A bill to amend the securities laws to provide for registration exemptions for certain crowdfunded securities, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Capital Raising Online While 
Deterring Fraud and Unethical Non-Disclosure Act of 2011'' or the 
``CROWDFUND Act''.

SEC. 2. CROWDFUNDING EXEMPTION.

    (a) Securities Act of 1933.--Section 4 of the Securities Act of 
1933 (15 U.S.C. 77d) is amended by adding at the end the following:
            ``(6) any transaction involving the offer or sale of 
        securities by an issuer (including all entities controlled by 
        or under common control with the issuer), provided that--
                    ``(A) the aggregate amount sold to all investors by 
                an issuer, including any amount sold in reliance on the 
                exemption provided under this paragraph during the 12-
                month period preceding the date of such transaction, is 
                not more than $1,000,000, as such amount is adjusted by 
                the Commission by notice published in the Federal 
                Register to reflect the annual change in the Consumer 
                Price Index for All Urban Consumers published by the 
                Bureau of Labor Statistics;
                    ``(B) the aggregate amount sold to any investor by 
                an issuer, including any amount sold in reliance on the 
                exemption provided under this paragraph during the 12-
                month period preceding the date of such transaction, 
                does not exceed the greater of--
                            ``(i) $500, as such amount is adjusted by 
                        the Commission by notice published in the 
                        Federal Register to reflect the annual change 
                        in the Consumer Price Index for All Urban 
                        Consumers published by the Bureau of Labor 
                        Statistics; or
                            ``(ii) if the investor has an annual income 
                        of--
                                    ``(I) greater than $50,000 but less 
                                than $100,000 (as such amounts are 
                                adjusted by the Commission by notice 
                                published in the Federal Register to 
                                reflect the annual change in the 
                                Consumer Price Index for All Urban 
                                Consumers published by the Bureau of 
                                Labor Statistics), 1 percent of the 
                                annual income of such investor; or
                                    ``(II) greater than $100,000 (as 
                                such amount is adjusted by the 
                                Commission by notice published in the 
                                Federal Register to reflect the annual 
                                change in the Consumer Price Index for 
                                All Urban Consumers published by the 
                                Bureau of Labor Statistics), 2 percent 
                                of the annual income of such investor;
                    ``(C) the transaction is conducted through a broker 
                or funding portal that complies with the requirements 
                of section 4A(a); and
                    ``(D) the issuer complies with the requirements of 
                section 4A(b).''.
    (b) Requirements To Qualify for Crowdfunding Exemption.--The 
Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended by inserting 
after section 4 the following:

``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL TRANSACTIONS.

    ``(a) Requirements on Intermediaries.--A person engaged in the 
business of effecting transactions in securities for the account of 
others pursuant to section 4(6) shall--
            ``(1) register with the Commission as--
                    ``(A) a broker; or
                    ``(B) a funding portal (as defined in section 
                3(a)(80) of the Securities Exchange Act of 1934);
            ``(2) register with any applicable self-regulatory 
        organization (as defined in section 3(a)(26) of the Securities 
        Exchange Act of 1934);
            ``(3) provide such disclosures, including disclosures 
        related to risks and other investor education materials, as the 
        Commission shall, by rule, determine appropriate;
            ``(4) ensure that each potential investor--
                    ``(A) reviews investor-education information, in 
                line with standards established by the Commission, by 
                rule;
                    ``(B) positively affirms that the investor 
                understands that the investor is risking the loss of 
                the entire investment, and that the investor could bear 
                such a loss; and
                    ``(C) answers questions demonstrating--
                            ``(i) an understanding of the level of risk 
                        generally applicable to investments in 
                        startups, emerging businesses, and small 
                        issuers;
                            ``(ii) an understanding of the risk of 
                        illiquidity; and
                            ``(iii) an understanding of such other 
                        matters as the Commission determines 
                        appropriate, by rule;
            ``(5) take such measures to reduce the risk of fraud with 
        respect to such transactions, as established by rule of the 
        Commission, including obtaining a criminal background check and 
        securities enforcement regulatory history check on each 
        officer, director, and person holding more than 20 percent of 
        the shares of every issuer whose securities are offered by such 
        person;
            ``(6) not later than 1 month prior to the first day on 
        which securities are offered to any potential investor (or such 
        other period as the Commission may establish), provide in 
        writing to the Commission and each potential investor any 
        information provided by the issuer pursuant to subsection (b);
            ``(7) ensure that all offering proceeds are only provided 
        to the issuer when the aggregate capital raised from all 
        investors is equal to the target offering amount, and allow all 
        investors to cancel their commitments to invest, as the 
        Commission, by rule, shall determine appropriate;
            ``(8) make such efforts as the Commission determines 
        appropriate, by rule, to ensure that, for any offering made 
        pursuant to section 4(6), that no investor exceeds the 
        investment limits set forth in section 4(6)(B);
            ``(9) make such efforts as the Commission determines 
        appropriate, by rule, to ensure that no investor has purchased 
        securities offered pursuant to section 4(6), that in the 
        aggregate from all issuers, exceed the greater of--
                    ``(A) $2,000 (as such amount is adjusted by the 
                Commission, by notice published in the Federal Register 
                to reflect the annual change in the Consumer Price 
                Index for All Urban Consumers published by the Bureau 
                of Labor Statistics); or
                    ``(B) if the investor has an annual income of--
                            ``(i) greater than $50,000 but not more 
                        than $100,000 (as such amounts are adjusted by 
                        the Commission, by notice published in the 
                        Federal Register to reflect the annual change 
                        in the Consumer Price Index for All Urban 
                        Consumers published by the Bureau of Labor 
                        Statistics), 4 percent of the annual income of 
                        such investor; or
                            ``(ii) greater than $100,000 (as such 
                        amount is adjusted by the Commission by notice 
                        published in the Federal Register to reflect 
                        the annual change in the Consumer Price Index 
                        for All Urban Consumers published by the Bureau 
                        of Labor Statistics), 8 percent of the annual 
                        income of such investor;
            ``(10) takes such steps to protect the privacy of 
        information collected from investors as the Commission shall, 
        by rule, determine appropriate;
            ``(11) not compensate promoters, finders, lead generators, 
        or other persons to attract or provide the personal information 
        of any potential investor;
            ``(12) prohibit its directors, officers, partners, or 
        employees (or any person occupying a similar status or 
        performing a similar function) from having any financial 
        interest in an issuer using its services; and
            ``(13) meet such other requirements as the Commission may, 
        by rule, prescribe.
    ``(b) Requirements for Issuers.--For purposes of section 4(6), an 
issuer who offers or sells securities shall--
            ``(1) be organized under and subject to the laws of a 
        State;
            ``(2) file with the Commission and provide to actual and 
        potential investors and the relevant broker or funding portal--
                    ``(A) the name, legal status, physical address, and 
                website address of the issuer;
                    ``(B) the names of the directors and officers (and 
                any persons occupying a similar status or performing a 
                similar function), and each person holding more than 20 
                percent of the shares of the issuer;
                    ``(C) a description of the business of the issuer 
                and the anticipated business plan of the issuer;
                    ``(D) a description of the financial condition of 
                the issuer, including--
                            ``(i) financial statements reviewed by a 
                        public accountant who is independent of the 
                        issuer, using professional standards and 
                        procedures for such review or standards and 
                        procedures established by rule of the 
                        Commission for such purpose; or
                            ``(ii) for offerings seeking to raise more 
                        than $500,000 (or such other amount as may be 
                        established by the Commission, by rule), 
                        audited financial statements;
                    ``(E) a description of the stated purpose and 
                intended use of the proceeds of the offering sought by 
                the issuer;
                    ``(F) the target offering amount, the deadline to 
                reach the target offering amount, and regular updates 
                regarding the progress of the issuer in meeting the 
                target offering amount;
                    ``(G) the price at which the securities will be 
                offered for a given ownership stake;
                    ``(H) a description of the ownership and capital 
                structure of the issuer, how the securities being 
                offered are being valued, what the rights of the 
                securities are, and how rights may be exercised by the 
                issuer and shareholders; and
                    ``(I) such other information as the Commission may, 
                by rule, prescribe;
            ``(3) not advertise the specific details of the offering, 
        except for notices which direct investors to the funding portal 
        or broker;
            ``(4) file with the Commission and provide to investors 
        quarterly reports of the results of operations and financial 
        statements, as the Commission shall, by rule, determine 
        appropriate, subject to such exceptions and termination dates 
        as the Commission may establish, by rule; and
            ``(5) comply with such other requirements as the Commission 
        may prescribe, by rule.
    ``(c) Liability for Misstatements.--The issuer and any person who 
is a director or officer (or any person occupying a similar status or 
performing a similar function) or partner in the issuer shall be liable 
to any person acquiring such security that was subject to an offering 
pursuant to section 4(6) for any untrue statement of a material fact or 
omission to state a material fact required to be stated in connection 
with any offering made pursuant to section 4(6).
    ``(d) Information Available to States.--The Commission shall make 
the information described in subsection (b) and such other information 
as the Commission, by rule, determines appropriate, available to the 
appropriate securities regulatory authority of each State.
    ``(e) Restrictions on Sales.--Securities issued pursuant to a 
transaction described in section 4(6)--
            ``(1) may not be transferred by the purchaser of such 
        securities during the 2-year period beginning on the date of 
        purchase, unless such securities are transferred--
                    ``(A) to the issuer of the securities;
                    ``(B) to an accredited investor;
                    ``(C) as part of an offering registered with the 
                Commission; or
                    ``(D) to a member of the family of the purchaser or 
                the equivalent, or in connection with the death of the 
                purchaser; and
            ``(2) shall be subject to such other limitations as the 
        Commission shall establish, by rule.
    ``(f) Rule of Construction.--Nothing in this section or section 
4(6) shall be construed as preventing an issuer from raising capital 
through methods not described under section 4(6).''.
    (c) Rulemaking.--Not later than 1 year after the date of enactment 
of this Act, the Securities and Exchange Commission (in this Act 
referred to as the ``Commission'') shall issue such rules as may be 
necessary to carry out section 4(6) and section 4A of the Securities 
Act of 1933, as added by this Act.
    (d) Disqualification.--Not later than 1 year after the date of 
enactment of this Act, the Commission shall, by rule, establish 
disqualification provisions that are 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 (15 U.S.C. 77d note)--
            (1) under which an issuer shall not be eligible to offer 
        securities pursuant to section 4(6) of the Securities Act of 
        1933, as added by this Act; and
            (2) under which a funding portal or broker shall not be 
        eligible to effect transactions for the account of others 
        pursuant to section 4(6) of the Securities Act of 1933, as 
        added by this Act.

SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM SHAREHOLDER CAP.

    Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. 
78l(g)) is amended by adding at the end the following:
            ``(6) Exclusion for persons holding certain securities.--
        The Commission may, as appropriate, exempt from this subsection 
        securities acquired pursuant to an offering made under section 
        4(6) of the Securities Act of 1933.''.

SEC. 4. FUNDING PORTAL REGULATION.

    (a) Exemption.--
            (1) In general.--Section 3 of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78c) is amended by adding at the end the 
        following:
    ``(h) Limited Exemption for Funding Portals.--The Commission shall, 
by rule, as the Commission determines appropriate, exempt funding 
portals from the registration requirements of section 15(a)(1), 
conditionally or unconditionally, provided that such funding portals 
remain subject to such examination by the Commission and a national 
securities association and to such other requirements under this title 
as the Commission determines appropriate under such rule.''.
            (2) Rulemaking.--A rule to carry out section 3(h) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78c), as added by 
        this subsection, shall be issued not later than 1 year after 
        the date of enactment of this Act.
    (b) Definition.--Section 3(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following:
            ``(80) Funding portal.--The term `funding portal' means any 
        person engaged in the business of effecting transactions in 
        securities for the account of others, solely pursuant to 
        section 4(6) of the Securities Act of 1933 (15 U.S.C. 77d(6)) 
        that does not--
                    ``(A) offer investment advice or recommendations;
                    ``(B) solicit purchases, sales, or offers to buy 
                the securities offered or displayed on its website or 
                portal;
                    ``(C) compensate employees, agents, or other third 
                parties for such solicitation or based on the sale of 
                securities displayed or references on its website or 
                portal;
                    ``(D) hold, manage, possess, or otherwise handle 
                investor funds or securities; or
                    ``(E) engage in such other activities as the 
                Commission may, by rule, determine appropriate.''.

SEC. 5. FRAUD RESPONSE REVIEW.

    The Commission shall conduct a review of the effects of the 
provisions of this Act on investor protection--
            (1) once every 6 months during the first 2 years after the 
        date of enactment of this Act;
            (2) annually during the 3 years following the 2-year period 
        referred to in paragraph (1); and
            (3) not less frequently than once every 5 years thereafter.

Summary: Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2011 or CROWDFUND Act - Amends the Securities Act of 1933 (SA) to prescribe conditions under which transactions of $1 million or less involving the offer or sale of securities by an issuer through a broker or funding portal are exempt from certain registration requirements and prohibitions relating to interstate commerce and the mails . Amends the Securities Exchange Act of 1934 (SEA) to define funding portal as any person engaged in the business of effecting securities transactions for the account of others, solely pursuant to the crowdfunding exemption under this Act, that does not: (1) offer investment advice or recommendations. (2) solicit purchases, sales, or offers to buy the securities offered or displayed on its website or portal. (3) compensate employees, agents, or other third parties for such solicitation or based on the sale of securities displayed or references on its website or portal. (4) hold, manage, possess, or otherwise handle investor funds or securities. Or (5) engage in other activities determined by the Securities and Exchange Commission (SEC). Amends the SA to set forth qualification requirements for such crowdfunding exemption, including those for intermediaries and issuers. Sets forth restrictions on sales of such exempt securities. Amends the SEA to authorize the SEC to exempt crowdfunding investors from certain shareholder caps under the Securities Act of 1933. Requires the SEC to exempt funding portals from certain registration requirements, provided that they remain subject to examination by the SEC and a national securities association. Directs the SEC to review periodically the effects of this Act upon investor protection.