CONGRESSWOMAN ELISE STEFANIK
On Thursday, November 3, 2011, the House is scheduled consider H.R. 2940, the Access to Capital for Job Creators Act, under a rule. The rule would provide for one hour of debate equally divided and controlled by the chair and ranking minority member of the Committee on Financial Services. Additionally, the rule makes in order and provides ten minutes of debate for one amendment printed in Part B of the Rules Committee report accompanying H.Res. 453, as well as providing for one motion to recommit with or without instructions. The bill was introduced by Rep. Kevin McCarthy (R-CA) on September 15, 2011, and referred to the Committee on Financial Services. On October 26, 2011, a mark-up was held and the bill was reported by voice vote.
The bill would amend the Securities Act of 1933 and direct the Securities Exchange Commission (SEC) to eliminate the restriction under Regulation D Section 506 prohibiting the solicitation or advertising of a securities offering by certain issuers.
The bill would require the SEC to establish rules to ensure that only “accredited” investors purchase such securities.
This bill is part of a package of legislation intended to improve small businesses’ access to capital. Specifically, H.R. 2940 would improve capital formation by expanding financing options. The alternative method, a commercial bank loan, is increasingly difficult in light of tightened lending standards following the financial crisis of 2008-09. These securities can fill that void if we modernize outdated regulations that do not work in 21st Century capital markets. Capital formation is necessary for business expansion and therefore job creation and sustained economic growth.
Under current law, securities may be sold through private offerings, that is, sales that are made to a limited number of eligible investors rather than to the general public, without being registered with the Securities and Exchange Commission (SEC). Issuers of securities through such offerings are prohibited from using general solicitation or advertising to market the securities. According to the Committee on Financial Services, this prohibition on general solicitation and advertising has been interpreted to mean that potential investors must have an existing relationship with the company before they can be notified that unregistered securities are available for purchase. Requiring potential investors to have an existing relationship with the company significantly limits the pool of potential investors and severely hampers the ability of small companies to raise capital and create jobs.
Thus, by eliminating the ban on solicitations and advertisements by issuers and broker-dealers, H.R. 2940 would also enable offline and online forums that bring together investors with companies that need funding to play an increasingly important role in facilitating capital investment in small companies.
At a legislative hearing on H.R. 2940 held by the Subcommittee on Capital Markets and Government Sponsored Enterprises on September 21, 2011, Barry Silbert, Chief Executive Officer of SecondMarket, Inc., testified that "if only accredited investors are eligible to purchase unregistered securities, shouldn't we strive to maximize the pool of accredited investors that have access to the offering?” Mr. Silbert also noted that the SEC and Congress "recognize that sophisticated, accredited individual and institutional investors have greater capacity for risk and do not require the enhanced protections provided to the average retail investor."
Rep. McCarthy has said H.R. 2940 will “help entrepreneurs and small business owners access the capital they need to be innovative, dynamic, and ultimately, become the thing our economy needs most right now: job creators.”
The Congressional Budget Office (CBO) estimates that implementing H.R. 2940 would have a negligible impact on the SEC’s workload, and any change in agency spending that is subject to appropriation would not be significant. Enacting H.R. 2940 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.
Amendment No. 1—Rep. Miller (D-NC): This amendment would require disclosure of bonus compensation structures and “golden parachute” arrangements in advertising materials associated with an exempted offering.