I

104TH CONGRESS

1ST SESSION H. R. 2806

To amend the Small Business Investment Act of 1958 to create the Venture

Capital Marketing Association, to transfer certain functions of the Small

Business Administration to the Association, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

DECEMBER 18 (legislative day, DECEMBER 15), 1995

Mr. TORKILDSEN introduced the following bill; which was referred to the Committee on Small Business, and in addition to the Committees on Commerce and Banking and Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such

provisions as fall within the jurisdiction of the committee concerned

A BILL

To amend the Small Business Investment Act of 1958 to

create the Venture Capital Marketing Association, to

transfer certain functions of the Small Business Administration to the Association, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Venture Capital Mar5 keting Association Charter Act’’.
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1 SEC. 2. AMENDMENT TO TABLE OF CONTENTS; CONFORM2 ING AMENDMENT.

3 (a) AMENDMENT TO TABLE OF CONTENTS.—The

4 table of contents contained in section 101 of the Small

5 Business Investment Act of 1958 (15 U.S.C. 661 note)

6 is amended by inserting after the item relating to section

7 322 the following:

‘‘PART B—VENTURE CAPITAL MARKETING ASSOCIATION

‘‘Sec. 351. Purposes.

‘‘Sec. 352. Venture Capital Marketing Association.

‘‘Sec. 353. Common and preferred stock.

‘‘Sec. 354. Obligations and securities.

‘‘Sec. 355. Legal investments and exempt securities.

‘‘Sec. 356. Loan and investment operations.

‘‘Sec. 357. Servicing guaranteed securities and assets in liquidation.

‘‘Sec. 358. Qualification of small business investment companies.

‘‘Sec. 359. Operations of small business investment companies.

‘‘Sec. 360. Leverage formula.

‘‘Sec. 361. Audits of the Corporation.

‘‘Sec. 362. Regulation of financial safety and soundness.

‘‘Sec. 363. Government oversight and reports.

‘‘Sec. 364. Books and records.’’.

8 (b) CONFORMING AMENDMENT.—The Small Busi9 ness Investment Act of 1958 (15 U.S.C. 661 et seq.) is

10 amended by inserting before section 301 the following:

11 ‘‘PART A—GENERAL PROVISIONS’’.

12 SEC. 3. VENTURE CAPITAL MARKETING ASSOCIATION.

13 Title III of the Small Business Investment Act of

14 1958 (15 U.S.C. 681–687m) is amended by adding at the

15 end the following:
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1 ‘‘PART B—VENTURE CAPITAL MARKETING

2 ASSOCIATION

3 ‘‘SEC. 351. PURPOSES.

4 ‘‘Congress hereby declares that the purposes of this

5 part are—

6 ‘‘(1) to establish a Government-sponsored pri7 vate corporation which will serve as a source of pri8 vate capital and a secondary market and

9 warehousing facility for loans and investments in

10 small business investment companies, and will pro11 vide liquidity for small business loans and invest12 ments;

13 ‘‘(2) to stimulate and supplement the orderly

14 and necessary flow of private equity capital and

15 long-term loan funds to improve the availability of

16 investment capital for small business concerns;

17 ‘‘(3) to encourage the formation of new small

18 business investment companies; and

19 ‘‘(4) to provide for an orderly transfer of cer20 tain functions of, and securities and assets guaran21 teed or owned by, the Administration to the Venture

22 Capital Marketing Association as constituted under

23 this part.

24 ‘‘SEC. 352. VENTURE CAPITAL MARKETING ASSOCIATION.

25 ‘‘(a) ESTABLISHMENT.—There is a hereby created a

26 body corporate to be known as the Venture Capital Mar-
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1 keting Association (hereinafter in this part referred to as

2 the ‘Corporation’). The Corporation shall have succession

3 until dissolved. The Corporation shall establish and main4 tain its principal office in the Washington, D.C., metro5 politan area and shall be deemed, for purposes of venue

6 and jurisdiction in civil actions, to be a resident and citi7 zen of the jurisdiction of which it establishes its principal

8 office. Offices may be established by the Corporation in

9 such other place or places as it may deem necessary or

10 appropriate for the conduct of its business.

11 ‘‘(b) TAX STATUS.—The Corporation, including its

12 franchise, capital, reserves, surplus, mortgages, and other

13 security holdings and income, shall be exempt from all tax14 ation now or hereafter imposed by any State, or by any

15 county, municipality, or local taxing authority, except that

16 any real property of the Corporation shall be subject to

17 State, county, municipal, or local taxation to the same ex18 tent according to its value as other real property is taxed.

19 ‘‘(c) INTERIM BOARD OF DIRECTORS.—Not later

20 than 60 days after the effective date of this part, the

21 President shall appoint an interim Board of Directors of

22 the Corporation, one of whom the President shall des23 ignate as the interim Chairman. The interim Board shall

24 consist of 5 members, one of whom shall be a representa25 tive of small business, 3 of whom shall be representatives
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1 of small business investment companies, and one of whom

2 shall be a representative of the Administration. The in3 terim Board shall arrange for an initial offering of voting

4 common stock solely to small business investment compa5 nies and take whatever other actions are necessary to pro6 ceed with the operations of the Corporation.

7 ‘‘(d) PERMANENT BOARD OF DIRECTORS.—The Cor8 poration shall have a permanent Board of Directors which

9 shall consist of 15 members. When small business invest10 ment companies have purchased and fully paid for

11 $20,000,000 of common stock of the Corporation, the

12 Board shall be constituted as follows:

13 ‘‘(1) The holders of common stock shall elect 10

14 members to the Board of Directors.

15 ‘‘(2) The President shall appoint, with the ad16 vice and consent of the Senate, the remaining 5 di17 rectors within 60 days of the stock purchase speci18 fied in this subsection.

19 ‘‘(e) TRANSITION.—Upon the election of the 10 mem20 bers of the Board of Directors by the holders of common

21 stock of the Corporation, the interim Board shall turn over

22 the affairs of the Corporation to the permanent Board of

23 Directors, but the members of the interim Board shall

24 continue to serve in an interim capacity as the Presidential

25 appointees to the permanent Board until such time as the
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1 permanent Presidential appointees are confirmed by the

2 Senate.

3 ‘‘(f) TERMS.—(1) The members of the Board of Di4 rectors elected by the common shareholders shall be elect5 ed for a term ending on the date of the next annual meet6 ing of the common shareholders of the Corporation, and

7 shall serve until their successors have been elected and

8 have qualified. Any vacancy which occurs after the annual

9 election of the members shall be filled by the Board, but

10 only for the unexpired portion of the term.

11 ‘‘(2) The members of the Board of Directors ap12 pointed by the President shall serve until their successors

13 have been appointed and have qualified. The terms of such

14 members shall be staggered as follows: one member shall

15 serve an initial term of one year, one member shall serve

16 an initial term of 2 years, one member shall serve an ini17 tial term of 3 years, one member shall serve an initial term

18 of 4 years, and one member shall serve an initial term

19 of 5 years. All subsequent appointments shall be for a

20 term of 5 years, except that any vacancy shall be filled

21 for the unexpired term of the vacancy. Such members shall

22 be removed only for cause. Of the Presidential appointees,

23 at least 2 members shall be representatives of small busi24 ness.
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1 ‘‘(g) OPERATIONS; EXECUTIVE OFFICERS.—The

2 Board shall determine the general policies which will gov3 ern the operations of the Corporation. The Board shall

4 select, appoint, and compensate qualified persons to fill

5 such offices as may be provided for in the bylaws, with

6 such executive functions, powers, and duties as may be

7 prescribed by the bylaws or by the Board of Directors,

8 and such persons shall be the executive officers of the Cor9 poration and shall discharge all such executive functions,

10 powers, and duties.

11 ‘‘(h) GENERAL POWERS.—The Corporation shall

12 have the power—

13 ‘‘(1) to sue and be sued, complain and defend,

14 in its corporate name and through its own counsel;

15 ‘‘(2) to adopt, alter, and use a corporate seal,

16 which shall be judicially noticed;

17 ‘‘(3) to adopt, amend, and repeal by its Board

18 of Directors, such bylaws, rules, and regulations as

19 may be necessary for the conduct of its business;

20 ‘‘(4) to conduct its business, carry out its oper21 ations, and have officers and exercise the powers

22 granted by this section in any State without regard

23 to any qualification, licensing, or similar law in any

24 State;
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1 ‘‘(5) to lease, purchase, or otherwise acquire,

2 own, hold, improve, use, or otherwise deal in and

3 with any property, real, personal, or mixed, or any

4 interest therein, wherever situated;

5 ‘‘(6) to accept gifts or donations of services, or

6 of property, real, personal, or mixed, tangible or in7 tangible, in aid of any of the purposes of the Cor8 poration;

9 ‘‘(7) to sell, convey, mortgage, pledge, lease, ex10 change, and otherwise dispose of its property and as11 sets;

12 ‘‘(8) to appoint such attorneys, officers, employ13 ees, and agents as may be required, determine their

14 qualifications, define their duties, fix their com15 pensation, require bonds for them and fix the pen16 alty thereof; and

17 ‘‘(9) to enter into contracts, to execute instru18 ments, to incur liabilities, and to do all things as are

19 necessary or incidental to the proper management of

20 its affairs and the proper conduct of its business.

21 ‘‘(i) NOTICE.—When the permanent Board of Direc22 tors is duly constituted and the Corporation is ready to

23 conduct business, it shall so notify the Administration and

24 the Secretary of the Treasury.
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1 ‘‘SEC. 353. COMMON AND PREFERRED STOCK.

2 ‘‘(a) VOTING COMMON STOCK.—(1) The Corporation

3 shall have voting common stock with such par value as

4 may be fixed by its Board of Directors from time to time.

5 Each share of voting common stock shall be vested with

6 all voting rights, each share being entitled to one vote with

7 rights of cumulative voting at all elections of directors.

8 ‘‘(2) The initial number of shares of voting common

9 stock that the Corporation may issue and have outstand10 ing shall be established by the interim Board of Directors.

11 The number of shares of voting common stock may be in12 creased or decreased by the affirmative vote of the holders

13 of at least a majority of the total outstanding shares.

14 ‘‘(3) The holders of the voting common stock shall

15 not have preemptive rights.

16 ‘‘(4) Such dividends as may be declared by the Board

17 of Directors in its discretion shall be paid by the Corpora18 tion to the holders of its voting common stock.

19 ‘‘(5) In order to accumulate funds for its capital sur20 plus account from small business investment companies—

21 ‘‘(A) the Corporation shall require each small

22 business investment company to make payments of

23 nonrefundable capital contributions to the Corpora24 tion equal to 1 percent of the private capital of each

25 such company;
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1 ‘‘(B) the Corporation may require each small

2 business investment company to make payments of

3 nonrefundable capital contributions to the Corpora4 tion not to exceed 1 percent of any increases in the

5 private capital of such company;

6 ‘‘(C) the Corporation also may require each

7 small business investment company which issues a

8 small business investment security to the Corpora9 tion to make, or commit to make, a nonrefundable

10 capital contribution to the Corporation not to exceed

11 1 percent of the unpaid principal balance or

12 unredeemed original issue amount of such security;

13 ‘‘(D) the Corporation, from time to time, shall

14 issue to each small business investment company

15 voting common stock evidencing any capital con16 tributions made pursuant to this subsection;

17 ‘‘(E) such voting common stock shall be re18 tained by such companies in accordance with such

19 rules as may be established by the Corporation: Pro20 vided, That subject to any stock retention require21 ments established by the Corporation, such voting

22 common stock may be transferred to another small

23 business investment company, and such transferred

24 stock may be used to meet the capital contribution

25 requirements of paragraph (4) of this subsection:
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1 Provided further, That subject to any stock retention

2 requirements established by the Corporation, such

3 voting common stock may be freely transferred if

4 there is a bona fide public market for such stock on

5 a nationally recognized stock exchange.

6 ‘‘(6) In order to accumulate additional funds for its

7 capital surplus account—

8 ‘‘(A) subject to approval by a majority of the

9 voting shareholders and approval by a majority of

10 the Board of Directors, including not less than a

11 majority of the members appointed by the President

12 and confirmed by the Senate, the Corporation may

13 obtain nonrefundable capital contributions to the

14 Corporation by issuing voting common stock to pri15 vate investors other than small business investment

16 companies;

17 ‘‘(B) the Corporation, from time to time, shall

18 issue to such investors voting common stock evidenc19 ing any capital contributions made pursuant to this

20 subsection;

21 ‘‘(C) such voting common stock shall be re22 tained by such investors in accordance with such

23 rules as may be established by the Corporation: Pro24 vided, That subject to any stock retention require25 ments established by the Corporation, such voting
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1 common stock may be freely transferred if there is

2 a bona fide public market for such stock on a na3 tionally recognized stock exchange.

4 ‘‘(b) NONVOTING COMMON STOCK.—(1) The voting

5 shareholders of the Corporation also may authorize the is6 suance of nonvoting common stock having such par value

7 as may be fixed by its Board of Directors from time to

8 time.

9 ‘‘(2) The maximum number of shares of nonvoting

10 common stock may be established and increased or de11 creased by the affirmative vote of the holders of at least

12 a majority of the total outstanding voting shares.

13 ‘‘(3) The holders of the nonvoting common stock shall

14 not have preemptive rights.

15 ‘‘(4) Such dividends as may be declared by the Board

16 of Directors in its discretion shall be paid by the Corpora17 tion to the holders of its nonvoting common stock.

18 ‘‘(5) Any nonvoting common share issued shall be

19 fully transferable, except that, as to the Corporation, it

20 shall be transferable only on the books of the Corporation.

21 ‘‘(c) NONVOTING PREFERRED STOCK.—(1) The vot22 ing shareholders of the Corporation also may authorize the

23 issuance of nonvoting preferred stock, having such par

24 value as may be fixed by its Board of Directors from time

25 to time.
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1 ‘‘(2) The maximum number of shares of preferred

2 stock may be established and increased or decreased by

3 the affirmative vote of the holders of at least a majority

4 of the total outstanding voting shares.

5 ‘‘(3) The holders of the preferred shares shall be enti6 tled to such rate of dividends and such shares shall be

7 subject to such redemption or other conversion provisions

8 as may be provided for at the time of issuance. No divi9 dends shall be payable on any share of common stock at

10 any time when any dividend is due on any share of pre11 ferred stock and has not been paid. The voting sharehold12 ers of the Corporation may prescribe that any class of pre13 ferred stock of the Corporation may be converted into vot14 ing or nonvoting common stock of the Corporation.

15 ‘‘(4) Any preferred share issued shall be freely trans16 ferable, except that, as to the Corporation, it shall be

17 transferable only on the books of the Corporation.

18 ‘‘(5) In the event of any liquidation, dissolution, or

19 winding up of the Corporation’s business, the holders of

20 any outstanding preferred shares shall be paid in full at

21 par value thereof, plus all accrued dividends, before the

22 holders of the common shares receive any payment.

23 ‘‘(d) DEPOSITORY INSTITUTIONS.—Notwithstanding

24 any other provision of law, any depository institution, as

25 defined in section 19(b)(1)(A) of the Federal Reserve Act
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1 (12 U.S.C. 461(b)(1)(A)), shall be authorized to make

2 payments to the Corporation of the capital contributions

3 referred to in this section, to receive stock of the Corpora4 tion evidencing such capital contributions, and to dispose

5 of such stock, subject to the provisions of this title.

6 ‘‘SEC. 354. OBLIGATIONS AND SECURITIES.

7 ‘‘(a) ISSUANCE OF OBLIGATIONS.—The Corporation

8 is authorized to issue and have outstanding obligations

9 having such maturities and bearing such rate or rates of

10 interest as may be determined by a majority vote of the

11 Board of Directors. Such obligations shall be issued at

12 such times, bear interest at such rates, and contain such

13 terms and conditions as the Corporation shall determine,

14 with the approval of the Secretary of the Treasury. Such

15 obligations may be redeemable at the option of the Cor16 poration before maturity in such manner as may be stipu17 lated therein. The Corporation shall insert appropriate

18 language in each of its obligations issued under this sec19 tion and under section 356 clearly indicating that such

20 obligations, together with the interest thereon, are not

21 guaranteed by the United States and do not constitute a

22 debt or obligation of the United States or any agency or

23 instrumentality thereof other than the Corporation. The

24 Corporation is authorized to purchase in the open market

25 any of its obligations outstanding under this subsection
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1 at any time and at any price. Any obligation or security

2 of the Corporation may be issued and sold in definitive

3 form, in book entry form or in such other form, with or

4 without delivery of physical evidence or ownership, as shall

5 be prescribed by the Corporation.

6 ‘‘(b) ISSUANCE OF SUBORDINATED OBLIGATIONS.—

7 For the purposes of this section, the Corporation is au8 thorized to issue obligations which are subordinated to any

9 or all other obligations of the Corporation, including sub10 sequent obligations. Any of such obligations may be con11 vertible into shares of common stock in such manner, at

12 such price or prices, and such time or times as may be

13 stipulated therein.

14 ‘‘(c) PURCHASE AND SALE OF OBLIGATIONS BY SEC15 RETARY OF THE TREASURY.—(1) The Secretary of the

16 Treasury, in the Secretary’s discretion, may purchase any

17 obligation issued by the Corporation pursuant to sub18 section (a) of this section as now or hereafter in force and

19 for such purpose of the Secretary of the Treasury is au20 thorized to use as a public debt transaction the proceeds

21 of the sale of any securities hereafter issued under chapter

22 31 of title 31, United States Code, as now or hereafter

23 in force, and the purposes for which securities may be is24 sued under chapter 31 of title 31, United States Code,

25 as now or hereafter in force, are extended to include such
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1 purchases. The authorities provided to the Secretary of

2 the Treasury by the preceding sentence shall be available

3 only to such extent and in such amounts as are provided

4 in advance in appropriations Acts. The Secretary of the

5 Treasury shall not at any time purchase any obligations

6 under this subsection if such purchase would increase the

7 aggregate principal amount of the Secretary’s then out8 standing holdings of such obligations under this sub9 section to an amount greater than $1,000,000,000. Any

10 purchase of obligations by the Secretary of the Treasury

11 under this subsection shall be made solely to prevent or

12 to enable the Corporation to correct an inability of the

13 Corporation to pay amounts required to be paid on ac14 count of obligations or securities issued or guaranteed by

15 the Corporation. Any purchase of obligations by the Sec16 retary of the Treasury under this subsection shall be on

17 such terms and conditions as shall be determined by the

18 Secretary of the Treasury. Each such purchase of obliga19 tions by the Secretary of the Treasury under this sub20 section shall take into consideration the current average

21 rate on outstanding marketable obligations of the United

22 States of comparable maturities as of the last day of the

23 month preceding the making of such purchase.

24 ‘‘(2) The Secretary of the Treasury may, at any time,

25 sell on such terms and conditions and at such price or
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1 prices as the Secretary may determine any of the obliga2 tions acquired by the Secretary under this section. All re3 demptions, purchases, and sales by the Secretary of the

4 Treasury of such obligations under this section shall be

5 treated as public debt transactions of the United States.

6 ‘‘SEC. 355. LEGAL INVESTMENTS AND EXEMPT SECURITIES.

7 ‘‘(a) LAWFUL INVESTMENTS.—All obligations issued

8 by the Corporation pursuant to sections 354 and 356, all

9 nonvoting common stock issued by the Corporation pursu10 ant to section 353(b), all preferred stock issued by the

11 Corporation pursuant to section 353(c), and all obligations

12 guaranteed by the Corporation pursuant to section 356

13 shall be lawful investments, and may be acceptable as se14 curity for all fiduciary, trust, and public funds, the invest15 ment or deposit of which shall be under authority or con16 trol of the United States or of any officer or officers there17 of.

18 ‘‘(b) TREATMENT OF CORPORATION UNDER FED19 ERAL RESERVE ACT.—The Corporation shall, for the pur20 poses of section 14(b)(2) of the Federal Reserve Act (12

21 U.S.C. 355(b)(2)), be deemed to be an agency of the Unit22 ed States.

23 ‘‘(c) TREATMENT OF OBLIGATIONS UNDER TITLE

24 31.—The obligations of the Corporation shall be deemed
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1 to be obligations of the United States for purposes of sec2 tion 3124 of title 31, United States Code.

3 ‘‘(d) TREATMENT OF CORPORATION UNDER TITLE

4 11.—For the purpose of section 101(27) of title 11, Unit5 ed States Code, the Corporation shall be deemed to be an

6 agency of the United States; however, for the purpose of

7 section 101(41) of title 11, United States Code, the Cor8 poration shall not be deemed to be a governmental unit,

9 but instead shall be deemed to be a corporation.

10 ‘‘SEC. 356. LOAN AND INVESTMENT OPERATIONS.

11 ‘‘(a) SMALL BUSINESS INVESTMENT SECURITIES.—

12 After the permanent Board of Directors has been duly

13 constituted, the Corporation is authorized, subject to the

14 provisions of this section, pursuant to commitments or

15 otherwise, to make advances on the security of, purchase

16 or repurchase, service, sell or resell, offer participations

17 or pooled interests in, act as an issuer or guarantor of,

18 or otherwise deal in, at prices and on terms and conditions

19 determined by the Corporation, small business investment

20 securities.

21 ‘‘(b) REQUIREMENTS.—The Corporation is author22 ized to issue and guarantee securities based on the small

23 business investment securities specified under subsection

24 (a) of this section. Securities issued or guaranteed by the

25 Corporation pursuant to this subsection may be in the
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1 form of debt obligations secured by pools of small business

2 investment securities, trust certificates of beneficial own3 ership in such pools of small business investment securi4 ties, or equity securities based on such small business in5 vestment securities or any combination thereof. Small

6 business investment securities set aside pursuant to the

7 issuance or guarantee of such debt obligations, trust cer8 tificates, or equity securities shall at all times provide for

9 payments that, in the reasonable judgment of the Corpora10 tion, are adequate to ensure payment of the obligations

11 on such securities.

12 ‘‘(c) PERFECTION OF SECURITY INTERESTS.—Not13 withstanding the provisions of any State law to the con14 trary, including the Uniform Commercial Code as in effect

15 in any State, a security or ownership interest in small

16 business investment securities created by the Corporation

17 or by any eligible small business investment company may

18 be perfected either through the taking of possession of

19 such securities or by the filing of notice of such interest

20 in such securities in the manner provided by such State

21 law for perfection of security or ownership interests in ac22 counts.
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1 ‘‘SEC. 357. SERVICING GUARANTEED SECURITIES AND AS2 SETS IN LIQUIDATION.

3 ‘‘(a) IN GENERAL.—To carry out the purposes set

4 forth in section 351, and notwithstanding any law, rule,

5 or regulation, the Administration is authorized and di6 rected to enter into a contract with the Corporation under

7 which the Corporation will manage and service all small

8 business investment company securities and commitments

9 outstanding on the effective date of this part and all assets

10 in default or in liquidation status held by the Administra11 tion on such effective date, or managed by any third party

12 on the Administration’s behalf, as the result of default or

13 liquidation proceedings by the Administration involving

14 small business investment companies. Such outstanding

15 small business investment company securities shall in16 clude, but are not limited to, all debentures and participat17 ing securities guaranteed or owned by the Administration

18 and all preferred stock issued to the Administration.

19 ‘‘(b) DEADLINE.—The Administration and the Cor20 poration shall enter into a contract under subsection (a)

21 no later than 30 days following the appointment of the

22 interim Board of Directors under section 352(c).

23 ‘‘(c) TERMS AND CONDITIONS.—The contract under

24 subsection (a) shall provide for the following:

25 ‘‘(1) All such outstanding securities, commit26 ments, and assets, together with all of the docu-
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1 mentation, files, and books and records pertaining

2 thereto, shall be transferred from the Administration

3 to the Corporation which shall act solely as the man4 aging and servicing agent on behalf of the Adminis5 tration for all such securities, commitments, and as6 sets.

7 ‘‘(2) All of the obligations for which the Admin8 istration is responsible on all securities which are

9 transferred to the Corporation for management and

10 servicing shall remain in full force and effect as obli11 gations of the Administration, including, but not

12 limited to, guarantees of or commitments to deben13 tures or participating securities, or guarantees of

14 certificates of interest, or contracts for the purchase

15 of debentures or preferred stock.

16 ‘‘(3) Except as provided in paragraph (6), all of

17 the benefits to which the Administration is entitled

18 on all securities which are transferred to the Cor19 poration for management and servicing shall remain

20 in full force and effect, including, but not limited to,

21 payments of principal and interest of debentures,

22 payments of priority payments and profit participa23 tions on, and redemptions of, participating securi24 ties, and payments of dividends and redemptions on

25 preferred stock.
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1 ‘‘(4) For purposes of managing and servicing

2 all such securities, commitments, and assets the Cor3 poration shall be considered the successor entity to

4 the Administration under all trust agreements, con5 tracts, and any other agreements relating to such se6 curities, commitments, and assets.

7 ‘‘(5) All payments received by the Corporation

8 on the outstanding portfolio transferred to the Cor9 poration and all receipts from the liquidation of as10 sets transferred to the Corporation, net of manage11 ment and servicing fees, shall be immediately paid to

12 the Administration.

13 ‘‘(6) Notwithstanding section 4(c)(5) of the

14 Small Business Act (15 U.S.C. 633(c)(5)), the fol15 lowing fees shall be paid to the Corporation for man16 aging and servicing the transferred securities, com17 mitments, and assets:

18 ‘‘(A) On the portfolio of outstanding secu19 rities and commitments, a fee equal to 2 per20 cent per fiscal year of the aggregate balance

21 outstanding on the effective date of this part,

22 and 2 percent per fiscal year of the remaining

23 aggregate balance outstanding at the beginning

24 of each fiscal year thereafter. This fee shall be

25 paid in advance upon determination of the ag-
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1 gregate balance outstanding at the beginning of

2 each period.

3 ‘‘(B) On the portfolio of assets in default

4 or in liquidation, an incentive fee equal to 10

5 percent of the aggregate amount collected dur6 ing each fiscal year. This fee shall be deducted

7 from the amount collected by the Corporation

8 as such assets are liquidated.

9 ‘‘(7) Notwithstanding section 4(c)(5) of the

10 Small Business Act (15 U.S.C. 633(c)(5)), control

11 over the outstanding balance in the fund established

12 under section 303(g)(2) of the Small Business In13 vestment Act (15 U.S.C. 683(g)(2)) shall be trans14 ferred from the Administration to the Corporation

15 for use in carrying out the Corporation’s manage16 ment and servicing functions.

17 ‘‘(d) REPORT TO CONGRESS.—Not later than 60 days

18 after executing the contract to manage and service the se19 curities, commitments, and assets in default of liquidation,

20 the Corporation shall submit to the Committees on Small

21 Business of the Senate and the House of Representatives

22 a report describing the activities of the Administration,

23 the Corporation, and their representatives under this sec24 tion.
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1 ‘‘SEC. 358. QUALIFICATION OF SMALL BUSINESS INVEST2 MENT COMPANIES.

3 ‘‘(a) ESTABLISHMENT OF CRITERIA.—The Corpora4 tion shall establish appropriate criteria for the qualifica5 tion of small business investment companies to conduct

6 business with the Corporation, and shall redetermine the

7 qualifications of any small business investment company

8 upon a change of control due to a transfer of ownership.

9 Such criteria may include, among other things, the general

10 business reputation and character of the owners and man11 agement of the small business investment company, and

12 the probability of successful operations of such small busi13 ness investment company, including adequate profitability

14 and financial soundness. Licensees in good standing which

15 make capital contributions and acquire common stock of

16 the Corporation pursuant to section 353(a), contract with

17 the Corporation pursuant to the provisions of section

18 359(a), and authorize the release of records to the Cor19 poration pursuant to section 323(d) shall be deemed to

20 be qualified under this section.

21 ‘‘(b) MINIMUM AMOUNT OF PRIVATE CAPITAL.—

22 Each small business investment company authorized to

23 operate under the authority of this part shall have private

24 capital of not less than $5,000,000, except that this provi25 sion shall not apply to licensees in good standing as of

26 the date the Administration receives notice pursuant to
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1 section 352(i). In all cases, such private capital shall be

2 in an amount determined by the Corporation to be ade3 quate to assure a reasonable prospect that the company

4 will be operated soundly and profitably, and managed ac5 tively and prudently.

6 ‘‘(c) BANK PURCHASES OF OWNERSHIP INTERESTS

7 IN SMALL BUSINESS INVESTMENT COMPANIES.—Not8 withstanding the provisions of section 23A of the Federal

9 Reserve Act (12 U.S.C. 371c), ownership interests in

10 small business investment companies shall be eligible for

11 purchase by national banks of the Federal Reserve System

12 and nonmember insured banks to the extent permitted

13 under applicable State law, except that in no event may

14 any such bank acquire ownership interests in any small

15 business investment company if, upon the making of that

16 acquisition, the aggregate amount of ownership interest

17 in small business investment companies then held by the

18 bank would exceed 5 percent of its capital and surplus.

19 ‘‘(d) POWERS OF SMALL BUSINESS INVESTMENT

20 COMPANIES.—Each small business investment company

21 shall have authority to purchase stock issued by the Cor22 poration and to borrow money and to issue debentures and

23 other obligations or securities under such conditions and

24 subject to such rules as the Corporation may prescribe.
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1 ‘‘(e) INAPPLICABILITY OF CERTAIN PROVISIONS TO

2 SMALL BUSINESS INVESTMENT COMPANIES.—Thirty

3 days after the Administration receives notice from the

4 Corporation pursuant section 352(i), the provisions of sec5 tions 301 through 306, sections 308 through 318, and sec6 tions 320 through 322 shall not apply to small business

7 investment companies which qualify under section 358(a).

8 ‘‘(f) REFERENCES.—All specific references to small

9 business investment companies operating under the Small

10 Business Investment Act of 1958 in any law of the United

11 States, or regulations promulgated thereunder by any

12 agency of the United States Government, or any law of

13 any State in effect on the effective date of this part, shall

14 be deemed to refer to and include small business invest15 ment companies operating under the provisions of this

16 part.

17 ‘‘SEC. 359. OPERATIONS OF SMALL BUSINESS INVESTMENT

18 COMPANIES.

19 ‘‘(a) RULES.—The Corporation shall contract with

20 small business investment companies qualified under sec21 tion 358 governing the operations of such companies in

22 accordance with the provisions and purposes of this title.

23 The Corporation shall adopt rules effectuating the provi24 sions of subsections (c) through (o) of this section and

25 such rules, or changes therein, shall be approved by a ma-
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1 jority vote of the members of the Board of Directors, in2 cluding not less than a majority of the members appointed

3 by the President and confirmed by the Senate.

4 ‘‘(b) PROVISION OF EQUITY CAPITAL AND LOANS.—

5 Each small business investment company is authorized to

6 provide equity capital and loans to small business concerns

7 in such manner and under such terms as the small busi8 ness investment company may fix in accordance with the

9 rules of the Corporation. Equity investments and loans

10 made under this section may be made directly or in co11 operation with other investors or lenders on a participation

12 or guaranteed basis. Each small business investment com13 pany may provide consulting and advisory services on a

14 fee basis and have on its staff persons competent to pro15 vide such services.

16 ‘‘(c) PROHIBITION OF CERTAIN ACTIVITIES.—Small

17 business investment companies shall engage only in lawful

18 activities and those which are contemplated by this title

19 and in no other activities and the Corporation shall adopt

20 rules to so provide.

21 ‘‘(d) CONFLICTS.—For the purpose of eliminating

22 conflicts of interest which may be detrimental to small

23 business concerns, to small business investment compa24 nies, to the shareholders or partners of either, to the Cor25 poration, or to the purposes of this part, the Corporation
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1 shall adopt rules to govern transactions with any person

2 or concern, whether direct or indirect, financial or other3 wise, involving any small business investment company, or

4 any officer, director, shareholder, or partner of any small

5 business investment company, which would cause such

6 detrimental conflict of interest.

7 ‘‘(e) RESTRICTION ON CONTROL OF SMALL BUSI8 NESS CONCERNS.—The Corporation shall adopt rules

9 which shall provide that small business investment compa10 nies, either singularly or jointly, shall not be permitted to

11 assume control over small business concerns except on a

12 temporary basis if reasonably necessary for the protection

13 of its investment and then only under rules adopted by

14 the Corporation.

15 ‘‘(f) INVESTMENT IN SMALL BUSINESS CONCERNS.—

16 Except as otherwise provided by rules adopted by the Cor17 poration and approved by the Administration, small busi18 ness investment companies shall only invest in a small

19 business concern which, together with its affiliates, is inde20 pendently owned and operated, is not dominant, in its field

21 of operations, and—

22 ‘‘(1) does not have a net worth in excess of

23 $18,000,000, and does not have average net income

24 after Federal income taxes (excluding any carry-over
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1 losses) for the preceding 2 completed fiscal years in

2 excess of $6,000,000; or

3 ‘‘(2) otherwise qualifies under size standards

4 for financial assistance established by the Adminis5 tration under the Small Business Act.

6 ‘‘(g) MINIMUM PERIOD OF FINANCINGS.—Except as

7 otherwise provided by rules adopted by the Corporation,

8 financings of small business concerns by small business

9 investment companies shall be for a minimum period of

10 5 years.

11 ‘‘(h) LIMITATION ON AMOUNT OF OBLIGATIONS AND

12 SECURITIES FOR SINGLE ENTERPRISE.—Except as other13 wise provided by rules adopted by the Corporation, the ag14 gregate amount of obligations and securities acquired and

15 for which commitments may be issued by any small busi16 ness investment company under the provisions of this title

17 for any single enterprise shall not exceed 20 percent of

18 the private capital of such company.

19 ‘‘(i) PROHIBITION ON FINANCING OF CERTAIN AC20 TIVITIES.—Except as otherwise provided by rules adopted

21 by the Corporation, small business investment companies

22 shall not provide financing to a small business concern for

23 relending, foreign investments, passive investments, or for

24 the acquisition of real estate.
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1 ‘‘(j) DETERMINATION OF VALUE OF INVEST2 MENTS.—The Board of Directors, including not less than

3 a majority of the members appointed by the President,

4 shall adopt rules to require each small business investment

5 company to adopt written guidelines for determination of

6 the value of investments made by such company. The

7 board of directors of corporations and the general partners

8 of partnerships shall have the sole responsibility for mak9 ing a good faith determination of the fair market value

10 of the investments made by such company. Determina11 tions shall be made and reported to the Corporation not

12 less than semiannually or at more frequent intervals as

13 the Corporation determines appropriate: Provided, That

14 any company which does not have outstanding financial

15 assistance from the Administration or under the provi16 sions of this title shall be required to make such deter17 minations and reports to the Corporation annually, unless

18 the Corporation, in its discretion, determines otherwise.

19 ‘‘(k) MINIMIZATION OF RISK OF LOSS.—The Board

20 of Directors, including not less than a majority of the

21 members appointed by the President, shall adopt rules to

22 minimize the risk of loss to the Corporation on the total

23 amount of securities issued by any individual small busi24 ness investment company or by small business investment

25 companies under common control.
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1 ‘‘(l) FINANCIAL AUDIT.—Each small business invest2 ment company shall have a financial audit conducted by

3 an independent certified public accountant certified or li4 censed by a regulatory authority of a State or other politi5 cal subdivision of the United States at least annually and

6 at such other times as may be required by the Corpora7 tion.

8 ‘‘(m) COMPLIANCE AUDIT.—At least once every 2

9 years, each small business investment company shall have

10 an audit of such company’s compliance with the rules of

11 the Corporation conducted by an independent certified

12 public accountant selected by the Corporation or, in the

13 discretion of the Corporation, such audit may be con14 ducted by employees or agents of the Corporation.

15 ‘‘(n) OTHER REPORTS.—Each small business invest16 ment company also shall make such other reports to the

17 Corporation at such times and in such form as the Cor18 poration may require.

19 ‘‘(o) MEASURES TO ENSURE COMPLIANCE.—The

20 Corporation shall adopt appropriate measures to ensure

21 compliance by small business investment companies with

22 the provisions of this section. Failure of a small business

23 investment company to comply with the provisions of this

24 section shall entitle the Corporation to take corrective ac-
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1 tion warranted under the circumstances which shall in2 clude, but is not limited to—

3 ‘‘(1) loss of qualification by such company to do

4 business with the Corporation;

5 ‘‘(2) suspension or termination of agreements

6 between the Corporation and such company;

7 ‘‘(3) assessment of penalties against such com8 pany or its officers, directors, or general partners;

9 ‘‘(4) removal or suspension of officers, direc10 tors, or general partners of such company; and

11 ‘‘(5) assumption of control and operations of

12 such company by the Corporation.

13 In appropriate cases, the Corporation is authorized, in its

14 discretion, to refer violations of law to the Administration

15 for investigation or to refer such violations to the United

16 States Attorney in the jurisdiction in which such violations

17 may have occurred or in which the small business invest18 ment company, or its officers, directors, or general part19 ners, are located.

20 ‘‘(p) STATE LAWS.—In order to facilitate the orderly

21 and necessary flow of long-term loans and equity funds

22 from small business investment companies to small busi23 ness concerns, the provisions of the Constitution or the

24 laws of any State expressly limiting the rate or amount

25 of interest, discount points, finance charges, or other
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1 charges which may be charged, taken, received, or re2 served by lenders shall not apply to any business loan

3 made by a small business investment company pursuant

4 to provisions of this part. This subsection shall apply to

5 business loans made by a small business investment com6 pany in any State on or after the effective date of this

7 part, unless such State adopts a law or certifies that the

8 voters of such State have voted in favor of any provision,

9 constitutional or otherwise, which states explicitly and by

10 its terms that such State does not want the provisions of

11 this subsection to apply to business loans made in such

12 State. In any case in which a State takes an action de13 scribed in this subsection, such State law or constitutional

14 or other provision shall not apply to any business loan

15 made by a small business investment company pursuant

16 to a commitment to make such loan which was entered

17 into on or after the effective date of this part and prior

18 to the date on which such action was taken.

19 ‘‘SEC. 360. LEVERAGE FORMULA.

20 ‘‘(a) IN GENERAL.—The total amount of leverage

21 that may be provided by the Corporation to a small busi22 ness investment company shall not exceed 300 percent of

23 the private capital of such company: Provided, That noth24 ing in this subsection shall require any such company that

25 on the effective date of this part has outstanding leverage
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1 in excess of 300 percent of its private capital to prepay

2 such excess.

3 ‘‘(b) FORMULA.—After the effective date of this part,

4 the maximum amount of outstanding leverage made avail5 able to a small business investment company by the Cor6 poration shall be determined by the amount of such com7 pany’s private capital—

8 ‘‘(1) if the company has private capital of not

9 more than $15,000,000, the total amount of lever10 age shall not exceed 300 percent of private capital;

11 ‘‘(2) if the company has private capital of more

12 than $15,000,000 but not more than $30,000,000,

13 the total amount of leverage shall not exceed

14 $45,000,000 plus 200 percent of the amount of pri15 vate capital over $15,000,000; and

16 ‘‘(3) if the company has private capital of more

17 than $30,000,000, the total amount of leverage shall

18 not exceed $75,000,000 plus 100 percent of the

19 amount of private capital over $30,000,000 but not

20 to exceed an additional $15,000,000.

21 ‘‘(c) DEBT AND EQUITY TYPE SECURITIES.—Subject

22 to the foregoing dollar and percentage limits, a small busi23 ness investment company may issue to the Corporation

24 both debt and equity type securities: Provided, That the

25 total amount of equity type securities issued to the Cor-
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•HR 2806 IH

1 poration shall not exceed 200 percent of the company’s

2 private capital.

3 ‘‘(d) MAXIMUM AMOUNT OF OUTSTANDING LEVER4 AGE.—In no event shall the aggregate amount of out5 standing leverage of any such company or companies

6 which are commonly controlled as determined by the Cor7 poration exceed $90,000,000, unless the Corporation de8 termines on a case by case basis to permit a higher

9 amount for companies under common control and imposes

10 such additional terms and conditions as it determines ap11 propriate to minimize the risk of loss to the Corporation.

12 ‘‘SEC. 361. AUDITS OF THE CORPORATION.

13 ‘‘(a) ANNUAL AUDIT.—The accounts of the Corpora14 tion shall be audited annually. Such audits shall be con15 ducted in accordance with generally accepted auditing

16 standards by independent certified public accountants who

17 are certified or licensed by a regulatory authority of a

18 State or other political subdivision of the United States.

19 A report of each such audit shall be furnished to the Office

20 of Investment Oversight. The audit shall be conducted at

21 the place or places where the accounts are normally kept.

22 The representatives of the Office of Investment Oversight

23 shall have access to all books and records of the Corpora24 tion, and they shall be afforded full facilities for verifying
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1 transactions with the balance or securities held by deposi2 tories, fiscal agents, and custodians.

3 ‘‘(b) REPORTS BY OFFICE OF INVESTMENT OVER4 SIGHT.—A report of each such audit for a fiscal year shall

5 be made by the Office of Investment Oversight to the

6 President and to the Committees on Small Business of

7 the Senate and the House of Representatives not later

8 than 6 months following the close of such fiscal year. The

9 report shall set forth the scope of the audit and shall in10 clude a statement of assets and liabilities, capital and sur11 plus or deficit, a statement of surplus or deficit analysis,

12 a statement of income and expense, a statement of sources

13 and application of funds, and comments and information

14 as may be deemed necessary to keep the President and

15 the Congress informed of the operations and financial con16 dition of the Corporation, together with such recommenda17 tions with respect thereto as the Office of Investment

18 Oversight may deem advisable, including a report of any

19 impairment of capital or lack of sufficient capital noted

20 in the audit. A copy of each such report shall be furnished

21 to the Corporation at the same time it is submitted to

22 the President.
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1 ‘‘SEC. 362. REGULATION OF FINANCIAL SAFETY AND

2 SOUNDNESS.

3 ‘‘(a) ESTABLISHMENT OF OFFICE OF INVESTMENT

4 OVERSIGHT.—There is hereby established in the Small

5 Business Administration an Office to be known as the Of6 fice of Investment Oversight, which shall have responsibil7 ity for reviewing the regulatory and financial performance

8 of the Corporation as provided herein. The Office shall

9 be headed by a Director who shall be appointed by the

10 Administrator, and shall receive compensation at the rate

11 provided by law for Associate Administrators of the Small

12 Business Administration.

13 ‘‘(b) DEFINITIONS.—For purposes of this section, the

14 following definitions apply:

15 ‘‘(1) The term ‘core capital’ means, with re16 spect to the Corporation, the sum of the following

17 (as determined in accordance with generally accepted

18 accounting principles):

19 ‘‘(A) The par value of outstanding common

20 stock.

21 ‘‘(B) The par value of outstanding pre22 ferred stock.

23 ‘‘(C) Paid-in capital.

24 ‘‘(D) Retained earnings.

25 ‘‘(2) The term ‘regulatory capital’ means, with

26 respect to the Corporation, the core capital of the
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1 Corporation plus an allowance for losses, as deter2 mined in accordance with generally accepted ac3 counting principles.

4 ‘‘(c) RISK-BASED CAPITAL TEST.—Not later than 2

5 years after the effective date of this part, the Director of

6 the Office of Investment Oversight shall, by regulation, es7 tablish a risk-based capital test under this section for the

8 Corporation. When applied to the Corporation, the risk9 based capital test shall determine the amount of regu10 latory capital for the Corporation that is sufficient for the

11 Corporation to maintain positive capital during a 10-year

12 period in which both of the following circumstances occur:

13 ‘‘(1) CREDIT RISK.—With respect to securities

14 representing an interest in, or obligations backed by,

15 a pool of qualified loans owned or guaranteed by the

16 Corporation and other obligations of the Corpora17 tion, losses on the underlying qualified loans occur

18 throughout the United States at a rate of default

19 and severity (based on any measurements of default

20 reasonably related to prevailing industry practice in

21 determining capital adequacy) reasonably related to

22 the rate and severity that occurred in contiguous

23 areas of the United States containing an aggregate

24 of not less than 5 percent of the total population of

25 the United States that, for a period of not less than
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1 2 years (as established by the Director), experienced

2 the highest rates of default and severity of venture

3 investing losses in other such areas for any period

4 of such duration, as determined by the Director.

5 ‘‘(2) INTEREST RATE RISK.—Interest rates on

6 Treasury obligations of varying terms increase or de7 crease over the first 12 months of such 10-year pe8 riod by not more than the lesser of (A) 50 percent

9 (with respect to the average interest rates on such

10 obligations during the 12-month period preceding

11 the 10-year period), or (B) 600 basis points, and re12 main at such level for the remainder of the period.

13 This paragraph may not be construed to require the

14 Director to determine interest rate risk under this

15 paragraph based on the interest rates for various

16 long-term and short-term obligations all increasing

17 or all decreasing concurrently.

18 ‘‘(d) CONSIDERATIONS IN ESTABLISHMENT OF THE

19 TEST.—In establishing the risk based capital test under

20 subsection (c)—

21 ‘‘(1) the Director shall take into account appro22 priate distinctions based on various types of venture

23 investing products, varying terms of Treasury obli24 gations, and any other factors the Director considers

25 appropriate;
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1 ‘‘(2) the Director shall conform loan and invest2 ment data used in determining credit risk to the

3 minimum diversification standards applicable to

4 pools of qualified loans;

5 ‘‘(3) the Director shall take into account any

6 retained subordinated participating interests held by

7 the Corporation;

8 ‘‘(4) the Director may take into account other

9 methods or tests to determine credit risk developed

10 by the Corporation; and

11 ‘‘(5) the Director shall consider any other infor12 mation submitted by the Corporation in writing.

13 ‘‘(e) REVISING THE TEST.—Upon the expiration of

14 the 6-year period beginning on the effective date of this

15 part, the Director shall examine the risk-based capital test

16 under subsection (c) and may revise the test. In making

17 revisions under this subsection, the Director shall take

18 into account that, before the effective date of this part,

19 the Corporation did not issue or guarantee securities

20 based on pools of qualified loans and investments. To the

21 extent that the revision of the risk-based capital test

22 causes a change in the classification of the corporation

23 within the enforcement levels established under subsection

24 (k), the Director shall waive the applicability of any addi25 tional enforcement actions available because of such
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1 change for a reasonable period of time, to permit the Cor2 poration to increase the amount of regulatory capital of

3 the Corporation accordingly.

4 ‘‘(f) RISK BASED CAPITAL LEVEL.—For purposes of

5 this section, the risk-based capital level for the Corpora6 tion shall be equal to the sum of the following amounts:

7 ‘‘(1) CREDIT AND INTEREST RATE RISK.—The

8 amount of the regulatory capital determined by ap9 plying the risk-based capital test under subsection

10 (c) to the Corporation, adjusted to account for for11 eign exchange risk.

12 ‘‘(2) MANAGEMENT AND OPERATIONS RISK.—

13 To provide for management and operations risk, 30

14 percent of the amount of regulatory capital deter15 mined by applying the risk-based capital test under

16 subsection (c) to the Corporation.

17 ‘‘(g) REGULATIONS.—The regulations establishing

18 the risk-based capital test under this section shall contain

19 specific requirements, definitions, methods, variables, and

20 parameters used under the risk-based capital test and in

21 implementing the test (such as loan loss severity, float in22 come, loan-to-value ratios, taxes, yield curve slopes, de23 fault experience, prepayment rates, and performance of

24 pools of qualified loans and investments). The regulations

25 shall be sufficiently specific to permit an individual other
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1 than the Director to apply the test in the same manner

2 as the Director.

3 ‘‘(h) AVAILABILITY OF STATISTICAL MODEL.—The

4 Director shall make copies of the statistical model or mod5 els used to implement the risk-based capital test under

6 this section available for public acquisition and may

7 charge a reasonable fee for such copies.

8 ‘‘(i) MINIMUM CAPITAL LEVEL.—For purposes of

9 this section, after the 6th year following the effective date

10 of this part the minimum capital level for the Corporation

11 shall be an amount of core capital equal to the sum of—

12 ‘‘(1) 2.00 percent of the aggregate on-balance

13 sheet assets of the Corporation, as determined in ac14 cordance with generally accepted accounting prin15 ciples; and

16 ‘‘(2) 0.30 percent of the unpaid principal bal17 ance of outstanding securities issued by the Corpora18 tion and backed by pools of qualified loans and in19 vestments and substantially equivalent instruments

20 issued or guaranteed by the Corporation, and other

21 off-balance sheet obligations of the corporation.

22 ‘‘(j) CRITICAL CAPITAL LEVEL.—For the purposes of

23 this section, the critical capital level for the Corporation

24 shall be an amount of core capital equal to the sum of—
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1 ‘‘(1) 1.25 percent of the aggregate on-balance

2 sheet assets of the Corporation, as determined in ac3 cordance with generally accepted accounting prin4 ciples; and

5 ‘‘(2) 0.20 percent of the unpaid balance of out6 standing securities guaranteed by the Corporation

7 and backed by pools of qualified loans and invest8 ments and substantially equivalent instruments is9 sued or guaranteed by the Corporation, and other

10 off-balance sheet obligations of the Corporation.

11 ‘‘(k) ENFORCEMENT LEVELS.—The Director shall

12 classify the Corporation, for purposes of this section, ac13 cording to the following enforcement levels:

14 ‘‘(1) LEVEL I.—The Corporation shall be classi15 fied as within level I if the Corporation—

16 ‘‘(A) maintains an amount of regulatory

17 capital that is equal to or exceeds the risk18 based capital level established under section (c);

19 and

20 ‘‘(B) equals or exceeds the minimum cap21 ital level established under subsection (i).

22 ‘‘(2) LEVEL II.—The Corporation shall be clas23 sified as within level II if the Corporation—
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1 ‘‘(A)(i) maintains an amount or regulatory

2 capital that is less than the risk-based capital

3 level; and

4 ‘‘(ii) equals or exceeds the minimum cap5 ital level; or

6 ‘‘(B) is otherwise classified as within level

7 II under subsection (b)

8 ‘‘(3) LEVEL III.—The Corporation shall be clas9 sified as within level III if the Corporation—

10 ‘‘(A)(i) does not equal or exceed the mini11 mum capital level; and

12 ‘‘(ii) equals or exceeds the critical capital

13 level established under subsection (j); or

14 ‘‘(B) is otherwise classified as within level

15 III under subsection (b).

16 ‘‘(4) LEVEL IV.—The Corporation shall be clas17 sified as within level IV if the Corporation—

18 ‘‘(A) does not equal or exceed the critical

19 capital level; or

20 ‘‘(B) is otherwise classified as within level

21 IV under subsection (b).

22 ‘‘(l) DISCRETIONARY CLASSIFICATION.—If, at any

23 time, the Director determines in writing (and provides

24 written notification to the Corporation and the Adminis25 tration) that the Corporation is taking any action not ap-
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1 proved by the Director that could result in a rapid deple2 tion of core capital or that the value of the property

3 securitized by the Corporation or subject to underlying se4 curities guaranteed by the Corporation has decreased sig5 nificantly, the Director may classify the Corporation—

6 ‘‘(1) as within level II, if the Corporation is

7 otherwise within level I;

8 ‘‘(2) as within level III, if the Corporation is

9 otherwise within level II; or

10 ‘‘(3) as within level IV, if the Corporation is

11 otherwise within level III.

12 ‘‘(m) SEMI-ANNUAL DETERMINATION.—After the

13 6th year following the effective date of this part, the Di14 rector shall determine the classification of the Corporation

15 for purposes of this part on not less than a semi-annual

16 basis.

17 ‘‘(n) NOTICE.—Upon determining under subsection

18 (c) or (i) that the Corporation is within level II or III,

19 the Director shall provide written notice to the Congress

20 and to the Corporation—

21 ‘‘(1) that the Corporation is within such level;

22 ‘‘(2) that the Corporation is subject to the pro23 visions of subsection (o) or (q), as applicable; and

24 ‘‘(3) stating the reasons for the classification of

25 the Corporation within such level.
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1 ‘‘(o) MANDATORY ACTIONS APPLICABLE TO LEVEL

2 II.—If the Corporation is classified as within level II, the

3 Corporation shall—

4 ‘‘(1) within the time period determined by the

5 Director, submit to the Director a capital restoration

6 plan and, after approval, carry out the plan; and

7 ‘‘(2) not make any payment of dividends that

8 would result in the Corporation being reclassified as

9 within level III or IV.

10 ‘‘(p) RECLASSIFICATION FROM LEVEL II TO LEVEL

11 III.—The Director shall immediately reclassify the Cor12 poration as within level III (and the Corporation shall be

13 subject to the provisions of section (q)) if—

14 ‘‘(1) the Corporation is within level II; and

15 ‘‘(2)(A) the Corporation does not submit a cap16 ital restoration plan that is approved by the Direc17 tor; or

18 ‘‘(B) the Director determines that the Corpora19 tion has failed to make, in good faith, reasonable ef20 forts necessary to comply with such a capital res21 toration plan and fulfill the schedule for the plan ap22 proved by the Director.

23 ‘‘(q) SUPERVISORY ACTIONS APPLICABLE TO LEVEL

24 III.—If the Corporation is classified as within level III—
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1 ‘‘(1) the Corporation shall, within the time pe2 riod determined by the Director, submit to the Di3 rector a capital restoration plan and, after approval,

4 carry out the plan; and

5 ‘‘(2) the Corporation shall not make any pay6 ment of dividends that would result in the Corpora7 tion being reclassified as within level IV or make any

8 other payment of dividends unless the Director ap9 proves the payment before it is made.

10 ‘‘(3) the Director may approve a payment of

11 dividends by the Corporation only if the Director de12 termines that the payment—

13 ‘‘(A) will enhance the ability of the Cor14 poration to meet the risk-based capital level and

15 the minimum capital level promptly;

16 ‘‘(B) will contribute to the long-term safety

17 and soundness of the Corporation; or

18 ‘‘(C) is otherwise in the public interest.

19 ‘‘(r) RECLASSIFICATION FROM LEVEL III TO LEVEL

20 IV.—The Director shall immediately reclassify the Cor21 poration as within level IV if—

22 ‘‘(1) the Corporation is classified as within level

23 III; and
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1 ‘‘(2)(A) the Corporation does not submit a cap2 ital restoration plan that is approved by the Direc3 tor; or

4 ‘‘(B) the Director determines that the Corpora5 tion has failed to make, in good faith, reasonable ef6 forts necessary to comply with such a capital res7 toration plan and fulfill the schedule for the plan ap8 proved by the Director.

9 ‘‘(s) DISCRETIONARY SUPERVISORY ACTIONS.—In

10 addition to any other actions taken by the Director (in11 cluding actions under subsection (q)), the Director may,

12 at any time, take any of the following actions if the Cor13 poration is classified as within level III:

14 ‘‘(1) Limit any increase in, or order the reduc15 tion of, any obligations of the Corporation, including

16 off-balance sheet obligations.

17 ‘‘(2) Limit or prohibit the growth of the assets

18 of the Corporation or require contraction of the as19 sets of the Corporation.

20 ‘‘(3) Prohibit the Corporation from making any

21 payment of dividends.

22 ‘‘(4) Require the Corporation to acquire new

23 capital in any form and in any amount sufficient to

24 provide for the reclassification of the Corporation as

25 within level II.
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1 ‘‘(5) Require the Corporation to terminate, re2 duce, or modify any activity that the Director deter3 mines creates excessive risk to the Corporation.

4 ‘‘(6) Appoint a conservator for the Corporation

5 consistent with this Act.

6 ‘‘SEC. 363. GOVERNMENT OVERSIGHT AND REPORTS.

7 ‘‘(a) COMMITTEES ON SMALL BUSINESS.—In order

8 to conduct legislative oversight of the Corporation’s activi9 ties, the Committees on Small Business of the Senate and

10 the House of Representatives shall have access to the

11 books and records of the Corporation at any time.

12 ‘‘(b) GENERAL ACCOUNTING OFFICE.—At the re13 quest of either the Committee on Small Business of the

14 Senate or the House of Representatives, the books and

15 records of the Corporation shall be subject to examination

16 by the General Accounting Office.

17 ‘‘(c) OFFICE OF INVESTMENT OVERSIGHT.—In order

18 to ensure that the public purposes of this part are carried

19 out, the Office of Investment Oversight shall have author20 ity to review the Corporation’s criteria for the qualification

21 of small business investment companies to conduct busi22 ness with the Corporation and the Corporation’s rules gov23 erning the operations of small business investment compa24 nies. The Office of Investment Oversight may examine the

25 books and records of the Corporation and may require the
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1 Corporation to make such reports as the Administration

2 deems desirable. Not later than January 31st of each year,

3 the Office of Investment Oversight shall submit to the

4 Committees on Small Business of the Senate and the

5 House of Representatives a report containing findings

6 made by the Office under this section.

7 ‘‘(d) ANNUAL REPORT BY CORPORATION.—The Cor8 poration shall, as soon as practicable after the end of each

9 fiscal year, transmit to the President, the Committees on

10 Small Business of the Senate and the House of Represent11 atives, and the Administration a report on its operations

12 and activities for such fiscal year.

13 ‘‘(e) REPORT BY GENERAL ACCOUNTING OFFICE.—

14 Not later than 7 years after the effective date of this part,

15 the General Accounting Office shall prepare a report to

16 be transmitted to the Committees on Small Business of

17 the Senate and the House of Representatives. The report

18 shall review the impact that the Corporation has had in

19 achieving the purposes of the Venture Capital Marketing

20 Association Charter Act, including but not limited to an

21 assessment of the impact on small business concerns re22 ceiving funding through the Corporation’s activities and

23 the impact on small business investment companies as a

24 result of the Corporation’s activities. In preparing this re-
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1 port, the General Accounting Office shall have access to

2 the books and records of the Corporation.

3 ‘‘SEC. 364. BOOKS AND RECORDS.

4 ‘‘The Administration shall furnish to the Corporation

5 all books and records of the Administration necessary to

6 carry out the provisions of this title within 30 days after

7 written request by the Corporation. Any such information

8 received by the Corporation shall be kept confidential by

9 the Corporation, its officers, agents, and employees under

10 the same provisions which would have been applicable if

11 it had been retained by the Administration.’’.

12 SEC. 4. TRANSFER AND PHASE-OUT.

13 (a) IN GENERAL.—Title III of the Small Business

14 Investment Act of 1958 is amended by inserting after sec15 tion 322 the following:

16 ‘‘SEC. 323. TRANSFER AND PHASE-OUT.

17 ‘‘(a) DEADLINE.—A licensee in good standing shall

18 have a period of 3 months from the date the Administra19 tion receives notice under section 352(i) in which to qual20 ify under section 358(a).

21 ‘‘(b) ISSUANCE OF REGULATIONS.—Within 6 months

22 after receiving notice under section 352(i), the Adminis23 tration shall promulgate final rules and regulations to ef24 fect the orderly termination of operations of any license

25 in good standing which has not qualified under section
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1 358(a), and the Administration shall enter into a contrac2 tual agreement with the Corporation which provides for

3 the administration of such rules and regulations by the

4 Corporation.

5 ‘‘(c) REQUIREMENTS FOR REGULATIONS.—The final

6 rules and regulations adopted by the Administration for

7 termination of the operations of any licensee under sub8 section (b) of this section shall, among other things, sus9 pend such licensees’s authority to obtain financial assist10 ance from the Administration and shall require revocation

11 of the license of any such licensee effective within 2 years

12 after the publication of such rules and regulations, except

13 that the license revocation for any such licensee which has

14 outstanding debentures shall be within 2 years after such

15 debentures are due or paid, whether voluntarily or other16 wise.’’.

17 (b) CONFORMING AMENDMENT.—The table of con18 tents contained in section 101 of the Small Business In19 vestment Act of 1958 (15 U.S.C. 661 note), as amended

20 by section 2(a) of this Act, is further amended by inserting

21 after the item relating to section 322 the following:

‘‘Sec. 323. Transfer and phase-out.’’.

22 SEC. 5. DEFINITIONS.

23 Section 103 of the Small Business Investment Act

24 of 1958 (15 U.S.C. 662) is amended—
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1 (1) by inserting before the semicolon in para2 graph (3) the following: ‘‘or a company qualified to

3 conduct business with the Corporation under section

4 358’’;

5 (2) by striking paragraph (9) and inserting the

6 following:

7 ‘‘(9) notwithstanding any other provision of

8 law, the term ‘private capital’ means the combined

9 private paid-in capital and paid-in surplus of a cor10 porate small business investment company, or the

11 private partnership capital of an unincorporated

12 small business investment company, inclusive of (A)

13 any funds invested in the small business investment

14 company by a public or private pension fund, (B)

15 any funds invested in the small business investment

16 company by State or local government entities, to

17 the extent that such investment does not exceed 33

18 percent of a small business investment company’s

19 total private capital and otherwise meets criteria es20 tablished by the Corporation, and (C) unfunded

21 commitments from institutional or individual inves22 tors that meet criteria established by the Corpora23 tion, but it excludes any funds which are borrowed

24 by the small business investment company from any

25 source or which are obtained or derived, directly or
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1 indirectly, from any Federal source, including the

2 Administration: Provided, That no unfunded com3 mitment from an investor may be used for the pur4 pose of meeting the minimum amount of private

5 capital required by this Act or as the basis for the

6 Corporation to issue obligations or securities to pro7 vide financing to small business investment compa8 nies;’’;

9 (3) by striking the period at the end of para10 graph (10) and inserting a semicolon; and

11 (4) by adding at the end the following:

12 ‘‘(11) the term ‘Corporation’ means the Ven13 ture Capital Marketing Association, as constituted

14 under this Act;

15 ‘‘(12) the term ‘Board of Directors’ means the

16 Board of Directors of the Corporation;

17 ‘‘(13) the term ‘law’ includes any law of the

18 United States or any State (including any rule of

19 law or of equity);

20 ‘‘(14) the term ‘organization’ means any cor21 poration, partnership, association, business trust, or

22 other business entity;

23 ‘‘(15) the term ‘security’ has the meaning given

24 such term by section 2(l) of the Securities Act of

25 1933 (15 U.S.C. 77b(l);
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1 ‘‘(16) the term ‘small business investment secu2 rity’ includes—

3 ‘‘(A) debentures, bonds, promissory notes,

4 obligations or equity securities issued by small

5 business investment companies; and

6 ‘‘(B) such other small business investment

7 company securities as determined by the Cor8 poration;

9 ‘‘(17) the term ‘licensee in good standing’

10 means a small business investment company which

11 was approved by the Administration to operate

12 under the provisions of this Act and was issued a li13 cense as provided in section 301, unless such li14 censee (A) is in default under Debentures issued to

15 the Administration and such Debentures have been

16 declared due and payable by the Administration, (B)

17 has engaged in events which the Administration has

18 determined to be in violation of provisions of Partici19 pating Securities or Preferred Securities, or (C) has

20 been placed in liquidation status by the Administra21 tion; and

22 ‘‘(18) the term ‘books and records of the Cor23 poration’ means the books and records of the Ven24 ture Capital Marketing Association, including but

25 not limited to books, accounts, financial records, re-
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1 ports, files, all memoranda and documents obtained

2 by employees or agents of the Corporation or by

3 independent certified public accountants during au4 dits of small business investment companies and all

5 reports and information from such companies to the

6 Corporation, and all other papers, things or property

7 belonging to or in use by the Corporation.

8 SEC. 6. AMENDMENT TO SMALL BUSINESS ACT.

9 Section 5(b)(2) of the Small Business Act (15 U.S.C.

10 634(b)(2)) is amended by striking ‘‘collection;’’ and by in11 serting ‘‘collection: Provided, That nothing in this Act nor

12 any other law shall authorize the Administration to sell,

13 hypothecate, pledge, or in any way encumber small busi14 ness investment securities made or issued by such Admin15 istration except as authorized by section 357 of the Small

16 Business Investment Act of 1958;’’.

17 SEC. 7. AMENDMENT TO REVISED STATUTES.

18 The 6th sentence of the 7th paragraph of section

19 5136 of the Revised Statutes of the United States (12

20 U.S.C. 24) is amended by inserting after ‘‘Student Loan

21 Marketing Association,’’ the following: ‘‘or obligations or

22 other instruments or securities of the Venture Capital

23 Marketing Association,’’.
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1 SEC. 8. EFFECT ON OTHER LAWS.

2 Except as otherwise provided by this Act, or as other3 wise provided by the Corporation or by the laws hereafter

4 enacted by the Congress expressly in limitations of provi5 sions of this Act, the powers and functions of the Corpora6 tion and of the Board of Directors shall be exercisable,

7 and the provisions of this Act shall be applicable and effec8 tive, without regard to any other law.

9 SEC. 9. APPLICABILITY TO STATES, TERRITORIES, AND

10 POSSESSIONS.

11 Notwithstanding any other law, this Act and the

12 amendments made by this Act shall be applicable to the

13 several States, the District of Columbia, and Common14 wealth of Puerto Rico, and the territories and possessions

15 of the United States.

16 SEC. 10. AMENDMENT TO TITLE 18.

17 Section 1006 of title 18, United States Code, is

18 amended by inserting before ‘‘or any Small Business In19 vestment Company,’’ the following: ‘‘, the Venture Capital

20 Marketing Association,’’.

21 SEC. 11. EFFECTIVE DATE.

22 This Act and the amendments made by this Act shall

23 become effective on the date of the enactment of this Act.

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