H.R. 4855, Fix Crowdfunding Act

H.R. 4855

Fix Crowdfunding Act

Date
January 1, 1970 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On Tuesday, July 5, 2016, the House will consider H.R. 4855, the Fix Crowdfunding Act, under suspension of the rules. H.R. 4855 was introduced on March 23, 2016, by Rep. Patrick McHenry (R-NC) and was referred to the Committee on Financial Services, which ordered the bill reported by a vote of 57 to 2 on June 16, 2016.

Bill Summary

H.R. 4855 amends the JOBS Act by raising the dollar amount limit and clarifying certain requirements under the Exchange Act 12(g) requirements, and permits single purpose funds to participate in the sale and offer of crowdfunding securities. Specifically, H.R. 4855 permits companies to raise up to $5 million annually through crowdfunding (up from $1 million under current law); addresses the liability of funding portals; and allows single purpose funds to raise funds using Title III. The bill also fixes the parts of the crowdfunding rule adopted by the SEC under Title III of the JOBS Act that, according to the committee, are impracticable.

Background

Crowdfunding refers to the financing of an activity through the collective cooperation of people who pool their money or other resources, sometimes through a networking site on the Internet. Common goals of crowdfunding involve such activities as disaster relief, and political campaigns. In the investment area, equity crowdfunding may involve relatively small individual monetary contributions from a group of investors in order to help finance a new business endeavor. Equity crowdfunding received increased attention in the 112th Congress, resulting with the passage of the JOBS Act. Title III of the JOBS Act provides the legal framework and exemption from some federal securities registration requirements for equity crowdfunding activities.

The Securities Act of 1933 makes it illegal to offer or sell securities to the public unless the securities have been registered with the SEC, except in certain circumstances. Registration can be particularly burdensome to smaller companies and startups, as it requires the filing with the SEC original and ongoing information, about the company.

On October 30, 2015 the SEC adopted its final rule to allow crowdfunding.[1] The rule would, among other things, enable individuals to purchase securities in crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions.

H.R. 4855 would amend the SEC’s rule to permit companies to raise up to $5 million annually through crowdfunding and would enable greater retail investor participation by permitting single purpose funds to raise funds using Title III.

When the SEC adopted its final rules for Regulation Crowdfunding, pursuant to the JOBS Act, Republican SEC Commissioner Michael Piwowar dissented. In his dissenting statement, he noted a number of important issues and concerns:

“[…] The majority of the Commission has exercised discretion to make capital raising using crowdfunding even more difficult. In a change from the proposal, the rules will limit the ability to invest in crowdfunding opportunities based on the lesser of annual income or net worth. Because the majority of the Commission cannot trust ordinary Americans – the non-accredited investors – to be able to exercise appropriate judgment in how to spend or invest their resources, our rules will now place smaller limits on the amounts that can be invested. Rather than actually protecting investors, these smaller limits will discourage legitimate companies from engaging in crowdfunding, while simultaneously encouraging less reputable actors to use affinity-based solicitation methods akin to multi-level marketing, a development that could stifle crowdfunding efforts.”[2]

According to the bill sponsor, “The SEC’s nearly 700-page rule is overly complex and burdensome creating a credibility crisis for investment crowdfunding. If we actually want to see investment crowdfunding realize its full potential, Congress must act. […] The Fix Crowdfunding Act will fix the issue’s posed by the SEC’s rule by allowing investment crowdfunding to achieve its ultimate goal of helping small businesses across the country grow and succeed.”[3]

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[1] See SEC Press Release, “SEC Adopts Rules to Permit Crowdfunding,” October 30, 2015.
[2] Commissioner Michael Piwowar, “Dissenting Statement at Open Meeting on Crowdfunding and Small Business Capital Formation,” October 30, 2015.
[3] See Rep. Patrick McHenry Press Release, “McHenry on Launch of Crowdfunding Portals,” May 16, 2016.

Cost

A Congressional Budget Office (CBO) cost estimate is currently not available.

Additional Information

For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.