[House Report 115-375]
[From the U.S. Government Publishing Office]


115th Congress     }                                    {       Report
                        HOUSE OF REPRESENTATIVES
 1st Session       }                                    {      115-375

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



 
       FAIR INVESTMENT OPPORTUNITIES FOR PROFESSIONAL EXPERTS ACT

                                _______
                                

October 31, 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. 1585]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1585) to amend the Securities Act of 1933 to 
codify certain qualifications of individuals as accredited 
investors for purposes of the securities laws, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Fair Investment Opportunities for 
Professional Experts Act''.

SEC. 2. DEFINITION OF ACCREDITED INVESTOR.

  (a) In General.--Section 2(a)(15) of the Securities Act of 1933 (15 
U.S.C. 77b(a)(15) is amended--
          (1) by redesignating clauses (i) and (ii) as subparagraphs 
        (A) and (F), respectively; and
          (2) in subparagraph (A) (as so redesignated), by striking ``; 
        or'' and inserting a semicolon, and inserting after such 
        subparagraph the following:
                  ``(B) any natural person whose individual net worth, 
                or joint net worth with that person's spouse, exceeds 
                $1,000,000 (which amount, along with the amounts set 
                forth in subparagraph (C), shall be adjusted for 
                inflation by the Commission every 5 years to the 
                nearest $10,000 to reflect the change in the Consumer 
                Price Index for All Urban Consumers published by the 
                Bureau of Labor Statistics) where, for purposes of 
                calculating net worth under this subparagraph--
                          ``(i) the person's primary residence shall 
                        not be included as an asset;
                          ``(ii) indebtedness that is secured by the 
                        person's primary residence, up to the estimated 
                        fair market value of the primary residence at 
                        the time of the sale of securities, shall not 
                        be included as a liability (except that if the 
                        amount of such indebtedness outstanding at the 
                        time of sale of securities exceeds the amount 
                        outstanding 60 days before such time, other 
                        than as a result of the acquisition of the 
                        primary residence, the amount of such excess 
                        shall be included as a liability); and
                          ``(iii) indebtedness that is secured by the 
                        person's primary residence in excess of the 
                        estimated fair market value of the primary 
                        residence at the time of the sale of securities 
                        shall be included as a liability;
                  ``(C) any natural person who had an individual income 
                in excess of $200,000 in each of the 2 most recent 
                years or joint income with that person's spouse in 
                excess of $300,000 in each of those years and has a 
                reasonable expectation of reaching the same income 
                level in the current year;
                  ``(D) any natural person who is currently licensed or 
                registered as a broker or investment adviser by the 
                Commission, the Financial Industry Regulatory 
                Authority, or an equivalent self-regulatory 
                organization (as defined in section 3(a)(26) of the 
                Securities Exchange Act of 1934), or the securities 
                division of a State or the equivalent State division 
                responsible for licensing or registration of 
                individuals in connection with securities activities;
                  ``(E) any natural person the Commission determines, 
                by regulation, to have demonstrable education or job 
                experience to qualify such person as having 
                professional knowledge of a subject related to a 
                particular investment, and whose education or job 
                experience is verified by the Financial Industry 
                Regulatory Authority or an equivalent self-regulatory 
                organization (as defined in section 3(a)(26) of the 
                Securities Exchange Act of 1934); or''.
  (b) Rulemaking.--The Commission shall revise the definition of 
accredited investor under Regulation D (17 C.F.R. 230.501 et seq.) to 
conform with the amendments made by subsection (a).

                          Purpose and Summary

    On March 16, 2017, Representative David Schweikert 
introduced H.R. 1585, the ``Fair Investment Opportunities for 
Professional Experts Act,'' to modify the definition of an 
accredited investor under the federal securities laws to create 
additional avenues of funding for smaller private companies and 
to provide investors with additional investment opportunities.
    H.R. 1585, as modified by an amendment in the nature of a 
substitute offered by Representative French Hill, amends the 
Securities Act of 1933 (Securities Act) to modify the 
definition of accredited investor to include: (1) persons whose 
individual net worth, including their spouse's, exceeds 
$1,000,000, excluding the value of their primary residence; (2) 
persons with an individual income greater than $200,000, or 
joint income with one's spouse greater than $300,000; (3) 
persons with a current securities-related license; and (4) 
persons whom the U.S. Securities and Exchange Commission (SEC) 
determines have demonstrable education or job experience to 
qualify as having professional subject-matter knowledge related 
to a particular investment, with FINRA or an equivalent self-
regulatory organization verifying the education and job 
experience of such individual. The SEC also is directed to 
modify the definition of accredited investor under Regulation D 
to conform to these amendments.

                  Background and Need for Legislation

    Smaller and emerging companies play a significant role as 
drivers of U.S. economic activity, innovation, and job 
creation. According to the SEC Advisory Committee on Small and 
Emerging Companies, companies less than five years old generate 
the majority of net new jobs in the United States, and these 
companies continue to add jobs as they mature. In short, the 
ability of these companies to raise capital in the private 
markets is critical to both job creation and the economic well-
being of the United States.
    Under existing law, the federal securities laws allow 
companies to raise funds through both public and private 
offerings. The Securities Act requires companies that are 
publicly offering securities for investment to register the 
offering of the securities with the SEC and provide investors 
with all material information necessary to make an investment 
decision. The Securities Act contains certain exemptions from 
registration and authorizes the SEC to provide additional 
exemptions by rule in order for companies to raise capital 
through private offerings.
    The SEC's Regulation D, which provides such an exemption, 
is based on a Securities Act provision stating that the 
obligation to register with the government will not apply to 
any ``transactions by an issuer not involving any public 
offering.'' The U.S. Supreme Court stated that the exemption--
when an offering is considered private--should turn on whether 
``the particular class of persons affected needs the 
protection'' of the securities laws and should be utilized only 
by persons who can ``fend for themselves.''
    To codify the criteria that only persons who can ``fend for 
themselves'' may participate in a private offering, and in 1982 
the SEC adopted the term ``accredited investor.''. Under the 
SEC's standards, an investor's financial status is a proxy for 
their ability to fend for himself. Specifically, a the law 
deems a natural person as accredited if that person: (1) earned 
income that exceeded $200,000 (or $300,000 together with a 
spouse) in each of the prior two years, and reasonably expects 
the same for the current year; or (2) has a net worth over $1 
million, either alone or together with a spouse (excluding the 
value of the person's primary residence).
    Generally, smaller companies face significant obstacles 
when they seek to raise funds in the U.S. public capital 
markets. These obstacles often are attributable to the 
proportionately larger burden that securities regulations, 
which typically have been written for large public companies, 
place on smaller companies when they seek to go public. Beyond 
the costs directly impacting smaller companies in accessing 
capital, the stifling regulatory environment has restricted 
bank and other traditional financing for these companies, 
including an insufficient and too arbitrary pool of investors 
eligible to participate in private offerings.
    Robust private markets have helped to serve as an 
alternative capital-raising forum in lieu of an initial public 
offering (IPO) process that has grown too burdensome. Today, 
the private securities markets rival the public markets in 
size, and the vast majority of private offerings are conducted 
in reliance on Rule 506 of Regulation D. According to SEC data, 
in 2014 registered (public) offerings accounted for $1.35 
trillion of new capital raised, whereas $2.1 trillion was 
raised in private offerings. Of this $2.1 trillion in 2014, 
Regulation D accounted for $1.3 trillion (62 percent) of 
private offerings. As evidenced by these numbers, private 
offerings are a critical tool for small and emerging companies 
to raise capital, especially in light of the increasing burden 
to raise capital through public offerings. Furthermore, the 
SEC's Division of Economic and Risk Analysis has observed: 
``[T]he importance of the Regulation D market is magnified when 
considering that approximately two-thirds of Reg D offerings 
represent new equity capital . . . which is a more permanent 
source of capital than debt, and thus more likely to reflect 
new investment as opposed to the refinancing of existing 
investment.''
    Against this backdrop, Congress and the SEC have the 
responsibility to modernize the ability to raise capital in 
private placements. Small and emerging companies rely on 
private placements to raise capital in a cost-effective manner 
without being subject to SEC rules and regulations that are 
increasing in burden and scope. Congress must not allow the 
private capital markets to follow the same path of the public 
markets, whereby innovators and entrepreneurs are stifled from 
starting and growing businesses.

The Need to Amend the Definition of Accredited Investor

    Congress should act to expand the pool of eligible 
investors that can participate in private placements to enable 
investors--other than wealthy investors--to participate in 
private offerings by amending the definition of accredited 
investor to account for education and professional expertise. 
Individual investors that have the risk appetite and ability to 
understand the private offering should be able to invest; the 
government should not limit the options of individual investors 
to only those wealthy individuals the government deems worthy.
    As Tom Quaadman, Executive Vice President of the U.S. 
Chamber of Commerce's Center for Capital Market 
Competitiveness, testified before the Capital Markets 
Subcommittee in March 2017:

          Only very wealthy people are afforded the opportunity 
        to invest in private offerings. These arbitrary 
        thresholds have the effect of being both under-
        inclusive and over-inclusive at the same time: They 
        allow someone who inherited a fortune--but has no 
        concept of financial markets--to invest in private 
        offerings, but they won't allow someone with a Ph.D. in 
        economics or finance to invest if their net worth and 
        income happen to be below the thresholds. This makes 
        little sense, and has the effect of contributing to 
        disparities in income and wealth across our country.

    At an October 4, 2017 Financial Services Committee hearing, 
SEC Chairman Jay Clayton agreed that the definition of 
accredited investor should be reconsidered and testified that 
he did not care for the binary nature of the current 
definition. Expanding the accredited investor definition not 
only benefits the companies raising funds but also provides 
investors with more attractive investment opportunities. As SEC 
Commissioner Michael Piwowar has astutely observed, allowing 
retail investors to invest in both public and private companies 
can actually have the effect of reducing risk in their overall 
portfolio.
    In the Department of the Treasury's October 2017 report on 
Capital Markets, mandated by President Trump's February 3, 2017 
Executive Order, Treasury advocates for broadening the 
accredited investor definition to include any investor who is 
advised on the merits of making a Regulation D investment by a 
fiduciary such as an SEC or state-registered investment 
adviser, and financial professionals who are considered 
qualified to recommend Regulation D investments, such as 
registered representatives and investment adviser 
representatives.
    To date, the SEC has failed to act on capital formation 
initiatives in a timely manner, including ensuring that 
individuals with the risk appetite and ability to understand 
private offerings may be permitted to invest. Accordingly, H.R. 
1585 amends the definition of accredited investor to account 
for educational or professional expertise. H.R. 1585 also 
codifies the SEC's existing monetary thresholds and thereby 
prevents an increase in the current financial requirements to 
qualify as an accredited investor. The legislation does 
contemplate adjustments to those requirements every five years 
to account for inflation.

                                Hearings

    The Committee on Financial Services and the Subcommittee on 
Capital Markets, Securities, and Investment held hearings 
examining matters relating to H.R. 1585 on March 22, 2017, 
April 26, 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. 1585 
to be reported favorably to the House as amended by a recorded 
vote of 58 yeas to 2 nays (Record vote no. FC-90), a quorum 
being present. Before the motion to report was offered, the 
Committee adopted an amendment in the nature of a substitute 
offered by Representative Hill 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 58 yeas to 2 nays (Record 
vote no. FC-90), 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. 1585 
will expand the definition of an accredited investor to 
increase the pool of potential investors to help further 
enhance a company's ability to raise capital and grow and to 
provide additional investment opportunities for more Americans.

   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 26, 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. 1585, the Fair 
Investment Opportunities for Professional Experts 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,
                                                          Director.
    Enclosure.

H.R. 1585--Fair Investment Opportunities for Professional Experts Act

    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. 1585 would broaden the definition of an accredited 
investor to include licensed brokers or investment advisors and 
individuals with professional knowledge related to a particular 
investment, as verified by certain regulatory authorities.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 1585 would cost less than $500,000 for 
rulemaking activities related to the change in 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. 1585 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting H.R. 1585 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2028.
    H.R. 1585 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. 1585 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 
mandates). 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 one 
directed rulemaking within the meaning of such section. This 
directed rulemaking will ensure that the SEC revises the 
definition of accredited investor under Regulation D to include 
the categories of investors set forth in this bill.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 1585 as the ``Fair Investment 
Opportunities for Professional Experts Act''

Section 2. Definition of accredited investor

    This section amends the definition of an accredited 
investor to include (1) persons whose individual net worth, 
including their spouse's, exceeds $1,000,000, excluding the 
value of their primary residence; (2) persons with an 
individual income greater than $200,000 or joint income with 
one's spouse greater than $300,000; (3) persons with a current 
securities-related license; and (4) persons whom the SEC 
determines have demonstrable education or job experience to 
qualify as having professional subject-matter knowledge related 
to a particular investment, as verified by Financial Industry 
Regulatory Authority (FINRA) or an equivalent SRO. With respect 
to this last category (4), the SEC is responsible for 
establishing what education or job experience is sufficient to 
qualify, and FINRA or an equivalent SRO is responsible for 
verifying that the potential investor's education or job 
experience satisfies the SEC's regulation.
    This section also directs to SEC to revise the definition 
of accredited investor under Regulation D to include the 
categories of investors set forth in this bill.

         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 italics, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                SECTION 2 OF THE SECURITIES ACT OF 1933


                              definitions

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

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