CROWDFUNDING AMENDMENTS ACT; Congressional Record Vol. 165, No. 170
(House of Representatives - October 28, 2019)

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[Pages H8493-H8494]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      CROWDFUNDING AMENDMENTS ACT

  Mr. DAVID SCOTT of Georgia. Mr. Speaker, I move to suspend the rules 
and pass the bill (H.R. 4860) to amend the Securities Act of 1933 to 
subject crowdfunding vehicles to the jurisdiction of the Securities and 
Exchange Commission, and for other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 4860

       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 ``Crowdfunding Amendments 
     Act''.

     SEC. 2. CROWDFUNDING VEHICLES.

       (a) Amendments to the Securities Act of 1933.--The 
     Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended--
       (1) in section 2(a) (15 U.S.C. 77b(a)), by adding at the 
     end the following:
       ``(20) The term `crowdfunding vehicle' has the meaning 
     given the term in section 3(c)(15)(B) of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-3(c)(15)(B)).'';
       (2) in section 4(a)(6) (15 U.S.C. 77d(a)(6))--
       (A) in subparagraph (A)--
       (i) by inserting ``, other than a crowdfunding vehicle,'' 
     after ``sold to all investors''; and
       (ii) by inserting ``other than a crowdfunding vehicle,'' 
     after ``the issuer,''; and
       (B) in subparagraph (B), in the matter preceding clause 
     (i), by inserting ``, other than a crowdfunding vehicle,'' 
     after ``any investor''; and
       (3) in section 4A(f) (15 U.S.C. 77d-1(f))--
       (A) in the matter preceding paragraph (1), by striking 
     ``Section 4(6)'' and inserting ``Section 4(a)(6)''; and
       (B) in paragraph (3), by inserting ``by any of paragraphs 
     (1) through (14) of'' before ``section 3(c)''.
       (b) Amendments 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)(A) Any crowdfunding vehicle.
       ``(B) For purposes of this paragraph, the term 
     `crowdfunding vehicle' means a company--
       ``(i) the purpose of which (as set forth in the 
     organizational documents of the company) is limited to 
     acquiring, holding, and disposing of securities issued by a 
     single company in one or more transactions made under section 
     4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6));
       ``(ii) that issues only 1 class of securities;
       ``(iii) that receives no compensation in connection with 
     the acquisition, holding, or disposition of securities 
     described in clause (i);
       ``(iv) no investment adviser or associated person of which 
     receives any compensation on the basis of a share of capital 
     gains upon, or capital appreciation of, any portion of the 
     funds of an investor of the company;
       ``(v) the securities of which have been issued in a 
     transaction made under section 4(a)(6) of the Securities Act 
     of 1933 (15 U.S.C. 77d(a)(6)), where both the crowdfunding 
     vehicle and the company whose securities the crowdfunding 
     vehicle holds are co-issuers;
       ``(vi) that is current with respect to ongoing reporting 
     requirements under section 227.202 of title 17, Code of 
     Federal Regulations, or any successor regulation;
       ``(vii) that holds securities of a company that is subject 
     to ongoing reporting requirements under section 227.202 of 
     title 17, Code of Federal Regulations, or any successor 
     regulation;
       ``(viii) that is advised by an investment adviser that is--
       ``(I) registered under the Investment Advisers Act of 1940 
     (15 U.S.C. 80b-1 et seq.); and
       ``(II) required to--

       ``(aa) disclose to the investors of the company any fees 
     charged by the investment adviser; and
       ``(bb) obtain approval from a majority of the investors of 
     the company with respect to any increase in the fees 
     described in item (aa); and

       ``(ix) that meets such other requirements as the Commission 
     may, by rule, determine necessary or appropriate in the 
     public interest and for the protection of investors.''.
       (c) Amendments to the Investment Advisers Act of 1940.--The 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is 
     amended--
       (1) in section 202(a) (15 U.S.C. 80b-2(a))--
       (A) by redesignating the second paragraph (29) as paragraph 
     (31); and
       (B) by adding at the end the following:
       ``(32) The term `crowdfunding vehicle' has the meaning 
     given the term in section 3(c)(15)(B) of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-3(c)(15)(B)).
       ``(33)(A) The term `crowdfunding vehicle adviser' means an 
     investment adviser that acts as an investment adviser solely 
     with respect to crowdfunding vehicles.
       ``(B) A determination, for the purposes of subparagraph 
     (A), regarding whether an investment adviser acts as an 
     investment adviser solely with respect to crowdfunding 
     vehicles shall not include any consideration of the activity 
     of any affiliate of the investment adviser.'';
       (2) in section 203 (15 U.S.C. 80b-3), by adding at the end 
     the following:
       ``(o) Crowdfunding Vehicle Advisers.--
       ``(1) In general.--A crowdfunding vehicle adviser shall be 
     required to register under this section.
       ``(2) Tailored requirements.--As necessary or appropriate 
     in the public interest and for the protection of investors, 
     and to promote efficiency, competition, and capital 
     formation, the Commission shall tailor the requirements under 
     section 275.206(4)-2 of title 17, Code of Federal 
     Regulations, with respect to the application of those 
     requirements to a crowdfunding vehicle adviser.''; and
       (3) in section 203A(a) (15 U.S.C. 80b-3a(a))--
       (A) in paragraph (1)--
       (i) in subparagraph (A), by striking ``or'' at the end;
       (ii) in subparagraph (B), by striking the period at the end 
     and inserting ``; or''; and
       (iii) by adding at the end the following:
       ``(C) is a crowdfunding vehicle adviser.''; and
       (B) in paragraph (2)--
       (i) in subparagraph (A), by inserting ``a crowdfunding 
     vehicle adviser,'' after ``unless the investment adviser 
     is''; and
       (ii) in subparagraph (B)(ii), in the matter preceding 
     subclause (I), by inserting ``except with respect to a 
     crowdfunding vehicle adviser,'' before ``has assets''.

     SEC. 3. CROWDFUNDING 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 inserting the 
     following:
       ``(A) In general.--The Commission'';
       (2) in subparagraph (A), as so designated, by striking 
     ``section 4(6)'' and inserting ``section 4(a)(6)''; and
       (3) by adding at the end the following:
       ``(B) Treatment of securities issued by certain issuers.--
       ``(i) In general.--An exemption under subparagraph (A) 
     shall be unconditional for securities offered by an issuer 
     that had a public float of less than $75,000,000, as of the 
     last business day of the most recently completed semiannual 
     period of the issuer, which shall be calculated in accordance 
     with clause (ii).
       ``(ii) Calculation.--

       ``(I) In general.--A public float described in clause (i) 
     shall be calculated by multiplying the aggregate worldwide 
     number of shares of the common equity securities of an issuer 
     that are held by non-affiliates by the price at which those 
     securities were last sold (or the average bid and asked 
     prices of those securities) in the principal market for those 
     securities.
       ``(II) Calculation of zero.--If a public float calculation 
     under subclause (I) with respect to an issuer is zero, an 
     exemption under subparagraph (A) shall be unconditional for 
     securities offered by the issuer if the issuer had annual 
     revenues of less than $50,000,000, as of the most recently 
     completed fiscal year of the issuer.''.

     SEC. 4. RULE OF CONSTRUCTION.

       Nothing in this Act or the amendments made by this Act may 
     be construed to allow an issuer or a crowdfunding vehicle to 
     offer or sell securities in excess of the limitation 
     described under section 4(a)(6) of the Securities Act of 1933 
     (15 U.S.C. 77d(a)(6)).

     SEC. 5. DETERMINATION OF BUDGETARY EFFECTS.

       The budgetary effects of this Act, for the purpose of 
     complying with the Statutory Pay-As-You-Go Act of 2010, shall 
     be determined by reference to the latest statement titled 
     ``Budgetary Effects of PAYGO Legislation'' for this Act, 
     submitted for printing in the Congressional Record by the 
     Chairman of the House Budget Committee, provided that such 
     statement has been submitted prior to the vote on passage.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Georgia (Mr.   David Scott) and the gentleman from North Carolina (Mr. 
McHenry) each will control 20 minutes.
  The Chair recognizes the gentleman from Georgia.


                             General Leave

  Mr. DAVID SCOTT of Georgia. Mr. Speaker, I ask unanimous consent that 
all Members may have 5 legislative

[[Page H8494]]

days in which to revise and extend their remarks on this legislation 
and to insert extraneous materials therein.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Georgia?
  There was no objection.
  Mr. DAVID SCOTT of Georgia. Mr. Speaker, I yield myself such time as 
I may consume.
  First of all, Mr. Speaker, I would like to thank our ranking member 
of the Financial Services Committee, Representative McHenry, for his 
efforts in crafting this very important piece of legislation to help 
startups finance their operations while still protecting the investors 
who entrust their hard-earned funds to those companies.
  Equity crowdfunding is a high-risk, high-reward investment that 
allows hundreds, or even thousands, of retail investors to invest in 
startup companies. But because of the unique and heightened risks posed 
by crowdfunding, Congress and the Securities and Exchange Commission 
have put in place guardrails to prevent these less-sophisticated 
investors from suffering financial ruin while still being able to 
access this area of the market.
  Now, in 2012, Congress cautiously approached equity crowdfunding by 
creating a number of investor protections in the Jumpstart Our Business 
Startups Act, or the JOBS Act.
  The SEC followed our directions and finalized a crowdfunding rule 
that protects investors by setting reasonable investment limits based 
on income and provides helpful disclosures for investors to weigh the 
risks.
  This bill aims to enhance the investor and company experience in 
crowdfunding by authorizing crowdfunding vehicles to pool investors 
together, allowing them to make joint investments totaling $1 million 
in a single business.
  These vehicles would be advised by a registered investment adviser 
with a fiduciary duty to act in the best interests of the fund. 
Importantly, the investors would have the same rights to sue companies 
as if they had directly invested in the company itself--a very, very 
important point, Mr. Speaker.

                              {time}  1645

  This bill also clarifies that as long as a crowdfunding company 
continues to make ongoing disclosures to investors required under SEC's 
rule, it would not have to make the more detailed public reports until 
it had either a $75 million value or $50 million in revenue. This 
change is consistent with the levels set under Regulation A, another 
exempt offering sold to retail investors.
  I am very pleased that the bill also incorporates targeted 
improvements to crowdfunding for all investors and start-ups and lacks 
problematic provisions that were opposed by consumer advocates like the 
Consumer Federation of America in previous Congresses, including 
additional changes that Chairwoman Waters and our ranking member agreed 
on this Congress.
  Although crowdfunding should be viewed as highly risky in terms of 
investment, especially for retail investors, this bill will ensure a 
larger choice of high-quality crowdfunding companies and a higher 
degree of finance savvy for investors. And, in addition, it may help to 
ensure compliance with regulation crowdfunding.
  Mr. McHENRY. Will the gentleman yield?
  Mr. DAVID SCOTT of Georgia. I yield to the gentleman from North 
Carolina.
  Mr. McHENRY. Mr. Speaker, I want to thank the gentleman for his 
support, and I want to thank the chairwoman of the House Financial 
Services Committee for her support as well. I am grateful for the work 
of Chairwoman Waters and her Financial Services Committee staff for the 
hard work they have put in to protect investors and help small 
businesses.
  Mr. Speaker, I will include in the Record a letter from Republic in 
support of the bill.
  Mr. McHENRY. Mr. Speaker, I include the remainder of my statement in 
the Record.
  I am pleased the House is taking up my legislation and I would like 
to thank the gentlewoman from California, the Chairwoman of the 
Financial Services Committee, for her co-sponsorship of this bill.
  We have worked together on this bill for three Congresses now.
  I appreciate all the hard work that she and her staff have done to 
make this a bill that works to protect investors and promote small 
businesses, particularly in communities that are being left behind.
  We all agree small businesses and entrepreneurs are America's true 
job creators.
  This is especially true in communities I represent in western North 
Carolina.
  But today, America's small businesses are still struggling to find 
capital. Small business lending from traditional banks continues to 
decline, and small business loans in America's small towns are less 
than half it was merely fifteen years ago.
  Investment crowdfunding is one way we can reverse this concerning 
trend.
  In 2012, I wrote the original bill to legalize investment-based 
crowdfunding, making it easier for businesses to raise capital.
  That bill became part of the JOBS Act. Unfortunately, the SEC's final 
rule contained serious structural flaws that require Congress's 
immediate attention.
  In particular, crowdfunding is suffering from the so-called ``12-g 
problem.'' The ``12 g problem'' refers to a section of the Securities 
Exchange Act of 1934, which subjects crowdfunded companies to 
requirements similar to a public company, but at a very low asset 
threshold.
  Our proposed amendment fixes the ``12-g problem'' by raising the 
asset threshold for both small businesses that already have revenue, 
and for those startups that do not. This makes it more likely that 
high-growth companies will consider crowdfunding as an option for 
raising capital.
  Another significant problem for crowdfunding is that, under the SEC 
rule, single purpose funds are not permitted.
  Single purpose funds allow Main street investors to invest along with 
more sophisticated lead investors who have an obligation to advocate 
for their best interests.
  That means better terms and greater transparency for the investors.
  A single purpose fund also improves the capitalization table for 
companies that hope to attract venture capital in the future.
  Although the bill does not include everything I would have hoped, we 
worked hard to find a compromise that addresses the most urgent 
problems with investment crowdfunding that need correcting now.
  To that end, I want to thank Chairwoman Waters again for her 
continued support on this important, bipartisan compromise.
  This bill shows that we can work together in a bipartisan way to help 
American small businesses in seeking to raise capital by connecting 
folks not just in their local communities, but across America.
  I am pleased that this legislation enjoys support from my colleagues 
on both sides of the aisle.
  I urge my colleagues to join us in support of this bill.
  Mr. Speaker, I yield back the balance of my time.
  Mr. DAVID SCOTT of Georgia. Mr. Speaker, I urge all Members to vote 
for this bill, and I want to commend the ranking member for his 
excellent work.
  I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Georgia (Mr.   David Scott) that the House suspend the 
rules and pass the bill, H.R. 4860, as amended.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

                          ____________________