H.R. 6427, Creating Financial Prosperity for Businesses and Investors Act

H.R. 6427

Creating Financial Prosperity for Businesses and Investors Act

Date
December 5, 2016 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On­­­­ Monday, December 5, 2016, the House will consider the H.R. 6427, Creating Financial Prosperity for Businesses and Investors Act, under suspension of the rules. H.R. 6427 was introduced on December 2, 2016 by Rep. Scott Garrett (R-NJ) and was referred to the House Committee on Financial Services. The bill combines the text of the following six previously House-passed suspensions:

  • H.R. 3784, the SEC Small Business Advocate Act (Rep. John Carney Jr., D-DE)—passed the House by voice vote on February 1, 2016.
  • H.R. 4854, the Supporting America’s Innovators Act (Rep. Patrick McHenry, R-NC)—passed the House by a vote of 388 to 9 on July 5, 2016.
  • H.R. 4855, the Fix Crowdfunding Act (Rep. Patrick McHenry, R-NC)—passed the House by a vote of 394 to 4 on July 5, 2016.
  • H.R. 4168, the Small Business Capital Formation Enhancement Act (Rep. Bruce Poliquin, R-ME)—passed the House by a vote of 390 to 1 on February 1, 2016.
  • H.R. 2187, the Fair Investment Opportunities for Professional Experts Act (Rep. David Schweikert, R-AZ)—passed the House by a vote of 347 to 8 on February 1, 2016.
  • H.R. 5322, the U.S. Territories Investor Protection Act (Rep. Nydia Velazquez, D-NY)—passed by voice vote on July 11, 2016.

Bill Summary

H.R. 6427 makes various changes to various laws administered by the Securities and Exchange Commission (SEC) in an attempt to increase access to capital and reduce regulations on small businesses. Specific summaries for each of the bills included within H.R. 6427 are listed below:

H.R. 3784, the SEC Small Business Advocate Act—The bill would establish the Office for Small Business Capital Formation (Office) and the Small Business Capital Formation Advisory Committee (Committee) SEC to help small businesses resolve problems with the SEC; analyze the potential impact of proposed rules and regulations that are likely to have a significant effect on small businesses; and conduct outreach to small businesses in order to solicit views on relevant capital formation issues. The bill also requires the newly established Office and Committee to submit certain reports to Congress.

H.R. 4854, the Supporting America’s Innovators Act –The bill raises the limit on the number of individuals who can invest in certain venture capital funds before those funds must register with the SEC as “investment companies” under the Investment Company Act of 1940. Section 3(c)(1) of the Investment Company Act currently limits the number of investors in an investment company fund to 100 for the fund to be exempt from SEC registration.

The bill would also amend the cap currently contained in the Act to allow 250 investors in a “qualified venture capital fund.” The bill would generally define a “qualifying venture capital fund” to be any venture capital fund that does not purchase more than $10 million in securities of any one issuer, adjusted for inflation. Thus, for example, H.R. 6427 would permit angel funds – which allow accredited investors to invest in business startups – to obtain capital from a greater number of investors.

H.R. 4855, the Fix Crowdfunding Act—The bill amends the Jumpstart Our Business Startups or JOBS Act by raising the dollar amount limit and clarifying certain requirements under Section 12(g) of the Securities Exchange Act of 1934, and permits single purpose funds to participate in the sale and offer of crowdfunding securities. The bill also fixes the parts of the crowdfunding rule adopted by the Securities and Exchange Commission (SEC) issued pursuant to Title III of the JOBS Act that, according to the committee, are impracticable.

H.R. 4168, the Small Business Capital Formation Enhancement Act—The bill would require the SEC to review the recommendations generated at its annual forum of government and business experts brought together to discuss small business capital formation. The bill also would require the SEC to assess each recommendation made by the forum and disclose any action the agency intends to take with respect to such recommendations.

H.R. 2187, the Fair Investment Opportunities for Professional Experts Act—The bill amends the definition of accredited investor under the Securities Act of 1933.  Under this legislation, an accredited investor will include any individual:

  • whose individual net worth, including their spouse’s, exceeds $1 million;
  • with an income greater than $200,000 individually, or $300,000 jointly;
  • with a current securities-related license; or
  • who the Securities and Exchange Commission (SEC) determines has demonstrated education or job experience to qualify as having professional subject-matter knowledge to a particular investment. Such education or experience must be verified by the Financial Industry Regulatory Authority.

H.R. 5322, the U.S. Territories Investor Protection ActThe bill amends Section 6(a)(1) of the Investment Company Act of 1940 to terminate an exemption for investment companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States. Under current law, such companies are exempt from registration under the Act provided that their shares are sold solely to the residents of the territory or possession in which they are located.

The bill provides a three-year safe harbor for investment companies that currently enjoy this exemption to become compliant with the Act. Additionally, the bill authorizes the Securities and Exchange Commission (SEC) to further delay the effective date (or end of the exemption) for a maximum of three years following the initial three year safe harbor.

Background

The SEC is an independent, nonpartisan regulatory agency responsible for administering federal securities laws. It has broad regulatory authority over significant parts of the securities industry, including stock exchanges, mutual funds, investment advisers, and brokerage firms.[1]

The federal securities laws overseen by the SEC are broadly aimed at (1) investor protection; (2) maintaining fair, orderly, and efficient markets; and (3) facilitating capital formation. They do so by providing clear rules for honest dealing among securities market participants, including antifraud provisions, and a disclosure regime that requires the various entities involved in securities markets to disclose information deemed necessary for informed investment decision making.

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[1] See CRS Report, “Introduction to Financial Services: The Securities and Exchange Commission (SEC),” December 22, 2014.

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.