S 1791 ISCommentsClose CommentsPermalink

112th CONGRESSCommentsClose CommentsPermalink

1st SessionCommentsClose CommentsPermalink

S. 1791CommentsClose CommentsPermalink

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

IN THE SENATE OF THE UNITED STATESCommentsClose CommentsPermalink

November 2, 2011CommentsClose CommentsPermalink

Mr. BROWN of Massachusetts introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban AffairsCommentsClose CommentsPermalink

A BILLCommentsClose 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 ‘Democratizing Access to Capital Act of 2011’.CommentsClose CommentsPermalink

SEC. 2. CROWDFUNDING EXEMPTION.

Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended--CommentsClose CommentsPermalink





(1) in paragraph (2), by inserting before the period at the end ‘, other than as provided in paragraph (6)’;CommentsClose CommentsPermalink





(2) by striking ‘The provisions’ and inserting the following:CommentsClose CommentsPermalink





‘(a) In General- The provisions’; andCommentsClose CommentsPermalink





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





‘(6) subject to subsection (b), transactions involving the issuance of securities through a crowdfunding intermediary, whether or not the transaction involves a public offering, for which--CommentsClose CommentsPermalink





‘(A) the aggregate annual amount raised through the issue of the securities is $1,000,000 or less during any 12-month period, by any incorporated entity formed under and subject to the law of any State; andCommentsClose CommentsPermalink





‘(B) individual investments in the securities are limited to an aggregate annual amount of not more than $1,000.CommentsClose CommentsPermalink





‘(b) Certain Crowdfunding Exemption Criteria-CommentsClose CommentsPermalink





‘(1) IN GENERAL- In order to qualify for the exemption under subsection (a)(6), the issuer shall--CommentsClose CommentsPermalink





‘(A) disclose to investors all rights of investors, including complete information about the risks, obligations, benefits, history, and costs of offering;CommentsClose CommentsPermalink





‘(B) be an incorporated entity formed under and subject to the law of a State; andCommentsClose CommentsPermalink





‘(C) file such notice with the Commission as the Commission shall prescribe.CommentsClose CommentsPermalink





‘(2) DISQUALIFICATION- Not later than 90 days after the date of enactment of this Act, the Commission shall, by rule or regulation, establish disqualification provisions under which a person shall not be eligible to utilize the exemption under subsection (a)(6), or to participate in the affairs of a crowdfunding intermediary facilitating the use of that exemption. 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 (1512 U.S.C. 77d note).CommentsClose CommentsPermalink





‘(3) RESTRICTED SECURITIES- Securities issued under a transaction described in subsection (a)(6) shall be considered restricted securities, subject to a one-year holding period.’.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 ‘For the purposes’ and inserting: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, the term ‘held of record’ shall not include holders of securities issued pursuant to transactions described under section 4(a)(6) of the Securities Act of 1933.’.CommentsClose CommentsPermalink

SEC. 4. PREEMPTION OF STATE LAW.

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





(1) by redesignating subparagraph (C) as subparagraph (D); andCommentsClose CommentsPermalink





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





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

SEC. 5. STATE FRAUD AUTHORITY.

Section 18(c)(1) of the Securities Act of 1933 (15 U.S.C. 77r(c)(1)) is amended by striking ‘or dealer’ and inserting ‘, dealer, or crowdfunding intermediaries’.CommentsClose CommentsPermalink

SEC. 6. NOTICE FILINGS PERMITTED.

Section 18(c)(2) of the Securities Act of 1933 (15 U.S.C. 77r(c)(2)) is amended by inserting after subsection (D) the following:CommentsClose CommentsPermalink





‘(E) FEES NOT PERMITTED ON CROWDFUNDED SECURITIES- Notwithstanding subparagraphs (A), (B), and (C), no filing or fee may be required with respect to any security that is a covered security pursuant to subsection (b)(4)(C), or will be such a covered security upon completion of the transaction, except for the securities commission (or any agency or office performing like functions) of the State of the issuer’s State of organization, or any State in which purchasers of 50 percent or greater of the aggregate amount of the issue are a residents.’.CommentsClose CommentsPermalink

SEC. 7. BROKER AND DEALER EXEMPTIONS.

(a) Brokers- Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 780c(a)(4)) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(G) EXEMPTION FOR CROWDFUNDING INTERMEDIARIES-CommentsClose CommentsPermalink





‘(i) IN GENERAL- The term ‘broker’ does not include any crowdfunding intermediary.CommentsClose CommentsPermalink





‘(ii) DEFINITION- For purposes of this paragraph, the term ‘crowdfunding intermediary’ means any intermediary that--CommentsClose CommentsPermalink





‘(I) is open to and accessible by the general public;CommentsClose CommentsPermalink





‘(II) provides public communication portals for investors and potential investors;CommentsClose CommentsPermalink





‘(III) warns investors 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





‘(IV) warns investors that they are subject to a 1-year restriction on sales of securities issued;CommentsClose CommentsPermalink





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





‘(VI) prohibits its employees from investing in the offerings made through the crowdfunding intermediary, or to have any financial interest in the companies posting offerings through the crowdfunding intermediary;CommentsClose CommentsPermalink





‘(VII) does not offer investment advice or recommendations;CommentsClose CommentsPermalink





‘(VIII) provides to the Commission--CommentsClose CommentsPermalink

‘(aa) the crowdfunding intermediary’s physical address, website address, and the names of the crowdfunding intermediary and employees of the crowdfunding intermediary, keeping such information up-to-date; andCommentsClose CommentsPermalink

‘(bb) continuous investor-level access to the intermediary’s website;CommentsClose CommentsPermalink

‘(IX) requires each potential investor to answer questions demonstrating competency in--CommentsClose CommentsPermalink

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

‘(bb) risk of illiquidity; andCommentsClose CommentsPermalink

‘(cc) such other areas as the Commission may determine appropriate;CommentsClose CommentsPermalink

‘(X) requires the issuer to state a target offering amount and withhold capital formation proceeds until aggregate capital raised from investors other than the issuer is not less than 60 percent of the target offering amount;CommentsClose CommentsPermalink





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





‘(XII) provides the Commission with basic notice of the offering, not later than the first day on which funds are solicited from potential investors, including--CommentsClose CommentsPermalink

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

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

‘(cc) the stated purpose and intended use of the capital formation funds sought by the issuer; andCommentsClose CommentsPermalink

‘(dd) the target offering amount;CommentsClose CommentsPermalink

‘(XIII) outsources cash-management functions to a qualified third-party custodian, such as a traditional broker or dealer or insured depository institution;CommentsClose CommentsPermalink





‘(XIV) maintains such books and records as the Commission determines appropriate; andCommentsClose CommentsPermalink





‘(XV) defines and makes available the process for raising and resolving a complaint, including alternatives available to investors if the crowdfunding intermediary is unable to resolve a dispute to the satisfaction of the investor.’.CommentsClose CommentsPermalink





(b) Dealers- Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 780c(a)(4)) is amended by adding at the end the following:CommentsClose CommentsPermalink





‘(D) EXEMPTION FOR CROWDFUNDING INTERMEDIARIES- The term ‘dealer’ does not include any crowdfunding intermediary described in paragraph (4)(G).’.CommentsClose CommentsPermalink

SEC. 8. CONFORMING AMENDMENTS.

(a) Securities Act of 1933- The Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended by striking ‘section 4’ each place that term appears (other than in the amendments made by sections 1 through 4 of this Act) and inserting ‘section 4(a)’.CommentsClose CommentsPermalink





(b) Securities Exchange Act of 1934- Section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(f)(5)(E)) is amended by striking ‘section 4(2)’ and inserting ‘section 4(a)(2)’.CommentsClose CommentsPermalink