[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1645 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 1645
To establish a domestic ownership investment facility, and for other
purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 7, 2025
Mr. Van Hollen (for himself, Mr. Moran, Ms. Baldwin, Mr. Young, Mrs.
Shaheen, Mr. Schmitt, and Mr. Welch) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To establish a domestic ownership investment facility, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``American Ownership and Resilience
Act''.
SEC. 2. DEFINITIONS.
In this Act:
(1) 1940 act company.--The term ``1940 Act Company'' means
an investment company subject to registration under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
(2) 1980 act company.--The term ``1980 Act Company'' means
an investment company subject to registration under the Small
Business Investment Incentive Act of 1980 (15 U.S.C. 80a-51 et
seq.).
(3) Articles.--The term ``articles'' means--
(A) articles of incorporation for an incorporated
body; or
(B) the functional equivalent or other similar
documents specified by the Secretary for other business
entities.
(4) Capital interest.--The term ``capital interest'' means
an interest in a subsidiary LLC determined at the time of
receipt that gives the holder of the interest a share of the
proceeds in a complete liquidation of the subsidiary LLC if the
assets of the subsidiary LLC are sold at fair market value.
(5) Covered business concern.--The term ``covered business
concern'' means an enterprise, regardless of any size standard,
that is independently owned and operated, except that an
investment by a venture capital firm, investment company,
employee welfare benefit plan or pension plan, or trust,
foundation, or endowment that is exempt from Federal income
taxation shall not cause a business concern to be deemed not
independently owned and operated regardless of the allocation
of control during the investment period under any investment
agreement between the business concern and the entity making
the investment.
(6) Covered investment.--The term ``covered investment''
means, with respect to an investment in a covered business
concern--
(A) the provision of capital to finance the sale of
an ownership interest of a covered business concern,
including a covered business concern created as a
result of a corporate divestiture, to an employee stock
ownership plan or eligible worker-owned cooperative if
such sale results in--
(i) the employee stock ownership plan or
eligible worker-owned cooperative,
respectively, holding a majority interest of
the outstanding stock of the covered business
concern; and
(ii) with respect to such a sale to an
employee stock ownership plan, the appointment
of an independent trustee for the transaction;
or
(B) the provision of capital to finance a covered
business concern if--
(i) an employee stock ownership plan or
eligible worker-owned cooperative holds a
majority interest of the outstanding stock of
the covered business concern, prior to and
immediately following the provision of capital;
and
(ii) the provision of capital does not
reduce the percentage of stock of the covered
business concern held by the employee stock
ownership plan or eligible worker-owned
cooperative (as applicable), excluding any
synthetic equity.
(7) Department.--The term ``Department'' means the
Department of Commerce.
(8) Eligible worker-owned cooperative.--The term ``eligible
worker-owned cooperative'' has the meaning given that term in
section 1042(c) of the Internal Revenue Code of 1986.
(9) Employee stock ownership plan.--The term ``employee
stock ownership plan'' has the meaning given that term in
section 4975(e) of the Internal Revenue Code of 1986.
(10) Employee welfare benefit plan; pension plan.--The
terms ``employee welfare benefit plan'' and ``pension plan''--
(A) have the meanings given those terms in section
3 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002); and
(B) include--
(i) public and private pension or
retirement plans subject to such Act; and
(ii) similar plans not covered by such Act
that have been established and that are
maintained by the Federal Government or any
State or political subdivision, or any agency
or instrumentality thereof, for the benefit of
employees.
(11) Independent financial advisor.--The term ``independent
financial advisor'' means a financial or valuation advisor
that--
(A) is in the profession of serving as a financial
or valuation advisor for transactions involving
employee stock ownership plans;
(B) has never--
(i) performed services, including a
preliminary valuation, for or on behalf of--
(I) any party selling an ownership
interest in the covered business
concern to the employee stock ownership
plan involved in the transaction that
the advisor is evaluating; or
(II) the covered business concern,
unless the services were provided
solely to an existing employee stock
ownership plan sponsored by the covered
business concern; or
(ii) been a director, officer, or employee
of the covered business concern;
(C) has not performed services related to the
transaction the advisor is evaluating, including a
preliminary valuation, for or on behalf of--
(i) the ownership investment company that
is preparing to or has already allocated
capital to the covered business concern; or
(ii) any other entity that is structuring
or financing the transaction for any party
other than the employee stock ownership plan;
and
(D) does not have a familial or corporate
relationship (such as a parent-subsidiary relationship)
to any of person or entity described in subparagraph
(B) or (C).
(12) Independent trustee.--The term ``independent trustee''
means a trustee that--
(A) is in the profession of serving as a fiduciary
for employee stock ownership plans;
(B) has never--
(i) performed services for or on behalf of
any party selling an ownership interest in the
covered business concern to the employee stock
ownership plan involved in the transaction that
the trustee is considering; or
(ii) been a director, officer, or employee
of the covered business concern;
(C) has not performed services for or on behalf of
the covered business concern at any time during the 5-
year period ending on the date of execution of the
transaction the trustee is considering, unless such
services solely consisted of acting as a fiduciary of
an employee benefit plan (including an employee stock
ownership plan) under the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1001 et seq.);
(D) has not performed services related to the
transaction the trustee is considering, for or on
behalf of--
(i) the ownership investment company that
is preparing to or has already allocated
capital to the covered business concern; or
(ii) any other entity that is structuring
or financing the transaction for any party
other than the employee stock ownership plan;
and
(E) does not have a familial or corporate
relationship (such as a parent-subsidiary relationship)
to any person or entity described in subparagraph (B),
(C), or (D).
(13) Leverage.--The term ``leverage'' means debentures
guaranteed by the Department.
(14) License.--The term ``license'' means a license issued
by the Department as provided in section 4(c).
(15) Licensee.--The term ``licensee'' means a company
approved by the Secretary to operate under the provisions of
this Act and issued a license provided in section 4(c).
(16) Limited liability company.--The term ``limited
liability company'' means a business entity that is organized
and operating in accordance with a State limited liability
company statute approved by the Department.
(17) Member.--The term ``member'' means, with respect to a
licensee that is a limited liability company, a holder of an
ownership interest or a person otherwise admitted to membership
in the limited liability company.
(18) Non-leveraged licensee.--The term ``non-leveraged
licensee'' means a licensee that--
(A) has no outstanding leverage or leverage
commitment; and
(B) certifies to the Department in writing that the
licensee will not seek leverage in the future.
(19) Outstanding stock.--The term ``outstanding stock''
means shares of stock, including synthetic equity.
(20) Ownership investment company.--The term ``ownership
investment company'' means--
(A) a company approved by the Secretary to operate
under the provisions of this Act and issued a license
as provided in section 4(c); and
(B) for which--
(i) 100 percent of the total capital
managed by the investment firm shall be
invested in covered investments;
(ii) not less than 50 percent of the total
capital managed by the investment firm shall be
invested in covered investments described in
paragraph (6)(A); and
(iii) covered investment returns are
obtained from debt, synthetic equity, preferred
stock, equity, or a combination thereof,
including returns obtained from cash interest,
payment-in-kind interest, and stock warrants.
(21) Preferred stock.--The term ``preferred stock'' has the
meaning given that term in section 351(g)(3) of the Internal
Revenue Code of 1986.
(22) Private capital.--The term ``private capital''--
(A) means the sum of--
(i) the paid-in capital and paid-in surplus
of a corporate licensee, the contributed
capital of the partners of a partnership
licensee, or the equity investment of the
members of a limited liability company
licensee; and
(ii) unfunded binding commitments, from
investors that meet criteria established by the
Secretary, to contribute capital to the
licensee, provided that such unfunded
commitments may be counted as private capital
for purposes of approval by the Secretary of
any request for leverage, but leverage shall
not be funded based on such commitments; and
(B) does not include any--
(i) funds borrowed by a licensee from any
source;
(ii) funds obtained through the issuance of
leverage; or
(iii) funds obtained directly or indirectly
from any Federal, State, or local government,
or any government agency or instrumentality,
except for--
(I) funds obtained from the
business revenues (excluding any
governmental appropriation) of any
federally chartered or government-
sponsored corporation established
before October 1, 1987;
(II) funds invested by an employee
welfare benefit plan or pension plan;
and
(III) any qualified nonprivate
funds (if the investors of the
qualified nonprivate funds do not
control, directly or indirectly, the
management, board of directors, general
partners, or members of the licensee).
(23) Profits interest.--The term ``profits interests''
means an interest in a subsidiary LLC other than a capital
interest.
(24) Protege oic.--The term ``Protege OIC'' means an entity
licensed under section 4(c) as an ownership investment company
and selected in accordance with section 6--
(A) for which the managers of the firm have a
documented record of successful business experience;
and
(B) that has an investment track record that does
not meet the requirements under section 4(c)(3)(B)(i).
(25) Secretary.--The term ``Secretary'' means the Secretary
of Commerce.
(26) State.--The term ``State'' includes the several
States, the territories and possessions of the United States,
the Commonwealth of Puerto Rico, and the District of Columbia.
(27) Subsidiary llc.--The term ``subsidiary LLC'' means a
limited liability company owned by a corporation through equity
ownership of the subsidiary with a common parent corporation,
as described in section 1563 of the Internal Revenue Code of
1986, in which--
(A) the equity of the subsidiary LLC owned by the
corporation possesses not less than 80 percent of the
total combined voting power of all classes of equity of
the subsidiary LLC entitled to vote; and
(B) the equity value of the subsidiary LLC owned by
the corporation that represents--
(i) not less than 51 percent of the total
value of all classes of equity of the
subsidiary LLC; and
(ii) not less than 51 percent equity
ownership of the subsidiary LLC.
(28) Synthetic equity.--The term ``synthetic equity''
includes--
(A) synthetic equity, as defined in section
409(p)(6) of the Internal Revenue Code of 1986;
(B) a profits interest of a subsidiary LLC granted
to, purchased by, or otherwise obtained directly or
indirectly by employees and directors of the subsidiary
LLC; and
(C) nonqualified deferred compensation plans and
arrangements subject to section 409A of the Internal
Revenue Code of 1986.
(29) Third party debt.--The term ``third party debt'' means
any indebtedness for borrowed money, other than indebtedness
owed to the Department.
SEC. 3. OWNERSHIP INVESTMENT FACILITY.
(a) Definition of Facility.--In this section, the term ``facility''
means the facility established under subsection (b).
(b) Establishment.--The Secretary shall establish and carry out a
facility to provide leverage to licensed ownership investment companies
for the purpose of encouraging covered investments.
(c) Combined Leverage.--The Secretary may not provide leverage to
ownership investment companies under the facility in a total amount
that is greater than $5,000,000,000 for a fiscal year. Not more than 20
percent of such total amount may be provided to Protege OIC companies
for a fiscal year.
(d) Transaction Requirements.--
(1) In general.--With respect to a covered investment
described in section 2(6)(A) involving a sale to an employee
stock ownership plan, an independent trustee for the employee
stock ownership plan shall be appointed by the covered business
concern before the execution of the covered investment for a
period of time that is sufficient for the independent trustee
to fully evaluate the proposed transaction.
(2) Fairness opinion.--With respect to the scope of
appointment under paragraph (1), an independent trustee
appointed under paragraph (1) shall obtain a fairness opinion
on the proposed covered investment from an independent
financial advisor, which shall evaluate whether the price,
terms, and cost of financing of the proposed covered investment
are financially fair to the employee stock ownership plan.
(e) Prohibitions.--
(1) Financing.--
(A) In general.--An employee of a covered business
concern may not provide personal financing of any kind
for a covered investment, including through a wage
concession or rollover of a retirement plan.
(B) Exceptions.--Subparagraph (A) shall not apply
to--
(i) financing provided by an employee for
the sale of an ownership interest held by the
employee in a covered business concern; or
(ii) employee capital contributions or
membership fees paid by members of an eligible
worker-owned cooperative, if such amounts are
reasonable and customary and not used for the
purchase of the covered business concern.
(2) Control.--An ownership investment company shall not
exercise control over a covered business concern in which the
ownership investment company has made a covered investment.
(f) Employee Allocations.--With respect to a covered investment
described in section 2(6)(A) made by an ownership investment company
that involves an employee stock ownership plan, the employee stock
ownership plan shall include a requirement that in the event of a sale
to a third party of the covered business concern in which the covered
investment is made, the proceeds that the employee stock ownership plan
receives from the sale shall be distributed as though all shares of
stock held by the employee stock ownership plan prior to the sale were
fully allocated based on each participant's compensation, as defined
under section 415(c)(3) of the Internal Revenue Code of 1986.
(g) Recirculation of Shares.--
(1) Share count.--With respect to a covered investment
described in section 2(6)(A) made by an ownership investment
company that involves an employee stock ownership plan, the
number of shares held by the employee stock ownership plan on
the final date of each plan year shall not be less than the
number of shares held by the employee stock ownership plan on
the execution date of the covered investment.
(2) Limitation.--The requirements under paragraph (1) shall
apply only with respect to the period during which the
ownership investment company has an interest in the covered
business concern.
(3) Exception.--The requirement under paragraph (1) may be
waived by the independent trustee for the applicable employee
stock ownership plan.
(h) Independent Trustees.--With respect to a covered investment
described in section 2(6)(A) made by an ownership investment company
that involves an employee stock ownership plan, the employee stock
ownership plan shall have an independent trustee during the period that
the ownership investment company has an interest in the covered
business concern.
(i) Subsidiary LLCs.--With respect to any covered investment made
by an ownership investment company that involves an employee stock
ownership plan, a subsidiary LLC may be permitted to be established,
provided that the following requirements are met:
(1) ESOP majority interest.--The employee stock ownership
plan exercises a majority interest in the subsidiary LLC as a
result of the sale or provision of capital.
(2) S corporation board governance.--The board governance
of the subsidiary LLC resides exclusively at the level of the S
corporation by which the subsidiary LLC is owned.
(3) Profits interest.--The profits interest or any type of
similar arrangements, including phantom stock and any deferred
bonus plan related to equity in the subsidiary LLC, complies
with section 409(p) of the Internal Revenue Code of 1986.
(4) Event protection.--The requirements of subsection (f)
apply at the level of the subsidiary LLC.
(j) Procedures Related to a Sale of a Covered Business Concern.--
(1) In general.--Subject to paragraph (2), an ownership
investment company shall require as a condition of making a
covered investment described in section 2(6)(A) involving an
employee stock ownership plan that--
(A) before any stock sale or the execution of any
corporate matter listed in section 409(e)(3) of the
Internal Revenue Code of 1986, the employee stock
ownership plan shall--
(i) appoint an independent trustee for the
transaction; and
(ii) require that the independent trustee
obtain a fairness opinion from an independent
financial advisor, which shall evaluate whether
the price, terms, and cost of financing of the
proposed covered investment are financially
fair to the employee stock ownership plan; and
(B) the employee stock ownership plan requires
that--
(i) in addition to the corporate matters
listed in section 409(e)(3) of the Internal
Revenue Code of 1986, each participant or
beneficiary in the employee stock ownership
plan is entitled to direct the employee stock
ownership plan as to the manner in which voting
rights under securities of the employer which
are allocated to the account of such
participant or beneficiary are to be exercised
with respect to the approval or disapproval of
any stock sale;
(ii) the requirements of section 409(e)(3)
of the Internal Revenue Code of 1986 and clause
(i) of this subparagraph shall be met using the
procedures described in section 409(e)(5) of
the Internal Revenue Code of 1986;
(iii) unless the parties agree otherwise,
with respect to unallocated shares, the
independent trustee shall be directed to vote
or tender such unallocated shares in the same
proportion as allocated shares for which the
independent trustee has received voting or
tender instructions from participants in the
employee stock ownership plan; and
(iv) with respect to allocated shares that
the independent trustee does not receive voting
or tender instructions from participants in the
employee stock ownership plan, the independent
trustee shall have voting discretion over such
shares.
(2) Voting discretion.--Nothing in paragraph (1)(B) shall
limit the ability of an independent trustee to exercise voting
discretion in accordance with the fiduciary obligations of the
independent trustee under the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1001 et seq.).
(3) Limitation.--The requirements under paragraph (1) shall
apply only with respect to the period during which the
ownership investment company has an interest in the covered
business concern.
(k) Reports.--Each ownership investment company (including Protege
OICs) shall submit to the Secretary an annual report, which shall
include, for the year covered by the report, the following information,
disaggregated by type of covered investment as described in
subparagraph (A) or (B) of section 2(6), as applicable:
(1) Whether the covered investment was made with respect to
an employee stock ownership plan or eligible worker-owned
cooperative.
(2) For an employee stock ownership plan--
(A) the effective date of the employee stock
ownership plan;
(B) the number of active employee stock ownership
plan participants;
(C) the number of employees of the covered business
concern for which the employee stock ownership plan is
established;
(D) the total value of employer securities, as
determined by an independent appraiser hired by the
independent trustee of the employee stock ownership
plan;
(E) the total employee stock ownership plan assets;
(F) the total contributions during the employee
stock ownership plan year;
(G) the total distributions during the employee
stock ownership plan year;
(H) the median account asset balance; and
(I) demographic information of employee stock
ownership plan participants, disaggregated by race,
gender, and State, to the extent available.
(3) For an eligible worker-owned cooperative--
(A) the number of member-owners;
(B) the number of employees of the covered business
concern for which the eligible worker-owned cooperative
is established;
(C) the total value of employer securities;
(D) the aggregate assets of all membership accounts
of the eligible worker-owned cooperative;
(E) the median membership account balance; and
(F) demographic information of membership base,
disaggregated by race, gender, and State, to the extent
available.
(l) Implementation Milestones.--
(1) In general.--Not later than 540 days after the date of
enactment of this Act, the Secretary shall begin accepting
applications to be licensed to participate in the facility as
an ownership investment company.
(2) License timeline.--Not later than 2 years after the
date of enactment of this Act, the Secretary shall approve the
first tranche of licenses to participate in the facility as an
ownership investment company with respect to applicants that
satisfy the applicable eligibility criteria.
(m) Sunset.--
(1) Definition.--In this subsection, the term ``sunset
date'' means the first day of the 20th calendar year that
begins after the date on which the Secretary approves the first
license to participate in the facility as an ownership
investment company (including as a Protege OIC).
(2) Termination of authority.--On and after the sunset
date, the Secretary may not license an entity to participate in
the facility as an ownership investment company (including as a
Protege OIC).
(3) Continued participation by existing entities.--Nothing
in paragraph (2) shall be construed to prohibit an ownership
investment company (including a Protege OIC) from continuing to
draw leverage on and after the sunset date that was committed
to the entity through the facility before the sunset date.
(4) Application.--The Secretary shall not consider
paragraph (2) as a factor in the decision to license an entity
to participate in the facility as an ownership investment
company (including as a Protege OIC) before the sunset date.
SEC. 4. ORGANIZATION OF OWNERSHIP INVESTMENT COMPANIES.
(a) In General.--
(1) Requirement.--An ownership investment company shall be
an incorporated body, a limited liability company, or a limited
partnership organized and chartered or otherwise existing under
State law solely for the purpose of performing the functions
and conducting the activities contemplated under this Act,
which--
(A) if incorporated, has succession for a period of
not fewer than 30 years unless sooner dissolved by its
shareholders; or
(B) if a limited partnership, has succession for a
period of not fewer than 10 years, and possesses the
powers reasonably necessary to perform such functions
and conduct such activities.
(2) Area of operation.--The area in which an ownership
investment company described in paragraph (1) is to conduct its
operations, and the establishment of branch offices or agencies
(if authorized by the articles), shall be subject to the
approval of the Department.
(b) Articles.--
(1) Requirements.--The articles of any ownership investment
company shall specify--
(A) the objects for which the company is formed in
general terms;
(B) the name assumed by the ownership investment
company;
(C) the area or areas in which the operations of
the ownership investment company are to be carried on;
(D) the place where the principal office of the
ownership investment company is to be located; and
(E) the amount and classes of the shares of capital
stock of the ownership investment company.
(2) Inclusions.--Articles of an ownership investment
company may contain any other provisions not inconsistent with
this Act that the ownership investment company may see fit to
adopt for the regulation of the business of the ownership
investment company and the conduct of the affairs of the
ownership investment company.
(3) Approval.--Articles of an ownership investment company
and any amendments thereto adopted from time to time shall be
subject to the approval of the Secretary.
(c) Issuance of License.--
(1) Submission of application.--
(A) In general.--Each applicant to operate as an
ownership investment company (including a Protege OIC)
under this Act shall submit to the Secretary an
application, in a form and including such documentation
as may be prescribed by the Secretary.
(B) Rolling basis.--The Secretary shall accept
applications under subparagraph (A) on a rolling basis.
(C) Electronic submissions.--The Secretary shall
allow an applicant under this subsection to
electronically submit any document required by this
subsection and to provide an electronic signature for
any signature that is required on such a document.
(2) Procedures.--
(A) Status.--Not later than 90 days after the
initial receipt by the Secretary of an application
under this subsection, the Secretary shall provide the
applicant with a written report detailing the status of
the application and any requirements remaining for
completion of the application.
(B) Approval or disapproval.--Within 90 days after
receiving a completed application submitted in
accordance with this subsection and in accordance with
such requirements as the Secretary may prescribe by
regulation, the Secretary shall--
(i) approve the application and issue a
license for such operation to the applicant if
the requirements of this section are satisfied;
or
(ii) disapprove the application and notify
the applicant in writing of the disapproval.
(3) Matters considered.--
(A) In general.--In reviewing and processing any
application under this subsection, the Secretary--
(i) shall determine whether--
(I) the applicant meets the
requirements of subsections (a) and (b)
of section 6; and
(II) the management of the
applicant is qualified and has the
knowledge, experience, and capability
necessary to comply with this Act;
(ii) shall take into consideration--
(I) the need for and availability
of financing for a covered business
concerns in the geographic area in
which the applicant is to commence
business;
(II) the general business
reputation of the owners and management
of the applicant; and
(III) the probability of successful
operations of the applicant, including
adequate profitability and financial
soundness; and
(iii) shall not take into consideration any
projected shortage or unavailability of
leverage.
(B) Additional matters considered for ownership
investment companies.--
(i) Investment track record.--Except as
provided in clause (ii), an applicant for a
license to operate as an ownership investment
company shall submit to the Secretary proof
that the managers of the applicant have a track
record of managing investments, including
structured investments, realized or unrealized,
in an employee stock ownership plan or eligible
worker-owned cooperative.
(ii) Advisory requirement.--An applicant
that does not have an investment track record
described in clause (i) or that is a Protege
OIC shall submit to the Secretary evidence that
the applicant has retained or will retain a
legal, accounting, or financial advisory firm
with not fewer than 5 years of experience in
structuring employee stock ownership plans or
eligible worker-owned cooperatives.
(iii) Limitation.--The Secretary may not
reject an applicant for a license to operate as
an ownership investment company solely because
the applicant lacks a sufficient track record
in realized investments if the applicant
demonstrates an otherwise successful investment
track record that includes unrealized covered
investments.
(C) Provisional approval.--
(i) In general.--The Secretary may provide
provisional approval for a license to
participate in the facility as an ownership
investment company (including a Protege OIC)
for a period not to exceed 1 year to an
investment firm submitting an application under
this subsection or--
(I) that does not meet the minimum
private capital requirements under
section 6(a) necessary for licensing
under this subsection at the time of
application;
(II) that states an intent to more
effectively raise capital commitments
in private markets with a license; and
(III) that states an intent to more
precisely request the desired amount of
leverage contingent on securing capital
from private market investors.
(ii) Capital requirements.--An applicant
granted provisional approval under clause (i)
shall not be eligible to receive leverage until
the applicant satisfies the requirements of
section 6(a).
(D) Fees.--
(i) In general.--The Secretary may
prescribe fees to be paid by each applicant for
a license to operate as an ownership investment
company (including a Protege OIC) under this
Act.
(ii) Use of amounts.--Fees collected under
this subparagraph--
(I) shall be deposited in the
account for salaries and expenses of
the Department; and
(II) are authorized to be
appropriated solely to cover the costs
of licensing examinations.
(d) 1940 and 1980 Act Companies.--
(1) In general.--
(A) Application.--A 1940 Act Company or 1980 Act
Company is eligible to apply for a license under this
Act.
(B) Eligibility of licensees.--A licensee that is
not registered as a 1940 Act Company or 1980 Act
Company is eligible to apply for approval from the
Secretary to convert to a 1940 Act Company or 1980 Act
Company.
(2) Regulation.--A 1940 Act Company or 1980 Act Company
that is a licensee may elect to be taxed as a regulated
investment company for purposes of section 851 of the Internal
Revenue Code of 1986 (26 U.S.C. 851), provided that the
licensee making such election may make distributions only as
permitted under the applicable guidance or regulations that the
Secretary may prescribe.
SEC. 5. PROTEGE OIC PROGRAM.
(a) Establishment.--The Secretary shall establish a program to be
known as the ``Protege OIC Program'' under which a manager of an
ownership investment company that is not a Protege OIC may enter into a
written agreement approved by the Secretary to provide guidance and
assistance to a Protege OIC with respect to--
(1) applying for a license for the Protege OIC to operate
as an ownership investment company; and
(2) management of the ownership investment company after
licensure.
(b) Application.--After entering into a written agreement described
in subsection (a), the Protege OIC shall apply for a license under
section 4(c).
(c) Selection.--The Secretary may grant a license to a Protege OIC
to operate as an ownership investment company under section 4(c) based
on the investment track record of 1 or more of the managers that have
entered into a written agreement described in subsection (a) of this
section with the applicant Protege OIC.
(d) Requirements for Managers.--If a manager enters into a written
agreement described in subsection (a)--
(1) the manager may hold a minority financial interest in
the ownership investment company that is to be managed by the
Protege OIC;
(2) the otherwise applicable maximum amount of outstanding
leverage that may be made available to any 1 licensed company
of the manager under section 7(b)(6)(B)(i)(I) shall be
increased by $17,500,000; and
(3) the otherwise applicable maximum amount of outstanding
leverage that may be made available to any 2 or more licensed
companies that are commonly controlled by the manager under
section 7(b)(6)(B)(i)(II) shall be increased by $35,000,000.
SEC. 6. CAPITAL REQUIREMENTS.
(a) Amount.--
(1) In general.--The private capital of each licensee shall
be not less than $10,000,000.
(2) Adequacy.--In addition to the requirement under
paragraph (1), the Secretary shall--
(A) determine whether the private capital of each
licensee is adequate to assure a reasonable prospect
that the licensee will be operated soundly and
profitably, and managed actively and prudently in
accordance with the articles of the licensee; and
(B) determine whether the licensee will be able,
both prior to licensing and prior to approving any
request for financing, to make periodic payments on any
debt of the licensee that is interest bearing and shall
take into consideration the income that the licensee
anticipates on the contemplated investments of the
licensee, the experience of the owners and managers of
the licensee, the history of the licensee as an entity,
if any, and the financial resources of the licensee.
(b) Diversification of Ownership.--The Secretary shall ensure that
the management of each licensee (including Protege OICs) is
sufficiently diversified from and unaffiliated with the ownership of
the licensee in a manner that ensures independence and objectivity in
the financial management and oversight of the investments and
operations of the licensee.
SEC. 7. BORROWING POWER.
(a) In General.--Each ownership investment company shall have
authority to borrow money and to issue its securities, promissory
notes, or other obligations under such general conditions and subject
to such limitations and regulations as the Secretary may prescribe.
(b) Authority To Guarantee.--
(1) Grant of authority.--To encourage the formation and
growth of ownership investment companies the Secretary may,
when authorized in appropriation Acts, guarantee the timely
payment of all principal and interest as scheduled on
debentures issued by ownership investment companies.
(2) Terms and conditions.--Guarantees made under paragraph
(1) may be made by the Secretary on such terms and conditions
as the Secretary deems appropriate, pursuant to regulations
issued by the Secretary.
(3) Full faith and credit.--The full faith and credit of
the United States is pledged to the payment of all amounts that
may be required to be paid under any guarantee under this
subsection.
(4) Status of debentures.--Debentures guaranteed by the
Department under this subsection shall be subordinate to any
other debenture bonds, promissory notes, or other debts and
obligations of an ownership investment company, unless the
Secretary, in the exercise of reasonable investment prudence
and in considering the financial soundness of such ownership
investment company, determines otherwise.
(5) Term and interest rate.--A debenture issued under this
subsection may be issued for a term of not to exceed 15 years
and shall bear interest at a rate not less than a rate
determined by the Secretary of the Treasury, taking into
consideration the current average market yield on outstanding
marketable obligations of the United States with remaining
periods to maturity comparable to the average maturities on
such debentures, adjusted to the nearest \1/8\ of 1 per centum,
plus an additional charge, in an amount established annually by
the Secretary, as necessary to reduce to 0 the cost (as defined
in section 502 of the Federal Credit Reform Act of 1990 (2
U.S.C. 661a)) to the Department guaranteeing debentures under
this Act, which amount may not exceed 1.38 percent per year,
and which shall be paid to and retained by the Department.
(6) Additional restrictions and limitations.--A debenture
issued under this subsection--
(A) shall include such other terms as the
Department may fix; and
(B) shall be subject to the following restrictions
and limitations:
(i)(I) The maximum amount of outstanding
leverage made available to any 1 ownership
investment company licensed under section 4(c)
that is not a Protege OIC may not exceed the
lesser of--
(aa) 100 percent of the private
capital of such company; or
(bb) $500,000,000.
(II) The maximum amount of outstanding
leverage made available to 2 or more ownership
investment companies licensed under section
4(c) that are commonly controlled (as
determined by the Secretary) and not under
capital impairment may not exceed
$1,000,000,000.
(ii) A Protege OIC may not have multiple
licenses under common control.
(iii) The maximum amount of outstanding
leverage made available under the facility
established under section 3 to any 1 Protege
OIC may not to exceed the lesser of--
(I) 100 percent of the private
capital of the Protege OIC; or
(II) $100,000,000.
(iv)(I) In calculating the outstanding
leverage of a company for the purposes of
subclauses (I) and (II) of clause (i), the
Secretary shall not include the amount of the
cost basis of any covered investment made by
the ownership investment company in a covered
business concern that--
(aa) conducts in the United States
research and development, engineering,
or production activities necessary or
incidental to manufacturing;
(bb) operates in a critical
industry or critical technology area
identified by the Secretary to be vital
to maintaining the national or economic
security of the United States; and
(cc) is headquartered in the United
States, or will be headquartered in the
United States immediately following the
transaction in the case of a covered
investment described in section
2(6)(A).
(II) The exclusion of amounts in subclause
(I) shall not exceed a total of $75,000,000 or
25 percent of private capital of such company,
whichever is less.
(III) Subclause (I) shall not apply to any
Protege OIC.
(v) Nothing in this paragraph shall prevent
licensees with 1 or more small business
investment companies licensed under section
301(c) of the Small Business Investment Act of
1958 (15 U.S.C. 681) under common control (as
determined by the Secretary), including
licensees whose small business investment
companies have received the maximum amount of
leverage in sections 303(b)(2)(A) or
303(b)(2)(B) of that Act, from receiving the
maximum amount of leverage in clause (i).
(c) Third Party Debt.--The Secretary--
(1) may not permit a licensee having outstanding leverage
to incur third party debt that would create or contribute to an
unreasonable risk of default or loss to the Federal Government;
and
(2) shall permit any licensee to incur third party debt
only on such terms and subject to such conditions as may be
established by the Secretary, by regulation or otherwise.
(d) Capital Impairment.--Before approving any application for
leverage submitted by a licensee under this Act, the Secretary--
(1) shall determine that the private capital of the
licensee meets the requirements of section 6(a); and
(2) shall determine, taking into account the nature of the
assets of the licensee, the amount and terms of any third party
debt owed by such licensee, and any other factors determined to
be relevant by the Secretary, that the private capital of the
licensee has not been impaired to such an extent that the
issuance of additional leverage would create or otherwise
contribute to an unreasonable risk of default or loss to the
Federal Government.
(e) Leverage Fee.--With respect to leverage granted by the
Department to a licensee, the Department shall collect from the
licensee a nonrefundable fee in an amount equal to 3 percent of the
face amount of leverage granted to the licensee in the following
manner:
(1) One percent upon the date on which the Department
enters into any commitment for such leverage with the licensee.
(2) The balance of 2 percent (or 3 percent if no commitment
has been entered into by the Department) on the date on which
the leverage is drawn by the licensee.
(f) Calculation of Subsidy Rate.--All fees and interest received
and retained by the Department under this section shall be included in
the calculations made by the Director of the Office of Management and
Budget to offset the cost (as that term is defined in section 502 of
the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) to the
Department of guaranteeing debentures under this Act.
SEC. 8. PROVISION OF INVESTMENT CAPITAL FOR COVERED BUSINESS CONCERNS.
(a) In General.--Each ownership investment company shall provide a
source of debt, synthetic equity, preferred stock, or equity capital,
or a combination thereof, for incorporated and unincorporated covered
business concerns, in such manner and under such terms as the ownership
investment company may fix in accordance with the regulations
established by the Department.
(b) Requirement.--Before any capital described in subsection (a) is
provided to a covered business concern under this section--
(1) the ownership investment company may require a covered
business concern to refinance any or all of the outstanding
indebtedness of the covered business concern so that the
ownership investment company is the only holder of any evidence
of indebtedness of the covered business concern; and
(2) except as provided in regulations issued by the
Secretary, such the covered business concern shall agree that
the covered business concern will not thereafter incur any
indebtedness without first securing the approval of the
ownership investment company and giving the ownership
investment company the first opportunity to finance such
indebtedness.
(c) Third Party Investors.--Investment capital provided to covered
business concerns under this section may be provided directly or in
cooperation with other investors, incorporated or unincorporated,
through agreements to participate on an immediate or deferred basis.
(d) Interest.--The maximum rate of interest for the share of an
ownership investment company of any loan made under this section shall
be determined by the Secretary--
(1) provided that the Department also shall permit those
ownership investment companies that have issued debentures
pursuant to this Act to charge a maximum rate of interest based
upon the coupon rate of interest on the outstanding debentures,
determined on an annual basis, plus such other expenses of the
ownership investment company as may be approved by the
Department; and
(2) in making the initial determinations on the maximum
rate of interest under this subsection following the enactment
of this Act, the Secretary shall consult the regulations
promulgated by the Administrator of the Small Business
Administration on the maximum rate of interest for loans and
debt securities in accordance with section 305 of the Small
Business Investment Act of 1958 (15 U.S.C. 685).
(e) Maturity.--
(1) In general.--Any loan made under this section shall
have a maturity not exceeding 20 years.
(2) Extension or renewal.--Any ownership investment company
that makes a loan to a covered business concern under this
section is authorized to extend the maturity of or renew such
loan for additional periods, not exceeding 10 years, if the
ownership investment company finds that such extension or
renewal will aid in the orderly liquidation of such loan.
(f) Repayment.--Any loan made under this section shall be of such
sound value, or so secured, as reasonably to assure repayment.
SEC. 9. PORTFOLIO DIVERSIFICATION.
If any ownership investment company obtains financing from the
Secretary under this Act and such financing remains outstanding, the
aggregate amount of securities acquired and for which commitments may
be issued by the ownership investment company under this Act for any
single covered business concern shall not, without the approval of the
Secretary, exceed 10 percent of the sum of--
(1) the private capital of such company; and
(2) the total amount of leverage projected by the ownership
investment company in the business plan of the ownership
investment company that was approved by the Secretary at the
time of the grant of the license of the ownership investment
company.
SEC. 10. EXEMPTIONS.
(a) Securities Act of 1933.--Notwithstanding the provisions of
title I of the Securities Act of 1933 (15 U.S.C. 77a et seq.), the
Securities and Exchange Commission may from time to time by the rules
and regulations of the Securities and Exchange Commission, and subject
to such terms and conditions as may be prescribed under section 3 of
the Securities Act of 1933 (15 U.S.C. 77c), add to the securities
exempted as provided in section 3 of that Act any class of securities
issued by an ownership investment company under this Act if the
Securities and Exchange Commission finds, having regard to the purposes
of the Securities Act of 1933 (15 U.S.C. 77a et seq.), that the
enforcement of title I of the Securities Act of 1933 (15 U.S.C. 77a et
seq.), with respect to such securities, is not necessary in the public
interest and for the protection of investors.
(b) Trust Indenture Act of 1939.--Notwithstanding the provisions of
title III of the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.),
the Securities and Exchange Commission may from time to time by the
rules and regulations of the Securities and Exchange Commission, and
subject to such terms and conditions as may be prescribed under section
304 of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd), add to the
securities exempted as provided in section 304 of that Act any class of
securities issued by an ownership investment company under this Act if
the Securities and Exchange Commission finds, having regard to the
purposes of the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.),
that the enforcement of title III of the Trust Indenture Act of 1939
(15 U.S.C. 77aaa et seq.), with respect to such securities is not
necessary in the public interest and for the protection of investors.
(c) Investment Company Act of 1940.--Notwithstanding the provisions
of section 18 of the Investment Company Act of 1940 (15 U.S.C. 80a-18),
the provisions of subparagraphs (A) and (B) of subsection (a)(1) of
that section shall not apply to any ownership investment company
operating under this Act, provided that such class of senior security
shall be guaranteed by the Department.
SEC. 11. LEVERAGE REQUIREMENTS.
No leverage shall be committed by the Department under this Act to
any licensee unless the managers of such licensee--
(1) certify to the Department the names of any attorneys,
agents, or other persons engaged by or on behalf of such
licensee for the purpose of expediting applications made to the
Department for assistance of any sort, and the fees paid or to
be paid to any such persons; and
(2) executes an agreement binding any such licensee for a
period of 2 years after any assistance is rendered by the
Department to such licensee, to refrain from employing,
tendering any office or employment to, or retaining for
professional services, any person who, on the date such
assistance or any part thereof was rendered, or within the 1
year period prior thereto, shall have served as an officer,
attorney, agent, or employee of the Department occupying a
position or engaging in activities which the department shall
have determined involve discretion with respect to the granting
of assistance under this Act.
SEC. 12. REPORTING.
(a) In General.--Not later than 1 year after the date of enactment
of this Act, and each year thereafter, the Secretary shall submit to
Congress a full and detailed account of the operations of the
Department under this Act, including the amount of losses sustained by
the Government as a result of such operations during the preceding
fiscal year, together with an estimate of the total losses that the
Government can reasonably expect to incur as a result of such
operations during the current fiscal year.
(b) Contents.--In the annual report submitted pursuant to
subsection (a), the Secretary shall include full and detailed accounts
relative to the following matters:
(1) The plans of the Department to insure the provision of
ownership investment company financing and licensing to all
areas of the country and to all covered business concerns,
including steps taken to accomplish the same.
(2) The plans of the Department to support States that seek
to increase the number of licensees in the State.
(3) Steps taken by the Department to maximize recoupment of
Government funds incident to the inauguration and
administration of the ownership investment company program and
to insure compliance with statutory and regulatory standards
relating to the ownership investment company program.
(4) Recommendations to the Department of the Treasury with
respect to additional tax incentives to improve and facilitate
the operations of ownership investment companies and to
encourage the use of the financing facilities of ownership
investment companies by covered business concerns.
(5) A report from the Securities and Exchange Commission
enumerating actions undertaken by the Securities and Exchange
Commission to--
(A) simplify and minimize the regulatory
requirements governing ownership investment companies
under the Federal securities laws; and
(B) eliminate overlapping regulation and
jurisdiction as between the Securities and Exchange
Commission, the Department, and other agencies of the
executive branch.
(6) Actions undertaken by the Securities and Exchange
Commission to simplify compliance by ownership investment
companies with the requirements of the Investment Company Act
of 1940 and to facilitate the election to be taxed as regulated
investment companies pursuant to section 851 of the Internal
Revenue Code of 1954.
(7) The number of ownership investment companies the
Department licensed (including Protege OICs), the number of
licensees that have been placed in liquidation, and the number
of licensees that have surrendered their licenses during the
year ending on the date the report is submitted, identifying
the amount of leverage each received during that period.
(8) The amount of leverage that ownership investment
companies (including Protege OICs) received during the year
ending on the date the report is submitted.
(9) The sizes, geographic locations, and other
characteristics of licensed ownership investment companies
(including Protege OICs), including the extent to which the
ownership investment companies have used the leverage to make
debt, synthetic equity, preferred equity, or equity
investments, or a combination thereof, to covered business
concerns.
(10) The geographic dispersion of licensees in each State
compared to the population of the State.
(11) A summary of employee stock ownership plans created by
an ownership investment company (including Protege OICs),
including--
(A) the total number of active plan participants;
(B) the total number of employees of the covered
business concerns with such employee stock ownership
plans;
(C) the total value of employer securities, as
determined by the independent appraisers hired by the
independent trustee of each employee stock ownership
plan;
(D) the total plan assets;
(E) the total contributions during the plan year;
(F) the total distributions during the plan year;
(G) the median account asset balance; and
(H) demographic information of plan participants,
disaggregated by race, gender, and State, to the extent
available.
(12) A summary of eligible worker-owned cooperatives
created by ownership investment companies (including Protege
OICs), including--
(A) the number of member-owners;
(B) the total number of employees of the covered
business concern with such eligible worker-owned
cooperatives;
(C) the total value of employer securities;
(D) the assets of all membership accounts;
(E) the median membership account balance; and
(F) demographic information of membership base,
disaggregated by race, gender, and State, to the extent
available.
SEC. 13. REVOCATION AND SUSPENSION OF LICENSES; CEASE AND DESIST
ORDERS.
(a) In General.--A license may be revoked or suspended by the
Secretary--
(1) for any false statement knowingly made in any written
statement required under this Act, or under any regulation
issued under this Act by the Secretary;
(2) if any written statement required under this Act, or
under any regulation issued under this Act by the Secretary,
fails to state a material fact necessary in order to make the
statement not misleading in the light of the circumstances
under which the statement was made;
(3) for willful or repeated violation, or willful or
repeated failure to observe, any provision of this Act;
(4) for willful or repeated violation of, or willful or
repeated failure to observe, any rule or regulation issued
under this Act by the Secretary; or
(5) for violation of, or failure to observe, any cease and
desist order issued by the Secretary under this section.
(b) Order To Cease and Desist.--
(1) Issuance.--Where a licensee or any other person has not
complied with any provision of this Act, or of any regulation
issued under this Act by the Secretary, or is engaging or is
about to engage in any acts or practices that constitute or
will constitute a violation of such Act or regulation, the
Secretary may order such licensee or other person to cease and
desist from such action or failure to act.
(2) Actions required.--The Secretary may order such
licensee or other person to take such action or to refrain from
such action as the Secretary deems necessary to insure
compliance with the Act and the regulations implementing this
Act.
(3) Suspension of licenses.--The Secretary may also suspend
the license of a licensee against whom an order has been issued
until such licensee complies with an order issued under this
subsection.
(c) Orders To Show Cause.--
(1) Issuance.--Before revoking or suspending a license
pursuant to subsection (a) or issuing a cease and desist order
pursuant to subsection (b), the Secretary shall serve upon the
licensee and any other person involved an order to show cause
why an order revoking or suspending the license or a cease and
desist order should not be issued.
(2) Contents.--Any order to show cause issued under
paragraph (1) shall--
(A) contain a statement of the matters of fact and
law asserted by the Department and the legal authority
and jurisdiction under which a hearing is to be held;
and
(B) set forth that a hearing will be held before
the Department at a time and place stated in the order.
(3) Statement of findings.--If after hearing, or a waiver
thereof, the Secretary determines on the record that an order
revoking or suspending the license or a cease and desist order
should issue, the Secretary shall--
(A) promptly issue such order, which shall include
a statement of the findings of the Secretary and the
grounds and reasons therefor and specify the effective
date of the order; and
(B) cause the order to be served on the licensee
and any other person involved.
(d) Witnesses.--
(1) Subpoena authority.--The Secretary may require by
subpoena the attendance and testimony of witnesses and the
production of all books, papers, and documents relating to the
hearing from any place in the United States.
(2) Payment.--Any witness summoned before the Department
shall be paid by the party at whose instance the witness was
called the same fees and mileage that are paid witnesses in the
courts of the United States.
(3) Aid of the court.--In case of disobedience to a
subpoena, the Secretary, or any party to a proceeding before
the Department, may invoke the aid of any court of the United
States in requiring the attendance and testimony of witnesses
and the production of books, papers, and documents.
(e) Appeals.--
(1) Filing.--
(A) In general.--An order issued by the Secretary
under this section shall be final and conclusive unless
within 30 days after the service thereof the licensee,
or other person against whom an order is issued,
appeals to the United States court of appeals for the
circuit in which such licensee has its principal place
of business by filing with the clerk of such court a
petition praying that the Department's order be set
aside or modified in the manner stated in the petition.
(B) Leave required.--After the expiration of the
30-day period described in subparagraph (A), a petition
may be filed only by leave of court on a showing of
reasonable grounds for failure to file the petition
theretofore.
(2) Delivery.--The clerk of the court shall immediately
cause a copy of the petition described in paragraph (1) to be
delivered to the Secretary, and, upon receipt, the Secretary
shall certify and file in the court a transcript of the record
upon which the order complained of was entered.
(3) Amending petition.--If, before the record is filed
under paragraph (2), the Secretary amends or sets aside its
order, in whole or in part, the petitioner may amend the
petition within such time as the court may determine, on notice
to the Secretary.
(4) Operation of order.--The filing of a petition for
review under this subsection shall not of itself stay or
suspend the operation of the order of the Department, but the
court of appeals in its discretion may restrain or suspend, in
whole or in part, the operation of the order pending the final
hearing and determination of the petition.
(5) Disposition.--
(A) In general.--The court may affirm, modify, or
set aside the order of the Secretary under this
section.
(B) Evidence.--If the court determines that the
just and proper disposition of the case requires the
taking of additional evidence, the court shall order
the Secretary to reopen the hearing for the taking of
such evidence, in such manner and upon such terms and
conditions as the court may deem proper.
(C) Findings of fact.--The Secretary--
(i) may modify the findings as to the facts
of the Department, or make new findings, by
reason of the additional evidence so taken; and
(ii) shall file modified or new findings
and the amendments, if any, of the order, with
the record of such additional evidence.
(D) Objections.--No objection to an order of the
Secretary shall be considered by the court unless such
objection was urged before the Department or, if it was
not so urged, unless there were reasonable grounds for
failure to do so.
(E) Review.--The judgment and decree of the court
affirming, modifying, or setting aside any such order
of the Secretary shall be subject only to review by the
Supreme Court of the United States upon certification
or certiorari as provided in section 1254 of title 28,
United States Code.
(f) Enforcement.--
(1) Failure to obey.--If any licensee or other person
against which or against whom an order is issued under this
section fails to obey the order, the Secretary--
(A) may apply to the United States court of
appeals, within the circuit where the licensee has its
principal place of business, for the enforcement of the
order; and
(B) shall file a transcript of the record upon
which the order complained of was entered.
(2) Notice.--Upon the filing of the application under
paragraph (1), the court shall cause notice thereof to be
served on the licensee or other person.
(3) Evidence.--The evidence to be considered, the procedure
to be followed, and the jurisdiction of the court shall be the
same as is provided in subsection (e) for applications to set
aside or modify orders.
SEC. 14. EXAMINATIONS AND INVESTIGATIONS.
(a) Investigations.--
(1) In general.--The Secretary may make such investigations
as the Secretary deems necessary to determine whether a
licensee or any other person has engaged or is about to engage
in any acts or practices which constitute or will constitute a
violation of any provision of this Act, or of any rule or
regulation under this Act, or of any order issued under this
Act.
(2) Statements.--The Secretary shall permit any person to
file with it a statement in writing, under oath or otherwise as
the Secretary shall determine, as to all the facts and
circumstances concerning the matter to be investigated.
(3) Oaths and affirmations.--For the purpose of any
investigation under this subsection, the Secretary is empowered
to--
(A) administer oaths and affirmations;
(B) subpoena witnesses;
(C) compel the attendance of witnesses;
(D) take evidence; and
(E) require the production of any books, papers,
and documents that are relevant to the inquiry.
(4) Attendance and production.--
(A) In general.--Attendance of witnesses and the
production of any such records under this section may
be required from any place in the United States.
(B) Failure to obey.--In case of contumacy by, or
refusal to obey a subpoena issued to, any person,
including a licensee, the Secretary may invoke the aid
of any court of the United States within the
jurisdiction of which such investigation or proceeding
is carried on, or where such person resides or carries
on business, in requiring the attendance and testimony
of witnesses and the production of books, papers, and
documents, and such court may issue an order requiring
such person to appear before the Department, thereto
produce records, if so ordered, or to give testimony
touching the matter under investigation.
(C) Enforcement.--Any failure to obey such order of
the court may be punished by such court as a contempt
thereof.
(D) Service of process.--All process in any such
case may be served in the judicial district whereof
such person is an inhabitant or wherever he may be
found.
(b) Examinations.--
(1) In general.--Each licensee shall be subject to
examinations made by direction of the Department, which may be
conducted with the assistance of a private sector entity that
has both the qualifications to conduct and expertise in
conducting such examinations, and the cost of such
examinations, including the compensation of the examiners, may,
in the discretion of the Department, be assessed against the
licensee examined and when so assessed shall be paid by the
licensee.
(2) Fees.--Fees collected under this subsection shall be
deposited in the account for salaries and expenses of the
Department, and are authorized to be appropriated solely to
cover the costs of examinations and other oversight activities
under this Act.
(3) Reports.--Every licensee shall make such reports to the
Secretary at such times and in such form as the Secretary may
require, except that the Secretary is authorized to exempt from
making such reports any such licensee that is registered under
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) to
the extent necessary to avoid duplication in reporting
requirements.
(4) Required information.--
(A) In general.--Except as provided in subparagraph
(B), each licensee shall be examined not less
frequently than once every 2 years in such detail so as
to determine whether or not--
(i) the licensee has engaged solely in
lawful activities and those contemplated by
this Act;
(ii) the licensee has engaged in prohibited
conflicts of interest under section 16;
(iii) the licensee has acquired or
exercised illegal control of a covered business
concern;
(iv) the licensee has made investments in
covered businesses for not less than 1 year;
(v) the licensee has adhered to portfolio
diversification limits as stated under section
9;
(vi) the licensee has engaged in relending,
foreign investments, or passive investments;
(vii) the licensee has charged an interest
rate in excess of the maximum permitted by law;
or
(viii) the licensee has adhered to the
requirements to make covered investments.
(B) Waiver.--The Secretary may waive any
examination required under subparagraph (A)--
(i) for not more than 1 year if, in the
discretion of the Secretary, the Secretary
determines such a delay would be appropriate,
based on the amount of debentures being issued
by the licensee and the repayment record of the
licensee, the prior operating experience of the
licensee, the contents and results of the last
examination and the management expertise of the
licensee; or
(ii) if it is the examination of a licensee
whose operations have been suspended while the
licensee is involved in litigation or is in
receivership.
(c) Valuations.--
(1) Frequency of valuations.--
(A) In general.--Each licensee shall submit to the
Secretary a written valuation of the loans and
investments of the licensee not less often than
semiannually or otherwise upon the request of the
Secretary, except that any licensee with no leverage
outstanding shall submit such valuations annually,
unless the Secretary determines otherwise.
(B) Material adverse changes.--Not later than 30
days after the end of a fiscal quarter of a licensee
during which a material adverse change in the aggregate
valuation of the loans and investments or operations of
the licensee occurs, the licensee shall notify the
Secretary in writing of the nature and extent of that
change.
(C) Independent certification.--
(i) In general.--Not less frequently than
once during each fiscal year, each licensee
shall submit to the Secretary the financial
statements of the licensee, audited by an
independent certified public accountant
approved by the Secretary.
(ii) Audit requirements.--Each audit
conducted under clause (i) shall include--
(I) a review of the procedures and
documentation used by the licensee in
preparing the valuations required by
this section; and
(II) a statement by the independent
certified public accountant that such
valuations were prepared in conformity
with the valuation criteria applicable
to the licensee established in
accordance with paragraph (2).
(2) Valuation criteria.--Each valuation submitted under
this subsection shall be prepared by the licensee in accordance
with valuation criteria, which shall--
(A) be established or approved by the Secretary;
and
(B) include appropriate safeguards to ensure that
the noncash assets of a licensee are not overvalued.
SEC. 15. INJUNCTIONS AND OTHER ORDERS.
(a) In General.--Whenever, in the judgment of the Secretary, a
licensee or any other person has engaged or is about to engage in any
acts or practices which constitute or will constitute a violation of
any provision of this Act, or of any rule or regulation under this Act,
or of any order issued under this Act, the Secretary may make
application to the proper district court of the United States or a
United States court of any place subject to the jurisdiction of the
United States for an order enjoining such acts or practices, or for an
order enforcing compliance with such provision, rule, regulation, or
order, and such courts shall have jurisdiction of such actions and,
upon a showing by the Secretary that such licensee or other person has
engaged or is about to engage in any such acts or practices, a
permanent or temporary injunction shall be granted without bond.
(b) Exclusive Jurisdiction.--In any proceeding under subsection
(a), the court as a court of equity--
(1) may, to such extent as the court deems necessary, take
exclusive jurisdiction of the licensee or licensees and the
assets thereof, wherever located; and
(2) shall have jurisdiction in any such proceeding to
appoint a trustee or receiver to hold or administer under the
direction of the court the assets so possessed.
(c) Trustee and Receivership.--
(1) Authority.--The Secretary shall have authority to act
as trustee or receiver of the licensee.
(2) Appointment.--Upon request by the Secretary, the court
may appoint the Secretary to act in such capacity unless the
court deems such appointment inequitable or otherwise
inappropriate by reason of the special circumstances involved.
SEC. 16. CONFLICTS OF INTEREST.
(a) In General.--For the purpose of controlling conflicts of
interest that may be detrimental to covered business concerns, to
licensees, to the shareholders, partners, or members of either, or to
the purposes of this Act, the Secretary shall adopt regulations to
govern transactions with any officer, director, shareholder, partner,
or member of any licensee, or with any person or concern, in which any
interest, direct or indirect, financial or otherwise, is held by any
officer, director, shareholder, partner, or member of any licensee, or
any person or concern with an interest, direct or indirect, financial
or otherwise, in any licensee.
(b) Public Disclosure.--Regulations adopted under subsection (a)
shall include appropriate requirements for public disclosure necessary
to the purposes of this section.
(c) Consultation With Existing Regulations.--In making any initial
determination relating to a regulation adopted under subsection (a),
the Secretary shall consult the regulations promulgated by the
Administrator of the Small Business Administration on financing which
constitute conflicts of interest in accordance with section 312 of the
Small Business Investment Act of 1958 (15 U.S.C. 687d).
(d) Regulations.--The Secretary shall promulgate regulations under
this section in accordance with the implementation milestones as set
forth in section 3(l) of this Act.
SEC. 17. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.
(a) Definition of Management Official.--In this section, the term
``management official'' means an officer, director, general partner,
manager, employee, agent, or other participant in the management or
conduct of the affairs of a licensee.
(b) Removal of Management Officials.--
(1) Notice of removal.--The Secretary may serve upon any
management official a written notice of its intention to remove
that management official whenever, in the opinion of the
Secretary--
(A) such management official--
(i) has willfully and knowingly committed
any substantial violation of--
(I) this Act;
(II) any regulation issued under
this Act; or
(III) a cease-and-desist order
which has become final; or
(ii) has willfully and knowingly committed
or engaged in any act, omission, or practice
which constitutes a substantial breach of a
fiduciary duty of that person as a management
official; and
(B) the violation or breach of fiduciary duty is
one involving personal dishonesty on the part of such
management official.
(2) Contents of notice.--A notice of intention to remove a
management official, as provided in paragraph (1), shall
contain a statement of the facts constituting grounds therefor,
and shall fix a time and place at which a hearing will be held
thereon.
(3) Hearings.--
(A) Timing.--A hearing described in paragraph (2)
shall be fixed for a date not earlier than 30 days nor
later than 60 days after the date of service of notice
of the hearing, unless an earlier or a later date is
set by the Secretary at the request of--
(i) the management official, and for good
cause shown; or
(ii) the Attorney General of the United
States.
(B) Consent.--Unless the management official shall
appear at a hearing described in this paragraph in
person or by a duly authorized representative, that
management official shall be deemed to have consented
to the issuance of an order of removal under paragraph
(4)(A).
(4) Issuance of order of removal.--
(A) In general.--In the event of consent under
paragraph (3)(B), or if upon the record made at a
hearing described in this subsection, the Secretary
finds that any of the grounds specified in the notice
of removal has been established, the Secretary may
issue such orders of removal from office as the
Secretary deems appropriate.
(B) Effectiveness.--An order under subparagraph (A)
shall--
(i) become effective at the expiration of
30 days after the date of service upon the
subject licensee and the management official
concerned (except in the case of an order
issued upon consent as described in paragraph
(3)(B), which shall become effective at the
time specified in such order); and
(ii) remain effective and enforceable,
except to such extent as it is stayed,
modified, terminated, or set aside by action of
the Secretary or a reviewing court in
accordance with this section.
(c) Authority To Suspend or Prohibit Participation.--
(1) In general.--The Secretary may, if the Secretary deems
it necessary for the protection of the licensee or the
interests of the Department, suspend from office or prohibit
from further participation in any manner in the management or
conduct of the affairs of the licensee, or both, any management
official referred to in subsection (b)(1), by written notice to
such effect served upon the management official.
(2) Effectiveness.--A suspension or prohibition under
paragraph (1)--
(A) shall become effective upon service of notice
under paragraph (1); and
(B) unless stayed by a court in proceedings
authorized by paragraph (3), shall remain in effect--
(i) pending the completion of the
administrative proceedings pursuant to a notice
of intention to remove served under subsection
(b); and
(ii) until such time as the Secretary shall
dismiss the charges specified in the notice,
or, if an order of removal or prohibition is
issued against the management official, until
the effective date of any such order.
(3) Judicial review.--Not later than 10 days after any
management official has been suspended from office or
prohibited from participation in the management or conduct of
the affairs of a licensee, or both, under paragraph (1), that
management official may apply to the United States District
Court for the judicial district in which the home office of the
licensee is located, or the United States District Court for
the District of Columbia, for a stay of the suspension or
prohibition pending the completion of the administrative
proceedings pursuant to a notice of intent to remove served
upon the management official under subsection (b), and such
court shall have jurisdiction to stay such action.
(d) Authority To Suspend on Criminal Charges.--
(1) In general.--Whenever a management official is charged
in any information, indictment, or complaint authorized by a
United States attorney, with the commission of or participation
in a felony involving dishonesty or breach of trust, the
Secretary may, by written notice served upon that management
official, suspend that management official from office or
prohibit that management official from further participation in
any manner in the management or conduct of the affairs of the
licensee, or both.
(2) Effectiveness.--A suspension or prohibition under
paragraph (1) shall remain in effect until the subject
information, indictment, or complaint is finally disposed of,
or until terminated by the Secretary.
(3) Authority upon conviction.--If a judgment of conviction
with respect to an offense described in paragraph (1) is
entered against a management official, then at such time as the
judgment is not subject to further appellate review, the
Secretary may issue and serve upon the management official an
order removing that management official, which removal shall
become effective upon service of a copy of the order upon the
licensee.
(4) Authority upon dismissal or other disposition.--A
finding of not guilty or other disposition of charges described
in paragraph (1) shall not preclude the Secretary from
thereafter instituting proceedings to suspend or remove the
management official from office, or to prohibit the management
official from participation in the management or conduct of the
affairs of the licensee, or both, pursuant to subsection (b) or
(c).
(e) Notification to Licensees.--Copies of each notice required to
be served on a management official under this section shall also be
served upon the interested licensee.
(f) Procedural Provisions; Judicial Review.--
(1) Hearing venue.--Any hearing provided for in this
section shall be--
(A) held in the Federal judicial district or in the
territory in which the principal office of the licensee
is located, unless the party afforded the hearing
consents to another place; and
(B) conducted in accordance with the provisions of
chapter 5 of title 5, United States Code.
(2) Issuance of orders.--After a hearing provided for in
this section, and not later than 90 days after the Secretary
has notified the parties that the case has been submitted for
final decision, the Secretary shall render a decision in the
matter (which shall include findings of fact upon which its
decision is predicated), and shall issue and cause to be served
upon each party to the proceeding an order or orders consistent
with the provisions of this section.
(3) Authority to modify orders.--The Secretary may modify,
terminate, or set aside any order issued under this section--
(A) at any time, upon such notice, and in such
manner as the Secretary deems proper, unless a petition
for review is timely filed in a court of appeals of the
United States, as provided in paragraph (4)(B), and
thereafter until the record in the proceeding has been
filed in accordance with paragraph (4)(C); and
(B) upon such filing of the record, with permission
of the court.
(4) Judicial review.--
(A) In general.--Judicial review of an order issued
under this section shall be exclusively as provided in
this paragraph.
(B) Petition for review.--Any party to a hearing
provided for in this section may obtain a review of any
order issued pursuant to paragraph (2) (other than an
order issued with the consent of the management
official concerned, or an order issued under subsection
(d)), by filing in the court of appeals of the United
States for the circuit in which the principal office of
the licensee is located, or in the United States Court
of Appeals for the District of Columbia Circuit, not
later than 30 days after the date of service of such
order, a written petition praying that the order of the
Secretary be modified, terminated, or set aside.
(C) Notification to department.--A copy of a
petition filed under subparagraph (B) shall be
forthwith transmitted by the clerk of the court to the
Secretary, and thereupon the Secretary shall file in
the court the record in the proceeding, as provided in
section 2112 of title 28, United States Code.
(D) Court jurisdiction.--Upon the filing of a
petition under subparagraph (A)--
(i) the court shall have jurisdiction,
which, upon the filing of the record under
subparagraph (C), shall be exclusive, to
affirm, modify, terminate, or set aside, in
whole or in part, the order of the Secretary;
(ii) review of such proceedings shall be
had as provided in chapter 7 of title 5, United
States Code; and
(iii) the judgment and decree of the court
shall be final, except that the judgment and
decree shall be subject to review by the
Supreme Court of the United States upon
certiorari, as provided in section 1254 of
title 28, United States Code.
(E) Judicial review not a stay.--The commencement
of proceedings for judicial review under this paragraph
shall not, unless specifically ordered by the court,
operate as a stay of any order issued by the Secretary
under this section.
SEC. 18. UNLAWFUL ACTS AND OMISSIONS BY OFFICERS, DIRECTORS, EMPLOYEES,
OR AGENTS; BREACH OF FIDUCIARY DUTY.
(a) In General.--Wherever a licensee violates any provision of this
Act or regulation issued thereunder by reason of the failure of the
licensee to comply with the terms thereof or by reason of the licensee
engaging in any act or practice which constitutes or will constitute a
violation thereof, such violation shall be deemed to be also a
violation and an unlawful act on the part of any person who, directly
or indirectly, authorizes, orders, participates in, or causes, brings
about, counsels, aids, or abets in the commission of any acts,
practices, or transactions which constitute or will constitute, in
whole or in part, such violation.
(b) Unlawful Acts.--
(1) Prohibition.--It shall be unlawful for any officer,
director, employee, agent, or other participant in the
management or conduct of the affairs of a licensee to engage in
any act or practice, or to omit any act, in breach of his
fiduciary duty as such officer, director, employee, agent, or
participant, if, as a result thereof, the licensee has suffered
or is in imminent danger of suffering financial loss or other
damage.
(2) Specific acts and omissions.--Except with the written
consent of the Secretary, it shall be unlawful--
(A) for any person hereafter to take office as an
officer, director, or employee of a licensee, or to
become an agent or participant in the conduct of the
affairs or management of a licensee, if--
(i) the person has been convicted of a
felony, or any other criminal offense involving
dishonesty or breach of trust; or
(ii) the person has been found civilly
liable in damages, or has been permanently or
temporarily enjoined by an order, judgment, or
decree of a court of competent jurisdiction, by
reason of any act or practice involving fraud
or breach of trust; or
(B) for any person to continue to serve in any of
the above described capacities, if--
(i) the person is hereafter convicted of a
felony, or any other criminal offense involving
dishonesty or breach of trust; or
(ii) the person is hereafter found civilly
liable in damages or is permanently or
temporarily enjoined by an order, judgment, or
decree of a court of competent jurisdiction, by
reason of any act or practice involving fraud
or breach of trust.
SEC. 19. PENALTIES AND FORFEITURES.
(a) Penalties.--
(1) In general.--Except as provided in subsection (b), a
licensee that violates any regulation or written directive
issued by the Secretary issued under this Act, requiring the
filing of any regular or special report pursuant to section 12,
shall forfeit and pay to the United States a civil penalty of
not more than $100 for each day of the continuance of the
failure by the licensee to file such report, unless it is shown
that such failure is due to reasonable cause and not due to
willful neglect.
(2) Accrual.--Any civil penalty under paragraph (1) shall
accrue to the United States and may be recovered in a civil
action brought by the Secretary.
(b) Enforcement.--The Secretary may--
(1) by rules and regulations, or upon application of an
interested party, at any time previous to such failure, by
order, after notice and opportunity for hearing, exempt in
whole or in part, any licensee from the provisions of
subsection (a) of this section, upon such terms and conditions
and for such period of time as the Secretary deems necessary
and appropriate, if the Secretary funds that such action is not
inconsistent with the public interest or the protection of the
Department; and
(2) for the purposes of this section make any alternative
requirements appropriate to the situation.
SEC. 20. JURISDICTION AND SERVICE OF PROCESS.
Any suit or action brought under section 13, 15, 17, 19, or 23 by
the Department at law or in equity to enforce any liability or duty
created by, or to enjoin any violation of this Act, or any rule,
regulation, or order promulgated thereunder, shall be brought in the
district wherein the licensee maintains its principal office, and
process in such cases may be served in any district in which the
defendant maintains its principal office or transacts business, or
wherever the defendant may be found.
SEC. 21. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.
(a) Authority To Issue Trust Certificates.--The Secretary may issue
trust certificates representing ownership of all or a fractional part
of debentures issued by licensees and guaranteed by the Department
under this Act, provided that the trust certificates shall be based on
and backed by a trust or pool approved by the Secretary and composed
solely of guaranteed debentures.
(b) Guarantee Authority.--
(1) In general.--The Secretary may, upon such terms and
conditions as are deemed appropriate, to guarantee the timely
payment of the principal of and interest on trust certificates
issued by the Department or its agent for purposes of this
section.
(2) Limitation.--Such guarantee shall be limited to the
extent of principal and interest on the guaranteed debentures
which compose the trust or pool.
(3) Reduction of guarantee.--In the event that a debenture
in such trust or pool is prepaid, either voluntarily or
involuntarily, or in the event of default of a debenture, the
guarantee of timely payment of principal and interest on the
trust certificates shall be reduced in proportion to the amount
of principal and interest such prepaid debenture and priority
payments represent in the trust or pool.
(4) Interest.--Interest on prepaid or defaulted debentures
shall accrue and be guaranteed by the Department only through
the date of payment on the guarantee.
(5) Redemption.--During the term of the trust certificate,
it may be called for redemption due to prepayment or default of
all debentures.
(c) Full Faith and Credit.--The full faith and credit of the United
States is pledged to the payment of all amounts that may be required to
be paid under any guarantee of such trust certificates issued by the
Secretary pursuant to this section.
(d) Fees.--The Secretary may not collect a fee for any guarantee
under this section, provided that nothing herein shall preclude any
agent of the Department from collecting a fee approved by the
Department for the functions described in subsection (f)(2).
(e) Rights of the Department.--
(1) Subrogation.--In the event the Secretary pays a claim
under a guarantee issued under this section, it shall be
subrogated fully to the rights satisfied by such payment.
(2) Ownership rights.--No State or local law, and no
Federal law, shall preclude or limit the exercise by the
Secretary of the ownership rights of the Secretary in the
debentures residing in a trust or pool against which trust
certificates are issued.
(f) Responsibilities.--
(1) Registration.--The Secretary shall provide for a
central registration of all trust certificates sold pursuant to
this section.
(2) Contracts.--The Secretary shall contract with an agent
or agents to carry out, on behalf of the Department, the
pooling and the central registration functions of this section
including, notwithstanding any other provision of law,
maintenance on behalf of and under the direction of the
Department, such commercial bank accounts or investments in
obligations of the United States as may be necessary to
facilitate trusts or pools backed by guaranteed under this Act,
and the issuance of trust certificates to facilitate such
poolings. Such agent or agents shall provide a fidelity bond or
insurance in such amounts as the Secretary determines to be
necessary to fully protect the interests of the Government.
(3) Disclosures.--Before any sale of a trust certificate,
the Secretary shall require the seller to disclose to a
purchaser of a trust certificate issued pursuant to this
section, information on the terms, conditions, and yield of
such instrument.
(4) Regulation of brokers and dealers.--The Secretary is
authorized to regulate brokers and dealers in trust
certificates sold pursuant to this section.
(5) Rule of construction.--Nothing in this subsection shall
prohibit the use of a bookentry or other electronic form of
registration for trust certificates.
SEC. 22. PERIODIC ISSUANCE OF GUARANTEES AND TRUST CERTIFICATES.
The Secretary shall issue guarantees under section 7 and trust
certificates under section 21 at periodic intervals of not less than
every 12 months and shall do so at such shorter intervals as the
Secretary deems appropriate, taking into consideration the amount and
number of such guarantees or trust certificates.
SEC. 23. MISCELLANEOUS.
(a) Cooperation With Banks, Investors, and Lenders.--Whenever
practicable, the operations of an ownership investment company,
including the generation of business, may be undertaken in cooperation
with banks or other investors or lenders, incorporated or
unincorporated, and any servicing or initial investigation required for
loans or acquisitions of securities by the company under the provisions
of this Act may be handled through such banks or other investors or
lenders on a fee basis. Any ownership investment company may receive
fees for services rendered to such banks and other investors and
lenders.
(b) Regulations.--The Secretary is authorized to prescribe
regulations governing the operations of ownership investment companies,
and to carry out the provisions of this Act, in accordance with the
purposes of this Act.
(c) Dissolution or Forfeiture of Rights.--Should any ownership
investment company violate or fail to comply with any of the provisions
of this Act or of regulations prescribed hereunder, all of the rights,
privileges, and franchises derived therefrom may thereby be forfeited.
Before any such ownership investment company shall be declared
dissolved, or its rights, privileges, and franchises forfeited, any
noncompliance with or violation of this Act shall be determined and
adjudged by a court of the United States of competent jurisdiction in a
suit brought for that purpose in the district, territory, or other
place subject to the jurisdiction of the United States, in which the
principal office of the ownership investment company is located. Any
such suit shall be brought by the United States at the instance of the
Secretary or the Attorney General.
(d) Liability.--Except as expressly provided otherwise in this Act,
nothing in this Act or in any other provision of law shall be deemed to
impose any liability on the United States with respect to any
obligations entered into, or stocks issued, or commitments made, by any
company operating under the provisions of this Act.
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