[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.

                                  [all]