HR 2930 EHPCSCommentsClose CommentsPermalink

Calendar No. 224CommentsClose CommentsPermalink

112th CONGRESSCommentsClose CommentsPermalink

1st SessionCommentsClose CommentsPermalink

H. R. 2930CommentsClose CommentsPermalink

IN THE SENATE OF THE UNITED STATESCommentsClose CommentsPermalink

November 7, 2011CommentsClose CommentsPermalink

Received; read the first timeCommentsClose CommentsPermalink

November 8, 2011CommentsClose CommentsPermalink

Read the second time and placed on the calendarCommentsClose CommentsPermalink

---

AN ACTCommentsClose CommentsPermalink

To amend the securities laws to provide for registration exemptions for certain crowdfunded securities, and for other purposes.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Entrepreneur Access to Capital Act’.CommentsClose CommentsPermalink

SEC. 2. CROWDFUNDING EXEMPTION.

(a) Securities Act of 1933- Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(6) transactions involving the offer or sale of securities by an issuer, provided that--CommentsClose CommentsPermalink





‘(A) the aggregate amount sold within the previous 12-month period in reliance upon this exemption is--CommentsClose CommentsPermalink





‘(i) $1,000,000, as such amount is adjusted by the Commission to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, or less; orCommentsClose CommentsPermalink





‘(ii) if the issuer provides potential investors with audited financial statements, $2,000,000, as such amount is adjusted by the Commission to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, or less;CommentsClose CommentsPermalink





‘(B) the aggregate amount sold to any investor in reliance on this exemption within the previous 12-month period does not exceed the lesser of--CommentsClose CommentsPermalink





‘(i) $10,000, as such amount is adjusted by the Commission to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics; andCommentsClose CommentsPermalink





‘(ii) 10 percent of such investor’s annual income;CommentsClose CommentsPermalink





‘(C) in the case of a transaction involving an intermediary between the issuer and the investor, such intermediary complies with the requirements under section 4A(a); andCommentsClose CommentsPermalink





‘(D) in the case of a transaction not involving an intermediary between the issuer and the investor, the issuer complies with the requirements under section 4A(b).’.CommentsClose CommentsPermalink





(b) Requirements to Qualify for Crowdfunding Exemption- The Securities Act of 1933 is amended by inserting after section 4 the following:CommentsClose CommentsPermalink

‘SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.

‘(a) Requirements on Intermediaries- For purposes of section 4(6), a person acting as an intermediary in a transaction involving the offer or sale of securities shall comply with the requirements of this subsection if the intermediary--CommentsClose CommentsPermalink





‘(1) warns investors, including on the intermediary’s website used for the offer and sale of such securities, of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers, including risks in the secondary market related to illiquidity;CommentsClose CommentsPermalink





‘(2) warns investors that they are subject to the restriction on sales requirement described under subsection (e);CommentsClose CommentsPermalink





‘(3) takes reasonable measures to reduce the risk of fraud with respect to such transaction;CommentsClose CommentsPermalink





‘(4) provides the Commission with the intermediary’s physical address, website address, and the names of the intermediary and employees of the intermediary, and keep such information up-to-date;CommentsClose CommentsPermalink





‘(5) provides the Commission with continuous investor-level access to the intermediary’s website;CommentsClose CommentsPermalink





‘(6) requires each potential investor to answer questions demonstrating--CommentsClose CommentsPermalink





‘(A) an understanding of the level of risk generally applicable to investments in startups, emerging businesses, and small issuers;CommentsClose CommentsPermalink





‘(B) an understanding of the risk of illiquidity; andCommentsClose CommentsPermalink





‘(C) such other areas as the Commission may determine appropriate by rule or regulation;CommentsClose CommentsPermalink





‘(7) requires the issuer to state a target offering amount and a deadline to reach the target offering amount and ensure the third party custodian described under paragraph (10) withholds offering proceeds until aggregate capital raised from investors other than the issuer is no less than 60 percent of the target offering amount;CommentsClose CommentsPermalink





‘(8) carries out a background check on the issuer’s principals;CommentsClose CommentsPermalink





‘(9) provides the Commission and potential investors with notice of the offering, not later than the first day securities are offered to potential investors, including--CommentsClose CommentsPermalink





‘(A) the issuer’s name, legal status, physical address, and website address;CommentsClose CommentsPermalink





‘(B) the names of the issuer’s principals;CommentsClose CommentsPermalink





‘(C) the stated purpose and intended use of the proceeds of the offering sought by the issuer; andCommentsClose CommentsPermalink





‘(D) the target offering amount and the deadline to reach the target offering amount;CommentsClose CommentsPermalink





‘(10) outsources cash-management functions to a qualified third party custodian, such as a broker or dealer registered under section 15(b)(1) of the Securities Exchange Act of 1934 or an insured depository institution;CommentsClose CommentsPermalink





‘(11) maintains such books and records as the Commission determines appropriate;CommentsClose CommentsPermalink





‘(12) makes available on the intermediary’s website a method of communication that permits the issuer and investors to communicate with one another;CommentsClose CommentsPermalink





‘(13) provides the Commission with a notice upon completion of the offering, which shall include the aggregate offering amount and the number of purchasers; andCommentsClose CommentsPermalink





‘(14) does not offer investment advice.CommentsClose CommentsPermalink





‘(b) Requirements on Issuers if No Intermediary- For purposes of section 4(6), an issuer who offers or sells securities without an intermediary shall comply with the requirements of this subsection if the issuer--CommentsClose CommentsPermalink





‘(1) warns investors, including on the issuer’s website, of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers, including risks in the secondary market related to illiquidity;CommentsClose CommentsPermalink





‘(2) warns investors that they are subject to the restriction on sales requirement described under subsection (e);CommentsClose CommentsPermalink





‘(3) takes reasonable measures to reduce the risk of fraud with respect to such transaction;CommentsClose CommentsPermalink





‘(4) provides the Commission with the issuer’s physical address, website address, and the names of the principals and employees of the issuers, and keeps such information up-to-date;CommentsClose CommentsPermalink





‘(5) provides the Commission with continuous investor-level access to the issuer’s website;CommentsClose CommentsPermalink





‘(6) requires each potential investor to answer questions demonstrating--CommentsClose CommentsPermalink





‘(A) an understanding of the level of risk generally applicable to investments in startups, emerging businesses, and small issuers;CommentsClose CommentsPermalink





‘(B) an understanding of the risk of illiquidity; andCommentsClose CommentsPermalink





‘(C) such other areas as the Commission may determine appropriate by rule or regulation;CommentsClose CommentsPermalink





‘(7) states a target offering amount and ensures that the third party custodian described under paragraph (9) withholds offering proceeds until the aggregate capital raised from investors other than the issuer is no less than 60 percent of the target offering amount;CommentsClose CommentsPermalink





‘(8) provides the Commission with notice of the offering, not later than the first day securities are offered to potential investors, including--CommentsClose CommentsPermalink





‘(A) the stated purpose and intended use of the proceeds of the offering sought by the issuer; andCommentsClose CommentsPermalink





‘(B) the target offering amount and the deadline to reach the target offering amount;CommentsClose CommentsPermalink





‘(9) outsources cash-management functions to a qualified third party custodian, such as a broker or dealer registered under section 15(b)(1) of the Securities Exchange Act of 1934 or an insured depository institution;CommentsClose CommentsPermalink





‘(10) maintains such books and records as the Commission determines appropriate;CommentsClose CommentsPermalink





‘(11) makes available on the issuer’s website a method of communication that permits the issuer and investors to communicate with one another;CommentsClose CommentsPermalink





‘(12) does not offer investment advice;CommentsClose CommentsPermalink





‘(13) provides the Commission with a notice upon completion of the offering, which shall include the aggregate offering amount and the number of purchasers; andCommentsClose CommentsPermalink





‘(14) discloses to potential investors, on the issuer’s website, that the issuer has an interest in the issuance.CommentsClose CommentsPermalink





‘(c) Verification of Income- For purposes of section 4(6), an issuer or intermediary may rely on certifications as to annual income provided by the person to whom the securities are sold to verify the investor’s income.CommentsClose CommentsPermalink





‘(d) Information Available to States- The Commission shall make the notices described under subsections (a)(9), (a)(13), (b)(8), and (b)(13) and the information described under subsections (a)(4) and (b)(4) available to the States.CommentsClose CommentsPermalink





‘(e) Restriction on Sales- With respect to a transaction involving the issuance of securities described under section 4(6), a purchaser may not transfer such securities during the 1-year period beginning on the date of purchase, unless such securities are sold to--CommentsClose CommentsPermalink





‘(1) the issuer of such securities; orCommentsClose CommentsPermalink





‘(2) an accredited investor.CommentsClose CommentsPermalink





‘(f) Construction-CommentsClose CommentsPermalink





‘(1) NO REGISTRATION AS BROKER- With respect to a transaction described under section 4(6) involving an intermediary, such intermediary shall not be required to register as a broker under section 15(a)(1) of the Securities Exchange Act of 1934 solely by reason of participation in such transaction.CommentsClose CommentsPermalink





‘(2) NO PRECLUSION OF OTHER CAPITAL RAISING- Nothing in this section or section 4(6) shall be construed as preventing an issuer from raising capital through methods not described under section 4(6).’.CommentsClose CommentsPermalink





(c) Rulemaking- Not later than 180 days after the date of the enactment of this Act, the Securities and Exchange Commission shall issue such rules as may be necessary to carry out section 4A of the Securities Act of 1933. In issuing such rules, the Commission shall consider the costs and benefits of the action.CommentsClose CommentsPermalink





(d) Disqualification- Not later than 180 days after the date of the enactment of this Act, the Securities and Exchange Commission shall by rule or regulation establish disqualification provisions under which an issuer shall not be eligible to utilize the exemption under section 4(6) of the Securities Act of 1933 based on the disciplinary history of the issuer or its predecessors, affiliates, officers, directors, or persons fulfilling similar roles. The Commission shall also establish disqualification provisions under which an intermediary shall not be eligible to act as an intermediary in connection with an offering utilizing the exemption under section 4(6) of the Securities Act of 1933 based on the disciplinary history of the intermediary or its predecessors, affiliates, officers, directors, or persons fulfilling similar roles. Such provisions shall be substantially similar to the disqualification provisions contained in the regulations adopted in accordance with section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C. 77d note).CommentsClose CommentsPermalink

SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER CAP.

Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(5)) is amended--CommentsClose CommentsPermalink





(1) by striking ‘(5) For the purposes’ and inserting:CommentsClose CommentsPermalink





‘(5) DEFINITIONS-CommentsClose CommentsPermalink





‘(A) IN GENERAL- For the purposes’; andCommentsClose CommentsPermalink





(2) by adding at the end the following:CommentsClose CommentsPermalink





‘(B) EXCLUSION FOR PERSONS HOLDING CERTAIN SECURITIES- For purposes of this subsection, securities held by persons who purchase such securities in transactions described under section 4(6) of the Securities Act of 1933 shall not be deemed to be ‘held of record’.’.CommentsClose CommentsPermalink

SEC. 4. PREEMPTION OF STATE LAW.

(a) In General- Section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 77r(b)(4)) is amended--CommentsClose CommentsPermalink





(1) by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively; andCommentsClose CommentsPermalink





(2) by inserting after subparagraph (B) the following:CommentsClose CommentsPermalink





‘(C) section 4(6);’.CommentsClose CommentsPermalink





(b) Clarification of the Preservation of State Enforcement Authority-CommentsClose CommentsPermalink





(1) IN GENERAL- The amendments made by subsection (a) relate solely to State registration, documentation, and offering requirements, as described under section 18(a) of Securities Act of 1933 (15 U.S.C. 77r(a)), and shall have no impact or limitation on other State authority to take enforcement action with regard to an issuer, intermediary, or any other person or entity using the exemption from registration provided by section 4(6) of such Act.CommentsClose CommentsPermalink





(2) CLARIFICATION OF STATE JURISDICTION OVER UNLAWFUL CONDUCT OF INTERMEDIARIES, ISSUERS, AND CUSTODIANS- Section 18(c)(1) of the Securities Act of 1933 is amended by striking ‘with respect to fraud or deceit, or unlawful conduct by a broker or dealer, in connection with securities or securities transactions.’ and inserting the following: ‘, in connection with securities or securities transactions, with respect to--CommentsClose CommentsPermalink





‘(A) fraud or deceit;CommentsClose CommentsPermalink





‘(B) unlawful conduct by a broker or dealer; andCommentsClose CommentsPermalink





‘(C) with respect to a transaction described under section 4(6), unlawful conduct by an intermediary, issuer, or custodian.’.CommentsClose CommentsPermalink

Passed the House of Representatives November 3, 2011.CommentsClose CommentsPermalink

Attest:CommentsClose CommentsPermalink

Clerk.

Clerk.CommentsClose CommentsPermalink

Calendar No. 224CommentsClose CommentsPermalink

112th CONGRESSCommentsClose CommentsPermalink

1st SessionCommentsClose CommentsPermalink

H. R. 2930CommentsClose CommentsPermalink

AN ACTCommentsClose CommentsPermalink

To amend the securities laws to provide for registration exemptions for certain crowdfunded securities, and for other purposes.CommentsClose CommentsPermalink

---

November 8, 2011CommentsClose CommentsPermalink

Read the second time and placed on the calendarCommentsClose CommentsPermalink