79–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 115–383 

MICRO OFFERING SAFE HARBOR ACT 

NOVEMBER 1, 2017.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 2201] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 2201) to amend the Securities Act of 1933 to exempt certain micro-offerings from the registration requirements of such Act, 

and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do 

pass. 

PURPOSE AND SUMMARY

On April 27, 2017, Representative Tom Emmer introduced H.R. 

2201 the ‘‘Micro Offering Safe Harbor Act’’, which amends the Securities Act of 1933 (Securities Act) to exempt certain micro-offerings from the Act’s registration requirements. An issuer of securities would not violate the Act when making a non-public securities 

offering if all of the following requirements are met: (1) each purchaser has a substantive pre-existing relationship with an officer, 

director, or shareholder with 10 percent or more of the shares of 

the issuer; (2) the issuer reasonably believes that there are no more 

than 35 purchasers of securities from the issuer that are sold in reliance on the exemption during the 12-month period preceding the 

transaction; and (3) the aggregate amount of all securities sold by 

the issuer does not exceed $500,000 over a 12-month period. 

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BACKGROUND AND NEED FOR LEGISLATION

The Micro Offering Safe Harbor Act amends the Securities Act 

to exempt certain securities offerings from the Act’s registration requirements. Although small companies are at the forefront of technological innovation and job creation, they often face significant obstacles in obtaining funding in the capital markets. These obstacles 

are commonly the result of the disproportionate burden that securities regulations—written for large public companies—place on 

small companies when they seek to go public to raise equity capital. 

A large portion of startups rely on small, nonpublic offerings 

(also known as ‘‘private placements’’), such as a ‘‘friends and family’’ round, to raise initial, early-stage, seed capital. However, the 

Securities Act does not clearly define what constitutes a public offering, or conversely, a nonpublic offering, which then makes it 

easy for early-stage companies to unintentionally run afoul of the 

Act when it seeks to offer securities to potential investors in a private placement. 

Since the enactment of the federal securities laws 1933, ‘‘transactions by an issuer not involving any public offering’’ have been 

exempt. To address the uncertainty such language imposes on 

early-stage companies, the Micro Offering Safe Harbor Act finally 

defines the ‘‘nonpublic offering’’ exemption under the Securities Act 

and provides small businesses with needed clarity and confidence 

to know that their offering is not a Securities Act violation. 

As an example, H.R. 2201 could allow the owner of a local restaurant chain or a start-up business to make a presentation to a 

local chamber of commerce and solicit an investment in their business without running afoul of the federal securities laws. By facilitating micro-offerings, the bill provides a useful alternative to asking friends or family for money, which can be time consuming, and 

to completing a private offering under Securities and Exchange 

Commission (SEC) Regulation D, which can be costly for a small 

business. 

H.R. 2201 does not remove or inhibit either the SEC or the Department of Justice’s authority to prosecute securities fraud. With 

anti-fraud protections still in place, the legislation appropriately 

scales federal rules and regulatory compliance costs for small businesses and provides another practical option for entrepreneurs to 

raise the capital necessary to start or grow their business. Under 

H.R. 2201, small private companies will not have to incur formidable legal costs and contend with regulatory uncertainty, as the 

SEC will not have to take any action to authorize a micro-offering. 

HEARINGS

The Committee on Financial Services held a hearing examining 

matters relating to H.R. 2201 on March 22, 2017, April 26, 2017, 

and July 18, 2017. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on October 11, 2017 and October 12, 2017, and ordered H.R. 2201 to be 

reported favorably to the House without amendment by a recorded 

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vote of 34 yeas to 26 nays (Record vote no. FC–92), a quorum being 

present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 34 yeas to 26 nays (Record vote no. FC– 

92), a quorum being present. 

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Insert graphic folio 4 HR383.001
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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 2201 will allow 

small businesses to access capital needed to grow by amending the 

Securities Act of 1933 to clarify what constitutes a ‘‘nonpublic offering’’ of securities and by authorizing ‘‘micro-offerings’’ to clarify the 

requirements that small businesses need to comply with to not violate the federal securities laws when making a nonpublic offering. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, October 30, 2017. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2201, the Micro Offering 

Safe Harbor Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Stephen Rabent. 

Sincerely, 

KEITH HALL, Director. 

Enclosure. 

H.R. 2201—Micro Offering Safe Harbor Act 

Under current law, the Securities and Exchange Commission 

(SEC) prohibits the sale or delivery of securities that have not been 

registered with the agency. Some transactions are exempt from this 

prohibition. H.R. 2201 would expand the exemption to include the 

sale of securities that meet certain criteria regarding the number 

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of purchasers and aggregate offering amount sold by the issuer in 

a 12-month period. The bill also would exempt such transactions 

from state regulation of securities offerings. 

Under H.R. 2201, CBO expects only a relatively small number of 

securities transactions would be covered under the expanded exemption that are not currently covered by other existing exemptions. As a result, and on the basis of information from the SEC, 

CBO estimates that implementing H.R. 2201 would have no significant effect on the agency’s costs to update, monitor, and enforce 

regulations. Moreover, the SEC is authorized to collect fees sufficient to offset its annual appropriation; therefore, CBO estimates 

that the net effect on discretionary spending would be negligible, 

assuming appropriation actions consistent with that authority. 

Enacting H.R. 2201 would not affect direct spending or revenues; 

therefore, pay-as-you-go procedures do not apply. 

CBO estimates that enacting H.R. 2201 would not increase net 

direct spending or on-budget deficits in any of the four consecutive 

10-year periods beginning in 2028. 

H.R. 2201 would preempt state laws that govern state-level registration of security offerings by exempting some security offerings 

from state registration and regulation. Issuers would be exempt 

from registering such securities if each purchaser of the security 

has a pre-existing relationship with the officer of the issuer, the offering has 35 or fewer purchasers, and the aggregate amount of securities sold by the issuer does not exceed $500,000 in a 12-month 

period. The preemption would be a mandate as defined in the Unfunded Mandate Reform Act (UMRA) because it would limit the authority of states to apply their own laws and regulations. However, 

CBO estimates that the preemption itself would impose no duty on 

states that would result in additional spending or a loss of revenues. 

H.R. 2201 contains no private-sector mandates as defined in 

UMRA. 

The CBO staff contacts for this estimate are Stephen Rabent (for 

federal costs) and Logan Smith (for intergovernmental mandates). 

The estimate was approved by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

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accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rulemakings: The 

Committee estimates that the bill requires no directed rulemakings 

within the meaning of such section. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This Section cites H.R. 2201 as the ‘‘Micro Offering Safe Harbor 

Act.’’ 

Section 2. Exemptions for micro-offerings 

This section amends Section 4 of the Securities Act of 1933 to 

clarify the exemptions from federal securities laws for nonpublic offerings. Specifically, small businesses are exempt if they meet all 

of the following requirements: each investor has a substantive preexisting relationship with an officer, director, or shareholder of the 

issuer; there are 35 or fewer purchasers of securities from the 

issuer that are sold in reliance on the applicable exemption over a 

12-month period; and the amount of securities sold by the issuer 

does not exceed $500,000 over a 12-month period. The section also 

exempts such micro-offerings from state regulation of securities offerings. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

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CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

SECURITIES ACT OF 1933 

* * * * * * * 

TITLE I— 

* * * * * * * 

EXEMPTED TRANSACTIONS

SEC. 4. (a) The provisions of section 5 shall not apply to— 

(1) transactions by any person other than an issuer, underwriter, or dealer. 

(2) transactions by an issuer not involving any public offering. 

(3) transactions by a dealer (including an underwriter no 

longer acting as an underwriter in respect of the security involved in such transaction), except— 

(A) transactions taking place prior to the expiration of 

forty days after the first date upon which the security was 

bona fide offered to the public by the issuer or by or 

through an underwriter, 

(B) transactions in a security as to which a registration 

statement has been filed taking place prior to the expiration of forty days after the effective date of such registration statement or prior to the expiration of forty days after 

the first date upon which the security was bona fide offered to the public by the issuer or by or through an underwriter after such effective date, whichever is later (excluding in the computation of such forty days any time 

during which a stop order issued under section 8 is in effect as to the security), or such shorter period as the Commission may specify by rules and regulations or order, and 

(C) transactions as to securities constituting the whole 

or a part of an unsold allotment to or subscription by such 

dealer as a participant in the distribution of such securities by the issuer or by or through an underwriter. 

With respect to transactions referred to in clause (B), if securities of the issuer have not previously been sold pursuant to an 

earlier effective registration statement the applicable period, 

instead of forty days, shall be ninety days, or such shorter period as the Commission may specify by rules and regulations 

or order. 

(4) brokers’ transactions executed upon customers’ orders on 

any exchange or in the over-the-counter market but not the solicitation of such orders. 

(5) transactions involving offers or sales by an issuer solely 

to one or more accredited investors, if the aggregate offering 

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price of an issue of securities offered in reliance on this paragraph does not exceed the amount allowed under section 

3(b)(1) of this title, if there is no advertising or public solicitation in connection with the transaction by the issuer or anyone 

acting on the issuer’s behalf, and if the issuer files such notice 

with the Commission as the Commission shall prescribe. 

(6) transactions 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 the 

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; 

(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— 

(i) the greater of $2,000 or 5 percent of the annual 

income or net worth of such investor, as applicable, if 

either the annual income or the net worth of the investor is less than $100,000; and 

(ii) 10 percent of the annual income or net worth of 

such investor, as applicable, not to exceed a maximum 

aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or 

more than $100,000; 

(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). 

(7) transactions meeting the requirements of subsection (d). 

(8) transactions meeting the requirements of subsection (f). 

(b) Offers and sales exempt under section 230.506 of title 17, 

Code of Federal Regulations (as revised pursuant to section 201 of 

the Jumpstart Our Business Startups Act) shall not be deemed 

public offerings under the Federal securities laws as a result of 

general advertising or general solicitation. 

(c)(1) With respect to securities offered and sold in compliance 

with Rule 506 of Regulation D under this Act, no person who meets 

the conditions set forth in paragraph (2) shall be subject to registration as a broker or dealer pursuant to section 15(a)(1) of this 

title, solely because— 

(A) that person maintains a platform or mechanism that 

permits the offer, sale, purchase, or negotiation of or with 

respect to securities, or permits general solicitations, general advertisements, or similar or related activities by 

issuers of such securities, whether online, in person, or 

through any other means; 

(B) that person or any person associated with that person co-invests in such securities; or 

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(C) that person or any person associated with that person provides ancillary services with respect to such securities. 

(2) The exemption provided in paragraph (1) shall apply to any 

person described in such paragraph if— 

(A) such person and each person associated with that person 

receives no compensation in connection with the purchase or 

sale of such security; 

(B) such person and each person associated with that person 

does not have possession of customer funds or securities in connection with the purchase or sale of such security; and 

(C) such person is not subject to a statutory disqualification 

as defined in section 3(a)(39) of this title and does not have any 

person associated with that person subject to such a statutory 

disqualification. 

(3) For the purposes of this subsection, the term ‘‘ancillary services’’ means— 

(A) the provision of due diligence services, in connection with 

the offer, sale, purchase, or negotiation of such security, so 

long as such services do not include, for separate compensation, investment advice or recommendations to issuers or investors; and 

(B) the provision of standardized documents to the issuers 

and investors, so long as such person or entity does not negotiate the terms of the issuance for and on behalf of third parties and issuers are not required to use the standardized documents as a condition of using the service. 

(d) CERTAIN ACCREDITED INVESTOR TRANSACTIONS.—The transactions referred to in subsection (a)(7) are transactions meeting the 

following requirements: 

(1) ACCREDITED INVESTOR REQUIREMENT.—Each purchaser is 

an accredited investor, as that term is defined in section 

230.501(a) of title 17, Code of Federal Regulations (or any successor regulation). 

(2) PROHIBITION ON GENERAL SOLICITATION OR ADVER- TISING.—Neither the seller, nor any person acting on the seller’s behalf, offers or sells securities by any form of general solicitation or general advertising. 

(3) INFORMATION REQUIREMENT.—In the case of a transaction 

involving the securities of an issuer that is neither subject to 

section 13 or 15(d) of the Securities Exchange Act of 1934 (15 

U.S.C. 78m; 78o(d)), nor exempt from reporting pursuant to 

section 240.12g3–2(b) of title 17, Code of Federal Regulations, 

nor a foreign government (as defined in section 230.405 of title 

17, Code of Federal Regulations) eligible to register securities 

under Schedule B, the seller and a prospective purchaser designated by the seller obtain from the issuer, upon request of 

the seller, and the seller in all cases makes available to a prospective purchaser, the following information (which shall be 

reasonably current in relation to the date of resale under this 

section): 

(A) The exact name of the issuer and the issuer’s predecessor (if any). 

(B) The address of the issuer’s principal executive offices. 

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(C) The exact title and class of the security. 

(D) The par or stated value of the security. 

(E) The number of shares or total amount of the securities outstanding as of the end of the issuer’s most recent 

fiscal year. 

(F) The name and address of the transfer agent, corporate secretary, or other person responsible for transferring shares and stock certificates. 

(G) A statement of the nature of the business of the 

issuer and the products and services it offers, which shall 

be presumed reasonably current if the statement is as of 

12 months before the transaction date. 

(H) The names of the officers and directors of the issuer. 

(I) The names of any persons registered as a broker, 

dealer, or agent that shall be paid or given, directly or indirectly, any commission or remuneration for such person’s 

participation in the offer or sale of the securities. 

(J) The issuer’s most recent balance sheet and profit and 

loss statement and similar financial statements, which 

shall— 

(i) be for such part of the 2 preceding fiscal years as 

the issuer has been in operation; 

(ii) be prepared in accordance with generally accepted accounting principles or, in the case of a foreign 

private issuer, be prepared in accordance with generally accepted accounting principles or the International Financial Reporting Standards issued by the 

International Accounting Standards Board; 

(iii) be presumed reasonably current if— 

(I) with respect to the balance sheet, the balance sheet is as of a date less than 16 months before the transaction date; and 

(II) with respect to the profit and loss statement, such statement is for the 12 months preceding the date of the issuer’s balance sheet; and 

(iv) if the balance sheet is not as of a date less than 

6 months before the transaction date, be accompanied 

by additional statements of profit and loss for the period from the date of such balance sheet to a date less 

than 6 months before the transaction date. 

(K) To the extent that the seller is a control person with 

respect to the issuer, a brief statement regarding the nature of the affiliation, and a statement certified by such 

seller that they have no reasonable grounds to believe that 

the issuer is in violation of the securities laws or regulations. 

(4) ISSUERS DISQUALIFIED.—The transaction is not for the 

sale of a security where the seller is an issuer or a subsidiary, 

either directly or indirectly, of the issuer. 

(5) BAD ACTOR PROHIBITION.—Neither the seller, nor any person that has been or will be paid (directly or indirectly) remuneration or a commission for their participation in the offer or 

sale of the securities, including solicitation of purchasers for 

the seller is subject to an event that would disqualify an issuer 

or other covered person under Rule 506(d)(1) of Regulation D 

12 

(17 CFR 230.506(d)(1)) or is subject to a statutory disqualification described under section 3(a)(39) of the Securities Exchange Act of 1934. 

(6) BUSINESS REQUIREMENT.—The issuer is engaged in business, is not in the organizational stage or in bankruptcy or receivership, and is not a blank check, blind pool, or shell company that has no specific business plan or purpose or has indicated that the issuer’s primary business plan is to engage in 

a merger or combination of the business with, or an acquisition 

of, an unidentified person. 

(7) UNDERWRITER PROHIBITION.—The transaction is not with 

respect to a security that constitutes the whole or part of an 

unsold allotment to, or a subscription or participation by, a 

broker or dealer as an underwriter of the security or a redistribution. 

(8) OUTSTANDING CLASS REQUIREMENT.—The transaction is 

with respect to a security of a class that has been authorized 

and outstanding for at least 90 days prior to the date of the 

transaction. 

(e) ADDITIONAL REQUIREMENTS.— 

(1) IN GENERAL.—With respect to an exempted transaction 

described under subsection (a)(7): 

(A) Securities acquired in such transaction shall be 

deemed to have been acquired in a transaction not involving any public offering. 

(B) Such transaction shall be deemed not to be a distribution for purposes of section 2(a)(11). 

(C) Securities involved in such transaction shall be 

deemed to be restricted securities within the meaning of 

Rule 144 (17 CFR 230.144). 

(2) RULE OF CONSTRUCTION.—The exemption provided by 

subsection (a)(7) shall not be the exclusive means for establishing an exemption from the registration requirements of section 5. 

(f) CERTAIN MICRO-OFFERINGS.—The transactions referred to in 

subsection (a)(8) are transactions involving the sale of securities by 

an issuer (including all entities controlled by or under common control with the issuer) that meet all of the following requirements: 

(1) PRE-EXISTING RELATIONSHIP.—Each purchaser has a substantive pre-existing relationship with an officer of the issuer, 

a director of the issuer, or a shareholder holding 10 percent or 

more of the shares of the issuer. 

(2) 35 OR FEWER PURCHASERS.—There are no more than, or 

the issuer reasonably believes that there are no more than, 35 

purchasers of securities from the issuer that are sold in reliance 

on the exemption provided under subsection (a)(8) during the 

12-month period preceding such transaction. 

(3) SMALL OFFERING AMOUNT.—The aggregate amount of all 

securities sold by the issuer, including any amount sold in reliance on the exemption provided under subsection (a)(8), during 

the 12-month period preceding such transaction, does not exceed 

$500,000. 

* * * * * * * 

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SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS. 

(a) SCOPE OF EXEMPTION.—Except as otherwise provided in this 

section, no law, rule, regulation, or order, or other administrative 

action of any State or any political subdivision thereof— 

(1) requiring, or with respect to, registration or qualification 

of securities, or registration or qualification of securities transactions, shall directly or indirectly apply to a security that— 

(A) is a covered security; or 

(B) will be a covered security upon completion of the 

transaction; 

(2) shall directly or indirectly prohibit, limit, or impose any 

conditions upon the use of— 

(A) with respect to a covered security described in subsection (b), any offering document that is prepared by or 

on behalf of the issuer; or 

(B) any proxy statement, report to shareholders, or other 

disclosure document relating to a covered security or the 

issuer thereof that is required to be and is filed with the 

Commission or any national securities organization registered under section 15A of the Securities Exchange Act 

of 1934, except that this subparagraph does not apply to 

the laws, rules, regulations, or orders, or other administrative actions of the State of incorporation of the issuer; or 

(3) shall directly or indirectly prohibit, limit, or impose conditions, based on the merits of such offering or issuer, upon the 

offer or sale of any security described in paragraph (1). 

(b) COVERED SECURITIES.—For purposes of this section, the following are covered securities: 

(1) EXCLUSIVE FEDERAL REGISTRATION OF NATIONALLY TRADED SECURITIES.—A security is a covered security if such security is— 

(A) listed, or authorized for listing, on the New York 

Stock Exchange or the American Stock Exchange, or listed, 

or authorized for listing, on the National Market System 

of the Nasdaq Stock Market (or any successor to such entities); 

(B) listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) that has listing 

standards that the Commission determines by rule (on its 

own initiative or on the basis of a petition) are substantially similar to the listing standards applicable to securities described in subparagraph (A); or 

(C) a security of the same issuer that is equal in seniority or that is a senior security to a security described in 

subparagraph (A) or (B). 

(2) EXCLUSIVE FEDERAL REGISTRATION OF INVESTMENT COMPANIES.—A security is a covered security if such security is a 

security issued by an investment company that is registered, 

or that has filed a registration statement, under the Investment Company Act of 1940. 

(3) SALES TO QUALIFIED PURCHASERS.—A security is a covered security with respect to the offer or sale of the security 

to qualified purchasers, as defined by the Commission by rule. 

In prescribing such rule, the Commission may define the term 

14 

‘‘qualified purchaser’’ differently with respect to different categories of securities, consistent with the public interest and the 

protection of investors. 

(4) EXEMPTION IN CONNECTION WITH CERTAIN EXEMPT OFFER- INGS.—A security is a covered security with respect to a transaction that is exempt from registration under this title pursuant to— 

(A) paragraph (1) or (3) of section 4, and the issuer of 

such security files reports with the Commission pursuant 

to section 13 or 15(d) of the Securities Exchange Act of 

1934; 

(B) section 4(4); 

(C) section 4(6); 

(D) a rule or regulation adopted pursuant to section 

3(b)(2) and such security is— 

(i) offered or sold on a national securities exchange; 

or 

(ii) offered or sold to a qualified purchaser, as defined by the Commission pursuant to paragraph (3) 

with respect to that purchase or sale; 

(E) section 3(a), other than the offer or sale of a security 

that is exempt from such registration pursuant to paragraph (4), (10), or (11) of such section, except that a municipal security that is exempt from such registration pursuant to paragraph (2) of such section is not a covered security with respect to the offer or sale of such security in the 

State in which the issuer of such security is located; 

(F) Commission rules or regulations issued under section 

4(2), except that this subparagraph does not prohibit a 

State from imposing notice filing requirements that are 

substantially similar to those required by rule or regulation under section 4(2) that are in effect on September 1, 

1996; øor¿ 

(G) section 4(a)(7)ø.¿; or 

(H) section 4(a)(8). 

(c) PRESERVATION OF AUTHORITY.— (1) FRAUD AUTHORITY.—Consistent with this section, the securities commission (or any agency or office performing like 

functions) of any State shall retain jurisdiction under the laws 

of such State to investigate and bring enforcement actions, in 

connection with securities or securities transactions 

(A) with respect to— 

(i) fraud or deceit; or 

(ii) unlawful conduct by a broker or dealer; and 

(B) in connection to a transaction described under section 4(6), with respect to— 

(i) fraud or deceit; or 

(ii) unlawful conduct by a broker, dealer, funding 

portal, or issuer. 

(2) PRESERVATION OF FILING REQUIREMENTS.— (A) NOTICE FILINGS PERMITTED.—Nothing in this 

section prohibits the securities commission (or any agency 

or office performing like functions) of any State from requiring the filing of any document filed with the Commission pursuant to this title, together with annual or periodic 

15 

reports of the value of securities sold or offered to be sold 

to persons located in the State (if such sales data is not 

included in documents filed with the Commission), solely 

for notice purposes and the assessment of any fee, together 

with a consent to service of process and any required fee. 

(B) PRESERVATION OF FEES.— 

(i) IN GENERAL.—Until otherwise provided by law, 

rule, regulation, or order, or other administrative action of any State or any political subdivision thereof, 

adopted after the date of enactment of the National 

Securities Markets Improvement Act of 1996, filing or 

registration fees with respect to securities or securities 

transactions shall continue to be collected in amounts 

determined pursuant to State law as in effect on the 

day before such date. 

(ii) SCHEDULE.—The fees required by this subparagraph shall be paid, and all necessary supporting data 

on sales or offers for sales required under subparagraph (A), shall be reported on the same 

schedule as would have been applicable had the issuer 

not relied on the exemption provided in subsection (a). 

(C) AVAILABILITY OF PREEMPTION CONTINGENT ON PAYMENT OF FEES.— 

(i) IN GENERAL.—During the period beginning on the 

date of enactment of the National Securities 

Markets Improvement Act of 1996 and ending 3 years 

after that date of enactment, the securities commission (or any agency or office performing like functions) 

of any State may require the registration of securities 

issued by any issuer who refuses to pay the fees required by subparagraph (B). 

(ii) DELAYS.—For purposes of this subparagraph, 

delays in payment of fees or underpayments of fees 

that are promptly remedied shall not constitute a refusal to pay fees. 

(D) FEES NOT PERMITTED ON LISTED SECURITIES.—Notwithstanding subparagraphs (A), (B), and (C), no filing or 

fee may be required with respect to any security that is a 

covered security pursuant to subsection (b)(1), or will be 

such a covered security upon completion of the transaction, 

or is a security of the same issuer that is equal in seniority 

or that is a senior security to a security that is a covered 

security pursuant to subsection (b)(1). 

(F) FEES NOT PERMITTED ON CROWDFUNDED SECURITIES.—Notwithstanding subparagraphs (A), (B), and (C), 

no filing or fee may be required with respect to any security that is a covered security pursuant to subsection 

(b)(4)(B), or will be such a covered security upon completion of the transaction, except for the securities commission (or any agency or office performing like functions) of 

the State of the principal place of business of the issuer, 

or any State in which purchasers of 50 percent or greater 

of the aggregate amount of the issue are residents, provided that for purposes of this subparagraph, the term 

16 

‘‘State’’ includes the District of Columbia and the territories of the United States. 

(3) ENFORCEMENT OF REQUIREMENTS.—Nothing in this section shall prohibit the securities commission (or any agency or 

office performing like functions) of any State from suspending 

the offer or sale of securities within such State as a result of 

the failure to submit any filing or fee required under law and 

permitted under this section. 

(d) DEFINITIONS.—For purposes of this section, the following definitions shall apply: 

(1) OFFERING DOCUMENT.—The term ‘‘offering document’’— 

(A) has the meaning given the term ‘‘prospectus’’ in section 2(a)(10), but without regard to the provisions of subparagraphs (a) and (b) of that section; and 

(B) includes a communication that is not deemed to offer 

a security pursuant to a rule of the Commission. 

(2) PREPARED BY OR ON BEHALF OF THE ISSUER.—Not later 

than 6 months after the date of enactment of the National Securities Markets Improvement Act of 1996, the Commission 

shall, by rule, define the term ‘‘prepared by or on behalf of the 

issuer’’ for purposes of this section. 

(3) STATE.—The term ‘‘State’’ has the same meaning as in 

section 3 of the Securities Exchange Act of 1934. 

(4) SENIOR SECURITY.—The term ‘‘senior security’’ means any 

bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock 

of a class having priority over any other class as to distribution 

of assets or payment of dividends. 

* * * * * * * 

(17) 

MINORITY VIEWS 

H.R. 2201, the so-called ‘‘Micro-Offering Safe Harbor Act of 2017’’ 

would put investors at risk by allowing companies to sell unregistered securities without important guardrails that normally apply 

to such transactions. Specifically, the bill eliminates all of the existing investor protections for unregistered securities offerings, provided that: (1) the securities are sold to investors with a substantive pre-existing relationship with individuals affiliated with 

the company; (2) there are 35 or fewer purchasers of the offered securities; and (3) the company has not sold more than $500,000 of 

securities in the year prior to the transaction. 

Federal securities laws generally prohibit a company from selling 

its securities unless it either registers them with the Securities and 

Exchange Commission (SEC), or qualifies for an exemption. Because unregistered offerings are subject to reduced disclosure requirements and often involve illiquid securities, these exemptions 

include protections intended to mitigate risks to investors. For example, the SEC’s Regulation Crowdfunding and Regulation A permit small businesses to raise capital via unregistered securities offerings, provided that the businesses supply investors with important disclosures about the offerings. Both exemptions also include 

limitations on the dollar amount of securities an individual investor can purchase. Similarly, Regulation D exempts certain offerings 

from registration with the SEC, but imposes limitations on solicitation and the financial sophistication and risk-tolerance of purchasers. H.R. 2201 leaves out the investor protections characteristic of these exemptions. 

One particularly troubling aspect of H.R. 2201 is that unregistered securities purchased under the exemption would not be characterized as ‘‘restricted,’’ and could thus be sold off to other investors immediately. As history demonstrates, the failure to restrict 

resale of unregistered securities could expose investors to abusive 

‘‘pump and dump’’ schemes. Previously, Rule 504 of Regulation D 

permitted a company to generally solicit and sell up to $1 million 

in unregistered securities without any restrictions on resale. In 

1999, however, the SEC revised Rule 504 to prohibit general solicitation and establish a holding period for those securities unless the 

offering meets certain state law requirements. The revisions followed SEC findings that ‘‘the freely tradable nature of these securities may have facilitated some later fraudulent secondary transactions in the over-the-counter markets for securities of ‘microcap’ 

companies.’’ 

Additionally, state securities regulators, who often have primary 

regulatory responsibility over small, local securities offerings, have 

raised serious concerns with H.R. 2201. For example, the North 

American Securities Administrators Association stated that the 

bill’s failure to disqualify ‘‘bad actors’’ would allow investors to be 

18 

sold private securities by ‘‘persons having been convicted of crimes 

or subject to one or more previous state enforcement actions, without any disclosure to the investor, and without any notice to state 

or federal regulators.’’ 

Democrats do not support creating statutory exemptions that 

leave investors vulnerable to fraud and repeated exploitation by 

bad actors. 

For these reasons, we oppose H.R. 2201. 

MAXINE WATERS. 

JOYCE BEATTY. 

ED PERLMUTTER. 

BILL FOSTER. 

KEITH ELLISON. 

WM. LACY CLAY. 

RUBEN J. KIHUEN. 

DAVID SCOTT. 

MICHAEL E. CAPUANO. 

CAROLYN B. MALONEY. 

GREGORY W. MEEKS. 

DENNY HECK. 

NYDIA M. VELA ́ ZQUEZ. 

STEPHEN F. LYNCH. 

DANIEL T. KILDEE. 

GWEN MOORE. 

EMANUEL CLEAVER. 

JUAN VARGAS. 

AL GREEN. 

VICENTE GONZALEZ. 

Æ