (hereafter in
this paragraph referred to as ``pre-amendment
beneficial owners''), and all pre-amendment beneficial
owners of the outstanding securities (other than short-
term paper) of any excepted investment company that,
directly or indirectly, owns any outstanding securities
of such excepted investment company, have consented to
its treatment as a qualified purchaser. Unanimous
consent of all trustees, directors, or general partners
of a company or trust referred to in clause (ii) or
(iii) of subparagraph (A) shall constitute consent for
purposes of this subparagraph.
(52) The terms ``security future'' and ``narrow-based
security index'' have the same meanings as provided in
section 3(a)(55) of the Securities Exchange Act of
1934.
(53) The term ``credit rating agency'' has the same
meaning as in section 3 of the Securities Exchange Act
of 1934.
(54) The terms ``commodity pool'', ``commodity pool
operator'', ``commodity trading advisor'', ``major swap
participant'', ``swap'', ``swap dealer'', and ``swap
execution facility'' have the same meanings as in
section 1a of the Commodity Exchange Act (7 U.S.C.
1a).''.
(55) The term ``crowdfunding vehicle'' means a
company--
(A) whose purpose (as set forth in its
organizational documents) is limited to
acquiring, holding, and disposing securities
issued by a single company in one or more
transactions and made pursuant to section
4(a)(6) of the Securities Act of 1933;
(B) which issues only one class of
securities;
(C) which receives no compensation in
connection with such acquisition, holding, or
disposition of securities;
(D) no associated person of which receives
any compensation in connection with such
acquisition, holding or disposition of
securities unless such person is acting as or
on behalf of an investment adviser registered
under the Investment Advisers Act of 1940;
(E) the securities of which have been issued
in a transaction made pursuant to section
4(a)(6) of the Securities Act of 1933, where
both the crowdfunding vehicle and the company
whose securities it holds are co-issuers;
(F) which is current in its ongoing
disclosure obligations under Rule 202 of
Regulation Crowdfunding (17 C.F.R. 227.202);
(G) the company whose securities it holds is
current in its ongoing disclosure obligations
under Rule 202 of Regulation Crowdfunding (17
C.F.R. 227.202); and
(H) is advised by an investment adviser
registered under the Investment Advisers Act of
1940.
(b) No provision in this title shall apply to, or be deemed
to include, the United States, a State, or any political
subdivision of a State, or any agency, authority, or
instrumentality of any one or more of the foregoing, or any
corporation which is wholly owned directly or indirectly by any
one or more of the foregoing, or any officer, agent, or
employee of any of the foregoing acting as such in the course
of his official duty, unless such provision makes specific
reference thereto.
(c) 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 consistent with 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.
definition of investment company
Sec. 3. (a)(1) When used in this title, ``investment
company'' means any issuer which--
(A) is or holds itself out as being engaged
primarily, or proposes to engage primarily, in the
business of investing, reinvesting, or trading in
securities;
(B) is engaged or proposes to engage in the business
of issuing face-amount certificates of the installment
type, or has been engaged in such business and has any
such certificate outstanding; or
(C) is engaged or proposes to engage in the business
of investing, reinvesting, owning, holding, or trading
in securities, and owns or proposes to acquire
investment securities having a value exceeding 40 per
centum of the value of such issuer's total assets
(exclusive of Government securities and cash items) on
an unconsolidated basis.
(2) As used in this section, ``investment securities''
includes all securities except (A) Government securities, (B)
securities issued by employees' securities companies, and (C)
securities issued by majority-owned subsidiaries of the owner
which (i) are not investment companies, and (ii) are not
relying on the exception from the definition of investment
company in paragraph (1) or (7) of subsection (c).
(b) Notwithstanding paragraph (1)(C) of subsection (a), none
of the following persons is an investment company within the
meaning of this title:
(1) Any issuer primarily engaged, directly or through
a wholly-owned subsidiary or subsidiaries, in a
business or businesses other than that of investing,
reinvesting, owning, holding, or trading in securities.
(2) Any issuer which the Commission, upon application
by such issuer, finds and by order declares to be
primarily engaged in a business or businesses other
than that of investing, reinvesting, owning, holding,
or trading in securities either directly or (A) through
majority-owned subsidiaries or (B) through controlled
companies conducting similar types of businesses. The
filing of an application under this paragraph in good
faith by an issuer other than a registered investment
company shall exempt the applicant for a period of
sixty days from all provisions of this title applicable
to investment companies as such. For cause shown, the
Commission by order may extend such period of exemption
for an additional period or periods. Whenever the
Commission, upon its own motion or upon application,
finds that the circumstances which gave rise to the
issuance of an order granting an application under this
paragraph no longer exist, the Commission shall by
order revoke such order.
(3) Any issuer all the outstanding securities of
which (other than short-term paper and directors'
qualifying shares) are directly or indirectly owned by
a company excepted from the definition of investment
company by paragraph (1) or (2) of this subsection.
(c) Notwithstanding subsection (a), none of the following
persons is an investment company within the meaning of this
title:
(1) Any issuer whose outstanding securities (other
than short-term paper) are beneficially owned by not
more than one hundred persons and which is not making
and does not presently propose to make a public
offering of its securities. Such issuer shall be deemed
to be an investment company for purposes of the
limitations set forth in subparagraphs (A)(i) and
(B)(i) of section 12(d)(1) governing the purchase or
other acquisition by such issuer of any security issued
by any registered investment company and the sale of
any security issued by any registered open-end
investment company to any such issuer. For purposes of
this paragraph:
(A) Beneficial ownership by a company shall
be deemed to be beneficial ownership by one
person, except that, if the company owns 10 per
centum or more of the outstanding voting
securities of the issuer, and is or, but for
the exception provided for in this paragraph or
paragraph (7), would be an investment company,
the beneficial ownership shall be deemed to be
that of the holders of such company's
outstanding securities (other than short-term
paper).
(B) Beneficial ownership by any person who
acquires securities or interests in securities
of an issuer described in the first sentence of
this paragraph shall be deemed to be beneficial
ownership by the person from whom such transfer
was made, pursuant to such rules and
regulations as the Commission shall prescribe
as necessary or appropriate in the public
interest and consistent with the protection of
investors and the purposes fairly intended by
the policy and provisions of this title, where
the transfer was caused by legal separation,
divorce, death, or other involuntary event.
(2)(A) Any person primarily engaged in the business
of underwriting and distributing securities issued by
other persons, selling securities to customers, acting
as broker, and acting as market intermediary, or any
one or more of such activities, whose gross income
normally is derived principally from such business and
related activities.
(B) For purposes of this paragraph--
(i) the term ``market intermediary'' means
any person that regularly holds itself out as
being willing contemporaneously to engage in,
and that is regularly engaged in, the business
of entering into transactions on both sides of
the market for a financial contract or one or
more such financial contracts; and
(ii) the term ``financial contract'' means
any arrangement that--
(I) takes the form of an individually
negotiated contract, agreement, or
option to buy, sell, lend, swap, or
repurchase, or other similar
individually negotiated transaction
commonly entered into by participants
in the financial markets;
(II) is in respect of securities,
commodities, currencies, interest or
other rates, other measures of value,
or any other financial or economic
interest similar in purpose or function
to any of the foregoing; and
(III) is entered into in response to
a request from a counter party for a
quotation, or is otherwise entered into
and structured to accommodate the
objectives of the counter party to such
arrangement.
(3) Any bank or insurance company; any savings and
loan association, building and loan association,
cooperative bank, homestead association, or similar
institution, or any receiver, conservator, liquidator,
liquidating agent, or similar official or person
thereof or therefor; or any common trust fund or
similar fund maintained by a bank exclusively for the
collective investment and reinvestment of moneys
contributed thereto by the bank in its capacity as a
trustee, executor, administrator, or guardian, if--
(A) such fund is employed by the bank solely
as an aid to the administration of trusts,
estates, or other accounts created and
maintained for a fiduciary purpose;
(B) except in connection with the ordinary
advertising of the bank's fiduciary services,
interests in such fund are not--
(i) advertised; or
(ii) offered for sale to the general
public; and
(C) fees and expenses charged by such fund
are not in contravention of fiduciary
principles established under applicable Federal
or State law.
(4) Any person substantially all of whose business is
confined to making small loans, industrial banking, or
similar businesses.
(5) Any person who is not engaged in the business of
issuing redeemable securities, face-amount certificates
of the installment type or periodic payment plan
certificates, and who is primarily engaged in one or
more of the following businesses: (A) Purchasing or
otherwise acquiring notes, drafts, acceptances, open
accounts receivable, and other obligations representing
part or all of the sales price of merchandise,
insurance, and services; (B) making loans to
manufacturers, wholesalers, and retailers of, and to
prospective purchasers of, specified merchandise,
insurance, and services; and (C) purchasing or
otherwise acquiring mortgages and other liens on and
interests in real estate.
(6) Any company primarily engaged, directly or
through majority-owned subsidiaries, in one or more of
the businesses described in paragraphs (3), (4), and
(5), or in one or more of such businesses (from which
not less than 25 centum of such company's gross income
during its last fiscal year was derived) together with
an additional business or businesses other than
investing, reinvesting, owning, holding, or trading in
securities.
(7)(A) Any issuer, the outstanding securities of
which are owned exclusively by persons who, at the time
of acquisition of such securities, are qualified
purchasers, and which is not making and does not at
that time propose to make a public offering of such
securities. Securities that are owned by persons who
received the securities from a qualified purchaser as a
gift or bequest, or in a case in which the transfer was
caused by legal separation, divorce, death, or other
involuntary event, shall be deemed to be owned by a
qualified purchaser, subject to such rules,
regulations, and orders as the Commission may prescribe
as necessary or appropriate in the public interest or
for the protection of investors.
(B) Notwithstanding subparagraph (A), an issuer is
within the exception provided by this paragraph if--
(i) in addition to qualified purchasers,
outstanding securities of that issuer are
beneficially owned by not more than 100 persons
who are not qualified purchasers, if--
(I) such persons acquired any portion
of the securities of such issuer on or
before September 1, 1996; and
(II) at the time at which such
persons initially acquired the
securities of such issuer, the issuer
was excepted by paragraph (1); and
(ii) prior to availing itself of the
exception provided by this paragraph--
(I) such issuer has disclosed to each
beneficial owner, as determined under
paragraph (1), that future investors
will be limited to qualified
purchasers, and that ownership in such
issuer is no longer limited to not more
than 100 persons; and
(II) concurrently with or after such
disclosure, such issuer has provided
each beneficial owner, as determined
under paragraph (1), with a reasonable
opportunity to redeem any part or all
of their interests in the issuer,
notwithstanding any agreement to the
contrary between the issuer and such
persons, for that person's
proportionate share of the issuer's net
assets.
(C) Each person that elects to redeem under
subparagraph (B)(ii)(II) shall receive an amount in
cash equal to that person's proportionate share of the
issuer's net assets, unless the issuer elects to
provide such person with the option of receiving, and
such person agrees to receive, all or a portion of such
person's share in assets of the issuer. If the issuer
elects to provide such persons with such an
opportunity, disclosure concerning such opportunity
shall be made in the disclosure required by
subparagraph (B)(ii)(I).
(D) An issuer that is excepted under this paragraph
shall nonetheless be deemed to be an investment company
for purposes of the limitations set forth in
subparagraphs (A)(i) and (B)(i) of section 12(d)(1)
relating to the purchase or other acquisition by such
issuer of any security issued by any registered
investment company and the sale of any security issued
by any registered open-end investment company to any
such issuer.
(E) For purposes of determining compliance with this
paragraph and paragraph (1), an issuer that is
otherwise excepted under this paragraph and an issuer
that is otherwise excepted under paragraph (1) shall
not be treated by the Commission as being a single
issuer for purposes of determining whether the
outstanding securities of the issuer excepted under
paragraph (1) are beneficially owned by not more than
100 persons or whether the outstanding securities of
the issuer excepted under this paragraph are owned by
persons that are not qualified purchasers. Nothing in
this subparagraph shall be construed to establish that
a person is a bona fide qualified purchaser for
purposes of this paragraph or a bona fide beneficial
owner for purposes of paragraph (1).
(9) Any person substantially all of whose business
consists of owning or holding oil, gas, or other
mineral royalties or leases, or fractional interests
therein, or certificates of interest or participation
in or investment contracts relative to such royalties,
leases, or fractional interests.
(10)(A) Any company organized and operated
exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes--
(i) no part of the net earnings of which
inures to the benefit of any private
shareholder or individual; or
(ii) which is or maintains a fund described
in subparagraph (B).
(B) For the purposes of subparagraph (A)(ii), a fund
is described in this subparagraph if such fund is a
pooled income fund, collective trust fund, collective
investment fund, or similar fund maintained by a
charitable organization exclusively for the collective
investment and reinvestment of one or more of the
following:
(i) assets of the general endowment fund or
other funds of one or more charitable
organizations;
(ii) assets of a pooled income fund;
(iii) assets contributed to a charitable
organization in exchange for the issuance of
charitable gift annuities;
(iv) assets of a charitable remainder trust
or of any other trust, the remainder interests
of which are irrevocably dedicated to any
charitable organization;
(v) assets of a charitable lead trust;
(vi) assets of a trust, the remainder
interests of which are revocably dedicated to
or for the benefit of 1 or more charitable
organizations, if the ability to revoke the
dedication is limited to circumstances
involving--
(I) an adverse change in the
financial circumstances of a settlor or
an income beneficiary of the trust;
(II) a change in the identity of the
charitable organization or
organizations having the remainder
interest, provided that the new
beneficiary is also a charitable
organization; or
(III) both the changes described in
subclauses (I) and (II);
(vii) assets of a trust not described in
clauses (i) through (v), the remainder
interests of which are revocably dedicated to a
charitable organization, subject to
subparagraph (C); or
(viii) such assets as the Commission may
prescribe by rule, regulation, or order in
accordance with section 6(c).
(C) A fund that contains assets described in clause
(vii) of subparagraph (B) shall be excluded from the
definition of an investment company for a period of 3
years after the date of enactment of this subparagraph,
but only if--
(i) such assets were contributed before the
date which is 60 days after the date of
enactment of this subparagraph; and
(ii) such assets are commingled in the fund
with assets described in one or more of clauses
(i) through (vi) and (viii) of subparagraph
(B).
(D) For purposes of this paragraph--
(i) a trust or fund is ``maintained'' by a
charitable organization if the organization
serves as a trustee or administrator of the
trust or fund or has the power to remove the
trustees or administrators of the trust or fund
and to designate new trustees or
administrators;
(ii) the term ``pooled income fund'' has the
same meaning as in section 642(c)(5) of the
Internal Revenue Code of 1986;
(iii) the term ``charitable organization''
means an organization described in paragraphs
(1) through (5) of section 170(c) or section
501(c)(3) of the Internal Revenue Code of 1986;
(iv) the term ``charitable lead trust'' means
a trust described in section 170(f)(2)(B),
2055(e)(2)(B), or 2522(c)(2)(B) of the Internal
Revenue Code of 1986;
(v) the term ``charitable remainder trust''
means a charitable remainder annuity trust or a
charitable remainder unitrust, as those terms
are defined in section 664(d) of the Internal
Revenue Code of 1986; and
(vi) the term ``charitable gift annuity''
means an annuity issued by a charitable
organization that is described in section
501(m)(5) of the Internal Revenue Code of 1986.
(11) Any employee's stock bonus, pension, or profit-
sharing trust which meets the requirements for
qualification under section 401 of the Internal Revenue
Code of 1986; or any governmental plan described in
section 3(a)(2)(C) of the Securities Act of 1933; or
any collective trust fund maintained by a bank
consisting solely of assets of one or more of such
trusts, government plans, or church plans, companies or
accounts that are excluded from the definition of an
investment company under paragraph (14) of this
subsection; or any separate account the assets of which
are derived solely from (A) contributions under pension
or profit-sharing plans which meet the requirements of
section 401 of the Internal Revenue Code of 1986 or the
requirements for deduction of the employer's
contribution under section 404(a)(2) of such Code, (B)
contributions under governmental plans in connection
with which interests, participations, or securities are
exempted from the registration provisions of section 5
of the Securities Act of 1933 by section 3(a)(2)(C) of
such Act, and (C) advances made by an insurance company
in connection with the operation of such separate
account.
(12) Any voting trust the assets of which consist
exclusively of securities of a single issuer which is
not an investment company.
(13) Any security holders' protective committee or
similar issuer having outstanding and issuing no
securities other than certificates of deposit and
short-term paper.
(14) Any church plan described in section 414(e) of
the Internal Revenue Code of 1986, if, under any such
plan, no part of the assets may be used for, or
diverted to, purposes other than the exclusive benefit
of plan participants or beneficiaries, or any company
or account that is--
(A) established by a person that is eligible
to establish and maintain such a plan under
section 414(e) of the Internal Revenue Code of
1986; and
(B) substantially all of the activities of
which consist of--
(i) managing or holding assets
contributed to such church plans or
other assets which are permitted to be
commingled with the assets of church
plans under the Internal Revenue Code
of 1986; or
(ii) administering or providing
benefits pursuant to church plans.
(15) Any crowdfunding vehicle.
* * * * * * *
----------
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
registration requirements for securities
Sec. 12. (a) It shall be unlawful for any member, broker, or
dealer to effect any transaction in any security (other than an
exempted security) on a national securities exchange unless a
registration is effective as to such security for such exchange
in accordance with the provisions of this title and the rules
and regulations thereunder. The provisions of this subsection
shall not apply in respect of a security futures product traded
on a national securities exchange.
(b) A security may be registered on a national securities
exchange by the issuer filing an application with the exchange
(and filing with the Commission such duplicate originals
thereof as the Commission may require), which application shall
contain--
(1) Such information, in such detail, as to the
issuer and any person directly or indirectly
controlling or controlled by, or under direct or
indirect common control with, the issuer, and any
guarantor of the security as to principal or interest
or both, as the Commission may by rules and regulations
require, as necessary or appropriate in the public
interest or for the protection of investors, in respect
of the following:
(A) the organization, financial structures,
and nature of the business;
(B) the terms, position, rights, and
privileges of the different classes of
securities outstanding;
(C) the terms on which their securities are
to be, and during the preceding three years
have been, offered to the public or otherwise;
(D) the directors, officers, and
underwriters, and each security holder of
record holding more than 10 per centum of any
class of any equity security of the issuer
(other than an exempted security), their
remuneration and their interests in the
securities of, and their material contracts
with, the issuer and any person directly or
indirectly controlling or controlled by, or
under direct or indirect common control with,
the issuer;
(E) remuneration to others than directors and
officers exceeding $20,000 per annum;
(F) bonus and profit-sharing arrangements;
(G) management and service contracts;
(H) options existing or to be created in
respect of their securities;
(I) material contracts, not made in the
ordinary course of business, which are to be
executed in whole or in part at or after the
filing of the application or which were made
not more than two years before such filing, and
every material patent or contract for a
material patent right shall be deemed a
material contract;
(J) balance sheets for not more than the
three preceding fiscal years, certified if
required by the rules and regulations of the
Commission by a registered public accounting
firm;
(K) profit and loss statements for not more
than the three preceding fiscal years,
certified if required by the rules and
regulations of the Commission by a registered
public accounting firm; and
(L) any further financial statements which
the Commission may deem necessary or
appropriate for the protection of investors.
(2) Such copies of articles of incorporation, bylaws,
trust indentures, or corresponding documents by
whatever name known, underwriting arrangements, and
other similar documents of, and voting trust agreements
with respect to, the issuer and any person directly or
indirectly controlling or controlled by, or under
direct or indirect common control with, the issuer as
the Commission may require as necessary or appropriate
for the proper protection of investors and to insure
fair dealing in the security.
(3) Such copies of material contracts, referred to in
paragraph (1)(I) above, as the Commission may require
as necessary or appropriate for the proper protection
of investors and to insure fair dealing in the
security.
(c) If in the judgment of the Commission any information
required under subsection (b) of this section is inapplicable
to any specified class or classes of issuers, the Commission
shall require in lieu thereof the submission of such other
information of comparable character as it may deem applicable
to such class of issuers.
(d) If the exchange authorities certify to the Commission
that the security has been approved by the exchange for listing
and registration, the registration shall become effective
thirty days after the receipt of such certification by the
Commission or within such shorter period of time as the
Commission may determine. A security registered with a national
securities exchange may be withdrawn or stricken from listing
and registration in accordance with the rules of the exchange
and, upon such terms as the Commission may deem necessary to
impose for the protection of investors, upon application by the
issuer or the exchange to the Commission; whereupon the issuer
shall be relieved from further compliance with the provisions
of this section and section 13 of this title and any rules or
regulations under such sections as to the securities so
withdrawn or stricken. An unissued security may be registered
only in accordance with such rules and regulations as the
Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
(e) Notwithstanding the foregoing provisions of this section,
the Commission may by such rules and regulations as it deems
necessary or appropriate in the public interest or for the
protection of investors permit securities listed on any
exchange at the time the registration of such exchange as a
national securities exchange becomes effective, to be
registered for a period ending not later than July 1, 1935,
without complying with the provisions of this section.
(f)(1)(A) Notwithstanding the preceding subsections of this
section, any national securities exchange, in accordance with
the requirements of this subsection and the rules hereunder,
may extend unlisted trading privileges to--
(i) any security that is listed and registered on a
national securities exchange, subject to subparagraph
(B); and
(ii) any security that is otherwise registered
pursuant to this section, or that would be required to
be so registered except for the exemption from
registration provided in subparagraph (B) or (G) of
subsection (g)(2), subject to subparagraph (E) of this
paragraph.
(B) A national securities exchange may not extend unlisted
trading privileges to a security described in subparagraph
(A)(i) during such interval, if any, after the commencement of
an initial public offering of such security, as is or may be
required pursuant to subparagraph (C).
(C) Not later than 180 days after the date of enactment of
the Unlisted Trading Privileges Act of 1994, the Commission
shall prescribe, by rule or regulation, the duration of the
interval referred to in subparagraph (B), if any, as the
Commission determines to be necessary or appropriate for the
maintenance of fair and orderly markets, the protection of
investors and the public interest, or otherwise in furtherance
of the purposes of this title. Until the earlier of the
effective date of such rule or regulation or 240 days after
such date of enactment, such interval shall begin at the
opening of trading on the day on which such security commences
trading on the national securities exchange with which such
security is registered and end at the conclusion of the next
day of trading.
(D) The Commission may prescribe, by rule or regulation such
additional procedures or requirements for extending unlisted
trading privileges to any security as the Commission deems
necessary or appropriate for the maintenance of fair and
orderly markets, the protection of investors and the public
interest, or otherwise in furtherance of the purposes of this
title.
(E) No extension of unlisted trading privileges to securities
described in subparagraph (A)(ii) may occur except pursuant to
a rule, regulation, or order of the Commission approving such
extension or extensions. In promulgating such rule or
regulation or in issuing such order, the Commission--
(i) shall find that such extension or extensions of
unlisted trading privileges is consistent with the
maintenance of fair and orderly markets, the protection
of investors and the public interest, and otherwise in
furtherance of the purposes of this title;
(ii) shall take account of the public trading
activity in such securities, the character of such
trading, the impact of such extension on the existing
markets for such securities, and the desirability of
removing impediments to and the progress that has been
made toward the development of a national market
system; and
(iii) shall not permit a national securities exchange
to extend unlisted trading privileges to such
securities if any rule of such national securities
exchange would unreasonably impair the ability of a
dealer to solicit or effect transactions in such
securities for its own account, or would unreasonably
restrict competition among dealers in such securities
or between such dealers acting in the capacity of
market makers who are specialists and such dealers who
are not specialists.
(F) An exchange may continue to extend unlisted trading
privileges in accordance with this paragraph only if the
exchange and the subject security continue to satisfy the
requirements for eligibility under this paragraph, including
any rules and regulations issued by the Commission pursuant to
this paragraph, except that unlisted trading privileges may
continue with regard to securities which had been admitted on
such exchange prior to July 1, 1964, notwithstanding the
failure to satisfy such requirements. If unlisted trading
privileges in a security are discontinued pursuant to this
subparagraph, the exchange shall cease trading in that
security, unless the exchange and the subject security
thereafter satisfy the requirements of this paragraph and the
rules issued hereunder.
(G) For purposes of this paragraph--
(i) a security is the subject of an initial public
offering if--
(I) the offering of the subject security is
registered under the Securities Act of 1933;
and
(II) the issuer of the security, immediately
prior to filing the registration statement with
respect to the offering, was not subject to the
reporting requirements of section 13 or 15(d)
of this title; and
(ii) an initial public offering of such security
commences at the opening of trading on the day on which
such security commences trading on the national
securities exchange with which such security is
registered.
(2)(A) At any time within 60 days of commencement of trading
on an exchange of a security pursuant to unlisted trading
privileges, the Commission may summarily suspend such unlisted
trading privileges on the exchange. Such suspension shall not
be reviewable under section 25 of this title and shall not be
deemed to be a final agency action for purposes of section 704
of title 5, United States Code. Upon such suspension--
(i) the exchange shall cease trading in the security
by the close of business on the date of such
suspension, or at such time as the Commission may
prescribe by rule or order for the maintenance of fair
and orderly markets, the protection of investors and
the public interest, or otherwise in furtherance of the
purposes of this title; and
(ii) if the exchange seeks to extend unlisted trading
privileges to the security, the exchange shall file an
application to reinstate its ability to do so with the
Commission pursuant to such procedures as the
Commission may prescribe by rule or order for the
maintenance of fair and orderly markets, the protection
of investors and the public interest, or otherwise in
furtherance of the purposes of this title.
(B) A suspension under subparagraph (A) shall remain in
effect until the Commission, by order, grants approval of an
application to reinstate, as described in subparagraph (A)(ii).
(C) A suspension under subparagraph (A) shall not affect the
validity or force of an extension of unlisted trading
privileges in effect prior to such suspension.
(D) The Commission shall not approve an application by a
national securities exchange to reinstate its ability to extend
unlisted trading privileges to a security unless the Commission
finds, after notice and opportunity for hearing, that the
extension of unlisted trading privileges pursuant to such
application is consistent with the maintenance of fair and
orderly markets, the protection of investors and the public
interest, and otherwise in furtherance of the purposes of this
title. If the application is made to reinstate unlisted trading
privileges to a security described in paragraph (1)(A)(ii), the
Commission--
(i) shall take account of the public trading activity
in such security, the character of such trading, the
impact of such extension on the existing markets for
such a security, and the desirability of removing
impediments to and the progress that has been made
toward the development of a national market system; and
(ii) shall not grant any such application if any rule
of the national securities exchange making application
under this subsection would unreasonably impair the
ability of a dealer to solicit or effect transactions
in such security for its own account, or would
unreasonably restrict competition among dealers in such
security or between such dealers acting in the capacity
of marketmakers who are specialists and such dealers
who are not specialists.
(3) Notwithstanding paragraph (2), the Commission shall by
rules and regulations suspend unlisted trading privileges in
whole or in part for any or all classes of securities for a
period not exceeding twelve months, if it deems such suspension
necessary or appropriate in the public interest or for the
protection of investors or to prevent evasion of the purposes
of this title.
(4) On the application of the issuer of any security for
which unlisted trading privileges on any exchange have been
continued or extended pursuant to this subsection, or of any
broker or dealer who makes or creates a market for such
security, or of any other person having a bona fide interest in
the question of termination or suspension of such unlisted
trading privileges, or on its own motion, the Commission shall
by order terminate, or suspend for a period not exceeding
twelve months, such unlisted trading privileges for such
security if the Commission finds, after appropriate notice and
opportunity for hearing, that such termination or suspension is
necessary or appropriate in the public interest or for the
protection of investors.
(5) In any proceeding under this subsection in which
appropriate notice and opportunity for hearing are required,
notice of not less than ten days to the applicant in such
proceeding, to the issuer of the security involved, to the
exchange which is seeking to continue or extend or has
continued or extended unlisted trading privileges for such
security, and to the exchange, if any, on which such security
is listed and registered, shall be deemed adequate notice, and
any broker or dealer who makes or creates a market for such
security, and any other person having a bona fide interest in
such proceeding, shall upon application be entitled to be
heard.
(6) Any security for which unlisted trading privileges are
continued or extended pursuant to this subsection shall be
deemed to be registered on a national securities exchange
within the meaning of this title. The powers and duties of the
Commission under this title shall be applicable to the rules of
an exchange in respect to any such security. The Commission
may, by such rules and regulations as it deems necessary or
appropriate in the public interest or for the protection of
investors, either unconditionally or upon specified terms and
conditions, or for stated periods, exempt such securities from
the operation of any provision of section 13, 14, or 16 of this
title.
(g)(1) Every issuer which is engaged in interstate commerce,
or in a business affecting interstate commerce, or whose
securities are traded by use of the mails or any means or
instrumentality of interstate commerce shall--
(A) within 120 days after the last day of its first
fiscal year ended on which the issuer has total assets
exceeding $10,000,000 and a class of equity security
(other than an exempted security) held of record by
either--
(i) 2,000 persons, or
(ii) 500 persons who are not accredited investors (as
such term is defined by the Commission), and
(B) in the case of an issuer that is a bank, a
savings and loan holding company (as defined in section
10 of the Home Owners' Loan Act), or a bank holding
company, as such term is defined in section 2 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841), not
later than 120 days after the last day of its first
fiscal year ended after the effective date of this
subsection, on which the issuer has total assets
exceeding $10,000,000 and a class of equity security
(other than an exempted security) held of record by
2,000 or more persons,
register such security by filing with the Commission a
registration statement (and such copies thereof as the
Commission may require) with respect to such security
containing such information and documents as the Commission may
specify comparable to that which is required in an application
to register a security pursuant to subsection (b) of this
section. Each such registration statement shall become
effective sixty days after filing with the Commission or within
such shorter period as the Commission may direct. Until such
registration statement becomes effective it shall not be deemed
filed for the purposes of section 18 of this title. Any issuer
may register any class of equity security not required to be
registered by filing a registration statement pursuant to the
provisions of this paragraph. The Commission is authorized to
extend the date upon which any issuer or class of issuers is
required to register a security pursuant to the provisions of
this paragraph.
(2) The provisions of this subsection shall not apply in
respect of--
(A) any security listed and registered on a national
securities exchange.
(B) any security issued by an investment company
registered pursuant to section 8 of the Investment
Company Act of 1940.
(C) any security, other than permanent stock,
guaranty stock, permanent reserve stock, or any similar
certificate evidencing nonwithdrawable capital, issued
by a savings and loan association, building and loan
association, cooperative bank, homestead association,
or similar institution, which is supervised and
examined by State or Federal authority having
supervision over any such institution.
(D) any security of an issuer organized and operated
exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes and not
for pecuniary profit, and no part of the net earnings
of which inures to the benefit of any private
shareholder or individual; or any security of a fund
that is excluded from the definition of an investment
company under section 3(c)(10)(B) of the Investment
Company Act of 1940.
(E) any security of an issuer which is a
``cooperative association'' as defined in the
Agricultural Marketing Act, approved June 15, 1929, as
amended, or a federation of such cooperative
associations, if such federation possesses no greater
powers or purposes than cooperative associations so
defined.
(F) any security issued by a mutual or cooperative
organization which supplies a commodity or service
primarily for the benefit of its members and operates
not for pecuniary profit, but only if the security is
part of a class issuable only to persons who purchase
commodities or services from the issuer, the security
is transferable only to a successor in interest or
occupancy of premises serviced or to be served by the
issuer, and no dividends are payable to the holder of
the security.
(G) any security issued by an insurance company if
all of the following conditions are met:
(i) Such insurance company is required to and
does file an annual statement with the
Commissioner of Insurance (or other officer or
agency performing a similar function) of its
domiciliary State, and such annual statement
conforms to that prescribed by the National
Association of Insurance Commissioners or in
the determination of such State commissioner,
officer or agency substantially conforms to
that so prescribed.
(ii) Such insurance company is subject to
regulation by its domiciliary State of proxies,
consents, or authorizations in respect of
securities issued by such company and such
regulation conforms to that prescribed by the
National Association of Insurance
Commissioners.
(iii) After July 1, 1966, the purchase and
sales of securities issued by such insurance
company by beneficial owners, directors, or
officers of such company are subject to
regulation (including reporting) by its
domiciliary State substantially in the manner
provided in section 16 of this title.
(H) any interest or participation in any collective
trust funds maintained by a bank or in a separate
account maintained by an insurance company which
interest or participation is issued in connection with
(i) a stock-bonus, pension, or profit-sharing plan
which meets the requirements for qualification under
section 401 of the Internal Revenue Code of 1954, (ii)
an annuity plan which meets the requirements for
deduction of the employer's contribution under section
404(a)(2) of such Code, or (iii) a church plan,
company, or account that is excluded from the
definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940.
(3) The Commission may by rules or regulations or, on its own
motion, after notice and opportunity for hearing, by order,
exempt from this subsection any security of a foreign issuer,
including any certificate of deposit for such a security, if
the Commission finds that such exemption is in the public
interest and is consistent with the protection of investors.
(4) Registration of any class of security pursuant to this
subsection shall be terminated ninety days, or such shorter
period as the Commission may determine, after the issuer files
a certification with the Commission that the number of holders
of record of such class of security is reduced to less than 300
persons, or, in the case of a bank, a savings and loan holding
company (as defined in section 10 of the Home Owners' Loan
Act), or a bank holding company, as such term is defined in
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C.
1841), 1,200 persons persons. The Commission shall after notice
and opportunity for hearing deny termination of registration if
it finds that the certification is untrue. Termination of
registration shall be deferred pending final determination on
the question of denial.
(5) For the purposes of this subsection the term ``class''
shall include all securities of an issuer which are of
substantially similar character and the holders of which enjoy
substantially similar rights and privileges. The Commission may
for the purpose of this subsection define by rules and
regulations the terms ``total assets'' and ``held of record''
as it deems necessary or appropriate in the public interest or
for the protection of investors in order to prevent
circumvention of the provisions of this subsection. For
purposes of this subsection, a security futures product shall
not be considered a class of equity security of the issuer of
the securities underlying the security futures product. For
purposes of determining whether an issuer is required to
register a security with the Commission pursuant to paragraph
(1), the definition of ``held of record'' shall not include
securities held by persons who received the securities pursuant
to an employee compensation plan in transactions exempted from
the registration requirements of section 5 of the Securities
Act of 1933.
(6) Exclusion for persons holding certain
securities.--[The Commission]
(A) In general._The Commission shall, by
rule, exempt, conditionally or unconditionally,
securities acquired pursuant to an offering
made under [section 4(6)] section 4(a)(6) of
the Securities Act of 1933 from the provisions
of this subsection.
(B) Treatment of securities issued by certain
issuers.--An exemption under subparagraph (A)
shall be unconditional for securities offered
by an issuer that had a public float of less
than $75,000,000 as of the last business day of
the issuer's most recently completed semiannual
period, computed by multiplying the aggregate
worldwide number of shares of the issuer's
common equity securities held by non-affiliates
by the price at which such securities were last
sold (or the average bid and asked prices of
such securities) in the principal market for
such securities or, in the event the result of
such public float calculation is zero, had
annual revenues of less than $50,000,000 as of
the issuer's most recently completed fiscal
year.
(h) The Commission may by rules and regulations, or upon
application of an interested person, by order, after notice and
opportunity for hearing, exempt in whole or in part any issuer
or class of issuers from the provisions of subsection (g) of
this section or from section 13, 14, or 15(d) or may exempt
from section 16 any officer, director, or beneficial owner of
securities of any issuer, any security of which is required to
be registered pursuant to subsection (g) hereof, upon such
terms and conditions and for such period as it deems necessary
or appropriate, if the Commission finds, by reason of the
number of public investors, amount of trading interest in the
securities, the nature and extent of the activities of the
issuer, income or assets of the issuer, or otherwise, that such
action is not inconsistent with the public interest or the
protection of investors. The Commission may, for the purposes
of any of the above-mentioned sections or subsections of this
title, classify issuers and prescribe requirements appropriate
for each such class.
(i) In respect of any securities issued by banks and savings
associations the deposits of which are insured in accordance
with the Federal Deposit Insurance Act, the powers, functions,
and duties vested in the Commission to administer and enforce
sections 10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of
this Act, and sections 302, 303, 304, 306, 401(b), 404, 406,
and 407 of the Sarbanes-Oxley Act of 2002, (1) with respect to
national banks and Federal savings associations, the accounts
of which are insured by the Federal Deposit Insurance
Corporation are vested in the Comptroller of the Currency, (2)
with respect to all other member banks of the Federal Reserve
System are vested in the Board of Governors of the Federal
Reserve System, and (3) with respect to all other insured banks
and State savings associations, the accounts of which are
insured by the Federal Deposit Insurance Corporation, are
vested in the Federal Deposit Insurance Corporation. The
Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, and the Federal Deposit Insurance
Corporation shall have the power to make such rules and
regulations as may be necessary for the execution of the
functions vested in them as provided in this subsection. In
carrying out their responsibilities under this subsection, the
agencies named in the first sentence of this subsection shall
issue substantially similar regulations to regulations and
rules issued by the Commission under sections 10A(m), 12, 13,
14(a), 14(c), 14(d), 14(f) and 16 of this Act, and sections
302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-
Oxley Act of 2002, unless they find that implementation of
substantially similar regulations with respect to insured banks
and insured institutions are not necessary or appropriate in
the public interest or for protection of investors, and publish
such findings, and the detailed reasons therefor, in the
Federal Register. Such regulations of the above-named agencies,
or the reasons for failure to publish such substantially
similar regulations to those of the Commission, shall be
published in the Federal Register within 120 days of the date
of enactment of this subsection, and, thereafter, within 60
days of any changes made by the Commission in its relevant
regulations and rules.
(j) The Commission is authorized, by order, as it deems
necessary or appropriate for the protection of investors to
deny, to suspend the effective date of, to suspend for a period
not exceeding twelve months, or to revoke the registration of a
security, if the Commission finds, on the record after notice
and opportunity for hearing, that the issuer of such security
has failed to comply with any provision of this title or the
rules and regulations thereunder. No member of a national
securities exchange, broker, or dealer shall make use of the
mails or any means or instrumentality of interstate commerce to
effect any transaction in, or to induce the purchase or sale
of, any security the registration of which has been and is
suspended or revoked pursuant to the preceding sentence.
(k) Trading Suspensions; Emergency Authority.--
(1) Trading suspensions.--If in its opinion the
public interest and the protection of investors so
require, the Commission is authorized by order--
(A) summarily to suspend trading in any
security (other than an exempted security) for
a period not exceeding 10 business days, and
(B) summarily to suspend all trading on any
national securities exchange or otherwise, in
securities other than exempted securities, for
a period not exceeding 90 calendar days.
The action described in subparagraph (B) shall not take
effect unless the Commission notifies the President of
its decision and the President notifies the Commission
that the President does not disapprove of such
decision. If the actions described in subparagraph (A)
or (B) involve a security futures product, the
Commission shall consult with and consider the views of
the Commodity Futures Trading Commission.
(2) Emergency orders.--
(A) In general.--The Commission, in an
emergency, may by order summarily take such
action to alter, supplement, suspend, or impose
requirements or restrictions with respect to
any matter or action subject to regulation by
the Commission or a self-regulatory
organization under the securities laws, as the
Commission determines is necessary in the
public interest and for the protection of
investors--
(i) to maintain or restore fair and
orderly securities markets (other than
markets in exempted securities);
(ii) to ensure prompt, accurate, and
safe clearance and settlement of
transactions in securities (other than
exempted securities); or
(iii) to reduce, eliminate, or
prevent the substantial disruption by
the emergency of--
(I) securities markets (other
than markets in exempted
securities), investment
companies, or any other
significant portion or segment
of such markets; or
(II) the transmission or
processing of securities
transactions (other than
transactions in exempted
securities).
(B) Effective period.--An order of the
Commission under this paragraph shall continue
in effect for the period specified by the
Commission, and may be extended. Except as
provided in subparagraph (C), an order of the
Commission under this paragraph may not
continue in effect for more than 10 business
days, including extensions.
(C) Extension.--An order of the Commission
under this paragraph may be extended to
continue in effect for more than 10 business
days if, at the time of the extension, the
Commission finds that the emergency still
exists and determines that the continuation of
the order beyond 10 business days is necessary
in the public interest and for the protection
of investors to attain an objective described
in clause (i), (ii), or (iii) of subparagraph
(A). In no event shall an order of the
Commission under this paragraph continue in
effect for more than 30 calendar days.
(D) Security futures.--If the actions
described in subparagraph (A) involve a
security futures product, the Commission shall
consult with and consider the views of the
Commodity Futures Trading Commission.
(E) Exemption.--In exercising its authority
under this paragraph, the Commission shall not
be required to comply with the provisions of--
(i) section 19(c); or
(ii) section 553 of title 5, United
States Code.
(3) Termination of emergency actions by president.--
The President may direct that action taken by the
Commission under paragraph (1)(B) or paragraph (2) of
this subsection shall not continue in effect.
(4) Compliance with orders.--No member of a national
securities exchange, broker, or dealer shall make use
of the mails or any means or instrumentality of
interstate commerce to effect any transaction in, or to
induce the purchase or sale of, any security in
contravention of an order of the Commission under this
subsection unless such order has been stayed, modified,
or set aside as provided in paragraph (5) of this
subsection or has ceased to be effective upon direction
of the President as provided in paragraph (3).
(5) Limitations on review of orders.--An order of the
Commission pursuant to this subsection shall be subject
to review only as provided in section 25(a) of this
title. Review shall be based on an examination of all
the information before the Commission at the time such
order was issued. The reviewing court shall not enter a
stay, writ of mandamus, or similar relief unless the
court finds, after notice and hearing before a panel of
the court, that the Commission's action is arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.
(6) Consultation.--Prior to taking any action
described in paragraph (1)(B), the Commission shall
consult with and consider the views of the Secretary of
the Treasury, the Board of Governors of the Federal
Reserve System, and the Commodity Futures Trading
Commission, unless such consultation is impracticable
in light of the emergency.
(7) Definition.--For purposes of this subsection, the
term ``emergency'' means--
(A) a major market disturbance characterized
by or constituting--
(i) sudden and excessive fluctuations
of securities prices generally, or a
substantial threat thereof, that
threaten fair and orderly markets; or
(ii) a substantial disruption of the
safe or efficient operation of the
national system for clearance and
settlement of transactions in
securities, or a substantial threat
thereof; or
(B) a major disturbance that substantially
disrupts, or threatens to substantially
disrupt--
(i) the functioning of securities
markets, investment companies, or any
other significant portion or segment of
the securities markets; or
(ii) the transmission or processing
of securities transactions.
(l) It shall be unlawful for an issuer, any class of whose
securities is registered pursuant to this section or would be
required to be so registered except for the exemption from
registration provided by subsection (g)(2)(B) or (g)(2)(G) of
this section, by the use of any means or instrumentality of
interstate commerce, or of the mails, to issue, either
originally or upon transfer, any of such securities in a form
or with a format which contravenes such rules and regulations
as the Commission may prescribe as necessary or appropriate for
the prompt and accurate clearance and settlement of
transactions in securities. The provisions of this subsection
shall not apply to variable annuity contracts or variable life
policies issued by an insurance company or its separate
accounts.
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