House Republicans celebrated the passage of H.R. 2799, which
aims to facilitate capital formation by strengthening public markets, helping
small businesses and entrepreneurs and creating new investment opportunities. The
bill passed via a 212-205 vote along party lines.
Financial Services Committee Chair Patrick McHenry (N.C.)
introduced the measure in April last year, dubbing it the “Expanding Access to
Capital Act.”
“Across the country, entrepreneurs with a new idea, or
seeking to grow their business, are struggling to access affordable capital,”
McHenry said in a statement. “The Expanding Access to Capital Act
addresses this and more by alleviating the unique challenges faced by job
creators and their investors who live outside major financial hubs.”
The bill includes the following four amendments recommended
by Reps. Bill Huizenga (R-Mich.), Mike Lawler (N.Y.), Frank Lucas (R-Okla.) and
Wagner (R-Mo.):
·
Huizenga’s amendment to H.R. 2799 directs
the Securities and Exchange Commission to promulgate rules with respect to the
electronic delivery of certain required disclosures to investors.
·
Lawler’s amendment clarifies the definition of “general
solicitation” and “angel investor” for purposes of the federal securities laws
to ensure that startups can discuss their products and business plans at events
known as “demo days.”
·
Lucas’s amendment would revise federal securities
laws to allow 403(b) plans to invest in collective investment trusts (CITs) and
insurance contracts that currently may be invested in by comparable retirement
plans, such as 401(k)s.
·
Wagner’s amendment applies to closed-end
investment companies – defined as entities that invest in securities with money
raised during initial public offerings – allowing them to invest assets in
securities issued by private funds.
McHenry touted the measure as building on the bipartisan
JOBS Act of 2012, although the bill’s passage came strictly along party lines
with all 212 “aye” votes cast by Republicans and all 205 “no” votes coming from
Democrats. By contrast, the JOBS Act passed 380-41 in the House and 73-26 in
the Senate, with substantial support from both sides of the political aisle.
“This legislation builds on the success of the bipartisan
JOBS Act of 2012 and will benefit Americans from all walks of life—whether
they’re saving for retirement or launching a startup. I’m proud House
Republicans advanced H.R. 2799 to provide more people with the opportunity to
achieve their American dream.”
Support for the measure
The legislation has gained support from Americans for
Prosperity, The LIBRE Initiative, Americans for Tax Reform, the Small Business
and Entrepreneurship (SBE) Council, Competitive Enterprise Institute, Heritage
Action for America and the U.S. Chamber of Commerce, among other
organizations.
“The bill would permit companies to retain emerging growth
company (EGC) status for a longer period and would promote research coverage of
more public companies,” the U.S. Chamber of Commerce said in a statement. “The
bill would also tailor Securities and Exchange Commission (SEC) reporting
requirements to be more responsive to the needs of small businesses and update
SEC registration criteria for small private fund managers. Finally, H.R. 2799
would empower more individuals to build and sustain wealth, including by
allowing ‘gig’ workers to receive equity compensation and by expanding criteria
to determine who qualifies as an ‘accredited investor’ under SEC rules.”
SBE President and CEO Karen Kerrigan called the measure “a
constructive bill that adapts and modernizes policies that serve to hinder the
availability and flow of capital to small businesses,” which also proposes to “right-sizes
compliance requirements for smaller public companies and expands Emerging
Growth Companies’ benefits to other public companies to free up more capital.”
Opposition
The legislation has received strong criticism from Democrats
and consumer advocacy groups. Rep. Maxine Waters (D-Calif.) issued a statement
from the House floor in which she urged lawmakers to reject the measure, referring
to it as the “Expanding Access to Fraud Act.” She contended that the
legislation would make it easier for companies to “offer securities without
needing to register with the SEC or provide critical disclosures to ordinary
investors.”
The measure was among 10 legislative pieces identified in a
letter the Consumer Federation of America (CFA) submitted to McHenry and Waters
in April last year as being “anti-consumer/anti-investor and harmful to our
markets.”
“This bill would expand the definition of accredited
investor to include non-accredited investors who rely on advice or
recommendations from an investment adviser or broker-dealer,” the CFA wrote. “The
standards of conduct that broker-dealers and investment advisers have under
these circumstances would allow these financial professionals to have a
financial stake in the investment being recommended and to receive direct or
indirect compensation from the issuer when they complete a transaction for
private securities. This lack of effective restrictions on conflicts of
interest for the recommendation or advice to transact in private securities is
particularly troubling, given the private placement market permits issuers to
operate with neither transparency nor accountability.”
Related news
H.R. 2799’s passage came two days after Federal Reserve
Chair Jerome Powell testified before the House Financial Services Committee and
was criticized, among other things, over the Basel III Endgame proposal to
expand risk-based capital requirements. McHenry and Rep. Andy Barr (R-Ky.)
called the proposal “fatally flawed” because it purportedly relied upon “insufficient
economic analysis, transparency, attention to stakeholder input, and bipartisan
agreement.”
“[T]here has not been clear bipartisan support on the
Federal Reserve Board or the Board of Directors of the Federal Deposit
Insurance Corp.,” the lawmakers wrote. “It is critical to the legitimacy and
independence of these agencies that they proceed through consensus-driven,
bipartisan actions.”
The proposal also has been criticized for its potential
negative impact on credit accessibility for individuals and businesses.