[House Report 115-362]
[From the U.S. Government Publishing Office]



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115th Congress    }                                 {          Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                 {          115-362
======================================================================



 
             FAMILY OFFICE TECHNICAL CORRECTION ACT OF 2017

                                _______
                                

October 23, 2017.--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. 3972]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3972) to clarify that family offices and family 
clients are accredited investors, and for other purposes, 
having considered the same, report favorably thereon with 
amendments and recommend that the bill as amended do pass.
    The amendments (stated in terms of the page and line 
numbers of the introduced bill) are as follows:
  Page 1, line 7, strike ``Any person who is a'' and insert 
``(a) In General.--Subject to subsection (b), any''.
  Page 1, line 7, strike ``client,'' and insert ``client of a 
family office,''.
  Page 2, after line 2, insert the following:
  ``(b) Limitation.--Subsection (a) only applies to a family 
office with assets under management in excess of $5,000,000, 
and a family office or a family client not formed for the 
specific purpose of acquiring the securities offered, and whose 
purchase is directed by a person who has such knowledge and 
experience in financial and business matters that such person 
is capable of evaluating the merits and risks of the 
prospective investment.''.

                          PURPOSE AND SUMMARY

    Introduced by Representative Carolyn Maloney on October 5, 
2017, H.R. 3972, the Family Office Technical Correction Act of 
2017, clarifies that family offices and family clients, as 
defined in section 275.202(a)(11)(G)-1 of title 17, Code of 
Federal Regulations, generally are accredited investors under 
Regulation D.

                  BACKGROUND AND NEED FOR LEGISLATION

    The goal of H.R. 3972 is to provide a technical 
clarification to ensure that the federal securities laws 
consider family offices to be accredited investors under 
Regulation D, as promulgated by the Securities and Exchange 
Commission (SEC) pursuant to the Securities Act of 1933 
(Securities Act).
    A family office is a private entity formed and controlled 
by the family it serves to manage its personal and financial 
needs. Section 409 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act empowered the SEC to adopt Rule 
202(a)(11)(G)-1, the Family Office Rule, under the Investment 
Advisers Act of 1940 (Advisers Act). The Family Office Rule 
allows a family office to give investment advice to a ``family 
client'' without registering under the Advisers Act. The public 
policy to support this exclusion is based on the notion that 
members of a family will protect each other and that the 
investor protections of the Advisers Act do not need to apply 
in this unique situation. This policy rationale also should 
extend to treat family offices as accredited investors under 
Regulation D. Providing this clarity is important because 
family offices frequently seek to acquire interests in private 
equity funds and hedge funds as part of the family office asset 
allocation process. As amended, H.R. 3972 satisfies this need 
so long as the family office has more than $5,000,000 in assets 
under management and has not been formed for the specific 
purpose of acquiring the securities offered.

                                HEARINGS

    The Committee on Financial Services Subcommittee on Capital 
Markets, Securities, and Investment held hearings examining 
matters relating to H.R. 3972 on April 19, 2017 and July 18, 
2017.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
October 11, 2017, and October 12, 2017, and ordered H.R. 3972 
to be reported favorably to the House, as amended, by a 
recorded vote of 60 yeas to 0 nays (Recorded vote no. FC-87), a 
quorum being present. Before the motion to report was offered, 
the Committee adopted an amendment offered by Mrs. Maloney by 
voice vote.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House, as amended. The motion 
was agreed to by a recorded vote of 60 yeas to 0 nays (Recorded 
vote no. FC-87), a quorum being present.

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................        X   ........  .........  Ms. Maxine Waters        X   ........  .........
                                                                 (CA).
Mr. McHenry....................        X   ........  .........  Mrs. Carolyn B.          X   ........  .........
                                                                 Maloney (NY).
Mr. King.......................        X   ........  .........  Ms. Velazquez....        X   ........  .........
Mr. Royce (CA).................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Lucas......................        X   ........  .........  Mr. Meeks........        X   ........  .........
Mr. Pearce.....................        X   ........  .........  Mr. Capuano......        X   ........  .........
Mr. Posey......................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Lynch........        X   ........  .........
Mr. Huizenga...................        X   ........  .........  Mr. David Scott          X   ........  .........
                                                                 (GA).
Mr. Duffy......................        X   ........  .........  Mr. Al Green (TX)        X   ........  .........
Mr. Stivers....................        X   ........  .........  Mr. Cleaver......        X   ........  .........
Mr. Hultgren...................        X   ........  .........  Ms. Moore........        X   ........  .........
Mr. Ross.......................        X   ........  .........  Mr. Ellison......        X   ........  .........
Mr. Pittenger..................        X   ........  .........  Mr. Perlmutter...        X   ........  .........
Mrs. Wagner....................        X   ........  .........  Mr. Himes........        X   ........  .........
Mr. Barr.......................        X   ........  .........  Mr. Foster.......        X   ........  .........
Mr. Rothfus....................        X   ........  .........  Mr. Kildee.......        X   ........  .........
Mr. Messer.....................        X   ........  .........  Mr. Delaney......        X   ........  .........
Mr. Tipton.....................        X   ........  .........  Ms. Sinema.......        X   ........  .........
Mr. Williams...................        X   ........  .........  Mrs. Beatty......        X   ........  .........
Mr. Poliquin...................        X   ........  .........  Mr. Heck.........        X   ........  .........
Mrs. Love......................        X   ........  .........  Mr. Vargas.......        X   ........  .........
Mr. Hill.......................        X   ........  .........  Mr. Gottheimer...        X   ........  .........
Mr. Emmer......................        X   ........  .........  Mr. Gonzalez (TX)        X   ........  .........
Mr. Zeldin.....................        X   ........  .........  Mr. Crist........        X   ........  .........
Mr. Trott......................        X   ........  .........  Mr. Kihuen.......        X   ........  .........
Mr. Loudermilk.................        X   ........  .........
Mr. Mooney (WV)................        X   ........  .........
Mr. MacArthur..................        X   ........  .........
Mr. Davidson...................        X   ........  .........
Mr. Budd.......................        X   ........  .........
Mr. Kustoff (TN)...............        X   ........  .........
Ms. Tenney.....................        X   ........  .........
Mr. Hollingsworth..............        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 3972 
will provide regulatory parity for family offices by clarifying 
the definition of accredited investor, under Regulation D of 
the Securities Act of 1933, includes family offices.

   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.

                 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, October 20, 2017.
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. 3972, the Family 
Office Technical Correction Act of 2017.
    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,
                                                          Director.
    Enclosure.

H.R. 3972--Family Office Technical Correction Act of 2017

    Current law provides a number of exemptions from the 
requirement that securities be registered with the Securities 
and Exchange Commission (SEC) prior to their sale. Central to 
those exemptions is the accredited investor, a person with 
sufficient financial sophistication and ability to sustain the 
risk of loss so that the protections from the registration 
process are unnecessary. Accredited investors may participate 
in investment opportunities not available to non-accredited 
investors, such as purchasing securities that are exempt from 
registration.
    H.R. 3972 would broaden the definition of an accredited 
investor to include a family office or a client of a family 
office that meets certain criteria. (A family office is a 
company that only has family clients, is owned and controlled 
by family members or family entities, and does not hold itself 
out to the public as an investment adviser.)
    Based on an analysis of information from the SEC, CBO 
estimates that implementing H.R. 3972 would cost less than 
$500,000 for the agency to conduct a rulemaking to change the 
definition of an accredited investor. 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 
appropriation actions consistent with that authority.
    Enacting H.R. 3972 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting H.R. 3972 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2028.
    H.R. 3972 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA).
    If the SEC increases fees to offset the costs associated 
with implementing the bill, H.R. 3972 would increase the cost 
of an existing mandate on private entities required to pay 
those assessments. CBO estimates that the incremental cost of 
the mandate would be small and would fall well below the annual 
threshold for private-sector mandates established in UMRA ($156 
million in 2017, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Stephen Rabent 
(for federal costs) and Logan Smith (for private-sector 
mandate). The estimate was approved by H. Samuel Papenfuss, 
Deputy Assistant Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section cites H.R. 3972 as the ``Family Office 
Technical Correction Act of 2017.''

Section 2. Accredited investors clarification

    Any person who is a family office or a family client, as 
defined in section 275.202(a)(11)(G)-1 of title 17, Code of 
Federal Regulations, shall be deemed to be an accredited 
investor, as defined in Regulation D of the SEC (or any 
successor thereto) under the Securities Act, so long as the 
family office has more than $5,000,000 in assets under 
management and has not been formed for the specific purpose of 
acquiring the securities offered.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 3972 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by Clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                                  [all]