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THE JOBS ACT IN ACTION: OVERSEEING EFFECTIVE IMPLEMENTATION THAT CAN GROW 

AMERICAN JOBS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES 

AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JUNE 26, 2012 

Serial No. 112–168 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES AND BAILOUTS OF PUBLIC AND

PRIVATE PROGRAMS

PATRICK T. MCHENRY, North Carolina, Chairman 

FRANK C. GUINTA, New Hampshire, Vice 

Chairman 

ANN MARIE BUERKLE, New York 

JUSTIN AMASH, Michigan 

PATRICK MEEHAN, Pennsylvania 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

MIKE QUIGLEY, Illinois, Ranking Minority 

Member 

CAROLYN B. MALONEY, New York 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

JACKIE SPEIER, California 

JIM COOPER, Tennessee 

(III) 

C O N T E N T S 

Page 

Hearing held on June 26, 2012 ............................................................................... 1 

WITNESSES 

Mr. Brian G. Cartwright, Ph.D., Scholar-in-Residence, Marshall School of 

Business, University of Southern California, and Senior Advisor, Patomak 

Global Partners, LLC 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 6 

Mr. Alon Hillel-Tuch, Co-founder and CFO, RocketHub 

Oral Statement ................................................................................................. 19 

Written Statement ............................................................................................ 21 

Mr. C. Steven Bradford, J.D., Professor of Law, University of Nebraska School 

of Law 

Oral Statement ................................................................................................. 24 

Written Statement ............................................................................................ 26 

Mr. John C. Coffee, Jr., Professor of Law, Columbia University Law School 

Oral Statement ................................................................................................. 44 

Written Statement ............................................................................................ 46 

APPENDIX 

The Honorable Patrick McHenry, a Member of Congress from the State 

of North Carolina, Opening Statement .............................................................. 84 

Redrawing the Boundaries: JOBS Act’s Impact on the Crowdfunding Phenomenon and the Regulatory Framework of the Restricted Securities Market, Aaron J. Horn ............................................................................................... 86 

(1) 

THE JOBS ACT IN ACTION: OVERSEEING EFFECTIVE IMPLEMENTATION THAT CAN 

GROW AMERICAN JOBS 

Tuesday, June 26, 2012 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON TARP, FINANCIAL SERVICES, AND

BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 2:00 p.m., in Room 

2154, Rayburn House Office Building, Hon. Patrick T. McHenry 

[chairman of the subcommittee] presiding. 

Present: Representatives McHenry, Guinta, and Quigley. 

Staff Present: Ali Ahmad, Deputy Press Secretary; Will L. 

Boyington, Staff Assistant; John Cuaderes, Deputy Staff Director; 

Linda Good, Chief Clerk; Peter Haller, Senior Counsel; Christopher 

Hixon, Deputy Chief Counsel, Oversight; and Cheyenne Steel; 

Jaron Bourke, Minority Director of Administration; Jennifer Hoffman, Minority Press Secretary; Adam Koshkin, Minority Staff Assistant; Jason Powell, Minority Senior Counsel; Brian Quinn, Minority Counsel; and Davida Walsh, Minority Counsel. 

Mr. MCHENRY. Good afternoon, and thank you all for being here 

today. This is the Subcommittee on TARP, Financial Services and 

Bailouts of Public and Private Programs, and our hearing today is: 

The JOBS Act in Action: Overseeing Effective Implementation that 

Can Grow American Jobs. 

I will start today’s hearing as we always do, as by reading the 

Oversight and Government Reform Committee’s mission statement. 

The Oversight Committee mission statement: We exist to secure 

two fundamental principles. First, Americans have a right to know 

that the money Washington takes from them is well spent; and second, Americans deserve an efficient, effective government that 

works for them. Our duty on the Oversight and Government Reform Committee is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers, because taxpayers have a right to know what they get from their government. 

We will work tirelessly in partnership with citizen watchdogs to deliver the facts to the American people and bring genuine reform to 

the Federal bureaucracy. 

This is the mission of the Oversight and Government Reform 

Committee. 

I will now recognize myself for 5 minutes for the purposes of an 

opening statement. 

2 

Approximately 3 years into our economic recovery, America’s 

labor and capital markets continue to face unprecedented challenges. The U.S. unemployment rate has now been above 8 percent 

for 40 consecutive months and nearly 24 million Americans are either out of work or underemployed despite various governmentdriven initiatives. To make matters worse, outdated and even oftentimes new government regulations continue to limit the ability 

of small businesses to access capital, which is the lifeblood of our 

economy. Repairing and strengthening our markets will not occur 

overnight, nor will it be accomplished by more government regulation. 

In an effort to address these challenges, the focus of today’s oversight hearing is on a bipartisan bill signed into law this past April, 

meant to promote capital formation for small businesses by relaxing various securities laws. Titled the Jumpstart Our Business 

Startups Act, it is commonly referred to as the JOBS Act. 

Let me first say that the JOBS Act is a significant victory for 

capital formation and entrepreneurship here in the United States. 

I am particularly proud that the efforts by this committee, initiated 

by Chairman Darrell Issa back in March of 2011, his letter to the 

Securities and Exchange Commission Chairwoman, Mary Schapiro, 

helped develop the JOBS Act and modernize our securities laws. 

For instance, elimination of the ban on general solicitation, a 

rule that has been in place since the Securities Act of 1933, will 

improve the ability of small private businesses to communicate 

with investors and raise capital. Increasing the private shareholder 

cap from 500 to 2,000 that a company may have before registering 

with the SEC has been welcomed as a logical adjustment. It simply 

reduces the number of instances a company is forced to endure a 

complicated SEC filing process, merely because it attracted too 

many accredited or institutional investors. 

Now, Title III of the JOBS Act, based off legislation that I authored, creates a new federal securities exemption to permit equitybased crowdfunding. After introducing the first crowdfunding bill 

in Congress, I reached out to my colleagues on the other side of the 

aisle to build a bipartisan coalition so that we can actually enact 

this bill to address these concerns of the interested parties. 

Specifically, I want to commend Congresswoman Carolyn 

Maloney, who serves on this subcommittee, as well as Oversight 

and Government Reform Committee at large, and also serves with 

me on the Financial Services Committee. Now, Carolyn and I don’t 

often see eye to eye on matters of public policy, but in this instance 

we collaborated and worked together to take the legislation I introduced to improve it. Now, Carolyn had a number of concerns about 

fraud and a number of investor protection ideas, and we worked 

very diligently, very diligently to craft a very balanced bill that we 

were able to pass not just out of committee, but on the House floor. 

And before it came to a vote on the House floor, President 

Obama put forward a statement of administrative policy that he 

endorsed and would sign the bill. Well, unfortunately, due to a few 

Senators who I think misinterpreted the spirit and promise of 

crowdfunding, the Senate inserted imperfect—we will just call 

them imperfect provisions that jeopardize the vitality of equitybased crowdfunding and complicated SEC rulemaking. 

3 

As the SEC considers comments regarding crowdfunding, the 

crowdfunding title of the JOBS Act, it is clear that the Senate’s 

eleventh-hour changes have unnecessarily made sections of the 

JOBS Act ambiguous and inconsistent. 

Today’s hearing serves as an opportunity for Congress to hear 

from knowledgeable folks that either participate in the arena of 

crowdfunding as it now exists. It is not equity-based. It is not on 

the investorside, but crowdfunding as it now exists market participants, and academic experts about these provisions of the JOBS 

Act, and I want to get their thoughts, and that is really what this 

is about. 

Our intention is for Congress, interested parties, and the SEC to 

work together to ensure that effective rules and policies are promulgated that will allow crowdfunding to flourish. And if 

crowdfunding flourishes, I think our small businesses have another 

opportunity to flourish. 

I thank the witnesses for making the trip here and I want to 

thank the ranking member, Mr. Quigley, for his involvement on 

this area of public policy, as well as many others. And with that 

I recognize ranking member for 5 minutes. 

Mr. QUIGLEY. Thank you, Mr. Chairman. I want to thank the 

chairman for holding this hearing to examine the implementation 

of the JOBS Act. The JOBS Act, as you know, was passed with bipartisan support and signed into law by the President on April 5th 

of this year. The act alters Federal securities laws and regulations 

to make it easier for small businesses and startups to raise capital. 

For example, the act will create a unique status for emerging 

growth companies that will allow these companies greater flexibility in testing the IPO waters. 

The act will also lift restrictions on the ability of the startup 

companies to raise capital. Startups, if they survive their earliest 

years, make an outsized contribution to sustainable job growth. 

Under Title III of the JOBS Act startups will now be able to raise 

capital they need through crowdfunding. This is a welcome step 

forward, and I commend the President who endorsed the idea in 

his 2012 State of the Union Address and the chairman of the subcommittee who sponsored the original crowdfunding legislation for 

working together on this issue. 

At the same time, the regulatory restrictions that were rolled 

back by the JOBS Act were originally put in place for a reason. 

There are legitimate concerns that exempting this type of activity 

from securities regulation would open or expand opportunities for 

fraud. Just as clean water standards keep our water safe to drink, 

financial regulations protect us against unsafe financial products. 

While Congress judged, correctly in my view, that there were too 

many hurdles to raising capital, the SEC’s mission is still to protect 

investors and maintain fair, orderly, and efficient markets. New 

rulemaking under the JOBS Act should follow the same process 

and procedures as in the past. There is no reason the JOBS Act 

should be prioritized in front of pending Dodd-Frank rulemakings, 

which have been delayed as a result of intense scrutiny from Congress and the courts. The same standard should apply equally to 

all of the SEC’s rulemaking that are required by law. 

4 

I also believe that Dodd-Frank and the JOBS Act are two sides 

of the same coin. Before and during the financial crisis our financial regulations were deficient. As banks collapsed and the housing 

market bottomed out, investors lost their savings, homeowners lost 

their homes and millions of Americans lost their jobs. By passing 

and implementing Dodd-Frank, we will ensure that the next generation of Americans is not so vulnerable to financial catastrophe. 

At the same time we can also recognize that not all regulations 

are necessary and that some may inhibit job growth more than protect it. That’s why I was proud to support the JOBS Act. 

Going forward, I am eager to work with the SEC and both sides 

of the aisle to ensure that these two acts of Congress are implemented in a timely and responsible fashion. 

Thank you, Mr. Chairman, and I yield back. 

Mr. MCHENRY. I thank the ranking member. Members will have 

7 days to submit opening statements for the record. We will now 

recognize our panel. 

Mr. Brian Cartwright is a scholar, is a Scholar-in-Residence of 

Marshall School of Business, University of Southern California, a 

Senior Advisor at Patomak Global Partners, and former General 

Counsel of the Securities and Exchange Commission. Thank you for 

being here. 

Mr. Alon Hillel-Tuch—did I say that correctly?—is the Co-Founder and Chief Financial Officer of RocketHub Incorporated, and for 

those of you who are not familiar, it is a fantastic crowdfunding 

site doing exciting things. 

Mr. C. Steven Bradford is a Professor of Law at the University 

of Nebraska College of Law, and has written numerous works on 

crowdfunding. 

Mr. John Coffee, Jr., is a Professor of Law at Columbia University Law School. 

It is the policy of this committee that all witnesses be sworn in 

before they testify. So if you will please stand and raise your right 

arm—right hand, actually. Do you solemnly swear or affirm that 

the testimony you are about to give will be the truth, the whole 

truth, and nothing but the truth? 

All right, thanks. You may be seated. Let the record reflect that 

the witnesses answered in the affirmative. 

In order to allow time for discussion, we have the lights set up 

for you. We are Members of Congress so they are very simple, 

right? Red means stop. Yellow means hurry up and finish. Green 

means go. So we will give you 5 minutes to summarize your opening statements. Your opening statements—your written statements 

will be in as a part of the record. And so we will begin. 

Mr. Cartwright, you are recognized for 5 minutes. 

WITNESS STATEMENTS 

STATEMENT OF BRIAN G. CARTWRIGHT 

Mr. CARTWRIGHT. Well, Chairman McHenry, Ranking Member 

Quigley, members of the subcommittee, you have honored me with 

your invitation to appear before you today and I thank you for having me. You have my written testimony, and I won’t try to rehearse 

that testimony again here in these brief introductory remarks. InVerDate Aug 31 2005 13:44 Aug 23, 2012 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\75589.TXT APRIL
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stead, I want to frame the questions and discussions to follow by 

offering my perspective on why the JOBS Act was passed with the 

support of the administration by overwhelming votes in both 

Houses of Congress and why I think we are here today. 

I believe the JOBS Act was passed because there is a widespread, fully bipartisan understanding that something has gone 

quite wrong in the world of American public companies, particularly the newer up and coming companies. After all, the number of 

public companies, exchange listed companies has declined dramatically. In the roughest of numbers, we have gone from having somewhere around 8,000 exchange-listed companies to something in the 

vicinity of 5,000. That’s a dramatic drop. It’s happened because not 

enough companies are signing up to go public to replace those who 

drop out. The number of initial public offerings has trended down 

far below previous levels. 

But the most alarming development of all may be this, and I 

know this from my days in practice. Back in the day, venture capitalists would take a successful, innovative new company public 

and many of those companies would then blossom and grow and 

produce countless jobs, and we know that most of the jobs actually 

come after a company goes public. 

That’s what used to happen upwards of 80 percent of the time. 

But today that number has flipped. Today, over 80 percent, approaching 90 percent of successful venture-backed companies are 

acquired rather than taken public. And that makes all the difference in the world, because we know that acquisitions rather 

than growing jobs often subtract jobs, because the acquirer seeks 

to achieve efficiencies, as the press release will euphemistically 

refer to it. 

So I ask you to just imagine what the world would be like today 

if Microsoft had been managed to make it as attractive as possible 

to its most likely potential acquirer, IBM and IBM had in fact then 

acquired it. And I submit to you that if that had happened Seattle 

would be a very different city today. And replicate that hundreds 

of times over, and the U.S. would be a very different country today. 

Public companies that were originally ventured back are estimated by some to contribute something like 20 percent of our current GDP. Imagine the problems we would be facing if we didn’t 

have that 20 percent today. 

I think those are illustrative of the developments that I believe 

led to the JOBS Act, which in my view makes only quite modest, 

incremental tweaks to the existing system. Time will tell, but those 

modest incremental tweaks may well prove insufficient to get us 

where we need to be, and maybe some of your questions you will 

be asking will be directed that way. But the JOBS Act is a welcome, broadly bipartisan attempt to move us in the right direction. 

And of course, even those modest steps have been resisted by the 

defenders of the status quo. 

So the SEC needs to be encouraged to move with all deliberate 

speed to implement the JOBS Act promptly and faithfully. And I 

thank you very much, and I eagerly look forward to your questions 

on this important topic. 

[Prepared statement of Mr. Cartwright follows:] 

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Mr. MCHENRY. Mr. Hillel-Tuch. 

STATEMENT OF ALON HILLEL–TUCH 

Mr. HILLEL-TUCH. So Mr. Chairman McHenry, Ranking Member 

Quigley, and members of the committee who are able to attend. My 

name is Alon Hillel-Tuch. I am a Co-Founder and CFO of 

RocketHub, and I thank you guys for the opportunity to provide 

testimony on implementation of the JOBS Act and the proper 

elimination of government barriers to small business capital formation. 

Background on RocketHub. RocketHub is an established 

crowdfunding website, one of the largest in the world, and we have 

provided a platform for the launch of over 8,000 campaigns so far 

since 2010 and raised over $2 million to support entrepreneurs and 

small businesses. These successful campaigns have provided funding to businesses of all types from a local bakery to a startup developer of medical devices to enabling the financing of a film production. 

Crowdfunding really is the application of new technology to an 

old idea. People have always sought support in their community to 

help raise money for new business. The advent of web-based social 

networking allows people to expand their community to their online friends and to benefit from the lower costs of the web-based 

platform. 

Thanks to Title III of the JOBS Act, crowdfunding in the U.S. 

Will soon expand to permit the sale of stock by these entrepreneurs 

to their supporters. And we at RocketHub look forward to this development, and we intend to register as a crowdfunding portal as 

provided in the JOBS Act. 

While I believe that the JOBS Act will benefit small businesses 

in the U.S., I also believe that its impact can be improved for the 

proper use of the Securities and Exchange Commission’s discretion 

in rulemaking, and through certain amendments to the act as well. 

I see three areas for improvement. I want to try to fit it into the 

time I have. 

In the JOBS Act, Congress provided that issuers utilizing 

crowdfunding platforms must provide investors with certain information, including audited financial statements where the issuer 

seeks to raise more than $500,000 or such other amount as the 

Commission may establish. I believe that this $500,000 threshold 

is too low and that the audited financial statement should not be 

required unless the issuer seeks to raise $1 million. Crowdfunding 

typically attracts startup companies and small businesses, and audited historical financial statements of these types of companies, 

which may have little or no operations or relevance. They do not 

provide investors with more meaningful information as compared 

to unaudited financial statements, yet they impose a significant 

cost on the entrepreneur which might really kill this. Making this 

change could save small businesses tens of thousands of dollars for 

opening up the opportunity for them to take full advantage of the 

platform. 

A second area where the Commission should exercise its discretion in rulemaking is really by minimizing upfront expenses to the 

entrepreneurs and small businesses that seek to crowdfund. 

20 

Crowdfunding platforms usually charge fees for successful projects. 

This allows small businesses to access crowdfunding at a minimal 

initial cost, which is critical. If they attract support for their 

projects, then they have the funds to pay fees. If their idea does 

not attract support, their costs are minimal and no support is 

charged and the entrepreneur can come back in the future with a 

new idea. 

In implementing the JOBS Act, it is important that the Commission considers and is careful around preserving the fee structure. 

The platform should be able to charge fees on successful projects 

while not imposing costs on projects that do not attract funding. 

This structure allows more small companies to use crowdfunding 

while reducing their risk if they are unable to attract financing. 

One area that Congress should address the JOBS Act is to raise 

the crowdfunding exemption to $5 million from $1 million. The 

higher amount will allow more small businesses who need capital 

to utilize the cost-effective crowdfunding methods. Currently, a 

company that seeks more than $1 million is unable to use 

crowdfunding and must still rely on traditional venture capital, 

angel investors, credit card debt, or small business loans. These 

sources may not be available to all businesses, especially startups, 

women and minority-led businesses, and those additional small 

businesses that fall outside the high tech model. Raising this limit 

will allow crowdfunding to more effectively compete as a source of 

funds through venture capital and banks and giving small businesses more options to drive down financing costs. 

Crowdfunding can be an important economic tool to help small 

businesses grow and drive job creation. I believe that raising the 

aggregate limit for crowdfunding to $5 million, limiting the costs 

associated with audited financials to raises above $1 million and 

aligning the interests of companies, investors, and platforms with 

a success fee structure, we can increase the economic benefit provided by crowdfunding. 

These reforms will increase the number and type of companies 

that choose to raise capital and expand the role of crowdfunding in 

small business finance. We also expand the opportunity and benefits to crowdfunding investors, allowing these small investors the 

ability to participate in the growth and success of a wider range 

of companies, including those in their communities. 

So I’m going to quickly close with a quick response to two common questions. First is: Will crowdfunding lead to a lot of fraud by 

issuers? No, it won’t. In fact, crowdfunding structures help minimize risk. Crowdfunding is highly transparent and there is substantial feedback from community participants. The crowd helps 

police players and keeps them honest, and crowdfunding portals 

and regulators are able to drive standardized understandable 

terms across offerings. 

I thank you for your time and I’m looking forward to questions. 

[Prepared statement of Mr. Hillel-Tuch follows:] 

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Mr. MCHENRY. Thank you. Thank you so much. Professor Bradford. 

STATEMENT OF C. STEVEN BRADFORD 

Mr. BRADFORD. Chairman McHenry, Ranking Member Quigley, 

members of the subcommittee, good afternoon. My name is Steve 

Bradford. I am a Professor of Law at the University of Nebraska. 

Much of my work focuses on small business capital formation 

under Federal securities law, and it is an honor to be able to address you on that subject today. 

I have recently written two articles on crowdfunding, and I 

would like to focus my comments on the crowdfunding provisions 

of the JOBS Act. I believe that crowdfunding could spark a revolution in small business financing, opening up much needed new 

sources of startup capital, but whether that happens depends in 

good part on the regulatory burden. Those small offerings will be 

possible only if the cost of complying with securities regulation 

doesn’t consume a large portion of the offering proceeds. 

The new Federal securities law crowdfunding exemption created 

by the JOBS Act is an important first step, but that exemption 

isn’t complete until the SEC enacts implementing regulations. The 

usefulness of the crowdfunding exemption will depend in part on 

how the Commission exercises its rather substantial regulatory authority. 

My written statement includes a number of specific recommendations concerning the crowdfunding rules, and I would be happy to 

discuss any of those with the members of the committee. But in the 

time available, I want to limit myself to four important points: 

First, cost is a critical consideration for the very small offerings 

that crowdfunding facilitates. Because of that, I believe the SEC 

crowdfunding regulations should be as light-handed and unobtrusive as possible. In the name of investor protection, the statute already imposes significant regulatory requirements on both 

crowdfunding issuers, and on the brokers and funding portals who 

will act as intermediaries in crowdfunded offerings. Adding additional layers of regulation on top of those requirements would increase the cost of using the exemption without much additional 

benefit, and would also be inconsistent with the thrust of the JOBS 

Act to reduce the regulatory burden on small business capital formation. 

Second, to the extent that any additional regulation is required, 

it should be imposed on crowdfunding intermediaries, brokers and 

funding portals, rather than on the entrepreneurs raising funds. 

Crowdfunding intermediaries will be more sophisticated and more 

heavily capitalized than the small business issuers engaging in 

crowdfunding. Those brokers and funding portals can afford securities counsel to guide them through the regulations. There will also 

be repeat players so they can spread any regulatory costs over a 

large number of offerings. Because of that, I think it makes sense 

to center the regulation on those intermediaries rather than on the 

companies raising money. 

Third, the SEC crowdfunding regulation should be clear, concise, 

and written in plain English. The SEC requires corporate disclosures to meet those requirements in order to facilitate underVerDate Aug 31 2005 13:44 Aug 23, 2012 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 C:\DOCS\75589.TXT APRIL
25 

standing by investors. In drafting the crowdfunding rules, the Commission should follow its own plain English standard in order to facilitate understanding and compliance by crowdfunding issuers. 

Many of the small business issuers using the crowdfunding exemption will be legally and financially unsophisticated. If the regulations are dense and legally complex, those businesses will need sophisticated securities counsel to guide them through the regulations. That would significantly increase the cost of the offering, and 

for these small offerings cost is all important. That leaves issuers 

with two alternatives, either they try to navigate the complex rules 

on their own, in which case violations are likely, or they would simply not use the exemption in which case the promise of 

crowdfunding won’t be realized. The best way to deal with the issue 

is to write the rules so that small business entrepreneurs can understand them without hiring expensive attorneys. 

Fourth and finally, the SEC should adopt a substantial compliance rule to protect issuers and crowdfunding intermediaries who 

inadvertently violate some of the requirements of the exemption. 

The exemption contains a lot of detail and, as I have said, the 

issuers using it will not be particularly sophisticated. Because of 

that, the possibility of an inadvertent violation is high, and the 

consequences of even a minor, immaterial technical violation are 

drastic: Loss of the exemption, violation of the Securities Act, and 

liability to return all of the money to every single purchaser. 

Other Securities Act exemptions protect issuers who substantially comply with the requirements of the exemption, or who reasonably believe the requirements of the exemption are met even if 

it turns out they aren’t, and the SEC should include similar rules 

in the crowdfunding regulation. 

My written statement includes a number of other specific recommendations, but my time is just about up so let me just thank 

you again for the opportunity to talk to you today. 

[Prepared statement of Mr. Bradford follows:] 

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Mr. MCHENRY. I certainly appreciate it, and we will now recognize Mr. Coffee. 

STATEMENT OF JOHN C. COFFEE, JR. 

Mr. COFFEE. Thank you, Chairman McHenry, Ranking Member 

Quigley, members of the subcommittee. My name is Jack Coffee 

and I have been working in the field of securities regulation and 

initial public offerings for over 40 years. Let me make three basic 

points all briefly. 

First, I believe the greatest enemy of job creation today is not 

overregulation, but the loss of investor confidence. Today, American 

investors have lost confidence in the IPO marketplace. This is evidenced by the Facebook fiasco, the drying up of the IPO pipeline, 

and the low trading price of most of the recent social media initial 

public offerings, all of which are trading below their offering price. 

This erosion in confidence probably goes all the way back to the 

burst of the Internet bubble in 2001, and confidence has not been 

restored. 

But more recently, there has been a new focus. Investors are 

again and again complaining about the prevalence of selective disclosure in IPOs, as issuers, underwriters and analysts seem to be 

tipping, as seems to have occurred in Facebook, projections and 

forecasts to preferred institutional investors. I think there are a 

number of problems with the IPO marketplace today, and I agree 

with many of the comments made by Oversight Committee Chairman Issa in his recent letter to the SEC, particularly his views 

that there should be greater attention given to the role of auctions 

in this process. 

But in the oversight and overviewing the IPO process, I would 

point you particularly to the problem of selective disclosure. There 

is no efficiency in selective disclosure. This is an issue of fairness, 

and I think there are ways in which is JOBS Act actually compounds this problem, as I set forth in my written testimony. 

Let me move now to my second point. The JOBS Act on virtually 

every page requires the SEC to adopt new rules to implement the 

JOBS Act, and it imposes fairly tight timetables. And the first of 

those deadlines expires on July 4th with respect to crowdfunding. 

Under recent decisions of the D.C. Circuit Court of Appeals, 

these proposed rules that the SEC must adopt shortly are vulnerable to judicial second guessing. Either the D.C. Circuit might find 

some costs to be overstated, or it might find some benefit to be understated, or it might even say that the empirical studies done by 

others that the agency is relying upon are just not reliable. All this 

has happened repeatedly in recent decisions. As a result, the SEC 

stands at risk that its rules could be found to be arbitrary, capricious, as has happened on three or four recent occasions. As a result, virtually everyone affected by SEC rules today under the 

JOBS Act has an incentive to sue. If they are not happy, they are 

going to find an attorney and many are going to go to court. This 

will result in continuing uncertainty, confusion, and delay in the 

implementation process. Even if the SEC makes a superhuman effort, litigation is still predictable because someone who is not 

happy with the rule now has a fair option of going to court and 

suing. 

45 

Third point, which relates to the second, I reviewed the Commission’s most recent policy statements, including the statement dated 

March 16, 2012, setting forth its ‘‘current guidelines on economic 

analysis and SEC rulemaking.’’ I believe these new guidelines properly integrate economic analysis with the rulemaking process. They 

do require the Commission to consider economically reasonable alternatives to the rule being proposed, and they do require the careful matching of costs and benefits. Of course, I cannot tell you that 

the Commission will always follow these principles and rules that 

have not yet been proposed or formulated, but I can tell you that 

whatever the Commission does, whatever heroic effort it may 

make, there is still a real prospect that the D.C. Circuit could disagree and substitute its judgment for the Commission’s judgment. 

If that happens, I cannot tell you that a Federal Court has a better 

judgment or greater expertise than the Securities and Exchange 

Commission. It is not more expert. It is not more sensitive to the 

market. Thus, I do not think we will come out with better rules 

through that process. 

My bottom line here is that the SEC is today caught between the 

rock and the hard place. It has been asked to expedite rules and 

it is trying to do so, but it faces a somewhat unsympathetic bench 

that is quite skeptical of rulemaking in general. I could give you 

some specific examples and might like to do so if we have questions. For example, the SEC has to adopt rules both on the use of 

audited financial statements, on the use of follow-up periodic disclosure after an offering. This is true both under Section 3(b) and 

under the new crowdfunding exemption. 

I think in all of those areas the Commission is doing what Congress has told them to do, but I think we are going to see a long 

battle because I predict that those unhappy with these rules are 

going to try to exercise the judicial option. Ultimately, the danger 

here is that we can be led back to the Lochner era of the 1930s, 

when courts could substitute their analysis and their preferences 

for those of the agency by saying that it interfered with freedom 

of contract. Today instead they will be saying it interferes with 

proper cost-benefit analysis. There is a danger that looms here, and 

I will stop at that point. 

[Prepared statement of Mr. Coffee follows:] 

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Mr. MCHENRY. Well, I thank the panel for their testimony, and 

your written testimony will be in the record. I will now recognize 

myself for 5 minutes. 

Now, securities regulation, you know, we have a foundation of 

1933 and 1934 for the essence of our securities regulations. That 

is still the foundation of what we deal with today. And at the time, 

we were, Congress was acting to deal with a challenge, which was 

the folks standing on the street corners hawking securities. Right? 

Times have changed. We now have the Internet. What we have 

found and what I have said multiple times before is that under the 

mentality of the SEC, the website eBay would not be able to exist. 

Because the SEC would not be there to root out folks that have 

lower net worth from purchasing products. Instead, we know that 

eBay sells, you know, billions of dollars on a yearly basis between 

people that don’t know each other, two individuals of average 

means that don’t know each other. But under the SEC mentality, 

that simply would not be able to take place without massive fraud. 

But then we have the SEC, and we have known the very large failures of the SEC to root out fraud among regulated entities that 

they oversee, and that is unfortunate. We don’t want that. We don’t 

want any fraud in this, in the crowdfunding space or in securities 

at all. 

So there is a question of how we root this out. Mr. Hillel-Tuch, 

you mentioned that you believe that fraud could be, in essence, 

rooted out through the power of the crowd. Can you explain why 

you believe that? 

Mr. HILLEL-TUCH. Yeah, absolutely, not a problem. 

Crowdfunding is very transparent. As I mentioned earlier, there is 

a lot of feedback from community participants. In essence, the 

crowd basically polices players. It keeps them honest. The beauty 

about crowdfunding is you have a centralized location, which is the 

portal, and it allows for communication by potential investors to 

analyze and share their views on offerings, and web-based structure also allows portals and regulations to provide risk disclosure 

and investor education. 

We definitely expect portals and their operators to undertake a 

gatekeeping role in authenticating issue identity and require minimum standards. But what we have noticed, historically, both on 

our platform and others, is the crowd is extremely wise in assessing potential risk. On top of that, looking at 1930, for example, you 

didn’t have the access to information you have now. I am able to 

go on to Google, for example, and research a company to see their 

track history, see their online presence as well as off-line. I am able 

to pull of a credit score. I am able to research individuals all from 

the comfort of my home. This is something that every investor is 

able to do now that simply did not exist before the computers and 

before the Internet. The access to information to an individual now 

is at a level that is unheard of. We are just not utilizing it for fraud 

prevention, which is very unfortunate. 

Mr. MCHENRY. So fraud prevention. Professor Bradford, you 

mention in your writings, you mention also in your testimony today 

that imposing additional layers of mandatory disclosure on the 

issuer rather than the portal is not the best way to root out fraud. 

Can you flesh that out for us? 

68 

Mr. BRADFORD. Well, it is mostly because the entrepreneurs that 

are going to be using this, and these are relatively small offerings, 

relatively inexperienced entrepreneurs, simply can’t bear the cost 

of that burden. If I’m making a $200,000 offering, it doesn’t take 

much cost before I simply can’t do it. Every dollar that is paid for 

regulatory cost, every dollar that is paid to the intermediaries is a 

dollar that I don’t get to use for my business. 

And therefore, it makes more sense to try and do it structurally 

through the entrepreneurs and protect fraud that way than imposing a whole bunch of complicated disclosure requirements that 

these people probably aren’t going to fully understand in any event 

without having to hire securities counsel, which is another expense. 

Mr. MCHENRY. So do the 50 States as it stands now have the 

ability to root out fraud? 

Mr. BRADFORD. Well, the 50 States and the SEC. I mean, nobody 

was talking about taking away the antifraud rules. The States 

under the JOBS Act still have the ability to enforce their fraud restrictions. That’s not preempted. The SEC has the existing antifraud rules plus an additional antifraud rule in the crowdfunding 

provisions. And that is the best way to attack fraud because that 

only imposes costs on the fraudsters. The problem with expensive 

mandatory disclosure requirements is you are imposing costing on 

everyone that wants to raise money, most of whom, at least I believe, are honest entrepreneurs and acting in good faith to raise 

money for their business, and everything that we impose on them 

in the name of fraud protection is going to be borne mostly by honest people. 

Mr. MCHENRY. Well, thank you for your testimony. We expect a 

second round of questions. So I will now recognize Mr. Quigley for 

5 minutes. 

Mr. QUIGLEY. Well, the same two gentlemen, just for the sake of 

argument, you recognize a little bit of the difference of most of the 

transactions that take place on eBay. Most people know when they 

are buying a bike on eBay what a bike should be, right? But some 

of these investments, Mr. Hillel-Tuch, you acknowledged that there 

is a little more sophistication involved here, and I supported this 

act, but just for the sake of argument let’s talk about how we implement it. 

At least some sense of protecting those, because of the level of 

sophistication that is involved with this, and the concerns that 

are—that can take place with people who aren’t as practiced. You 

acknowledge that. They are not as practiced at investing in the 

first place. 

Mr. HILLEL-TUCH. That’s actually a great position we can discuss. What is very critical what a portal provides over any other 

kind of real structure is standardization of a lot of the requirements and the education that absolutely is necessary to the different levels of sophistication. Granted, assuming an accredited investor is sophisticated is ludicrous in itself. That said, through a 

portal, what you are able to provide is, and we completely agree 

with Professor Bradford, it is critical to make it as seamless and 

low friction as possible, and cost is the decisive factor. The SEC can 

very easily make this cost prohibitive when that is completely unnecessary. 

69 

Fraud and investor education go very much hand in hand. One 

of the things we have noticed with crowdfunding right now is a lot 

of the net worth comes from individuals who are in your neighborhood. I mean, we have an example right now of a tea shop in Shelbyville, Kentucky, trying to raise funds. It did so last year. And 

they raised it from within their community. Their community 

knows that shop. The community raises funds together to help that 

shop succeed. And those are the kinds of businesses that are not 

venture backable right now, but they do have members in their 

community who believe in that business, want to support that business, and are right now not permitted to do so. 

And the education level is different. They don’t have the interest 

of getting a short-term return on their investment. They are looking at the long-term strategy. 

Mr. QUIGLEY. Professor Bradford? 

Mr. BRADFORD. I’m perfectly willing to concede that what is sold 

on eBay is different from securities, and that securities are without 

a doubt more sophisticated than most of the products that are sold 

on eBay. But I do think that what eBay has learned through their 

platform about preventing fraud, is useful to crowdfunding. For a 

fraudster, if I get money it’s money. It doesn’t matter whether I am 

pretending to sell people securities or whether I am pretending to 

sell them goods that I don’t eventually deliver. And I think the experience with eBay shows a couple of things. 

Number one, it shows that we can use an Internet platform to 

sell things. We can have fraud protection techniques in place to 

help prevent fraud. But having said that, I wouldn’t, I’m not going 

so far as to say that securities crowdfunding ought to be unregulated. I think some of the things we have in the exemption, a limit 

on how much people can invest that you don’t see when people are 

buying goods on eBay; some disclosure about what is going on, 

what the entrepreneur is going to do. Clearly, there ought to be 

more regulation of crowdfunding than there is of eBay. No dispute 

about that. 

Mr. QUIGLEY. Mr. Cartwright, if you want to weigh in. 

Mr. CARTWRIGHT. Yes, thank you. We are talking about fraud in 

small offerings. And I would like to start with the baseline of 

where we stand today because—and I feel very passionate about 

this. If you spend most of your career in a large law firm where 

you are too expensive to work with small offerings, you don’t really 

see much of this. But when you go to work at the SEC, you discover that there is an alarming, shocking amount of low-level 

fraud. I call it security street fraud. It is guys who make up completely fraudulent press releases in pump and dump schemes that 

claim that the company has achieved a major contract with some 

Chinese company or a big technological breakthrough that has 

commercial advantage. Totally made up. I mean, this is hard core 

securities fraud, hard core wire fraud. This is hard core criminal 

behavior, or they exploit an affinity group, the members of their 

house of worship, or if they are of an ethnic background, recent immigrants who are trying to make their way in America and struggling. And there is way too much of it and it is disgusting. And 

they are doing that under the existing law. And they are using— 

sometimes most of them don’t even care about the exemption from 

70 

Section 5. I mean, if you are willing to blow through the most fundamental fraud provisions in the criminal law, you are not worried 

about whether you have an exemption from the otherwise applicable provisions of Section 5 of the Securities Act. 

But if they are, they are claiming 504, typically, Rule 504, typically erroneously. The way to address this, and it is a problem, because it is left to the SEC to address, and the SEC doesn’t have 

the tools. And we talk about the SEC being the cop on Wall Street, 

but it is not a cop. That’s hype. It has a civil jurisdiction. It can’t 

do search warrants. It can’t do wiretaps. It can’t do stings, and 

most importantly, it can’t go into Federal Court and bring a case 

that ends up with a conviction that puts people in jail. That’s 

under the Department of Justice. But the U.S. Attorneys offices 

around the company who are responsible, they have got a lot on 

their plate, and this stuff is pretty small time. 

At the SEC, the enforcement attorneys used to refer it to 

dismissively as little cases. They don’t get much press. But small 

people who are innocent are harmed. I think the way to boot out 

fraud as it exists under existing law and under crowdfunding or 

any other change in the law is to direct resources in an efficient 

fashion to bring criminal cases against these people. Very frustrating for SEC enforcement lawyers. They know these guys shrug 

off a civil case from the SEC. It is a cost of doing business. It is 

a risk. They don’t mind when they are taking the proceeds from an 

offering and spending it on sports cars and speed boats instead of 

what they claimed. 

We need something like, and maybe there is other ways to do 

this, but something like a National Task Force in Justice. National, 

so it has the scope and scale to develop the expertise and the efficiency to root these people out. And the U.S. Attorneys offices 

around the country can refer those small cases for criminal prosecution. The SEC can refer those small cases. If we started putting 

these people in jail the way we should, they would pretty soon, 

there would be a lot less of them. I think that’s what we ought to 

do. 

Mr. MCHENRY. Thank you for your comments and to that point, 

we have retained State fraud prevention and prosecution within 

the law that currently exists for crowdfunding. That way you have, 

you know, your county prosecutors and State prosecutors that can 

actually go after these quote ‘‘small fraudsters,’’ and I appreciate 

your explanation. 

Mr. CARTWRIGHT. And State law, as you say, Mr. Chairman, 

State law enforcement is critical here, because they do, at least in 

some jurisdictions, they are prepared to handle matters that are 

somewhat smaller than the Federal authorities will. But I frankly, 

I think we still need more. 

Mr. MCHENRY. Absolutely, thank you. 

With that, we will now recognize the vice chairman of the committee, Mr. Guinta of New Hampshire, for 5 minutes. 

Mr. GUINTA. Thank you, Mr. Chairman. Thank you all for testifying today. I wanted to address my first remarks to Professor Coffee. Thank you for being here. 

You had mentioned in your testimony the arbitrary and capricious findings by the courts. I’m assuming you are aware of the fact 

71 

that the SEC recently instituted new and stronger cost-benefit 

analysis policy. 

Mr. COFFEE. That is in the March 19th statement from the SEC. 

Mr. MCHENRY. If you will put on your mic. Turn your mic on. 

Thank you. 

Mr. COFFEE. Sure, I understand that and I was referring to their 

new guidelines as of March 19, 2012. 

Mr. GUINTA. Well, I guess my—okay, I appreciate that. My question would be, just by the fact that there is going to be a greater 

effort now put into cost-benefit analysis, wouldn’t that necessarily 

reduce the amount of risk of any arbitrary and capricious finding? 

Mr. COFFEE. Well, I hope that we have a better understanding 

and we have a workable accommodation between the SEC, one of 

our best Federal agencies, and the D.C. Circuit Court of Appeals. 

Only time will tell. Because right now, the ease with which these 

prior findings were overturned creates a strong litigation incentive. 

Someone will always feel injured by a new SEC rule, and there is 

a strong incentive to sue. I hope there is an understanding that is 

quickly reached, though. 

Mr. GUINTA. Would you say that the SEC in the past has put a 

lot of effort and energy into performing legitimate and serious economic analysis? 

Mr. COFFEE. I think that I would agree with maybe your subtext 

and say sometimes it has been pro forma. I think, however, the 

burden cannot be overstated. If you look just at the crowdfunding 

provision in the JOBS Act, I count eight different sets of rules that 

Congress has directed the SEC to promulgate just under Section 

4(a). So they have a burden and they have very short time limits. 

It is hard to do everything overnight. 

Mr. GUINTA. Mr. Cartwright, can you comment on that? I happen 

to think that cost-benefit analysis should be performed. I think 

that the SEC can perform a valuable commodity here for just about 

everybody, but I wanted to hear your comment on it. 

Mr. CARTWRIGHT. Well, the law requires it. The SEC is required 

to consider efficiency, competition, and capital formation in most of 

its rulemaking activities, and it’s been required to do that for quite 

some time. I think too often in the past, and I hope this is changing, too often in the past it was an afterthought. Someone decided 

that there ought to be a rule, the Chairman, the Division Director 

or whatever. They get a rule writing team going writing it. They 

write the rule, and then at the end of the process, in the past at 

least, someone would say oh, my goodness. You know, there is that 

cost-benefit analysis, the efficiency competition and capital formation we have got to do that was kind of a compliance exercise. And 

it was done at the end. The SEC is a lawyer-dominated agency and 

the expertise that is really required here is more in the economics 

and the economist regime, and those people were typically often 

not consulted at all or, if they were, peremptorily. 

So I frankly think that it is wonderful here in America that if 

you believe that an agency has exceeded its authority or acted arbitrarily or capriciously, you do have a chance to get into court and 

question the agency’s exercise of its jurisdiction. That historically 

didn’t happen at the SEC very often, but other agencies have had 

this experience. The EPA, almost every matter they do is litigated 

72 

by one side or another, and you get better at it I think as an agency if you have to respond to these legal requirements. 

I applaud the March statement. I think it’s a very good statement. And I think that it’s a huge step forward. The real question 

is whether this is going to be implemented in a way that gets the 

economists and people who are asking these questions in up front 

at the very beginning, so the design of the rule is shaped in part 

by these considerations that the law requires rather than creating 

a rule and then trying to justify it, basically a lawyer, do a brief 

at the end to try to justify what you have done in any event. 

Mr. GUINTA. And quickly, on a different subject matter, can you 

quickly describe the changes to the 500 shareholder cap in the 

JOBS Act, and what benefits you would foresee? 

Mr. CARTWRIGHT. Are you asking me? 

Mr. GUINTA. Yes. 

Mr. CARTWRIGHT. Yeah, sure. As the law exists today, prior to 

the JOBS Act, let’s say, rather, prior to the JOBS Act, if a company 

had $10 million in assets, which is a very small amount for a company of any size, so almost always that test is satisfied, and 500 

record holders, then it is required to basically become a company, 

a public company. It has to register with the SEC. And it is an unfortunate development that today many of the most successful entrepreneurs no longer want to have their companies go public. 

When I started practice every entrepreneur, that was the holy 

grail. Let’s see if we can go public and do it fast, and the sooner 

the better. Now, some of the most successful companies, the most 

successful business leaders try to keep their companies private as 

long as possible because the disadvantages and burdens of being 

public are too great. So the JOBS Act and the title in question increases the threshold to 2,000 holders, provided that no more than 

500 are accredited—unaccredited. 

Mr. GUINTA. So did you just say that you think people are keeping their companies private for a longer period of time because of 

the challenges of bringing it public, correct? 

Mr. CARTWRIGHT. Well, it’s the challenges of, in part, the challenges—there’s two things. First—— 

Mr. GUINTA. I guess my question is, is it investor confidence or 

is it overregulation? 

Mr. CARTWRIGHT. No, I think it is not a question of investor confidence. This is coming from the company side. It has two aspects 

to it. The first is, companies that, let’s say 15 or 20 years ago were 

of a scale where a public offering was feasible and the burdens of 

being public were not so costly, those companies would go public. 

Today, there is a band of companies in size and scale that no 

longer can swallow the overhead costs of operating as a public company and maybe of becoming a public company. So they have to 

wait longer until they grow bigger in order to become public. But 

what’s really surprising is that even when they have gotten big 

enough so they could meet the requirements, the most successful 

entrepreneurs today, and if you hang out in Silicon Valley lots and 

lots of people will tell you this, they want to keep their companies 

private as long as they can because they believe even once they are 

big enough to go public the burdens are greater than the benefits, 

and you can see that. Google, for example, some years ago, 2004, 

73 

I think if I have got that right, they held on longer than they could 

have. They picked up an SEC enforcement action against themselves and their General Counsel for going too long. I think some 

of the recent IPOs, if you just look what happened you can see that 

they held out until the last possible moment, and that’s one of the 

reasons why we have this—there is in the Economist, I don’t know 

if you saw it. The Economist magazine, thought by many to be the 

preeminent financial weekly, had on its cover story a few weeks 

ago the vanishing public company. And it showed on the cover, the 

cover art was sort of a scruffy paleolithic band rushing the mastodons over the cliff. And they are—the mastodons were all Inc’s. 

They are the public companies. So we got a problem here and it 

has completely reversed since the early years of my career. 

Mr. GUINTA. Thank you, Mr. Chairman, for the additional time. 

Mr. MCHENRY. Well, thank you so much. The questions have 

been very good, and we will start with a second round of questions. 

And I will recognize myself for 5 minutes. 

For the whole panel, from your review of the crowdfunding provisions of the JOBS Act, do you all agree that SEC holds a great deal 

of discretion over the implementation of this section? 

Mr. CARTWRIGHT. Start with me? 

Mr. MCHENRY. Just say briefly. 

Mr. CARTWRIGHT. Yeah. I will be brief. I understand I can sometimes not be so brief. 

Mr. MCHENRY. No, thank you. Mr. Hillel-Tuch. We will come 

back. I promise. 

Mr. CARTWRIGHT. Clearly true. 

Mr. MCHENRY. Okay. 

Mr. HILLEL-TUCH. Yes. 

Mr. MCHENRY. Thanks. 

Mr. HILLEL-TUCH. It’s that simple. I mention in my testimony 

one example is audited financials. It is at their discretion to change 

it. 

Mr. MCHENRY. Okay, Professor Bradford. 

Mr. BRADFORD. Yes, although I believe that discretion goes more 

in the direction of adding additional regulation than it does in the 

direction of cutting some of the existing requirements. 

Mr. COFFEE. You want an answer, and the answer would be yes. 

But it is largely because Congress has delegated in every provision 

of the JOBS Act rulemaking discretion to the SEC. The SEC can’t 

duck this. They were told to consider rules. 

Mr. MCHENRY. Right. So the legislation we passed, there were 

400 votes that I authored here the House with the help of Carolyn 

Maloney, was a different construct. So does this discretion, Professor Bradford, place at risk the viability of crowdfunding to actually take place in the real world? Does that—you know, even if the 

SEC acts counter to the bipartisan support of this provision and 

the idea and even the President and the same party as the majority of the SEC Commissioners. 

Mr. BRADFORD. Well, as I said, for these small offerings, cost is 

an extremely important consideration. The more regulation the 

SEC adds, the stronger that regulation, the greater the cost of, 

number one, understanding what the requirements are and, number two, complying with that regulation. And at some point if the 

74 

statute itself hasn’t already reached that point, we reach a point 

where the regulatory cost makes use of the crowdfunding exemption infeasible. 

Mr. MCHENRY. So what are the areas of greatest concern for you, 

Professor Bradford, in how the law is actually written dealing with 

crowdfunding? What are the number one through—what are your 

top-level concerns, you know, number them and tell me the level 

of importance. 

Mr. BRADFORD. Are you talking about in the way the law is written or the regulations the SEC has to add to it? 

Mr. MCHENRY. Yes. 

Mr. BRADFORD. Oh. 

Mr. MCHENRY. And I’m giving you a rare opportunity. Oftentimes before these panels you don’t get a chance to answer, but I’m 

giving you the rare opportunity to school Congress, so—— 

Mr. BRADFORD. My greatest concern is in the disclosure requirements imposed on issuers, particularly some of the accounting disclosure, audited financial statements for companies raising a relatively small amount of money, and even for really small offerings, 

financial statements required of all issuers, even, for say, a $10,000 

offering. 

That, and then there are some disclosure provisions in the statute that are relatively difficult to understand. For example, issuers 

have to describe the risk to investors associated with possible future deals that the company might do. I’m not using the exact language, and so that requires these relatively unsophisticated entrepreneurs to think about future buyouts, mergers, IPOs, whatever, 

to predict what the effect of that could be on these crowdfunding 

investors, and try to disclose it subject to a liability provision that 

makes them liable if they are negligent in doing so, in failing to 

disclose properly. 

And so that portion of the crowdfunding act is probably my primary concern. I guess my secondary concern is a general one that 

I sort of mentioned in my opening statement, and that is just the 

lack of clarity, the complexity, the need for entrepreneurs and 

intermediaries to understand various provisions in the act. For example, I mentioned in my written statement, the prohibition on solicitation. Solicitation as interpreted by the SEC is a very broad 

concept, and people like Mr. Hillel-Tuch—did I get that right? 

Mr. HILLEL-TUCH. Yes. 

Mr. BRADFORD. —need to know exactly what they may or may 

not do in terms of advertising their site. 

Mr. MCHENRY. So the concern I had with the Senate provision 

from the get-go was as simple as the origin of Congress’ action— 

and I can say the origin of Congress’ action because I filed the first 

bill. And the reason why I filed the first bill was because of PBR. 

Right? And many of you have heard this story, but you had an advertising guy who put up, he tweeted, said, ‘‘Let’s buy a beer company.’’ Pabst Blue Ribbon was putting themselves up for sale or 

they were going to close. And it was this sort of idea on a whim 

until he had Federal agents visit him. Right? And he realized he 

was—he was then told that he was breaking Federal securities law 

because he tweeted that he wanted to buy a beer company—well, 

later he put up a Web site. 

75 

So, you know, the idea of crowds buying their favorite beer company. I don’t think these individuals were pledging money because 

they thought they were going to make a million off of it. They 

wanted to support the brand that they liked. 

So this is what I see on crowdfunding sites as they exist now, 

is you have an idea that you like. Could be your local coffee shop, 

could be your favorite cupcake. And you invest in it because you 

believe in the product, not because you are going to make a million. 

It is the same reason why a lady I know, her father was a fan of 

the Boston Celtics. He invested in the Boston Celtics so he could 

say he owned a piece of the team. He is an Irish immigrant, of 

course. He loved that. Right? 

So it is not—it is a slightly different idea and motivation to this 

point. And so the disclosure piece is important whether or not the 

expense of that is too great to bear for small issuances. 

Mr. Hillel-Tuch, you talk about your current platform that you 

have, and that is, on the charitable side, you can preorder a product, you can get a T-shirt, you can do a number of things. What 

are your offerings? What is the smallest offering you have had on 

your site, roughly? 

Mr. HILLEL-TUCH. We have had offerings as small as $500, 

but—— 

Mr. MCHENRY. And how large? What was your biggest? 

Mr. HILLEL-TUCH. They go over $100,000. It really depends on 

your community. 

Mr. MCHENRY. Okay. So in that range from $500, which—getting 

financials on that would make it a little unworthwhile, right? 

Mr. HILLEL-TUCH. ‘‘Ludicrous’’ is a mild way of putting it. You 

know, you are asking, for example, in an offering for a new company to put up historicals on a timeline of zero. It just doesn’t 

make sense. 

I mean, it is an education issue. I think what happened is—and 

I read your original bill, and I have seen all the changes. A lot of 

the changes that happened were due to educational issues, where 

we are trying to approach this from an old-world perspective 

while—you are spot-on in your statement, is not everybody’s looking for the million-dollar return. It is just not what this is about. 

We are really democratizing access to capital in a way that didn’t 

exist before. And that is allowing your cupcake store, your T-shirt 

shop to get financing that is not debt. They don’t have to run a 

credit card debt. They don’t have to run a mortgage, which we 

saw—we saw what happened with that a few years ago. And this 

is completely different. You are getting support from a whole other 

side of your community that wants to invest in you and is simply 

not allowed to do so right now. 

Mr. MCHENRY. Well, Mr. Cartwright, to that end, this cost of 

going public, at what point under current regulations does it just— 

under what point of money that you have to raise going public does 

it simply make it not possible to go public, is it not economical to 

go public? Is that—— 

Mr. CARTWRIGHT. That is an investment banking question, and 

I am not sure—— 

76 

Mr. MCHENRY. I know, but, you know, you are a good lawyer, 

you are willing to venture off into areas you don’t know—no, I am 

kidding, kidding. 

Mr. CARTWRIGHT. I would say almost a hundred million, and 

these days it is probably larger than that. And what is sad is, so 

often, companies that might meet that threshold cannot—don’t 

want to go public even then. 

Mr. MCHENRY. Okay. So you are talking about a much higher 

threshold? 

Mr. CARTWRIGHT. A vastly higher threshold. 

Mr. MCHENRY. Different world. 

Mr. CARTWRIGHT. A different world. A different world. 

Mr. MCHENRY. So the idea of having light-touch regulation on 

the intermediary and regulate this security in a very different way, 

is that something that could be done, that we could do in a—speaking from your former hat as an SEC—— 

Mr. CARTWRIGHT. Yeah, I think the original idea behind 

crowdfunding was to have a quite different mode available, now 

that the Internet, among other things, makes communication so 

easy, to raise quite modest sums for entrepreneurial purposes. And 

what has happened is we have overlain on that original idea the 

model of a big offer. So you need lawyers and accountants and financial intermediaries, and they all need compliance infrastructures, and you need financials that are in accordance with—I 

mean, all these additional requirements, which are the model of a 

big-dollar offering, but it doesn’t work if you are raising $40,000 for 

a company that is going to make cases for iPads. 

Mr. MCHENRY. Uh-huh. Well, thank you for your testimony. 

I will now recognize the ranking member, Mr. Quigley. 

Mr. QUIGLEY. Thank you, Mr. Chairman. 

Mr. Chairman, as to your earlier point about Pabst Blue Ribbon, 

I want you to know we are in total agreement about purchasing 

beer. I have served here 3 years now. The longer I serve, the more 

I support purchasing beer. 

In a letter to the SEC on May 24th of this year, Professor Coffee, 

the Consumer Federation of America, Consumer Action, and several others wrote the following, and I quote, ‘‘We are concerned 

that the SEC’s slow pace on Dodd-Frank, while investing resources 

in other lower-priority initiatives and testifying to its prompt efforts to implement the JOBS Act, creates at least the appearance 

of bowing to political expediency. We believe that leapfrogging 

rulemakings whose deadlines are months away ahead of 

rulemakings whose deadlines are months passed and, in some 

cases, cherry-picking which congressional mandates the Commission will even choose to follow violates both the spirit and the letter 

of the law and is inconsistent with the SEC’s duty to protect investors and facilitate capital formation.’’ 

Obviously, the question gets to how important it is for DoddFrank to be implemented. But in your view, as well, is there any 

reason that the implementation of JOBS should be prioritized over 

the implementation of Dodd-Frank? 

Mr. COFFEE. I am not sure I would call it a priority because 

Dodd-Frank was passed in 2010, and it was 2 years ahead of the 

line. 

77 

What I would tell you in the simplest terms is that the biggest 

problems in our financial economy are the problems associated 

with systemic risk. We have not yet solved those problems—issues 

like the Volcker Rule and how you can keep banks that are too big 

to fail from taking on risk that could cause them to fail; or the 

problems with the money market funds, where there could be a 

bank run on money market funds. Those are huge, difficult problems. They affect not only investors, they affect everyone in the 

United States, because a major failure will push us back into a depression. 

Therefore, I would say the problems associated with systemic 

risk deserve a priority. I do agree, however, the problems with 

small issue offerings, access to capital for smaller companies, are 

quite important and they should be pursued. 

Mr. QUIGLEY. You see no reason to leapfrog one set of priorities 

over the other, in terms of time? 

Mr. COFFEE. I think one is enormously important: systemic risk. 

All of the future of our economy depends upon being able to solve 

in a credible fashion the problems of major bank failure. And we 

all are under the shadow of what could happen in Europe within 

a matter of weeks. 

Mr. QUIGLEY. Thank you, Mr. Chairman. I yield back. 

Mr. MCHENRY. I certainly appreciate it. I have a few final cleanup questions if the panel doesn’t mind and if the ranking member 

doesn’t mind. 

Professor Coffee, to your comment, I am grateful for you saying 

this, that the SEC prioritized their rulemaking. For instance, they 

spent enormous resources trying to write a rule on conflict minerals that was in Dodd-Frank. That certainly isn’t systemically important, especially in light of the whole world we are going 

through. Your point is exactly right, and I do appreciate that. 

Now, we also have the general solicitation—the change and relief 

of the ban on general solicitation contained in the JOBS Act. And 

they had to write very, you know, very basic rules, I would foresee, 

seeing as it is a lifting of something. It is supposed to be done by 

July 4th. 

Now, what do you foresee as the consequences of them not doing 

this by the timeline? 

Mr. Coffee? Mr. Cartwright? This is your stock in trade. We will 

start with you, Mr. Coffee. 

Mr. COFFEE. The simplest rules are those associated with private 

placements. 

What I would tell you, which I think I have to tell you to add 

a little reality to this discussion, is that if any entrepreneur advised by any of the great majority of securities lawyers were to consider what is the most feasible option today to raise capital for a 

small business, they would basically choose between the new liberalized private placement and the new expanded 3(b) small-issue exemption. They are much more attractive and more feasible than a 

still novel and still very esoteric crowdfunding exemption. And you 

usually issue—— 

Mr. MCHENRY. Well, crowdfunding is still not allowed because 

we are still waiting for the SEC to write regs by the end of the 

year, so—— 

78 

Mr. COFFEE. Even if they write those regs, they have to address 

so many different things, that it is simpler using the very timehonored, established clear path through private placements with a 

general solicitation. I think that will be very feasible. I testified in 

favor of it in December. I still think it will work. And I think those 

are easy to write. 

Mr. MCHENRY. To take that to the next step, is it because you 

think that crowdfunding, as was written into law, is too cumbersome, too complicated, too complex? 

Mr. COFFEE. Remember that the ceiling is low. The amount you 

can sell any investor is $10,000, if they are fairly wealthy. They are 

restricted securities, and they come with a negligence-based liability regime. An issuer hears that and says, the alternative is a private placement to accredited investors who are numerous, and to 

sue me you have to prove intent to defraud. I would think most 

issuers would say, regardless of the SEC rules, I want that way 

which I can’t get sued and I can sell unlimited amounts. 

Mr. MCHENRY. Well, you have made Professor Bradford’s point 

on the liability provision within crowdfunding. 

Mr. COFFEE. —Congress is not the SEC. 

Mr. MCHENRY. Oh, no. I know. I know. And it is my colleagues, 

my good friends on the other side of this institution that put in imperfect language that, if you read it, you realize that they did not 

reconcile their differences between paragraphs. Ah, the wisdom of 

the great debating society of the Senate. No offense. This is not a 

partisan matter, because we can agree the Senate is the true 

enemy. No division between parties there. 

Mr. QUIGLEY. A cul-de-sac, not an enemy. 

Mr. MCHENRY. Ah, that is a better point. Absolutely. 

So, to your point, that provision, that liability provision, is higher 

than what you would have in private placement? 

Mr. COFFEE. Yes. 

Mr. MCHENRY. Okay. Yes. 

Mr. COFFEE. It just affects the choice that an issuer will make. 

Mr. MCHENRY. Okay. Well, this is fantastic. You know, we have 

a bipartisan—you know, a whole variety of views on this panel, but 

there is consensus here. 

Mr. COFFEE. I would add, too, I agree with my colleague on one 

other thing stated slightly differently. There is a rule known as 

Rule 508 in Regulation D, the Private Placement Rule. It is known 

to most lawyers as the innocent and immaterial exemption. And it 

says, even if you screw up under private placement, if your mistake 

is innocent, immaterial, and it is not intentional, the offering, at 

least to those people, or at least to most people, will still be good. 

I think that rule could be generalized for both 3(b) and 

crowdfunding, as well. And right now it is totally ambiguous what 

these standards will be. 

Mr. MCHENRY. Okay. Wow. Thank you. That is amazing. 

Mr. Cartwright, the ban on general solicitation, this removal— 

the SEC is supposed to write regs by July 4th. If they fail to do 

that, what are the consequences to the marketplace? 

Mr. CARTWRIGHT. And I will just, you know, second much of what 

was just said. 

79 

And with respect to general solicitation, as has been said, those 

rules should be relatively easy to write, so we shouldn’t have to 

wait too long for them, I don’t think. And if they are not written, 

then the existing regime will continue, which is an impediment, 

makes it harder to raise sufficient funds to reach enough investors. 

Lots of offerings are completed nonetheless, but presumably at the 

margins. It is slowing down capital formation, and at this time in 

our economic history, we could use more. 

So I think the SEC ought to be urged to promulgate those forthwith. 

Mr. MCHENRY. Mr. Hillel-Tuch, you mentioned that you desire to 

become a crowdfunding portal for equities. So this provision that 

the JOBS Act opens up, you desire and your firm desires to do 

that, to become a portal. 

So, as the law is currently written, how can you compete against 

broker-dealers, given the disadvantages the law imposes on portals? Is that a distinct challenge? 

Mr. HILLEL-TUCH. The way the JOBS Act is written right now, 

we are still at a place where, if the SEC is given the education, 

awareness, and the proper nudging, it could fall out in a way that 

we can actually become an equity-based platform. 

That said, there is a risk that if they make it too tight, they add 

additional requirements, we will not do it. And the reason is we 

don’t think it will serve the issuer or the investor properly. 

When it comes to, you know, making this actually happen and 

what is their motivation to do so, we believe that you need to be 

able to offer both perks and equity and makes sense for different 

individuals. 

One of the things that we haven’t really addressed here and I 

was hoping to bring up is the concept surrounding job creation. 

And what we are actually trying to accomplish here is allowing 

small businesses, who are one of the largest job creators out there, 

to actually access capital in a way that is easier than what a 

broker-dealer can do. 

By making it basically transparent and providing clear communication, which is our intent—and we hope the SEC is going to let 

us do so—is very empowering to individuals right now who are dependent on very costly access forms of capital. Broker-dealers are 

not the world’s cheapest people out there. And if they are licensed, 

they can charge up-front fees, they can charge back-end fees. And 

for a small business, the ones who actually create some of the largest job-growth numbers out there, they are looking for $30,000, 

$50,000 sometimes, maybe $100,000, maybe $200,000. 

A broker-dealer is an extremely expensive way to access capital. 

And you are putting your faith in another person’s hands to guide 

you throughout that process, and you are not able to get support 

from your community. 

Mr. MCHENRY. So, under section 304, that undermines a portal’s 

ability to truly act as an intermediary between the issuers and investors. And, specifically, the Commission prevents portals from offering investment advice and recommendations, soliciting sales and 

offers, and holding, managing, or possessing investor’s funds or securities. 

80 

And, additionally, the Commission—or, well, National Securities 

Association, presumably—we presume FINRA, may exercise very 

broad discretion over portals. That seems to me to be disproportionately affecting portals to the benefit of, well, the existing regime or 

broker-dealers. Is that how you see it? 

Mr. HILLEL-TUCH. In part, we do. And what we did in order to 

try to combat that—and a lot of that is education. We produced a 

white paper, ourselves, back in May. And the SEC and FINRA both 

have a copy of it, and we met with both groups, as well, to discuss 

it to some extent. 

This—the requirements out there and, you know, offer investment advice and recommendations and things of that nature—is 

way more strict than some of the Reg D things out there. The level 

of oversight that they are providing here is sometimes excessive, 

sometimes right; you do have to find a right balance. We are probably leaning more toward the stricter end than the end that might 

allow looseness. 

Mr. MCHENRY. Stricter or more costly? 

Mr. HILLEL-TUCH. They go hand-in-hand. And it is an issue 

where—going back to what is the easiest way to access capital, I 

don’t want it to be private placement, because while that is the traditional form of access, it is expensive, and we have to recognize 

that fact. That should not be your cheapest option when there are 

other means to do so. 

Mr. MCHENRY. Okay. 

So, Mr. Coffee, how would you fix the provisions within the 

crowdfunding title of the JOBS Act so that it could work, it could 

function, and do so in a costly manner with as minimal amount of 

fraud as possible? 

Mr. COFFEE. I do not think the Senate bill is nearly as bad as 

everyone else seems to think. I have to say the Senate has—— 

Mr. MCHENRY. Well, we are starting with you. 

Mr. COFFEE. Okay. But I would say what I was trying to say earlier. Right now, if you were to make one sale to an unqualified person because they didn’t get the right disclosure, they didn’t get the 

right investor education materials that Congress has mandated, or 

they didn’t answer questions that proved they understood them, 

there would be an issue of whether the whole offering was bad. 

I think what you need is this ‘‘innocent and immaterial’’ exemption, which is what we have under private placements. And I think 

it might as well be applied to 3(b), as well, so that mistakes that 

do not have any suggestion that they were intentional and were 

not widespread should not cost the offering. 

Mr. MCHENRY. Must that be done—must that be done legislatively? 

Mr. COFFEE. No. 

Mr. MCHENRY. Or can the Commission act—— 

Mr. COFFEE. 508 is not based on legislation of Regulation D. The 

SEC can do in one context what it has done in others. 

Mr. MCHENRY. Well, we are hopeful that the SEC is either 

watching this—and if so, hello—— 

Mr. COFFEE. I will get angry emails if they are. 

Mr. MCHENRY. —and if not, we would hope they would read the 

transcripts. And if not, we have Chairman Schapiro in on Thursday 

81 

morning, and I will read her the transcript. It should be for a very 

entertaining and maybe lengthy hearing. 

Mr. Cartwright, same question. How would you improve this 

crowdfunding section of the JOBS Act so that this offering, these 

low-dollar offerings, can actually occur in an affordable fashion. 

Mr. CARTWRIGHT. Well, I think the simplest way to say that in 

very general terms is to move it back in the direction of the bill 

that came out of the House. 

What we have done is overlaid the model for big offerings with 

lots of intermediaries and gatekeepers, who are very expensive, on 

an original idea that was not designed for small-dollar offerings by 

entrepreneurs for small-scale businesses with a very different 

model. And they really are incompatible. 

So there are probably lots of places where you could move things 

back in the direction of the original idea that would be helpful. And 

you probably need to do a number of those before you get to the 

point where there has been enough change to make this approach 

viable. 

I think that, as it is currently written, it may well have been 

strangled in its crib, just because there has been so much added 

to it, that it will be, at least for the lower end of the range, the 

$100,000, $200,000 end of the range, the costs will be prohibitive. 

And I suggested in my written testimony that when the SEC 

does do rulemaking, it ought to carefully evaluate what those costs 

will be. And if in the SEC’s judgment after rigorous cost analysis 

it turns out that all of that layering is going to consume the proceeds and more, then the SEC ought to say that in their release 

so that Congress can then be aware and take whatever action Congress feels is appropriate under that circumstance. 

Mr. MCHENRY. Mr. Hillel-Tuch, the same question. 

Mr. HILLEL-TUCH. I saw the original bill, and, personally, naturally, I favored that one a lot. Of course, I understand that intervention was necessary in order to get it passed, and it did so with 

bipartisan support. It is a tough one for us, because we come from 

experience, having done this for several years already, and we understand how people behave and what the cost structures are. 

Going back to the example mentioned to you before, that $500 

raise came at a cost to that individual of only $20. That is not expensive. It just simply isn’t. We do a lot now already on the back 

end that you don’t even get with Carnes’ Reg D exemption work. 

I am able to check an individual with OFAC, for example. That is 

simply not done otherwise. I am able to track funds and how they 

are moved, how they are handled, how they are spent, whether 

there is fulfillment, what is the performance. The oversight I am 

able to perform with a Web-based platform is so much more significant than the paper-based trail from the 1930s which we are still 

using. It is mind-boggling to me that we are not adopting the modern perspectives. 

And, naturally, if the SEC is listening, I would love to explain 

to them how crowdfunding works. We have tried it in the past, and 

we have had some opportunities. But one of the issues right now 

is there is a big difference in education. When people don’t grasp 

something, they tend to move back to the older roots of understanding. And laying the investment banking fold over this thing 

82 

is not going to work. We are in a different era right now, and we 

need to be able to strive for it and drive innovation. 

When other countries are already effectively implementing equity 

crowdfunding, we are one of the last developed nations out there 

not doing so. And, you know, that, for me, is personally very troubling, considering we have a huge opportunity here and entrepreneurship really was born in this country. 

Mr. MCHENRY. Professor Bradford, same question, final word. 

Mr. BRADFORD. It is hard to answer that question quickly because I have written a 60-page article basically talking about the 

problems with the act and what I would change. 

Mr. MCHENRY. Yeah. I have it right here. 

Mr. BRADFORD. I assumed you did. 

Mr. MCHENRY. And for those of you who are watching or listening to this, Professor Bradford has, in essence, written the bible on 

crowdfunding, something that my whole staff has read and I have 

read as well. 

But, for the record, if you could outline those items. 

Mr. BRADFORD. Absolutely. 

If I could boil it down to two things, number one, something we 

really haven’t talked about a lot here today, the first thing I would 

do is clear up the ambiguities and the drafting errors in the bill. 

There are a lot of problems. There are a lot of things that are unclear in exactly what the meanings of the language is. There are 

inconsistencies that need to be cleaned up even if we don’t change 

any of the regulation. 

And then, second, to echo what many people have said today, I 

would just generally reduce the regulatory burden, particularly for 

the—if I had to limit it, I would say particularly for the smaller 

offerings. The burden is—the exemption is simply too expensive. 

Mr. MCHENRY. So the ambiguity you are mentioning, one of 

which, as I recall, is the distinction between how much you make 

and how much you are worth, your net worth versus your income. 

In the drafting, it doesn’t distinguish between either, nor does it 

give any indication which one should be the one you look to if 

somebody’s net worth is under the amount that they make or their 

net worth is over the amount that they make. 

Mr. BRADFORD. Yeah, the exemption creates three categories of 

individual investment limits. And the middle category, where 

somebody’s annual income or net worth is over $100,000 and the 

other of those two figures is below $100,000, both limits apply to 

that middle category. I mean, obviously you can’t have two limits 

applying to one investor. 

And then there is also, for higher-end investors, it is unclear 

whether it is the greater of 10 percent of their annual income and 

net worth or the lesser of those two numbers. 

Mr. MCHENRY. Interesting. Well, you know, the ambiguities need 

to be resolved, obviously. There is some consensus in terms of what 

is material as opposed to incidental errors or omissions in this offering. And I think we have had a very informative panel today. 

Mr. Quigley, do you have any final—— 

Mr. QUIGLEY. No. Thank you. 

Mr. MCHENRY. Okay. Thank you. 

83 

And I want to thank the panel. I thank you for the opportunity 

to ask questions of you. You have been very generous with your 

time and very instructive in terms of your words and your explanation. I thank you. We hope that this furthers the cause of helping small businesses, especially, get the capital they need to grow 

or to survive. And we certainly appreciate your willingness to engage in this exchange. Thank you for your time. 

This hearing is now adjourned. 

[Whereupon, at 3:30 p.m., the subcommittee was adjourned.] 

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