[House Report 118-310]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 118-310
======================================================================
HELPING ANGELS LEAD OUR STARTUPS ACT OF 2023
_______
December 12, 2023.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. McHenry, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 1553]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1553) to require the Securities and Exchange
Commission to revise rules relating to general solicitation or
general advertising to allow for presentations or other
communication made by or on behalf of an issuer at certain
events, and for other purposes, having considered the same,
reports favorably thereon with an amendment and recommends 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 ``Helping Angels Lead Our Startups Act
of 2023'' or the ``HALOS Act of 2023''.
SEC. 2. CLARIFICATION OF GENERAL SOLICITATION.
(a) Definitions.--For purposes of this Act and the revision of rules
required under this Act:
(1) Angel investor group.--The term ``angel investor group''
means any group that--
(A) is composed of accredited investors interested in
investing personal capital in early-stage companies;
(B) holds regular meetings and has defined processes
and procedures for making investment decisions, either
individually or among the membership of the group as a
whole; and
(C) is neither associated nor affiliated with
brokers, dealers, or investment advisers.
(2) Issuer.--The term ``issuer'' means an issuer that is a
business, is not in bankruptcy or receivership, is not an
investment company, and is not a blank check, blind pool, or
shell company.
(b) In General.--Not later than 6 months after the date of enactment
of this Act, the Securities and Exchange Commission shall revise
Regulation D (17 CFR 230.500 et seq.) to require that in carrying out
the prohibition against general solicitation or general advertising
contained in section 230.502(c) of title 17, Code of Federal
Regulations, the prohibition shall not apply to a presentation or other
communication made by or on behalf of an issuer which is made at an
event--
(1) sponsored by--
(A) the United States or any territory thereof, the
District of Columbia, any State, a political
subdivision of any State or territory, or any agency or
public instrumentality of any of the foregoing;
(B) a college, university, or other institution of
higher education;
(C) a nonprofit organization;
(D) an angel investor group;
(E) a venture forum, venture capital association, or
trade association; or
(F) any other group, person, or entity as the
Securities and Exchange Commission may determine by
rule;
(2) where any advertising for the event does not reference
any specific offering of securities by the issuer;
(3) the sponsor of which--
(A) does not make investment recommendations or
provide investment advice to event attendees;
(B) does not engage in an active role in any
investment negotiations between the issuer and
investors attending the event;
(C) does not charge event attendees any fees other
than reasonable administrative fees;
(D) does not receive any compensation for making
introductions between investors attending the event and
issuers, or for investment negotiations between such
parties;
(E) makes readily available to attendees a disclosure
not longer than one page in length, as prescribed by
the Securities and Exchange Commission, describing the
nature of the event and the risks of investing in the
issuers presenting at the event; and
(F) does not receive any compensation with respect to
such event that would require registration of the
sponsor as a broker or a dealer under the Securities
Exchange Act of 1934, or as an investment advisor under
the Investment Advisers Act of 1940; and
(4) where no specific information regarding an offering of
securities by the issuer is communicated or distributed by or
on behalf of the issuer, other than--
(A) that the issuer is in the process of offering
securities or planning to offer securities;
(B) the type and amount of securities being offered;
(C) the amount of securities being offered that have
already been subscribed for; and
(D) the intended use of proceeds of the offering.
(c) Rule of Construction.--Subsection (b) may only be construed as
requiring the Securities and Exchange Commission to amend the
requirements of Regulation D with respect to presentations and
communications, and not with respect to purchases or sales.
(d) No Pre-existing Substantive Relationship by Reason of Event.--
Attendance at an event described under subsection (b) shall not
qualify, by itself, as establishing a pre-existing substantive
relationship between an issuer and a purchaser, for purposes of Rule
506(b).
PURPOSE AND SUMMARY
Introduced on March 10, 2023, by Representative Michael
Lawler, H.R. 1553, the Helping Angels Lead Our Startups (HALOS)
Act, would define an angel investor for purposes of the federal
securities laws. It would also clarify the definition of
general solicitation included in the Securities Act of 1933.
This will ensure that startups can discuss their products and
business plans at certain events, known as ``demo days,''
without such discussions being considered an investment
offering.
BACKGROUND AND NEED FOR LEGISLATION
Depending on the regulatory pathway a company chooses to
raise capital, the company may be limited in how it can connect
with potential investors. For example, the most commonly used
offering exemption under the federal securities laws--Rule
506(b) of Regulation D--prohibits the use of ``general
solicitation'' to market securities. A solicitation that
conditions the market for an offering of securities is viewed
as a general solicitation. Examples of activities that amount
to a general solicitation include newspaper and magazine
advertisements, unrestricted public websites, and TV and radio
broadcasts.
In implementing the JOBS Act, the SEC classified ``demo
day'' communications (i.e., communications made in connection
with an event sponsored by a group or entity that invites
issuers to present their businesses to potential investors with
the aim of securing investment) as a general solicitation.
However, the SEC reversed course when it finalized Rule 148.
Under the new rule, an issuer will not be deemed to have
engaged in general solicitation if the communications are made
in connection with an event sponsored by a college, university,
or other institution of higher education, a state or local
government or instrumentality thereof, a nonprofit
organization, or an angel investor group, incubator, or
accelerator, provided certain conditions are satisfied. These
conditions include limitations on the sponsor's activities, a
requirement that the advertising for the event not reference
any specific offering of securities by the issuer, and limits
on the information conveyed at the event regarding the offering
of securities by or on behalf of the issuer. The HALOS Act,
among other things, codifies this position to ensure issuers
may continue to conduct demo days without violating the
securities laws.
HEARING
Pursuant to clause 3(c)(6) of rule XIII, the following
hearing was used to develop H.R. 1553: The Subcommittee on
Capital Markets of the Committee on Financial Services held a
hearing on February 8, 2023, titled ``Empowering Entrepreneurs:
Removing Barriers to Capital Access for Small Businesses.''
COMMITTEE CONSIDERATION
The Committee on Financial Services met in open session on
May 24, 2023, and ordered H.R. 1553 to be reported favorably to
the House as amended by a recorded vote of 35 ayes to 12nays
(Record vote no. FC-70), a quorum being present. Before the question
was called to order the bill favorably reported, the Committee adopted
an amendment in the nature of a substitute offered by Mr. Lawler 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 order to report legislation and amendments thereto. H.R.
1553 was ordered reported favorably to the House as amended by
a recorded vote of 35 ayes to 12 nays (Record vote no. FC-70),
a quorum being present.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
COMMITTEE OVERSIGHT FINDINGS
Pursuant to clause 3(c) 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 goal of H.R. 1553 is to provide a
definition for an angel investor for purposes of the federal
securities laws.
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:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES
Pursuant to 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
1973.
FEDERAL MANDATES STATEMENT
Pursuant to section 423 of the Unfunded Mandates Reform
Act, the Committee adopts as its own the estimate of the
Federal mandates prepared by the Director of the Congressional
Budget Office.
ADVISORY COMMITTEE STATEMENT
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
APPLICABILITY TO LEGISLATIVE BRANCH
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
EARMARK IDENTIFICATION
Pursuant 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
Pursuant to 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 a program of
the Federal Government known to be duplicative of another
Federal program, including any program that was included in a
report to Congress pursuant to section 21 of the Public Law
111-139 or the most recent Catalog of Federal Domestic
Assistance.
SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION
Section 1. Short title
This section cites H.R. 1553 as the ``Helping Angels Lead
Our Startups Act of 2023'' or the ``HALOS Act of 2023''.
Section 2. Clarification of general solicitation
This section defines an angel investor group as any group
that is composed of accredited investors interested in
investing personal capital in early-stage companies that hold
regular meetings and have defined processes and procedures for
making investment decisions and who are neither associated nor
affiliated with brokers, dealers, or investment advisors. This
section also defines an issuer as a business that is not in
bankruptcy or receivership, is not an investment company, and
is not a blank check, blind pool, or shell company.
In addition, this section directs the SEC to revise
Regulation D of its rules to require that in carrying out the
prohibition against general solicitation or general advertising
that the prohibition shall not apply to a presentation or other
communication made by or on behalf of an issuer which is made
at an event sponsored by: (1) the U.S. or any territory
thereof, (2) a college, university, or other institution of
higher education, (3) a nonprofit organization, (4) an angel
investor group, (5) a venture forum, venture capital
association, or trade association, or (6) any other group,
person, or entity as the SEC may determine by rule. This
section also notes that the prohibition shall not apply where
any advertising for the event does not reference any specific
offering by the issuer or where the sponsor of which does not
make an investment recommendation or provide investment advice,
does not engage in an active role in investment negotiation,
does not charge event attendees any fees other than reasonable
administrative fees, does not receive any compensation for
making introductions between investors and issuers, does not
receive any compensation with respect to such event, and makes
readily available to attendees a disclosure not longer than one
page describing the nature of the event and the risks of
investing in the issuers presenting at the event. Moreover,
this section clarifies that the prohibition shall not apply
where no specific information regarding an offering of
securities by the issuer is communicated or distributed by or
on behalf of the issuer, other than the issuer being in the
process of offering securities or planning to offer securities,
the type and amount of securities being offered, the amount of
securities being offered that have already been subscribed for,
and the intended use of proceeds of the offering.
Section 3. Restrictions on new filing requirements in connection with a
general solicitation
This section clarifies that with respect to any offer or
sale of a security under Regulation D that is exempt from the
prohibition against general solicitation or general
advertising, the SEC may not issue any rule that would apply
additional filing requirements that were not in effect on the
date of enactment of this Act.
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