99–006 

112TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 112–206 

SMALL COMPANY CAPITAL FORMATION ACT OF 2011 

SEPTEMBER 14, 2011.—Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 

Mr. BACHUS, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 1070] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 1070) to amend the Securities Act of 1933 to authorize 

the Securities and Exchange Commission to exempt a certain class 

of securities from such Act, having considered the same, report favorably thereon with an amendment and recommend that the bill 

as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Small Company Capital Formation Act of 2011’’. 

SEC. 2. AUTHORITY TO EXEMPT CERTAIN SECURITIES. 

(a) IN GENERAL.—Section 3(b) of the Securities Act of 1933 (15 U.S.C. 77c(b)) is 

amended— 

(1) by striking ‘‘(b) The Commission’’ and inserting the following: 

‘‘(b) ADDITIONAL EXEMPTIONS.— 

‘‘(1) SMALL ISSUES EXEMPTIVE AUTHORITY.—The Commission’’; and 

(2) by adding at the end the following: 

‘‘(2) ADDITIONAL ISSUES.—The Commission shall by rule or regulation add a 

class of securities to the securities exempted pursuant to this section in accordance with the following terms and conditions: 

‘‘(A) The aggregate offering amount of all securities sold within the prior 

12-month period in reliance on the exemption added in accordance with this 

paragraph shall not exceed $50,000,000. 

‘‘(B) The securities may be offered and sold publicly. 


tjames on DSK6SPTVN1PROD with REPORTS
2 

‘‘(C) The securities shall not be restricted securities within the meaning 

of the Federal securities laws and the regulations promulgated thereunder. 

‘‘(D) The civil liability provision in section 12(a)(2) shall apply to any person offering or selling such securities. 

‘‘(E) The issuer may solicit interest in the offering prior to filing any offering statement, on such terms and conditions as the Commission may prescribe in the public interest or for the protection of investors. 

‘‘(F) The Commission shall require the issuer to file audited financial 

statements with the Commission annually. 

‘‘(G) Such other terms, conditions, or requirements as the Commission 

may determine necessary in the public interest and for the protection of investors, which may include— 

‘‘(i) a requirement that the issuer prepare and electronically file with 

the Commission and distribute to prospective investors an offering 

statement, and any related documents, in such form and with such content as prescribed by the Commission, which shall include a description 

of the issuer’s business operations, its financial condition, its corporate 

governance principles, its use of investor funds, and other appropriate 

matters; and 

‘‘(ii) disqualification provisions under which the exemption shall not 

be available based upon the disciplinary history of the issuer or its 

predecessors, affiliates, officers, directors, underwriters, or other related persons, which shall be 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). 

‘‘(3) LIMITATION.—Only the following types of securities may be exempted 

under a rule or regulation adopted pursuant to paragraph (2): equity securities, 

debt securities, and debt securities convertible or exchangeable to equity interests, including any guarantees of such securities. 

‘‘(4) PERIODIC DISCLOSURES.—Upon such terms and conditions as the Commission determines necessary in the public interest and for the protection of investors, the Commission by rule or regulation may require an issuer of a class of 

securities exempted under paragraph (2) to make available to investors periodic 

disclosures regarding the issuer, its business operations, its financial condition, 

its corporate governance principles, its use of investor funds, and other appropriate matters, and also may provide for the suspension and termination of such 

a requirement with respect to that issuer. 

‘‘(5) ADJUSTMENT.—Not later than 2 years after the date of enactment of the 

Small Company Capital Formation Act of 2011 and every 2 years thereafter, the 

Commission shall review the offering amount limitation described in paragraph 

(2)(A) and shall increase such amount as the Commission determines appropriate. If the Commission determines not to increase such amount, it shall report to the Committee on Financial Services of the House of Representatives 

and the Committee on Banking, Housing, and Urban Affairs of the Senate on 

its reasons for not increasing the amount.’’. 

(b) TREATMENT AS COVERED SECURITIES FOR PURPOSES OF NSMIA.—Section 

18(b)(4) of the Securities Act of 1933 (15 U.S.C. 77r(b)(4)) is amended— 

(1) in subparagraph (C), by striking ‘‘; or’’ at the end and inserting a semicolon; and 

(2) by redesignating subparagraph (D) as subparagraph (E), and inserting 

after subparagraph (C) the following: 

‘‘(D) a rule or regulation adopted pursuant to section 3(b)(2) and such security is— 

‘‘(i) offered or sold through a broker or dealer; 

‘‘(ii) offered or sold on a national securities exchange; or 

‘‘(iii) sold to a qualified purchaser as defined by the Commission pursuant to paragraph (3).’’. 

(c) CONFORMING AMENDMENT.—Section 4(5) of the Securities Act of 1933 is 

amended by striking ‘‘section 3(b)’’ and inserting ‘‘section 3(b)(1)’’. 

PURPOSE AND SUMMARY

H.R. 1070, the Small Company Capital Formation Act, raises the 

offering threshold for companies exempted from registration with 

the U.S. Securities and Exchange Commission (SEC) under Regulation A from $5 million—the threshold set in the early 1990s—to 

$50 million. Raising the offering threshold helps small companies 


tjames on DSK6SPTVN1PROD with REPORTS
3 

gain access to capital markets without the costs and delays associated with the full-scale securities registration process. H.R. 1070 

provides the SEC with the authority to increase the threshold and 

requires the SEC to re-examine the threshold every two years and 

report to Congress on its decisions regarding adjustment of the 

threshold. 

BACKGROUND AND NEED FOR LEGISLATION

Section 3 of the Securities Act of 1933 authorizes the SEC to exempt small securities offerings from registration. Under Section 3, 

the SEC promulgated Regulation A, which exempts public offerings 

of less than $5 million in any 12-month period. The SEC set the 

threshold at $5 million in 1992, where it has remained. 

Congress originally authorized the SEC to set the Section 3 

threshold at $100,000. It has raised the limit several times since: 

to $300,000 in 1945; to $500,000 in 1972; to $1,500,000 in 1978; 

and to $2,000,000, also in 1978. Before 1980, each time that Congress raised the statutory limit, the SEC promptly exercised its authority and raised the Regulation A threshold. Congress established the current level of $5,000,000 in 1980, but the SEC waited 

12 years, until 1992, before raising the Regulation A threshold to 

the statutory limit authorized by Congress. 

Since the SEC set the Regulation A threshold at $5 million in 

1992, issuers and market participants have pointed out that the offering threshold has been too low to justify the costs of going public 

under Regulation A. In addition, inflation, which has risen approximately 165% since 1980, when Congress gave the SEC the authority to set the Regulation A offering threshold, has further exacerbated the imbalance between costs and benefits. Between 1995 and 

2004, companies have used Regulation A only 78 times; in 2010, 

only three times. The low number of Regulation A filings—each for 

the maximum amount of $5 million—demonstrates that a revision 

to Regulation A is necessary. To increase the use of Regulation A 

offerings and help make capital available to small companies, Representative Schweikert introduced H.R. 1070, which increases the 

offering threshold to $50 million. 

The Subcommittee on Capital Markets and Government Sponsored Enterprises held a legislative hearing on H.R. 1070 on March 

16, 2011. At that hearing, David Weild, Senior Advisor—Capital 

Markets Group, Grant Thornton LLP, testified about the benefits 

of increasing the Regulation A offering threshold: 

The United States stock market, once the envy of the 

world, has suffered a devastating decline in numbers of 

small initial public offerings (IPOs). Our research and 

analysis of relevant data strongly demonstrates that small 

businesses and entrepreneurs cannot access the capital 

they need to grow and create jobs. The United States is 

losing more public companies from our listed stock exchanges than we are replacing with new IPOs. When 

measured by number of listed companies, America’s stock 

exchanges are declining, while those of other developed nations are increasing. It is imperative that Congress, regulators and stakeholders in the debate evaluate and take 

action to increase the number of U.S. publicly listed comVerDate Mar 15 2010 06:42 Sep 15, 2011 Jkt 099006 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\HR206.XXX HR206

tjames on DSK6SPTVN1PROD with REPORTS
4 

panies. . . . [P]assage of the proposed Reg A bill is a necessary first step in a campaign to bring back the small 

IPO, generate jobs and revitalize the U.S. economy. 

Small companies are critical to economic growth in the United 

States. Amending Regulation A to make it viable for small companies to access capital will permit greater investment in these companies, resulting in economic growth and jobs. By reducing the regulatory burden and expense of raising capital from the investing 

public, H.R. 1070 will boost the flow of capital to small businesses 

and fuel America’s most vigorous job-creation machine. Regulation 

A offerings can also help entrepreneurial businesses attract private 

capital at lower costs than might be feasible in an initial public offering using full SEC registration procedures. 

HEARINGS

On March 16, 2011, the Subcommittee on Capital Markets and 

Government Sponsored Enterprises held a hearing entitled ‘‘Legislative Proposals to Promote Job Creation, Capital Formation, and 

Market Certainty,’’ at which H.R. 1070 was one of the proposals 

discussed. The following witnesses testified: 

• Mr. Kenneth A. Bertsch, President and CEO, Society of Corporate Secretaries & Governance Professionals 

• Mr. Tom Deutsch, Executive Director, American Securitization Forum 

• Ms. Pam Hendrickson, Chief Operating Officer, The Riverside Company 

• Mr. Damon Silvers, Policy Director and Special Counsel, 

AFL–CIO 

• Mr. David Weild, Senior Advisor, Grant Thornton, LLP 

• Mr. Luke Zubrod, Director, Chatham Financial 

COMMITTEE CONSIDERATION

The Subcommittee on Capital Markets and Government Sponsored Enterprises met in open session on May 3 and 4, 2011, and 

ordered H.R. 1070, as amended, favorably reported to the full Committee by voice vote. 

The Committee on Financial Services met in open session on 

June 22, 2011, and ordered H.R. 1070, as amended, favorably reported to the House by voice vote. 

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. 

On June 22, 2011, the Committee on Financial Services met in 

open session and ordered H.R. 1070, as amended, favorably reported to the House by voice vote. 

During consideration of H.R. 1070 by the Committee, the following amendments were considered: 

1. An amendment offered by Mr. Frank, no. 1c, to an amendment 

in the nature of a substitute offered by Mr. Schweikert, no. 1, to 

remove the broker-dealer exemption from all fifty states’ securities 


tjames on DSK6SPTVN1PROD with REPORTS
5 

laws for selling Regulation A offerings, was not agreed to by a 

record vote of 20 yeas and 26 nays (Record vote no. FC–43). 

RECORD VOTE NO. FC–43 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Bachus ........................... ........... X ............. Mr. Frank (MA) ..................... X ........... .............

Mr. Hensarling ...................... ........... X ............. Ms. Waters ........................... X ........... .............

Mr. King (NY) ........................ ........... ........... ............. Mrs. Maloney ........................ ........... ........... .............

Mr. Royce .............................. ........... X ............. Mr. Gutierrez ........................ ........... ........... .............

Mr. Lucas .............................. ........... X ............. Ms. Vela ́zquez ...................... X ........... .............

Mr. Paul ................................ ........... ........... ............. Mr. Watt ............................... X ........... .............

Mr. Manzullo ......................... ........... X ............. Mr. Ackerman ....................... X ........... .............

Mr. Jones ............................... ........... X ............. Mr. Sherman ........................ X ........... .............

Mrs. Biggert .......................... ........... X ............. Mr. Meeks ............................. ........... ........... .............

Mr. Gary G. Miller (CA) ......... ........... X ............. Mr. Capuano ........................ X ........... .............

Mrs. Capito ........................... ........... X ............. Mr. Hinojosa ......................... ........... ........... .............

Mr. Garrett ............................ ........... X ............. Mr. Clay ................................ ........... ........... .............

Mr. Neugebauer .................... ........... X ............. Mrs. McCarthy (NY) .............. X ........... .............

Mr. McHenry .......................... ........... X ............. Mr. Baca .............................. ........... ........... .............

Mr. Campbell ........................ ........... X ............. Mr. Lynch ............................. X ........... .............

Mrs. Bachmann .................... ........... X ............. Mr. Miller (NC) ..................... X ........... .............

Mr. McCotter ......................... ........... X ............. Mr. David Scott (GA) ............ X ........... .............

Mr. McCarthy (CA) ................ ........... ........... ............. Mr. Al Green (TX) ................. X ........... .............

Mr. Pearce ............................. ........... ........... ............. Mr. Cleaver ........................... X ........... .............

Mr. Posey .............................. ........... X ............. Ms. Moore ............................. X ........... .............

Mr. Fitzpatrick ....................... ........... X ............. Mr. Ellison ............................ X ........... .............

Mr. Westmoreland ................. ........... ........... ............. Mr. Perlmutter ...................... X ........... .............

Mr. Luetkemeyer .................... ........... X ............. Mr. Donnelly ......................... X ........... .............

Mr. Huizenga ......................... ........... X ............. Mr. Carson ........................... ........... ........... .............

Mr. Duffy ............................... ........... ........... ............. Mr. Himes ............................. X ........... .............

Ms. Hayworth ........................ ........... ........... ............. Mr. Peters ............................. X ........... .............

Mr. Renacci ........................... ........... X ............. Mr. Carney ............................ X ........... .............

Mr. Hurt ................................ ........... X .............

Mr. Dold ................................ ........... X .............

Mr. Schweikert ...................... ........... X .............

Mr. Grimm ............................. ........... X .............

Mr. Canseco .......................... ........... X .............

Mr. Stivers ............................ ........... ........... .............

Mr. Fincher ............................ ........... X .............

2. An amendment offered by Ms. Vela ́zquez, no. 1e, to an amendment in the nature of a substitute offered by Mr. Schweikert, no. 

1, to expand Regulation A offerings to include securities offered by 

a small business investment company, was not agreed to by a 

record vote of 24 yeas and 27 nays (Record vote no. FC–44). 

RECORD VOTE NO. FC–44 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Bachus ........................... ........... X ............. Mr. Frank (MA) ..................... X ........... .............

Mr. Hensarling ...................... ........... X ............. Ms. Waters ........................... X ........... .............

Mr. King (NY) ........................ ........... ........... ............. Mrs. Maloney ........................ X ........... .............

Mr. Royce .............................. ........... X ............. Mr. Gutierrez ........................ ........... ........... .............

Mr. Lucas .............................. ........... X ............. Ms. Vela ́zquez ...................... X ........... .............

Mr. Paul ................................ ........... ........... ............. Mr. Watt ............................... X ........... .............

Mr. Manzullo ......................... ........... X ............. Mr. Ackerman ....................... X ........... .............

Mr. Jones ............................... ........... X ............. Mr. Sherman ........................ X ........... .............

Mrs. Biggert .......................... ........... X ............. Mr. Meeks ............................. ........... ........... .............

Mr. Gary G. Miller (CA) ......... ........... X ............. Mr. Capuano ........................ X ........... .............

Mrs. Capito ........................... ........... X ............. Mr. Hinojosa ......................... X ........... .............

Mr. Garrett ............................ ........... X ............. Mr. Clay ................................ X ........... .............

Mr. Neugebauer .................... ........... X ............. Mrs. McCarthy (NY) .............. X ........... .............

Mr. McHenry .......................... ........... X ............. Mr. Baca .............................. ........... ........... .............

Mr. Campbell ........................ ........... X ............. Mr. Lynch ............................. X ........... .............


tjames on DSK6SPTVN1PROD with REPORTS
6 

RECORD VOTE NO. FC–44—Continued 

Representative Aye Nay Present Representative Aye Nay Present 

Mrs. Bachmann .................... ........... X ............. Mr. Miller (NC) ..................... X ........... .............

Mr. McCotter ......................... ........... X ............. Mr. David Scott (GA) ............ X ........... .............

Mr. McCarthy (CA) ................ ........... ........... ............. Mr. Al Green (TX) ................. X ........... .............

Mr. Pearce ............................. ........... ........... ............. Mr. Cleaver ........................... X ........... .............

Mr. Posey .............................. ........... X ............. Ms. Moore ............................. X ........... .............

Mr. Fitzpatrick ....................... ........... X ............. Mr. Ellison ............................ X ........... .............

Mr. Westmoreland ................. ........... ........... ............. Mr. Perlmutter ...................... X ........... .............

Mr. Luetkemeyer .................... ........... X ............. Mr. Donnelly ......................... X ........... .............

Mr. Huizenga ......................... ........... X ............. Mr. Carson ........................... X ........... .............

Mr. Duffy ............................... ........... X ............. Mr. Himes ............................. X ........... .............

Ms. Hayworth ........................ ........... ........... ............. Mr. Peters ............................. X ........... .............

Mr. Renacci ........................... ........... X ............. Mr. Carney ............................ X ........... .............

Mr. Hurt ................................ ........... X .............

Mr. Dold ................................ ........... X .............

Mr. Schweikert ...................... ........... X .............

Mr. Grimm ............................. ........... X .............

Mr. Canseco .......................... ........... X .............

Mr. Stivers ............................ ........... ........... .............

Mr. Fincher ............................ ........... X .............

The following amendments and motions were also considered by 

the Committee: 

1. An amendment offered by Mr. Ackerman, no. 1a, to an amendment in the nature of a substitute offered by Mr. Schweikert, no. 

1, to require issuers to file annual audited financial statements 

with the Securities and Exchange Commission, was agreed to by 

voice vote. 

2. An amendment offered by Mr. Schweikert, no. 1bi, to an 

amendment offered by Mr. Frank, no. 1b, to treat the prospectus 

for a Regulation A offering to be subject to liability under section 

12(a)(2) of the Securities Act of 1933 instead of section 11 of the 

Act, was agreed to by voice vote. 

3. An amendment offered by Mr. Frank, no. 1b, as amended by 

an amendment offered by Mr. Schweikert, no. 1bi, to an amendment in the nature of a substitute offered by Mr. Schweikert, no. 

1, to treat a prospectus for a Regulation A offering to be subject 

to liability under section 12(a)(2) of the Securities Act of 1933, was 

agreed to by voice vote. 

4. An amendment offered by Ms. Vela ́zquez, no. 1d, to an amendment in the nature of a substitute offered by Mr. Schweikert, no. 

1, to expand Regulation A offerings to include securities offered by 

a small business investment company, was offered and withdrawn. 

5. A motion offered by Mr. Frank, to move the previous question 

on H.R. 1070, was agreed to by voice vote. 

6. An amendment in the nature of a substitute offered by Mr. 

Schweikert, no. 1, as amended by an amendment offered by Mr. 

Ackerman, no. 1a, and an amendment offered by Mr. Frank, no. 1b, 

as amended by an amendment offered by Mr. Schweikert, no. 1bi, 

to make technical and clarifying changes, to enhance investor protections, to treat a prospectus for a Regulation A offering to be subject to liability under section 12(a)(2) of the Securities Act of 1933, 

and to clarify that Regulation A offerings are exempt from state securities laws only if they are listed on an exchange, offered by a 

broker dealer, or sold to a qualified purchaser, was agreed to by 

voice vote. 


tjames on DSK6SPTVN1PROD with REPORTS
7 

7. A motion offered by Mr. Garrett, to move the previous question on H.R. 1070, was agreed to by voice vote. 

COMMITTEE OVERSIGHT FINDINGS

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

of Representatives, the Committee has held hearings and made 

findings that are reflected in 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 establishes the following performance related goals and objectives for this legislation: 

H.R. 1070, the Small Company Capital Formation Act, increases 

the offering threshold for companies exempted from SEC registration under Regulation A from $5 million to $50 million. The purpose of the change is to help small issuers, such as venture-capital 

backed companies, gain access to funding without the costs and 

delays associated with the full-scale securities registration process. 

The legislation provides the SEC with the authority to increase the 

threshold and requires the SEC to re-examine the threshold every 

two years and report to Congress on decisions regarding the adjustment of the threshold. 

The objective of H.R. 1070 is to make Regulation A into a viable 

channel for small companies to access capital, which will permit 

greater investment in these companies, resulting in economic 

growth and jobs. Small companies are critical to economic growth 

in the United States. By reducing the regulatory burden and expense of raising capital from the investing public, H.R. 1070 will 

boost the flow of capital to small businesses and fuel America’s 

most vigorous job-creation machine. Regulation A offerings can also 

help entrepreneurial businesses attract private capital by providing 

companies with additional working capital at reduced costs than 

might be feasible when compared with an initial public offering 

using full SEC registration. 

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. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own 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 


tjames on DSK6SPTVN1PROD with REPORTS
8 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, September 13, 2011. 

Hon. SPENCER BACHUS, 

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. 1070, the Small Company 

Capital Formation Act of 2011. 

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

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

DOUGLAS W. ELMENDORF, 

Director. 

Enclosure. 

H.R. 1070—Small Company Capital Formation Act of 2011 

Under current law, companies issuing securities with an aggregate offering amount that is less than $5 million are not required 

to register the offering with the Securities and Exchange Commission (SEC). H.R. 1070 would increase that threshold from $5 million to $50 million for issuances that meet certain conditions, including filing an audited financial statement with the SEC each 

year. The bill would require the SEC to review this threshold every 

two years and increase the amount as it determines appropriate. 

Based on information from the SEC, CBO estimates that implementing H.R. 1070 would cost about $2 million over the 2012–2016 

period, assuming appropriation of the necessary funds. The SEC 

would incur additional costs for staffing and overhead as a result 

of the expected additional securities offerings exempt from the registration requirement, but those discretionary costs would be less 

than $500,000 in any year during that period. Enacting H.R. 1070 

would not affect direct spending or revenues; therefore, pay-as-yougo procedures do not apply. 

H.R. 1070 would impose an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA) by prohibiting states from requiring issuers of some securities to register the 

securities with the state, or to pay registration fees, prior to 

issuance. The cost of the mandate would be the amount of fee revenue that states would be precluded from collecting. Based on information from the SEC, states, and industry sources, CBO estimates that forgone revenues would be small and would not exceed 

the threshold established in UMRA for intergovernmental mandates ($71 million in 2011, adjusted annually for inflation). 

H.R. 1070 contains no private-sector mandates as defined in 

UMRA. 

The CBO staff contacts for this estimate are Susan Willie (for 

federal costs) and Elizabeth Cove Delisle (for the impact on state 

and local governments). This estimate was approved by Theresa 

Gullo, Deputy Assistant Director for Budget Analysis. 


tjames on DSK6SPTVN1PROD with REPORTS
9 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

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 

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

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 1070 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section provides a short title to the bill by citing it as the 

‘‘Small Company Capital Formation Act of 2011.’’ 

Section 2. Authority to exempt certain securities 

This section amends Section 3 of the Securities Act of 1933 and 

provides that the Securities and Exchange Commission shall add 

a class of exempt securities with the following characteristics: (1) 

the aggregate offering amount of all securities sold within the prior 

12-month period in reliance on the exemption shall not exceed $50 

million; (2) the securities may be offered and sold publicly; (3) the 

securities shall not be restricted securities within the meaning of 

the Federal securities laws; and (4) the securities must be either 

equity securities, debt securities, or debt securities convertible or 

exchangeable to equity interests. 

This section allows the issuer to solicit interest in the offering 

prior to filing any offering statement, on such terms and conditions 

as the SEC may prescribe in the public interest or for the protection of investors. The SEC shall require issuers to submit an audited financial statement annually. 

This section also gives the SEC the authority to set forth other 

terms and conditions for these offerings, which may include (1) a 

requirement that the issuer of the securities prepare and electronically file with the SEC and distribute to investors an offering statement and (2) disqualification provisions under which the exemption 

shall not be available. 

This section subjects Regulation A prospectuses to liability under 

section 12(a)(2) of the Securities Act of 1933. 

This section also allows the SEC to require the issuer to make 

available to investors periodic disclosures regarding the issuer, its 


tjames on DSK6SPTVN1PROD with REPORTS
10 

business operations, its financial condition, its corporate governance principles, and its use of investor funds. 

This section requires the SEC to review the offering amount 

every two years and to increase the amount as the SEC determines 

appropriate. If the SEC determines not to increase the amount, it 

shall report to the Committee on Financial Services of the House 

and the Committee on Banking, Housing and Urban Affairs of the 

Senate on its reasons for not increasing the amount. 

This section exempts securities issued using Regulation A from 

state securities laws that are offered or sold through a broker or 

dealer; offered or sold on a national securities exchange; or sold to 

a qualified purchaser as defined by the SEC. 

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, 

existing law in which no change is proposed is shown in roman): 

SECURITIES ACT OF 1933 

TITLE I—SHORT TITLE 

* * * * * * * 

EXEMPTED SECURITIES

SEC. 3. (a) * * * 

ø(b) The Commission¿ 

(b) ADDITIONAL EXEMPTIONS.— (1) SMALL ISSUES EXEMPTIVE AUTHORITY.—The Commission 

may from time to time by its rules and regulations, and subject 

to such terms and conditions as may be prescribed therein, add 

any class of securities to the securities exempted as provided 

in this section, if it finds that the enforcement of this title with 

respect to such securities is not necessary in the public interest 

and for the protection of investors by reason of the small 

amount involved or the limited character of the public offering; 

but no issue of securities shall be exempted under this subsection where the aggregate amount at which such issue is offered to the public exceeds $5,000,000. 

(2) ADDITIONAL ISSUES.—The Commission shall by rule or 

regulation add a class of securities to the securities exempted 

pursuant to this section in accordance with the following terms 

and conditions: 

(A) The aggregate offering amount of all securities sold 

within the prior 12-month period in reliance on the exemption added in accordance with this paragraph shall not exceed $50,000,000. 

(B) The securities may be offered and sold publicly. 

(C) The securities shall not be restricted securities within 

the meaning of the Federal securities laws and the regulations promulgated thereunder. 

(D) The civil liability provision in section 12(a)(2) shall 

apply to any person offering or selling such securities. 


tjames on DSK6SPTVN1PROD with REPORTS
11 

(E) The issuer may solicit interest in the offering prior to 

filing any offering statement, on such terms and conditions 

as the Commission may prescribe in the public interest or 

for the protection of investors. 

(F) The Commission shall require the issuer to file audited financial statements with the Commission annually. 

(G) Such other terms, conditions, or requirements as the 

Commission may determine necessary in the public interest 

and for the protection of investors, which may include— 

(i) a requirement that the issuer prepare and electronically file with the Commission and distribute to 

prospective investors an offering statement, and any related documents, in such form and with such content 

as prescribed by the Commission, which shall include 

a description of the issuer’s business operations, its financial condition, its corporate governance principles, 

its use of investor funds, and other appropriate matters; and 

(ii) disqualification provisions under which the exemption shall not be available based upon the disciplinary history of the issuer or its predecessors, affiliates, 

officers, directors, underwriters, or other related persons, which shall be substantially similar to the disqualification provisions contained in the regulations 

adopted in accordance with section 926 of the DoddFrank Wall Street Reform and Consumer Protection 

Act (15 U.S.C. 77d note). 

(3) LIMITATION.—Only the following types of securities may be 

exempted under a rule or regulation adopted pursuant to paragraph (2): equity securities, debt securities, and debt securities 

convertible or exchangeable to equity interests, including any 

guarantees of such securities. 

(4) PERIODIC DISCLOSURES.—Upon such terms and conditions 

as the Commission determines necessary in the public interest 

and for the protection of investors, the Commission by rule or 

regulation may require an issuer of a class of securities exempted under paragraph (2) to make available to investors periodic 

disclosures regarding the issuer, its business operations, its financial condition, its corporate governance principles, its use of 

investor funds, and other appropriate matters, and also may 

provide for the suspension and termination of such a requirement with respect to that issuer. 

(5) ADJUSTMENT.—Not later than 2 years after the date of enactment of the Small Company Capital Formation Act of 2011 

and every 2 years thereafter, the Commission shall review the 

offering amount limitation described in paragraph (2)(A) and 

shall increase such amount as the Commission determines appropriate. If the Commission determines not to increase such 

amount, it shall report to the Committee on Financial Services 

of the House of Representatives and the Committee on Banking, 

Housing, and Urban Affairs of the Senate on its reasons for not 

increasing the amount. 

* * * * * * * 


tjames on DSK6SPTVN1PROD with REPORTS
12 

EXEMPTED TRANSACTIONS

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

(1) * * * 

* * * * * * * 

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

to one or more accredited investors, if the aggregate offering 

price of an issue of securities offered in reliance on this paragraph does not exceed the amount allowed under øsection 3(b)¿ 

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. 

* * * * * * * 

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

(a) * * * 

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

(1) * * * 

* * * * * * * 

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

(A) * * * 

* * * * * * * 

(C) 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 locatedø; or¿; 

(D) a rule or regulation adopted pursuant to section 

3(b)(2) and such security is— 

(i) offered or sold through a broker or dealer; 

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

or 

(iii) sold to a qualified purchaser as defined by the 

Commission pursuant to paragraph (3). 

ø(D)¿ (E) 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. 

* * * * * * * 


tjames on DSK6SPTVN1PROD with REPORTS
13 

MINORITY VIEWS ON H.R. 1070 

There is consensus on the Committee that the Securities and Exchange Commission (SEC) should raise the exemption limit for 

Regulation A (‘‘Reg A’’) security offerings, as the current rule with 

a limit of $5 million is little used by issuers due to the small size 

of issuances permitted. Last year, when we were in the majority, 

we sent a letter to the SEC recommending that the SEC raise the 

exemption limit. Likewise, H.R. 1070 would provide small and medium companies the ability to offer securities up to $50 million 

publicly without the full cost of a registered offering, potentially expanding their access to capital beyond the private offerings many 

now use. 

During the markup, Democrats made some improvements to 

H.R. 1070. The Ackerman amendment, for example, provides investors with audited financial statements on an annual basis. Another 

Democratic amendment affords investors legal recourse for misstatements made in prospectuses. The Majority has also offered to 

work with Democrats on other issues such as permitting Small 

Business Investment Companies to issue Regulation A securities. 

There was one contentious issue that arose during the markup 

that had nothing to do with the principle of an exemption limit increase, but instead with new language preempting state law. This 

language preempts state securities law for Regulation A securities 

offered or sold by a broker or dealer, creating a class of security 

not subject to state level review, but which will not receive adequate attention at the federal level. Regulation A securities are 

sometimes high-risk offerings that may be susceptible to fraud, 

making the protections provided by state review essential. To address these concerns, the Democrats offered an amendment to clarify that state securities would only be preempted if the Regulation 

A security is sold on an exchange or sold only to a qualified purchaser. While that amendment was defeated, we will continue to 

work to ensure that the final bill provides adequate oversight. 

BARNEY FRANK. 

EMANUEL CLEAVER. 

JOHN C. CARNEY. 

STEPHEN F. LYNCH. 

CAROLYN B. MALONEY. 

AL GREEN. 

WM. LACY CLAY. 

BRAD MILLER. 

MICHAEL E. CAPUANO. 

GARY L. ACKERMAN. 

ANDRE ́ CARSON. 

LUIS V. GUTIERREZ. 

RUBE ́ N HINOJOSA. 

MELVIN L. WATT. 

GWEN MOORE. 

MAXINE WATERS. 

Æ 


tjames on DSK6SPTVN1PROD with REPORTS