Clarification of certain funding portal requirements and exclusions for Regulation Crowdfunding

(a)

Exclusion of issuers from funding portals

(1)

Clarification of certain exclusion requirements

Section 302 of the Jumpstart Our Business Startups Act is amended by adding at the end the following:

(e)

Clarification of certain exclusion requirements for funding portals

Under the rules issued pursuant to subsection (d), a funding portal shall have a reasonable basis for disqualifying an issuer from offering securities through such funding portal pursuant to section 4(a)(6) of the Securities Act of 1933 if the funding portal, through a background check of the issuer or other means, has found that such issuer, in connection with the offer, purchase, or sale of securities, has knowingly— (1)made any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (2)engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

(2)

Clarification of other obligations to reduce the risk of fraud

Section 4A(a)(5) of the Securities Act of 1933 (15 U.S.C. 77d–1(a)(5)) is amended to read as follows:

(5)as a minimum to reduce the risk of fraud with respect to such transactions obtain a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;

(3)

Clarification of liability of funding portals for material misstatements and omissions

Section 4A(c) of such Act (15 U.S.C. 77d–1(c)) is amended by adding the end the following:

(4)

Liability of funding portals

For purposes of this subsection, an intermediary shall not be considered an issuer unless, in connection with the offer or sale of a security, it knowingly— (A)made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (B)engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

(b)

Exemption from registration

Section 12(g)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(6)) is amended— (1)by striking The Commission and all that follows through securities and inserting Securities; and (2)by inserting shall be exempt after Securities Act of 1933. (c)

Allowing single-Purpose funds

(1)

Amendment to the Securities Act of 1933

Section 4A(f) of the Securities Act of 1933 (15 U.S.C. 77d–1(f)) is amended— (A)by striking paragraph (2); and (B)by redesignating paragraph (3) as paragraph (2) and in such paragraph, by inserting paragraphs (1) to (14) of after section 3(b) or. (2)

Amendment to the Investment Company Act of 1940

Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)) is amended by adding at the end the following:

(15)any issuer that holds, for the purpose of making an offering pursuant to section 4(a)(6) of the Securities Act of 1933 and the rules issued pursuant to such section, the securities of not more than one issuer eligible to offer securities pursuant to such section and such rules.

(3)

Application of rules

Single-purpose funds that are excluded from the definition of investment company under paragraph (15) of section 3(c) of the Investment Company Act (15 U.S.C. 80a–3(c))— (A)shall be allowed to sell and offer for sale securities under section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)) under the rules adopted on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106); and (B)shall be considered venture capital funds for purposes of section 275.203(l)–1 of title 17, Code of Federal Regulations. (d)

Solicitation of interest

Section 4A of the Securities Act of 1933 (15 U.S.C. 77d–1) is further amended— (1)by redesignating subsections (f) (as amended by subsection (c)(1)), (g), and (h) as subsections (g), (h), and (i), respectively; and (2)by inserting after subsection (e) the following:

(f)

Solicitation of interest

(1)

In general

At any time prior to the filing of information with the Commission and the commencement of an offering made in reliance on section 4(a)(6), an issuer may solicit non-binding indications of interest from potential investors in a prospective offering using the same means and pursuant to the same regulations (other than the filing of information with the Commission) as if conducting an offering pursuant to such section if— (A)no investor funds are accepted by such issuer; and (B)any material change in the information provided to potential investors during the actual offering pursuant to such section from the information provided to potential investors during such solicitation of interest are highlighted to potential investors in the information filed with the Commission. (2)

Status

Such solicitation of interest shall not be considered an offer or sale of securities under this Act or the Securities Exchange Act of 1934, regardless of whether or not the issuer actually conducts an offering pursuant to such section 4(a)(6).

(e)

Grace period

Consistent with the effective date of the final rules on regulation crowdfunding adopted by the Securities and Exchange Commission on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106), funding portals established under such Act shall make a good faith effort to comply with all such rules. Notwithstanding such effective date, no enforcement action may be brought against a funding portal before May 16, 2021.