59–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 114–661 

FIX CROWDFUNDING ACT 

JULY 5, 2016.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 4855] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 4855) to amend provisions in the securities laws relating 

to regulation crowdfunding to raise the dollar amount limit and to 

clarify certain requirements and exclusions for funding portals established by such Act, having considered the same, report favorably 

thereon with an amendment and recommend that the bill as 

amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Fix Crowdfunding Act’’. 

SEC. 2. CROWDFUNDING VEHICLES. 

(a) AMENDMENTS TO THE SECURITIES ACT OF 1933.—The Securities Act of 1933 (15 

U.S.C. 77a et seq.) is amended— 

(1) in section 4A(f)(3), by inserting ‘‘by any of paragraphs (1) through (14) of’’ 

before ‘‘section 3(c)’’; and 

(2) in section 4(a)(6)(B), by inserting after ‘‘any investor’’ the following: ‘‘, 

other than a crowdfunding vehicle (as defined in section 2(a) of the Investment 

Company Act of 1940),’’. 

(b) AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940.—The Investment 

Company Act of 1940 (15 U.S.C. 80a-1 et seq.) is amended— 

(1) in section 2(a), by adding at the end the following: 

‘‘(55) The term ‘crowdfunding vehicle’ means a company— 

‘‘(A) whose purpose (as set forth in its organizational documents) is limited to acquiring, holding, and disposing securities issued by a single company in one or more transactions and made pursuant to section 4(a)(6) of 

the Securities Act of 1933; 

‘‘(B) which issues only one class of securities; 

‘‘(C) which receives no compensation in connection with such acquisition, 

holding, or disposition of securities; 


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‘‘(D) no associated person of which receives any compensation in connection with such acquisition, holding or disposition of securities unless such 

person is acting as or on behalf of an investment adviser registered under 

the Investment Advisers Act of 1940; 

‘‘(E) the securities of which have been issued in a transaction made pursuant to section 4(a)(6) of the Securities Act of 1933, where both the 

crowdfunding vehicle and the company whose securities it holds are coissuers; 

‘‘(F) which is current in its ongoing disclosure obligations under Rule 202 

of Regulation Crowdfunding (17 C.F.R. 227.202); 

‘‘(G) the company whose securities it holds is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 C.F.R. 

227.202); and 

‘‘(H) is advised by an investment adviser registered under the Investment 

Advisers Act of 1940.’’; and 

(2) in section 3(c), by adding at the end the following: 

‘‘(15) Any crowdfunding vehicle.’’. 

SEC. 3. CROWDFUNDING EXEMPTION FROM REGISTRATION. 

Section 12(g)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(6) is 

amended— 

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

‘‘(A) IN GENERAL.—The Commission’’; 

(2) by striking ‘‘section 4(6)’’ and inserting ‘‘section 4(a)(6)’’; and 

(3) by adding at the end the following: 

‘‘(B) TREATMENT OF SECURITIES ISSUED BY CERTAIN ISSUERS.—An exemption under subparagraph (A) shall be unconditional for securities offered by 

an issuer that had a public float of less than $75,000,000 as of the last business day of the issuer’s most recently completed semiannual period, computed by multiplying the aggregate worldwide number of shares of the 

issuer’s common equity securities held by non-affiliates by the price at 

which such securities were last sold (or the average bid and asked prices 

of such securities) in the principal market for such securities or, in the 

event the result of such public float calculation is zero, had annual revenues of less than $50,000,000 as of the issuer’s most recently completed fiscal year.’’. 

PURPOSE AND SUMMARY

Introduced by Representative McHenry on March 23, 2016, H.R. 

4855, the ‘‘Fix Crowdfunding Act,’’ would amend provisions in the 

securities laws governing crowdfunding and would fix some of the 

problematic requirements included in the final crowdfunding rule 

promulgated by the Securities and Exchange Commission (SEC) 

pursuant to Title III of the Jumpstart Our Business Startups 

(JOBS) Act. 

To increase the number and scope of investors that can invest in 

startups, H.R. 4855 defines a Special Purpose Vehicle (SPV) and 

provides that SPVs are authorized investors in crowdfunding offerings. SPVs can enable a group of investors to unify and pool their 

resources to invest in startups that want to raise capital through 

crowdfunding. To qualify as a SPV and participate in 

crowdfunding, the SPV must satisfy several legal requirements, including: 

• The purpose is limited to acquiring, holding, and disposing 

of securities in a single company for only one class of securities; 

• The SPV receives no compensation in connection with the 

acquisition, holding, or disposition of securities; 

• Any associated person to the SPV does not receive any 

compensation unless the person is ‘‘acting as or on behalf of an 

investment adviser;’’ 


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• The rights and investor protections under Section 4(a)(6) of 

the Securities Act of 1933 apply to the SPV; and 

• The disclosure requirements of Title III of the JOBS Act 

apply to the SPV. 

H.R. 4855 also amends Title III of the JOBS Act to increase the 

dollar amount thresholds of what a company can raise through 

crowdfunding before triggering the registration and reporting obligations contained in Section 12(g) of the Securities Exchange Act 

of 1934 (Exchange Act). Specifically, H.R. 4855 amends Section 

12(g) of the Exchange Act to raise the cap from $25 million to $75 

million for entities that have reported revenues, and from $25 million to $50 million for companies that do not yet have revenue. 

BACKGROUND AND NEED FOR LEGISLATION

When the SEC adopted its final rules for Regulation 

Crowdfunding on October 30, 2015, SEC Commissioner Michael 

Piwowar dissented. In his dissenting statement, he noted a number 

of important issues and concerns: 

While crowdfunding was intended to be a treat for the 

smallest and least sophisticated companies seeking to raise 

capital, today’s rules are full of tricks. The rules will spin 

a complex web of provisions and requirements for compliance. I fear that many traps for the unwary are hidden in 

the regulations, creating potential nightmares for small 

business owners that fail to place regulatory compliance at 

the top of their business plans. Such burdens will spook 

many small businesses from pursuing crowdfunding as a 

viable path to raising capital. 

A number of concerns have already been raised as to 

whether our rules are too restrictive or too burdensome. 

H.R. 4855 addresses some of the Commissioner’s concerns and 

would ensure that capital formation through crowdfunding is a viable option for small businesses. In particular, the two largest hurdles for entities to use crowdfunding as a viable funding source are 

the SEC’s current treatment of SPVs and the monetary thresholds 

maintained in Section 12(g) of the Exchange Act that once crossed, 

trigger SEC reporting. 

Kevin Laws from AngelList noted in his written testimony before 

the Subcommittee on Capital Markets and Government Sponsored 

Enterprises that the SEC’s ‘‘final crowdfunding regulations contained a provision that required companies to register, similar to 

a public company, within 2 years of crossing $25 million in assets 

if they had 500 or more unaccredited investors (the so-called ‘12g 

problem’). That would dissuade later investors from investing in 

fast-growing companies if doing so would put the company in a 24- 

month path to meeting public company requirements; the very 

companies [that] need money to grow would be dissuaded from 

raising it because of the earlier registration requirements.’’ Consequently, the Fix Crowdfunding Act addresses this significant concern by raising the monetary threshold that triggers the onerous 

SEC registration and reporting obligations. This will allow and encourage small businesses to use crowdfunding as a way to raise 

capital and eliminates the chilling effect for companies that fear 


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they may hit that threshold from participating in a crowdfunding 

offering. 

Additionally, the current JOBS Act provisions related to 

crowdfunding unfortunately limit the use of ‘‘syndicates’’ or special 

purpose vehicles, which closes investment opportunities to an ordinary or retail investor. The ‘‘Fix Crowdfunding Act’’ will enable 

greater retail investor participation in crowdfunding by enabling 

SPVs to be established and invest in startups. SPVs offer the ability for retail investors to invest alongside a more experienced lead 

investor and thereby enjoy greater participation. Moreover, by enabling SPVs to participate in crowdfunding, companies that are in 

critical need of funding have a greater pool of potential investors. 

HEARINGS

The Committee on Financial Services’ Subcommittee on Capital 

Markets and Government Enterprises held a hearing examining 

matters relating to H.R. 4855 on April 14, 2016. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

June 15 and June 16, 2016. An amendment in the nature of a substitute offered by Mr. McHenry and Ms. Waters was agreed to by 

voice vote. The Committee ordered H.R. 4854 to be reported favorably to the House, as amended, by a recorded vote of 57 yeas to 

2 nays (recorded vote no. FC–111), a quorum being present. 

COMMITTEE VOTES

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

to report legislation and amendments thereto. The sole record vote 

in committee was a motion by Chairman Hensarling to report the 

bill favorably to the House as amended. That motion was agreed 

to by a recorded vote of 57 yeas to 2 nays (Record vote no. FC–111), 

a quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

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

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

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

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

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

of Representatives, the Committee states that H.R. 4855 will facilitate capital formation by updating the rules for ‘‘crowdfunding’’ to 

raise the dollar amount limit on funds that can be raised via 

crowdfunding and clarifying certain requirements and exclusions 

for funding portals. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

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

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

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

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

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, July 1, 2016. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4855, the Fix 

Crowdfunding Act. 

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

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

Sincerely, 

KEITH HALL. 

Enclosure. 


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H.R. 4855—Fix Crowdfunding Act 

Under current law, the Securities and Exchange Commission 

(SEC) requires certain issuers of securities to register as an investment company and regulates aspects of their operations. H.R. 4855 

would define the term ‘‘crowdfunding vehicle’’ and exempt those 

companies that qualify under that term from registering as an investment company. It also would expand a current exemption for 

a particular class of securities from registration requirements. Finally, H.R. 4855 would change how the total sales of securities by 

an issuer is calculated when determining requirements to register 

securities with the SEC. That total is used to determine whether 

or not those securities are exempt from registration with the SEC. 

On the basis of information from the SEC about the level of effort needed to implement the changes in this bill, CBO estimates 

that implementing H.R. 4855 would have no significant effect on 

the agency’s costs or operations. Moreover, the SEC is authorized 

to collect fees sufficient to offset its annual appropriation; therefore, CBO estimates that the net effect on discretionary spending 

would be negligible, assuming appropriations actions consistent 

with that authority. Enacting H.R. 4855 would not affect direct 

spending or revenues; therefore, pay-as-you-go procedures do not 

apply. 

CBO estimates that enacting H.R. 4855 would not increase net 

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

10-year periods beginning in 2027. 

H.R. 4855 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contact for this estimate is Stephen Rabent. The 

estimate was approved by H. Samuel Papenfuss, Deputy Assistant 

Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

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

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

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

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

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

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 4855 does not contain any congressional earmarks, limited 

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

XXI. 


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DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the 

Committee states that no provision of H.R. 4855 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the 

Committee states that H.R. 4855 contains no directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1: Short title 

This section cites H.R. 4855 as the ‘‘Fix Crowdfunding Act’’. 

Section 2: Crowdfunding vehicles 

This section amends The Securities Act of 1933 to clarify exemptions for crowdfunding vehicles. 

Additionally, this section amends the Investment Company Act 

of 1940 by defining the term ‘‘crowdfunding vehicle’’ to include: a 

company whose purpose is limited to acquiring, holding, and disposing securities in a single company for only one class of securities; a company who receives no compensation in connection with 

the acquisition, holding, or disposition of securities; a company in 

which any associated person does not receive any compensation unless the person is ‘‘acting as or on behalf of an investment adviser.’’ 

This section preserves the applicability of both 4(a)(6) of the Securities Act of 1933 and the disclosure requirements of Title III of the 

JOBS Act. 

Section 3: Crowdfunding exemption from registration 

This section amends section 12(g) of the Securities Exchange Act 

of 1934, to increase the cap from $25 million to $75 million for entities that have reported revenues, and from $25 million to $50 million for companies that do not yet have revenue. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

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

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

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

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

roman): 

SECURITIES ACT OF 1933 

TITLE I—SHORT TITLE 

* * * * * * * 


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EXEMPTED TRANSACTIONS

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

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

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

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

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

(A) transactions taking place prior to the expiration of 

forty days after the first date upon which the security was 

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

through an underwriter, 

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

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

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

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

(C) transactions as to securities constituting the whole 

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

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

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

earlier effective registration statement the applicable period, 

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

or order. 

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

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

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

to one or more accredited investors, if the aggregate offering 

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

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

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

with the Commission as the Commission shall prescribe. 

(6) transactions involving the offer or sale of securities by an 

issuer (including all entities controlled by or under common 

control with the issuer), provided that— 

(A) the aggregate amount sold to all investors by the 

issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12- 

month period preceding the date of such transaction, is not 

more than $1,000,000; 


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(B) the aggregate amount sold to any investor, other 

than a crowdfunding vehicle (as defined in section 2(a) of 

the Investment Company Act of 1940), by an issuer, including any amount sold in reliance on the exemption provided 

under this paragraph during the 12-month period preceding the date of such transaction, does not exceed— 

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

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

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

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

such investor, as applicable, not to exceed a maximum 

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

more than $100,000; 

(C) the transaction is conducted through a broker or 

funding portal that complies with the requirements of section 4A(a); and 

(D) the issuer complies with the requirements of section 

4A(b). 

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

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

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

the Jumpstart Our Business Startups Act) shall not be deemed 

public offerings under the Federal securities laws as a result of 

general advertising or general solicitation. 

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

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

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

title, solely because— 

(A) that person maintains a platform or mechanism that 

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

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

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

through any other means; 

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

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

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

person described in such paragraph if— 

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

receives no compensation in connection with the purchase or 

sale of such security; 

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

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

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

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

person associated with that person subject to such a statutory 

disqualification. 


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

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

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

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

(B) the provision of standardized documents to the issuers 

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

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

following requirements: 

(1) ACCREDITED INVESTOR REQUIREMENT.—Each purchaser is 

an accredited investor, as that term is defined in section 

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

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

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

involving the securities of an issuer that is neither subject to 

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

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

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

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

17, Code of Federal Regulations) eligible to register securities 

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

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

reasonably current in relation to the date of resale under this 

section): 

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

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

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

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

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

fiscal year. 

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

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

issuer and the products and services it offers, which shall 

be presumed reasonably current if the statement is as of 

12 months before the transaction date. 

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

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

dealer, or agent that shall be paid or given, directly or inVerDate Sep 11 2014 06:30 Jul 06, 2016 Jkt 059006 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 E:\HR\OC\HR661.XXX HR661

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directly, any commission or remuneration for such person’s 

participation in the offer or sale of the securities. 

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

loss statement and similar financial statements, which 

shall— 

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

the issuer has been in operation; 

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

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

International Accounting Standards Board; 

(iii) be presumed reasonably current if— 

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

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

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

6 months before the transaction date, be accompanied 

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

than 6 months before the transaction date. 

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

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

seller that they have no reasonable grounds to believe that 

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

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

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

either directly or indirectly, of the issuer. 

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

sale of the securities, including solicitation of purchasers for 

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

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

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

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

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

of, an unidentified person. 

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

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

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

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


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(8) OUTSTANDING CLASS REQUIREMENT.—The transaction is 

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

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

transaction. 

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

described under subsection (a)(7): 

(A) Securities acquired in such transaction shall be 

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

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

(C) Securities involved in such transaction shall be 

deemed to be restricted securities within the meaning of 

Rule 144 (17 CFR 230.144). 

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

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

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

(a) REQUIREMENTS ON INTERMEDIARIES.—A person acting as an 

intermediary in a transaction involving the offer or sale of securities for the account of others pursuant to section 4(6) shall— 

(1) register with the Commission as— 

(A) a broker; or 

(B) a funding portal (as defined in section 3(a)(80) of the 

Securities Exchange Act of 1934); 

(2) register with any applicable self-regulatory organization 

(as defined in section 3(a)(26) of the Securities Exchange Act 

of 1934); 

(3) provide such disclosures, including disclosures related to 

risks and other investor education materials, as the Commission shall, by rule, determine appropriate; 

(4) ensure that each investor— 

(A) reviews investor-education information, in accordance with standards established by the Commission, by 

rule; 

(B) positively affirms that the investor understands that 

the investor is risking the loss of the entire investment, 

and that the investor could bear such a loss; and 

(C) answers questions demonstrating— 

(i) an understanding of the level of risk generally 

applicable to investments in startups, emerging businesses, and small issuers; 

(ii) an understanding of the risk of illiquidity; and 

(iii) an understanding of such other matters as the 

Commission determines appropriate, by rule; 

(5) take such measures to reduce the risk of fraud with respect to such transactions, as established by the Commission, 

by rule, including obtaining a background and securities enforcement regulatory history check on each officer, director, 

and person holding more than 20 percent of the outstanding 

equity of every issuer whose securities are offered by such person; 


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(6) not later than 21 days prior to the first day on which securities are sold to any investor (or such other period as the 

Commission may establish), make available to the Commission 

and to potential investors any information provided by the 

issuer pursuant to subsection (b); 

(7) ensure that all offering proceeds are only provided to the 

issuer when the aggregate capital raised from all investors is 

equal to or greater than a target offering amount, and allow 

all investors to cancel their commitments to invest, as the 

Commission shall, by rule, determine appropriate; 

(8) make such efforts as the Commission determines appropriate, by rule, to ensure that no investor in a 12-month period 

has purchased securities offered pursuant to section 4(6) that, 

in the aggregate, from all issuers, exceed the investment limits 

set forth in section 4(6)(B); 

(9) take such steps to protect the privacy of information collected from investors as the Commission shall, by rule, determine appropriate; 

(10) not compensate promoters, finders, or lead generators 

for providing the broker or funding portal with the personal 

identifying information of any potential investor; 

(11) prohibit its directors, officers, or partners (or any person 

occupying a similar status or performing a similar function) 

from having any financial interest in an issuer using its services; and 

(12) meet such other requirements as the Commission may, 

by rule, prescribe, for the protection of investors and in the 

public interest. 

(b) REQUIREMENTS FOR ISSUERS.—For purposes of section 4(6), an 

issuer who offers or sells securities shall— 

(1) file with the Commission and provide to investors and the 

relevant broker or funding portal, and make available to potential investors— 

(A) the name, legal status, physical address, and website 

address of the issuer; 

(B) the names of the directors and officers (and any persons occupying a similar status or performing a similar 

function), and each person holding more than 20 percent 

of the shares of the issuer; 

(C) a description of the business of the issuer and the 

anticipated business plan of the issuer; 

(D) a description of the financial condition of the issuer, 

including, for offerings that, together with all other offerings of the issuer under section 4(6) within the preceding 

12-month period, have, in the aggregate, target offering 

amounts of— 

(i) $100,000 or less— 

(I) the income tax returns filed by the issuer for 

the most recently completed year (if any); and 

(II) financial statements of the issuer, which 

shall be certified by the principal executive officer 

of the issuer to be true and complete in all material respects; 

(ii) more than $100,000, but not more than 

$500,000, financial statements reviewed by a public 


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accountant who is independent of the issuer, using 

professional standards and procedures for such review 

or standards and procedures established by the Commission, by rule, for such purpose; and 

(iii) more than $500,000 (or such other amount as 

the Commission may establish, by rule), audited financial statements; 

(E) a description of the stated purpose and intended use 

of the proceeds of the offering sought by the issuer with respect to the target offering amount; 

(F) the target offering amount, the deadline to reach the 

target offering amount, and regular updates regarding the 

progress of the issuer in meeting the target offering 

amount; 

(G) the price to the public of the securities or the method 

for determining the price, provided that, prior to sale, each 

investor shall be provided in writing the final price and all 

required disclosures, with a reasonable opportunity to rescind the commitment to purchase the securities; 

(H) a description of the ownership and capital structure 

of the issuer, including— 

(i) terms of the securities of the issuer being offered 

and each other class of security of the issuer, including 

how such terms may be modified, and a summary of 

the differences between such securities, including how 

the rights of the securities being offered may be materially limited, diluted, or qualified by the rights of any 

other class of security of the issuer; 

(ii) a description of how the exercise of the rights 

held by the principal shareholders of the issuer could 

negatively impact the purchasers of the securities 

being offered; 

(iii) the name and ownership level of each existing 

shareholder who owns more than 20 percent of any 

class of the securities of the issuer; 

(iv) how the securities being offered are being valued, and examples of methods for how such securities 

may be valued by the issuer in the future, including 

during subsequent corporate actions; and 

(v) the risks to purchasers of the securities relating 

to minority ownership in the issuer, the risks associated with corporate actions, including additional 

issuances of shares, a sale of the issuer or of assets of 

the issuer, or transactions with related parties; and 

(I) such other information as the Commission may, by 

rule, prescribe, for the protection of investors and in the 

public interest; 

(2) not advertise the terms of the offering, except for notices 

which direct investors to the funding portal or broker; 

(3) not compensate or commit to compensate, directly or indirectly, any person to promote its offerings through communication channels provided by a broker or funding portal, without 

taking such steps as the Commission shall, by rule, require to 

ensure that such person clearly discloses the receipt, past or 


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prospective, of such compensation, upon each instance of such 

promotional communication; 

(4) not less than annually, file with the Commission and provide to investors reports of the results of operations and financial statements of the issuer, as the Commission shall, by rule, 

determine appropriate, subject to such exceptions and termination dates as the Commission may establish, by rule; and 

(5) comply with such other requirements as the Commission 

may, by rule, prescribe, for the protection of investors and in 

the public interest. 

(c) LIABILITY FOR MATERIAL MISSTATEMENTS AND OMISSIONS.— (1) ACTIONS AUTHORIZED.— 

(A) IN GENERAL.—Subject to paragraph (2), a person who 

purchases a security in a transaction exempted by the provisions of section 4(6) may bring an action against an 

issuer described in paragraph (2), either at law or in equity in any court of competent jurisdiction, to recover the 

consideration paid for such security with interest thereon, 

less the amount of any income received thereon, upon the 

tender of such security, or for damages if such person no 

longer owns the security. 

(B) LIABILITY.—An action brought under this paragraph 

shall be subject to the provisions of section 12(b) and section 13, as if the liability were created under section 

12(a)(2). 

(2) APPLICABILITY.—An issuer shall be liable in an action 

under paragraph (1), if the issuer— 

(A) by the use of any means or instruments of transportation or communication in interstate commerce or of the 

mails, by any means of any written or oral communication, 

in the offering or sale of a security in a transaction exempted by the provisions of section 4(6), makes an untrue 

statement of a material fact or omits to state a material 

fact required to be stated or necessary in order to make 

the statements, in the light of the circumstances under 

which they were made, not misleading, provided that the 

purchaser did not know of such untruth or omission; and 

(B) does not sustain the burden of proof that such issuer 

did not know, and in the exercise of reasonable care could 

not have known, of such untruth or omission. 

(3) DEFINITION.—As used in this subsection, the term 

‘‘issuer’’ includes any person who is a director or partner of the 

issuer, and the principal executive officer or officers, principal 

financial officer, and controller or principal accounting officer 

of the issuer (and any person occupying a similar status or performing a similar function) that offers or sells a security in a 

transaction exempted by the provisions of section 4(6), and any 

person who offers or sells the security in such offering. 

(d) INFORMATION AVAILABLE TO STATES.—The Commission shall 

make, or shall cause to be made by the relevant broker or funding 

portal, the information described in subsection (b) and such other 

information as the Commission, by rule, determines appropriate, 

available to the securities commission (or any agency or office performing like functions) of each State and territory of the United 

States and the District of Columbia. 


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(e) RESTRICTIONS ON SALES.—Securities issued pursuant to a 

transaction described in section 4(6)— 

(1) may not be transferred by the purchaser of such securities during the 1-year period beginning on the date of purchase, unless such securities are transferred— 

(A) to the issuer of the securities; 

(B) to an accredited investor; 

(C) as part of an offering registered with the Commission; or 

(D) to a member of the family of the purchaser or the 

equivalent, or in connection with the death or divorce of 

the purchaser or other similar circumstance, in the discretion of the Commission; and 

(2) shall be subject to such other limitations as the Commission shall, by rule, establish. 

(f) APPLICABILITY.—Section 4(6) shall not apply to transactions 

involving the offer or sale of securities by any issuer that— 

(1) is not organized under and subject to the laws of a State 

or territory of the United States or the District of Columbia; 

(2) is subject to the requirement to file reports pursuant to 

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

1934; 

(3) is an investment company, as defined in section 3 of the 

Investment Company Act of 1940, or is excluded from the definition of investment company by section 3(b) or by any of paragraphs (1) through (14) of section 3(c) of that Act; or 

(4) the Commission, by rule or regulation, determines appropriate. 

(g) RULE OF CONSTRUCTION.—Nothing in this section or section 

4(6) shall be construed as preventing an issuer from raising capital 

through methods not described under section 4(6). 

(h) CERTAIN CALCULATIONS.— 

(1) DOLLAR AMOUNTS.—Dollar amounts in section 4(6) and 

subsection (b) of this section shall be adjusted by the Commission not less frequently than once every 5 years, by notice published in the Federal Register to reflect any change in the Consumer Price Index for All Urban Consumers published by the 

Bureau of Labor Statistics. 

(2) INCOME AND NET WORTH.—The income and net worth of 

a natural person under section 4(6)(B) shall be calculated in 

accordance with any rules of the Commission under this title 

regarding the calculation of the income and net worth, respectively, of an accredited investor. 

* * * * * * * 

INVESTMENT COMPANY ACT OF 1940 

TITLE I—INVESTMENT COMPANIES 

* * * * * * * 

GENERAL DEFINITIONS

SEC. 2. (a) When used in this title, unless the context otherwise 

requires— 


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(1) ‘‘Advisory board’’ means a board, whether elected or appointed, which is distinct from the board of directors or board 

of trustees, of an investment company, and which is composed 

solely of persons who do not serve such company in any other 

capacity, whether or not the functions of such board are such 

as to render its members ‘‘directors’’ within the definition of 

that term, which board has advisory functions as to investments but has no power to determine that any security or 

other investment shall be purchased or sold by such company. 

(2) ‘‘Affiliated company’’ means a company which is an affiliated person. 

(3) ‘‘Affiliated person’’ of another person means (A) any person directly or indirectly owning, controlling, or holding with 

power to vote, 5 per centum or more of the outstanding voting 

securities of such other person; (B) any person 5 per centum 

or more of whose outstanding voting securities are directly or 

indirectly owned, controlled, or held with power to vote, by 

such other person; (C) any person directly or indirectly controlling, controlled by, or under common control with, such other 

person; (D) any officer, director, partner, copartner, or employee of such other person; (E) if such other person is an investment company, any investment adviser thereof or any 

member of an advisory board thereof; and (F) if such other person is an unincorporated investment company not having a 

board of directors, the depositor thereof. 

(4) ‘‘Assignment’’ includes any direct or indirect transfer or 

hypothecation of a contract or chose in action by the assignor, 

or of a controlling block of the assignor’s outstanding voting securities by a security holder of the assignor; but does not include an assignment of partnership interests incidental to the 

death or withdrawal of a minority of the members of the partnership having only a minority interest in the partnership 

business or to the admission to the partnership of one or more 

members who, after such admission, shall be only a minority 

of the members and shall have only a minority interest in the 

business. 

(5) ‘‘Bank’’ means (A) a depository institution (as defined in 

section 3 of the Federal Deposit Insurance Act) or a branch or 

agency of a foreign bank (as such terms are defined in section 

1(b) of the International Banking Act of 1978), (B) a member 

bank of the Federal Reserve System, (C) any other banking institution or trust company, whether incorporated or not, doing 

business under the laws of any State or of the United States, 

a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those 

permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined 

by State or Federal authority having supervision over banks, 

and which is not operated for the purpose of evading the provisions of this title, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clause (A), 

(B), or (C) of this paragraph. 

(6) The term ‘‘broker’’ has the same meaning as given in section 3 of the Securities Exchange Act of 1934, except that such 

term does not include any person solely by reason of the fact 


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that such person is an underwriter for one or more investment 

companies. 

(7) ‘‘Commission’’ means the Securities and Exchange Commission. 

(8) ‘‘Company’’ means a corporation, a partnership, an association, a joint-stock company, a trust, a fund, or any organized 

group of persons whether incorporated or not; or any receiver, 

trustee in a case under title 11 of the United States Code or 

similar official or any liquidating agent for any of the foregoing, in his capacity as such. 

(9) ‘‘Control’’ means the power to exercise a controlling influence over the management or policies of a company, unless 

such power is solely the result of an official position with such 

company. 

Any person who owns beneficially, either directly or through 

one or more controlled companies, more than 25 per centum of 

the voting securities of a company shall be presumed to control 

such company. Any person who does not so own more than 25 

per centum of the voting securities of any company shall be 

presumed not to control such company. A natural person shall 

be presumed not to be a controlled person within the meaning 

of this title. Any such presumption may be rebutted by evidence, but except as hereinafter provided, shall continue until 

a determination to the contrary made by the Commission by 

order either on its own motion or on application by an interested person. If an application filed hereunder is not granted 

or denied by the Commission within sixty days after filing 

thereof, the determination sought by the application shall be 

deemed to have been temporarily granted pending final determination of the Commission thereon. The Commission, upon 

its own motion or upon application, may by order revoke or 

modify any order issued under this paragraph whenever it 

shall find that the determination embraced in such original 

order is no longer consistent with the facts. 

(10) ‘‘Convicted’’ includes a verdict, judgment, or plea of 

guilty, or a finding of guilt on a plea of nolo contendere, if such 

verdict, judgment, plea, or finding has not been reversed, set 

aside, or withdrawn, whether or not sentence has been imposed. 

(11) The term ‘‘dealer’’ has the same meaning as given in the 

Securities Exchange Act of 1934, but does not include an insurance company or investment company. 

(12) ‘‘Director’’ means any director of a corporation or any 

person performing similar functions with respect to any organization, whether incorporated or unincorporated, including any 

natural person who is a member of a board of trustees of a 

management company created as a common-law trust. 

(13) ‘‘Employees’ securities company’’ means any investment 

company or similar issuer all of the outstanding securities of 

which (other than short-term paper) are beneficially owned (A) 

by the employees or persons on retainer of a single employer 

or of two or more employers each of which is an affiliated company of the other, (B) by former employees of such employer 

or employers, (C) by members of the immediate family of such 

employees, persons on retainer, or former employees, (D) by 


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any two or more of the foregoing classes of persons, or (E) by 

such employer or employers together with any one or more of 

the foregoing classes of persons. 

(14) ‘‘Exchange’’ means any organization, association, or 

group of persons, whether incorporated or unincorporated, 

which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the 

functions commonly performed by a stock exchange as that 

term is generally understood, and includes the market place 

and the market facilities maintained by such exchange. 

(15) ‘‘Face-amount certificate’’ means any certificate, investment contract, or other security which represents an obligation 

on the part of its issuer to pay a stated or determinable sum 

or sums at a fixed or determinable date or dates more than 

twenty-four months after the date of issuance, in consideration 

of the payment of periodic installments of a stated or determinable amount (which security shall be known as a faceamount certificate of the ‘‘installment type’’); or any security 

which represents a similar obligation on the part of a faceamount certificate company, the consideration for which is the 

payment of a single lump sum (which security shall be known 

as a ‘‘fully paid’’ face-amount certificate). 

(16) ‘‘Government security’’ means any security issued or 

guaranteed as to principal or interest by the United States, or 

by a person controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States; 

or any certificate of deposit for any of the foregoing. 

(17) ‘‘Insurance company’’ means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and 

which is subject to supervision by the insurance commissioner 

or a similar official or agency of a State; or any receiver or 

similar official or any liquidating agent for such a company, in 

his capacity as such. 

(18) ‘‘Interstate commerce’’ means trade, commerce, transportation, or communication among the several States, or between 

any foreign country and any State, or between any State and 

any place or ship outside thereof. 

(19) ‘‘Interested person’’ of another person means— 

(A) when used with respect to an investment company— 

(i) any affiliated person of such company, 

(ii) any member of the immediate family of any natural person who is an affiliated person of such company, 

(iii) any interested person of any investment adviser 

of or principal underwriter for such company, 

(iv) any person or partner or employee of any person 

who at any time since the beginning of the last two 

completed fiscal years of such company has acted as 

legal counsel for such company, 

(v) any person or any affiliated person of a person 

(other than a registered investment company) that, at 


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any time during the 6-month period preceding the 

date of the determination of whether that person or affiliated person is an interested person, has executed 

any portfolio transactions for, engaged in any principal 

transactions with, or distributed shares for— 

(I) the investment company; 

(II) any other investment company having the 

same investment adviser as such investment company or holding itself out to investors as a related 

company for purposes of investment or investor 

services; or 

(III) any account over which the investment 

company’s investment adviser has brokerage 

placement discretion, 

(vi) any person or any affiliated person of a person 

(other than a registered investment company) that, at 

any time during the 6-month period preceding the 

date of the determination of whether that person or affiliated person is an interested person, has loaned 

money or other property to— 

(I) the investment company; 

(II) any other investment company having the 

same investment adviser as such investment company or holding itself out to investors as a related 

company for purposes of investment or investor 

services; or 

(III) any account for which the investment company’s investment adviser has borrowing authority, and 

(vii) any natural person whom the Commission by 

order shall have determined to be an interested person 

by reason of having had, at any time since the beginning of the last two completed fiscal years of such 

company, a material business or professional relationship with such company or with the principal executive officer of such company or with any other investment company having the same investment adviser or 

principal underwriter or with the principal executive 

officer of such other investment company: 

Provided, That no person shall be deemed to be an interested person of an investment company solely by reason of 

(aa) his being a member of its board of directors or advisory board or an owner of its securities, or (bb) his membership in the immediate family of any person specified in 

clause (aa) of this proviso; and 

(B) when used with respect to an investment adviser of 

or principal underwriter for any investment company— 

(i) any affiliated person of such investment adviser 

or principal underwriter, 

(ii) any member of the immediate family of any natural person who is an affiliated person of such investment advisor or principal underwiter, 

(iii) any person who knowingly has any direct or indirect beneficial interest in, or who is designated as 

trustee, executor, or guardian of any legal interest in, 


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any security issued either by such investment adviser 

or principal underwriter or by a controlling person of 

such investment adviser or principal underwriter, 

(iv) any person or partner or employee of any person 

who at any time since the beginning of the last two 

completed fiscal years of such investment company 

has acted as legal counsel for such investment adviser 

or principal underwriter, 

(v) any person or any affiliated person of a person 

(other than a registered investment company) that, at 

any time during the 6-month period preceding the 

date of the determination of whether that person or affiliated person is an interested person, has executed 

any portfolio transactions for, engaged in any principal 

transactions with, or distributed shares for— 

(I) any investment company for which the investment adviser or principal underwriter serves 

as such; 

(II) any investment company holding itself out 

to investors, for purposes of investment or investor services, as a company related to any investment company for which the investment adviser 

or principal underwriter serves as such; or 

(III) any account over which the investment adviser has brokerage placement discretion, 

(vi) any person or any affiliated person of a person 

(other than a registered investment company) that, at 

any time during the 6-month period preceding the 

date of the determination of whether that person or affiliated person is an interested person, has loaned 

money or other property to— 

(I) any investment company for which the investment adviser or principal underwriter serves 

as such; 

(II) any investment company holding itself out 

to investors, for purposes of investment or investor services, as a company related to any investment company for which the investment adviser 

or principal underwriter serves as such; or 

(III) any account for which the investment adviser has borrowing authority, and 

(vii) any natural person whom the Commission by 

order shall have determined to be an interested person 

by reason of having had at any time since the beginning of the last two completed fiscal years of such investment company a material business or professional 

relationship with such investment adviser or principal 

underwriter or with the principal executive officer or 

any controlling person of such investment adviser or 

principal underwriter. 

For the purposes of this paragraph (19), ‘‘member of the 

immediate family’’ means any parent, spouse of a parent, 

child, spouse of a child, spouse, brother, or sister, and includes step and adoptive relationships. The Commission 

may modify or revoke any order issued under clause (vii) 


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of subparagaph (A) or (B) of this paragraph whenever it 

finds that such order is no longer consistent with the facts. 

No order issued pursuant to clause (vii) of subparagraph 

(A) or (B) of this paragraph shall become effective until at 

least sixty days after the entry thereof, and no such order 

shall affect the status of any person for the purposes of 

this title or for any other purpose for any period prior to 

the effective date of such order. 

(20) ‘‘Investment adviser’’ of an investment company means 

(A) any person (other than a bona fide officer, director, trustee, 

member of an advisory board, or employee of such company, as 

such) who pursuant to contract with such company regularly 

furnishes advice to such company with respect to the desirability of investing in, purchasing or selling securities or other 

property, or is empowered to determine what securities or 

other property shall be purchased or sold by such company, 

and (B) any other person who pursuant to contract with a person described in clause (A) regularly performs substantially all 

of the duties undertaken by such person described in clause 

(A); but does not include (i) a person whose advice is furnished 

solely through uniform publications distributed to subscribers 

thereto, (ii) a person who furnishes only statistical and other 

factual information, advice regarding economic factors and 

trends, or advice as to occasional transactions in specific securities, but without generally furnishing advice or making recommendations regarding the purchase or sale of securities, (iii) 

a company furnishing such services at cost to one or more investment companies, insurance companies, or other financial 

institutions, (iv) any person the character and amount of whose 

compensation for such services must be approved by a court, 

or (v) such other persons as the Commission may by rules and 

regulations or order determine not to be within the intent of 

this definition. 

(21) ‘‘Investment banker’’ means any person engaged in the 

business of underwriting securities issued by other persons, 

but does not include an investment company, any person who 

acts as an underwriter in isolated transactions but not as a 

part of a regular business, or any person solely by reason of 

the fact that such person is an underwriter for one or more investment companies. 

(22) ‘‘Issuer’’ means every person who issues or proposes to 

issue any security, or has outstanding any security which it 

has issued. 

(23) ‘‘Lend’’ includes a purchase coupled with an agreement 

by the vendor to repurchase; ‘‘borrow’’ includes a sale coupled 

with a similar agreement. 

(24) ‘‘Majority-owned subsidiary’’ of a person means a company 50 per centum or more of the outstanding voting securities of which are owned by such person, or by a company 

which, within the meaning of this paragraph, is a majorityowned subsidiary of such person. 

(25) ‘‘Means or instrumentality of interstate commerce’’ includes any facility of a national securities exchange. 

(26) ‘‘National securities exchange’’ means an exchange registered under section 6 of the Securities Exchange Act of 1934. 


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(27) ‘‘Periodic payment plan certificate’’ means (A) any certificate, investment contract, or other security providing for a 

series of periodic payments by the holder, and representing an 

undivided interest in certain specified securities or in a unit or 

fund of securities purchased wholly or partly with the proceeds 

of such payments, and (B) any security the issuer of which is 

also issuing securities of the character described in clause (A) 

and the holder of which has substantially the same rights and 

privileges as those which holders of securities of the character 

described in clause (A) have upon completing the periodic payments for which such securities provide. 

(28) ‘‘Person’’ means a natural person or a company. 

(29) ‘‘Principal underwriter’’ of or for any investment company other than a closed-end company, or of any security 

issued by such a company, means any underwriter who as 

principal purchases from such company, or pursuant to contract has the right (whether absolute or conditional) from time 

to time to purchase from such company, any such security for 

distribution, or who as agent for such company sells or has the 

right to sell any such security to a dealer or to the public or 

both, but does not include a dealer who purchases from such 

company through a principal underwriter acting as agent for 

such company. ‘‘Principal underwriter’’ of or for a closed-end 

company or any issuer which is not an investment company, or 

of any security issued by such a company or issuer, means any 

underwriter who, in connection with a primary distribution of 

securities, (A) is in privity of contract with the issuer or an affiliated person of the issuer; (B) acting alone or in concert with 

one or more other persons, initiates or directs the formation of 

an underwriting syndicate; or (C) is allowed a rate of gross 

commission, spread, or other profit greater than the rate allowed another underwriter participating in the distribution. 

(30) ‘‘Promoter’’ of a company or a proposed company means 

a person who, acting alone or in concert with other persons, is 

initiating or directing, or has within one year initiated or directed, the organization of such company. 

(31) ‘‘Prospectus’’, as used in section 22, means a written prospectus intended to meet the requirements of section 10(a) of 

the Securities Act of 1933 and currently in use. As used elsewhere, ‘‘prospectus’’ means a prospectus as defined in the Securities Act of 1933. 

(32) ‘‘Redeemable security’’ means any security, other than 

short-term paper, under the terms of which the holder, upon 

its presentation to the issuer or to a person designated by the 

issuer, is entitled (whether absolutely or only out of surplus) 

to receive approximately his proportionate share of the issuer’s 

current net assets, or the cash equivalent thereof. 

(33) ‘‘Reorganization’’ means (A) a reorganization under the 

supervision of a court of competent jurisdiction; (B) a merger 

or consolidation; (C) a sale of 75 per centum or more in value 

of the assets of a company; (D) a restatement of the capital of 

a company, or an exchange of securities issued by a company 

for any of its own outstanding securities; (E) a voluntary dissolution or liquidation of a company; (F) a recapitalization or 

other procedure or transaction which has for its purpose the alVerDate Sep 11 2014 06:30 Jul 06, 2016 Jkt 059006 PO 00000 Frm 00024 Fmt 6659 Sfmt 6602 E:\HR\OC\HR661.XXX HR661

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teration, modification, or elimination of any of the rights, preferences, or privileges of any class of securities issued by a company, as provided in its charter or other instrument creating 

or defining such rights, preferences, and privileges; (G) an exchange of securities issued by a company for outstanding securities issued by another company or companies, preliminary to 

and for the purpose of effecting or consummating any of the 

foregoing; or (H) any exchange of securities by a company 

which is not an investment company for securities issued by a 

registered investment company. 

(34) ‘‘Sale’’, ‘‘sell’’, ‘‘offer to sell’’, or ‘‘offer for sale’’ includes 

every contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest 

in a security, for value. Any security given or delivered with, 

or as a bonus on account of, any purchase of securities or any 

other thing, shall be conclusively presumed to constitute a part 

of the subject of such purchase and to have been sold for value. 

(35) ‘‘Sales load’’ means the difference between the price of 

a security to the public and that portion of the proceeds from 

its sale which is received and invested or held for investment 

by the issuer (or in the case of a unit investment trust, by the 

depositor or trustee), less any portion of such difference deducted for trustee’s or custodian’s fee, insurance premiums, 

issue taxes, or administrative expenses or fees which are not 

properly chargeable to sales or promotional activities. In the 

case of a periodic payment plan certificate, ‘‘sales load’’ includes the sales load on any investment company securities in 

which the payments made on such certificate are invested, as 

well as the sales load on the certificate itself. 

(36) ‘‘Security’’ means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or 

subsciption, transferable share, investment contract, votingtrust certificate, certificate of deposit for a security, fractional 

undivided interest in oil, gas, or other mineral rights, any put, 

call, straddle, option, or privilege on any security (including a 

certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or 

any put, call, straddle, option, or privilege entered into on a 

national securities exchange relating to foreign currency, or, in 

general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or 

warrant or right to subscribe to or purchase, any of the foregoing. 

(37) ‘‘Separate account’’ means an account established and 

maintained by an insurance company pursuant to the laws of 

any State or territory of the United States, or of Canada or any 

province thereof, under which income, gains and losses, whether or not realized, from assets allocated to such account, are, 

in accordance with the applicable contract, credited to or 

charged against such account without regard to other income, 

gains, or losses of the insurance company. 


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(38) ‘‘Short-term paper’’ means any note, draft, bill of exchange, or banker’s acceptance payable on demand or having 

a maturity at the time of issuance of not exceeding nine 

months, exclusive of days of grace, or any renewal thereof payable on demand or having a maturity likewise limited; and 

such other classes of securities, of a commercial rather than an 

investment character, as the Commission may designate by 

rules and regulations. 

(39) ‘‘State’’ means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other 

possession of the United States. 

(40) ‘‘Underwriter’’ means any person who has purchased 

from an issuer with a view to, or sells for an issuer in connection with, the distribution of any security, or participates or 

has a direct or indirect participation in any such undertaking, 

or participates or has a participation in the direct or indirect 

underwriting of any such undertaking; but such term shall not 

include a person whose interest is limited to a commission 

from an underwriter or dealer not in excess of the usual and 

customary distributor’s or seller’s commission. As used in this 

paragraph the term ‘‘issuer’’ shall include, in addition to an 

issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect 

common control with the issuer. When the distribution of the 

securities in respect of which any person is an underwriter is 

completed such person shall cease to be an underwriter in respect of such securities or the issuer thereof. 

(41) ‘‘Value’’, with respect to assets of registered investment 

companies, except as provided in subsection (b) of section 28 of 

this title, means— 

(A) as used in sections 3, 5, and 12 of this title, (i) with 

respect to securities owned at the end of the last preceding 

fiscal quarter for which market quotations are readily 

available, the market value at the end of such quarter; (ii) 

with respect to other securities and assets owned at the 

end of the last preceding fiscal quarter, fair value at the 

end of such quarter, as determined in good faith by the 

board of directors; and (iii) with respect to securities and 

other assets acquired after the end of the last preceding 

fiscal quarter, the cost thereof; and 

(B) as used elsewhere in this title, (i) with respect to securities for which market quotations are readily available, 

the market value of such securities; and (ii) with respect 

to other securities and assets, fair value as determined in 

good faith by the board of directors; 

in each case as of such time or times as determined pursuant 

to this title, and the rules and regulations issued by the Commission hereunder. Notwithstanding the fact that market 

quotations for securities issued by controlled companies are 

available, the board of directors may in good faith determine 

the value of such securities: Provided, That the value so determined is not in excess of the higher of market value or asset 

value of such securities in the case of majority-owned subsidiaries, and is not in excess of market value in the case of other 

controlled companies. 


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For purposes of the valuation of those assets of a registered diversified company which are not subject to the limitations provided 

for in section 5(b)(1), the Commission may, by rules and regulations or orders, permit any security to be carried at cost, if it shall 

determine that such procedure is consistent with the general intent 

and purposes of this title. For purposes of sections 5 and 12, in lieu 

of values determined as provided in clause (A) above, the Commission shall by rules and regulations permit valuation of securities at 

cost or other basis in cases where it may be more convenient for 

such company to make its computations on such basis by reason of 

the necessity or desirability of complying with the provisions of any 

United States revenue laws or rules and regulations issued thereunder, or the laws or the rules and regulations issued thereunder 

of any State in which the securities of such company may be qualified for sale. 

The foregoing definition shall not derogate from the authority of 

the Commission with respect to the reports, information, and documents to be filed with the Commission by any registered company, 

or with respect to the accounting policies and principles to be following by any such company, as provided in sections 8, 30, and 31. 

(42) ‘‘Voting security’’ means any security presently entitling 

the owner or holder thereof to vote for the election of directors 

of a company. A specified percentage of the outstanding voting 

securities of a company means such amount of its outstanding 

voting securities as entitles the holder or holders thereof to 

cast said specified percentage of the aggregate votes which the 

holders of all the outstanding voting securities of such company are entitled to cast. The vote of a majority of the outstanding voting securities of a company means the vote, at the 

annual or a special meeting of the security holders of such 

company duly called, (A) of 67 per centum or more of the voting securities present at such meeting, if the holders of more 

than 50 per centum of the outstanding voting securities of such 

company are present or represented by proxy; or (B) of more 

than 50 per centum of the outstanding voting securities of such 

company, whichever is the less. 

(43) ‘‘Wholly-owned subsidiary’’ of a person means a company 

95 per centum or more of the outstanding voting securities of 

which are owned by such person, or by a company which, within the meaning of this paragraph, is a wholly-owned subsidiary 

of such person. 

(44) ‘‘Securities Act of 1933’’, ‘‘Securities Exchange Act of 

1934’’, and ‘‘Trust Indenture Act of 1939’’ means those Acts, respectively, as heretofore or hereafter amended. 

(45) ‘‘Savings and loan association’’ means a savings and 

loan association, building and loan association, cooperative 

bank, homestead association, or similar institution, which is 

supervised and examined by State or Federal authority having 

supervision over any such institution, and a receiver, conservator, or other liquidating agent of any such institution. 

(46) ‘‘Eligible portfolio company’’ means any issuer which— 

(A) is organized under the laws of, and has its principal 

place of business in, any State or States; 

(B) is neither an investment company as defined in section 3 (other than a small business investment company 


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which is licensed by the Small Business Administration to 

operate under the Small Business Investment Act of 1958 

and which is a wholly-owned subsidiary of the business development company) nor a company which would be an investment company except for the exclusion from the definition of investment company in section 3(c); and 

(C) satisfies one of the following: 

(i) it does not have any class of securities with respect to which a member of a national securities exchange, broker, or dealer may extend or maintain 

credit to or for a customer pursuant to rules or regulations adopted by the Board of Governors of the Federal 

Reserve System under section 7 of the Securities Exchange Act of 1934; 

(ii) it is controlled by a business development company, either alone or as part of a group acting together, and such business development company in 

fact exercises a controlling influence over the management or policies of such eligible portfolio company and, 

as a result of such control, has an affiliated person 

who is a director of such eligible portfolio company; (iii) it has total assets of not more than $4,000,000, 

and capital and surplus (shareholders’ equity less retained earnings) of not less than $2,000,000, except 

that the Commission may adjust such amounts by 

rule, regulation, or order to reflect changes in 1 or 

more generally accepted indices or other indicators for 

small businesses; or 

(iv) it meets such other criteria as the Commission 

may, by rule, establish as consistent with the public 

interest, the protection of investors, and the purposes 

fairly intended by the policy and provisions of this 

title. 

(47) ‘‘Making available significant managerial assistance’’ by 

a business development company means— 

(A) any arrangement whereby a business development 

company, through its directors, officers, employees, or general partners, offers to provide, and, if accepted, does so 

provide, significant guidance and counsel concerning the 

management, operations, or business objectives and policies of a portfolio company; 

(B) the exercise by a business development company of 

a controlling influence over the management or policies of 

a portfolio company by the business development company 

acting individually or as part of a group acting together 

which controls such portfolio company; or 

(C) with respect to a small business investment company 

licensed by the Small Business Administration to operate 

under the Small Business Investment Act of 1958, the 

making of loans to a portfolio company. 

For purposes of subparagraph (A), the requirement that a business development company make available significant managerial assistance shall be deemed to be satisfied with respect to 

any particular portfolio company where the business development company purchases securities of such portfolio company 


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in conjunction with one or more other persons acting together, 

and at least one of the persons in the group makes available 

significant managerial assistance to such portfolio company, 

except that such requirement will not be deemed to be satisfied 

if the business development company, in all cases, makes 

available significant managerial assistance solely in the manner described in this sentence. 

(48) ‘‘Business development company’’ means any closed-end 

company which— 

(A) is organized under the laws of, and has its principal 

place of business in, any State or States; 

(B) is operated for the purpose of making investments in 

securities described in paragraphs (1) through (3) of section 55(a), and makes available significant managerial assistance with respect to the issuers of such securities, provided that a business development company must make 

available significant managerial assistance only with respect to the companies which are treated by such business 

development company as satisfying the 70 per centum of 

the value of its total assets condition of section 55; and 

provided further that a business development company 

need not make available significant managerial assistance 

with respect to any company described in paragraph 

(46)(C)(iii), or with respect to any other company that 

meets such criteria as the Commission may by rule, regulation, or order permit, as consistent with the public interest, the protection of investors, and the purposes of this 

title; and 

(C) has elected pursuant to section 54(a) to be subject to 

the provisions of sections 55 through 65. 

(49) ‘‘Foreign securities authority’’ means any foreign government or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its 

laws as they relate to securities matters. 

(50) ‘‘Foreign financial regulatory authority’’ means any (A) 

foreign securities authority, (B) other governmental body or 

foreign equivalent of a self-regulatory organization empowered 

by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, 

insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the 

rules of a contract market, board of trade or foreign equivalent, 

or other financial activities, or (C) membership organization a 

function of which is to regulate the participation of its members in activities listed above. 

(51)(A) ‘‘Qualified purchaser’’ means— 

(i) any natural person (including any person who holds 

a joint, community property, or other similar shared ownership interest in an issuer that is excepted under section 

3(c)(7) with that person’s qualified purchaser spouse) who 

owns not less than $5,000,000 in investments, as defined 

by the Commission; 

(ii) any company that owns not less than $5,000,000 in 

investments and that is owned directly or indirectly by or 

for 2 or more natural persons who are related as siblings 


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or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, 

the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of 

such persons; 

(iii) any trust that is not covered by clause (ii) and that 

was not formed for the specific purpose of acquiring the securities offered, as to which the trustee or other person authorized to make decisions with respect to the trust, and 

each settlor or other person who has contributed assets to 

the trust, is a person described in clause (i), (ii), or (iv); or 

(iv) any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate 

owns and invests on a discretionary basis, not less than 

$25,000,000 in investments. 

(B) The Commission may adopt such rules and regulations 

applicable to the persons and trusts specified in clauses (i) 

through (iv) of subparagraph (A) as it determines are necessary or appropriate in the public interest or for the protection of investors. 

(C) The term ‘‘qualified purchaser’’ does not include a company that, but for the exceptions provided for in paragraph (1) 

or (7) of section 3(c), would be an investment company (hereafter in this paragraph referred to as an ‘‘excepted investment 

company’’), unless all beneficial owners of its outstanding securities (other than short-term paper), determined in accordance 

with section 3(c)(1)(A), that acquired such securities on or before April 30, 1996 (hereafter in this paragraph referred to as 

‘‘pre-amendment beneficial owners’’), and all pre-amendment 

beneficial owners of the outstanding securities (other than 

short-term paper) of any excepted investment company that, 

directly or indirectly, owns any outstanding securities of such 

excepted investment company, have consented to its treatment 

as a qualified purchaser. Unanimous consent of all trustees, directors, or general partners of a company or trust referred to 

in clause (ii) or (iii) of subparagraph (A) shall constitute consent for purposes of this subparagraph. 

(52) The terms ‘‘security future’’ and ‘‘narrow-based security 

index’’ have the same meanings as provided in section 3(a)(55) 

of the Securities Exchange Act of 1934. 

(53) The term ‘‘credit rating agency’’ has the same meaning 

as in section 3 of the Securities Exchange Act of 1934. 

(54) The terms ‘‘commodity pool’’, ‘‘commodity pool operator’’, 

‘‘commodity trading advisor’’, ‘‘major swap participant’’, ‘‘swap’’, 

‘‘swap dealer’’, and ‘‘swap execution facility’’ have the same 

meanings as in section 1a of the Commodity Exchange Act (7 

U.S.C. 1a).’’. 

(55) The term ‘‘crowdfunding vehicle’’ means a company— 

(A) whose purpose (as set forth in its organizational documents) is limited to acquiring, holding, and disposing securities issued by a single company in one or more transactions and made pursuant to section 4(a)(6) of the Securities Act of 1933; 

(B) which issues only one class of securities; 


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(C) which receives no compensation in connection with 

such acquisition, holding, or disposition of securities; 

(D) no associated person of which receives any compensation in connection with such acquisition, holding or disposition of securities unless such person is acting as or on 

behalf of an investment adviser registered under the Investment Advisers Act of 1940; 

(E) the securities of which have been issued in a transaction made pursuant to section 4(a)(6) of the Securities Act 

of 1933, where both the crowdfunding vehicle and the company whose securities it holds are co-issuers; 

(F) which is current in its ongoing disclosure obligations 

under Rule 202 of Regulation Crowdfunding (17 C.F.R. 

227.202); 

(G) the company whose securities it holds is current in its 

ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 C.F.R. 227.202); and 

(H) is advised by an investment adviser registered under 

the Investment Advisers Act of 1940. 

(b) No provision in this title shall apply to, or be deemed to include, the United States, a State, or any political subdivision of a 

State, or any agency, authority, or instrumentality of any one or 

more of the foregoing, or any corporation which is wholly owned directly or indirectly by any one or more of the foregoing, or any officer, agent, or employee of any of the foregoing acting as such in the 

course of his official duty, unless such provision makes specific reference thereto. 

(c) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION.—Whenever pursuant to this title the 

Commission is engaged in rulemaking and is required to consider 

or determine whether an action is consistent with the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. 

DEFINITION OF INVESTMENT COMPANY

SEC. 3. (a)(1) When used in this title, ‘‘investment company’’ 

means any issuer which— 

(A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; 

(B) is engaged or proposes to engage in the business of 

issuing face-amount certificates of the installment type, or has 

been engaged in such business and has any such certificate 

outstanding; or 

(C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, 

and owns or proposes to acquire investment securities having 

a value exceeding 40 per centum of the value of such issuer’s 

total assets (exclusive of Government securities and cash 

items) on an unconsolidated basis. 

(2) As used in this section, ‘‘investment securities’’ includes all 

securities except (A) Government securities, (B) securities issued by 

employees’ securities companies, and (C) securities issued by majority-owned subsidiaries of the owner which (i) are not investment 


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companies, and (ii) are not relying on the exception from the definition of investment company in paragraph (1) or (7) of subsection 

(c). 

(b) Notwithstanding paragraph (1)(C) of subsection (a), none of 

the following persons is an investment company within the meaning of this title: 

(1) Any issuer primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses 

other than that of investing, reinvesting, owning, holding, or 

trading in securities. 

(2) Any issuer which the Commission, upon application by 

such issuer, finds and by order declares to be primarily engaged in a business or businesses other than that of investing, 

reinvesting, owning, holding, or trading in securities either directly or (A) through majority-owned subsidiaries or (B) 

through controlled companies conducting similar types of businesses. The filing of an application under this paragraph in 

good faith by an issuer other than a registered investment 

company shall exempt the applicant for a period of sixty days 

from all provisions of this title applicable to investment companies as such. For cause shown, the Commission by order may 

extend such period of exemption for an additional period or periods. Whenever the Commission, upon its own motion or upon 

application, finds that the circumstances which gave rise to the 

issuance of an order granting an application under this paragraph no longer exist, the Commission shall by order revoke 

such order. 

(3) Any issuer all the outstanding securities of which (other 

than short-term paper and directors’ qualifying shares) are directly or indirectly owned by a company excepted from the definition of investment company by paragraph (1) or (2) of this 

subsection. 

(c) Notwithstanding subsection (a), none of the following persons 

is an investment company within the meaning of this title: 

(1) Any issuer whose outstanding securities (other than 

short-term paper) are beneficially owned by not more than one 

hundred persons and which is not making and does not presently propose to make a public offering of its securities. Such 

issuer shall be deemed to be an investment company for purposes of the limitations set forth in subparagraphs (A)(i) and 

(B)(i) of section 12(d)(1) governing the purchase or other acquisition by such issuer of any security issued by any registered 

investment company and the sale of any security issued by any 

registered open-end investment company to any such issuer. 

For purposes of this paragraph: 

(A) Beneficial ownership by a company shall be deemed 

to be beneficial ownership by one person, except that, if 

the company owns 10 per centum or more of the outstanding voting securities of the issuer, and is or, but for 

the exception provided for in this paragraph or paragraph 

(7), would be an investment company, the beneficial ownership shall be deemed to be that of the holders of such 

company’s outstanding securities (other than short-term 

paper). 


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(B) Beneficial ownership by any person who acquires securities or interests in securities of an issuer described in 

the first sentence of this paragraph shall be deemed to be 

beneficial ownership by the person from whom such transfer was made, pursuant to such rules and regulations as 

the Commission shall prescribe as necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the 

policy and provisions of this title, where the transfer was 

caused by legal separation, divorce, death, or other involuntary event. 

(2)(A) Any person primarily engaged in the business of underwriting and distributing securities issued by other persons, 

selling securities to customers, acting as broker, and acting as 

market intermediary, or any one or more of such activities, 

whose gross income normally is derived principally from such 

business and related activities. 

(B) For purposes of this paragraph— 

(i) the term ‘‘market intermediary’’ means any person 

that regularly holds itself out as being willing contemporaneously to engage in, and that is regularly engaged in, the 

business of entering into transactions on both sides of the 

market for a financial contract or one or more such financial contracts; and 

(ii) the term ‘‘financial contract’’ means any arrangement 

that— 

(I) takes the form of an individually negotiated contract, agreement, or option to buy, sell, lend, swap, or 

repurchase, or other similar individually negotiated 

transaction commonly entered into by participants in 

the financial markets; 

(II) is in respect of securities, commodities, currencies, interest or other rates, other measures of 

value, or any other financial or economic interest similar in purpose or function to any of the foregoing; and 

(III) is entered into in response to a request from a 

counter party for a quotation, or is otherwise entered 

into and structured to accommodate the objectives of 

the counter party to such arrangement. 

(3) Any bank or insurance company; any savings and loan 

association, building and loan association, cooperative bank, 

homestead association, or similar institution, or any receiver, 

conservator, liquidator, liquidating agent, or similar official or 

person thereof or therefor; or any common trust fund or similar 

fund maintained by a bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the 

bank in its capacity as a trustee, executor, administrator, or 

guardian, if— 

(A) such fund is employed by the bank solely as an aid 

to the administration of trusts, estates, or other accounts 

created and maintained for a fiduciary purpose; 

(B) except in connection with the ordinary advertising of 

the bank’s fiduciary services, interests in such fund are 

not— 

(i) advertised; or 


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(ii) offered for sale to the general public; and 

(C) fees and expenses charged by such fund are not in 

contravention of fiduciary principles established under applicable Federal or State law. 

(4) Any person substantially all of whose business is confined 

to making small loans, industrial banking, or similar businesses. 

(5) Any person who is not engaged in the business of issuing 

redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is 

primarily engaged in one or more of the following businesses: 

(A) Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services; (B) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services; and (C) purchasing 

or otherwise acquiring mortgages and other liens on and interests in real estate. 

(6) Any company primarily engaged, directly or through majority-owned subsidiaries, in one or more of the businesses described in paragraphs (3), (4), and (5), or in one or more of such 

businesses (from which not less than 25 centum of such company’s gross income during its last fiscal year was derived) together with an additional business or businesses other than investing, reinvesting, owning, holding, or trading in securities. 

(7)(A) Any issuer, the outstanding securities of which are 

owned exclusively by persons who, at the time of acquisition of 

such securities, are qualified purchasers, and which is not 

making and does not at that time propose to make a public offering of such securities. Securities that are owned by persons 

who received the securities from a qualified purchaser as a gift 

or bequest, or in a case in which the transfer was caused by 

legal separation, divorce, death, or other involuntary event, 

shall be deemed to be owned by a qualified purchaser, subject 

to such rules, regulations, and orders as the Commission may 

prescribe as necessary or appropriate in the public interest or 

for the protection of investors. 

(B) Notwithstanding subparagraph (A), an issuer is within 

the exception provided by this paragraph if— 

(i) in addition to qualified purchasers, outstanding securities of that issuer are beneficially owned by not more 

than 100 persons who are not qualified purchasers, if— 

(I) such persons acquired any portion of the securities of such issuer on or before September 1, 1996; and 

(II) at the time at which such persons initially acquired the securities of such issuer, the issuer was excepted by paragraph (1); and 

(ii) prior to availing itself of the exception provided by 

this paragraph— 

(I) such issuer has disclosed to each beneficial 

owner, as determined under paragraph (1), that future 

investors will be limited to qualified purchasers, and 

that ownership in such issuer is no longer limited to 

not more than 100 persons; and 


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(II) concurrently with or after such disclosure, such 

issuer has provided each beneficial owner, as determined under paragraph (1), with a reasonable opportunity to redeem any part or all of their interests in 

the issuer, notwithstanding any agreement to the contrary between the issuer and such persons, for that 

person’s proportionate share of the issuer’s net assets. 

(C) Each person that elects to redeem under subparagraph 

(B)(ii)(II) shall receive an amount in cash equal to that person’s proportionate share of the issuer’s net assets, unless the 

issuer elects to provide such person with the option of receiving, and such person agrees to receive, all or a portion of such 

person’s share in assets of the issuer. If the issuer elects to 

provide such persons with such an opportunity, disclosure concerning such opportunity shall be made in the disclosure required by subparagraph (B)(ii)(I). 

(D) An issuer that is excepted under this paragraph shall 

nonetheless be deemed to be an investment company for purposes of the limitations set forth in subparagraphs (A)(i) and 

(B)(i) of section 12(d)(1) relating to the purchase or other acquisition by such issuer of any security issued by any registered 

investment company and the sale of any security issued by any 

registered open-end investment company to any such issuer. 

(E) For purposes of determining compliance with this paragraph and paragraph (1), an issuer that is otherwise excepted 

under this paragraph and an issuer that is otherwise excepted 

under paragraph (1) shall not be treated by the Commission as 

being a single issuer for purposes of determining whether the 

outstanding securities of the issuer excepted under paragraph 

(1) are beneficially owned by not more than 100 persons or 

whether the outstanding securities of the issuer excepted 

under this paragraph are owned by persons that are not qualified purchasers. Nothing in this subparagraph shall be construed to establish that a person is a bona fide qualified purchaser for purposes of this paragraph or a bona fide beneficial 

owner for purposes of paragraph (1). 

(9) Any person substantially all of whose business consists of 

owning or holding oil, gas, or other mineral royalties or leases, 

or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, 

leases, or fractional interests. 

(10)(A) Any company organized and operated exclusively for 

religious, educational, benevolent, fraternal, charitable, or reformatory purposes— 

(i) no part of the net earnings of which inures to the 

benefit of any private shareholder or individual; or 

(ii) which is or maintains a fund described in subparagraph (B). 

(B) For the purposes of subparagraph (A)(ii), a fund is described in this subparagraph if such fund is a pooled income 

fund, collective trust fund, collective investment fund, or similar fund maintained by a charitable organization exclusively 

for the collective investment and reinvestment of one or more 

of the following: 


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(i) assets of the general endowment fund or other funds 

of one or more charitable organizations; 

(ii) assets of a pooled income fund; 

(iii) assets contributed to a charitable organization in exchange for the issuance of charitable gift annuities; 

(iv) assets of a charitable remainder trust or of any other 

trust, the remainder interests of which are irrevocably 

dedicated to any charitable organization; 

(v) assets of a charitable lead trust; 

(vi) assets of a trust, the remainder interests of which 

are revocably dedicated to or for the benefit of 1 or more 

charitable organizations, if the ability to revoke the dedication is limited to circumstances involving— 

(I) an adverse change in the financial circumstances 

of a settlor or an income beneficiary of the trust; 

(II) a change in the identity of the charitable organization or organizations having the remainder interest, 

provided that the new beneficiary is also a charitable 

organization; or 

(III) both the changes described in subclauses (I) 

and (II); 

(vii) assets of a trust not described in clauses (i) through 

(v), the remainder interests of which are revocably dedicated to a charitable organization, subject to subparagraph 

(C); or 

(viii) such assets as the Commission may prescribe by 

rule, regulation, or order in accordance with section 6(c). 

(C) A fund that contains assets described in clause (vii) of 

subparagraph (B) shall be excluded from the definition of an 

investment company for a period of 3 years after the date of 

enactment of this subparagraph, but only if— 

(i) such assets were contributed before the date which is 

60 days after the date of enactment of this subparagraph; 

and 

(ii) such assets are commingled in the fund with assets 

described in one or more of clauses (i) through (vi) and 

(viii) of subparagraph (B). 

(D) For purposes of this paragraph— 

(i) a trust or fund is ‘‘maintained’’ by a charitable organization if the organization serves as a trustee or administrator of the trust or fund or has the power to remove the 

trustees or administrators of the trust or fund and to designate new trustees or administrators; 

(ii) the term ‘‘pooled income fund’’ has the same meaning 

as in section 642(c)(5) of the Internal Revenue Code of 

1986; 

(iii) the term ‘‘charitable organization’’ means an organization described in paragraphs (1) through (5) of section 

170(c) or section 501(c)(3) of the Internal Revenue Code of 

1986; 

(iv) the term ‘‘charitable lead trust’’ means a trust described in section 170(f)(2)(B), 2055(e)(2)(B), or 

2522(c)(2)(B) of the Internal Revenue Code of 1986; 

(v) the term ‘‘charitable remainder trust’’ means a charitable remainder annuity trust or a charitable remainder 


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unitrust, as those terms are defined in section 664(d) of 

the Internal Revenue Code of 1986; and 

(vi) the term ‘‘charitable gift annuity’’ means an annuity 

issued by a charitable organization that is described in 

section 501(m)(5) of the Internal Revenue Code of 1986. 

(11) Any employee’s stock bonus, pension, or profit-sharing 

trust which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1986; or any governmental plan described in section 3(a)(2)(C) of the Securities Act 

of 1933; or any collective trust fund maintained by a bank consisting solely of assets of one or more of such trusts, government plans, or church plans, companies or accounts that are 

excluded from the definition of an investment company under 

paragraph (14) of this subsection; or any separate account the 

assets of which are derived solely from (A) contributions under 

pension or profit-sharing plans which meet the requirements of 

section 401 of the Internal Revenue Code of 1986 or the requirements for deduction of the employer’s contribution under 

section 404(a)(2) of such Code, (B) contributions under governmental plans in connection with which interests, participations, or securities are exempted from the registration provisions of section 5 of the Securities Act of 1933 by section 

3(a)(2)(C) of such Act, and (C) advances made by an insurance 

company in connection with the operation of such separate account. 

(12) Any voting trust the assets of which consist exclusively 

of securities of a single issuer which is not an investment company. 

(13) Any security holders’ protective committee or similar 

issuer having outstanding and issuing no securities other than 

certificates of deposit and short-term paper. 

(14) Any church plan described in section 414(e) of the Internal Revenue Code of 1986, if, under any such plan, no part of 

the assets may be used for, or diverted to, purposes other than 

the exclusive benefit of plan participants or beneficiaries, or 

any company or account that is— 

(A) established by a person that is eligible to establish 

and maintain such a plan under section 414(e) of the Internal Revenue Code of 1986; and 

(B) substantially all of the activities of which consist of— 

(i) managing or holding assets contributed to such 

church plans or other assets which are permitted to be 

commingled with the assets of church plans under the 

Internal Revenue Code of 1986; or 

(ii) administering or providing benefits pursuant to 

church plans. 

(15) Any crowdfunding vehicle. 

* * * * * * * 

SECURITIES EXCHANGE ACT OF 1934 

TITLE I—REGULATION OF SECURITIES EXCHANGES 

* * * * * * * 


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REGISTRATION REQUIREMENTS FOR SECURITIES

SEC. 12. (a) It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration 

is effective as to such security for such exchange in accordance with 

the provisions of this title and the rules and regulations thereunder. The provisions of this subsection shall not apply in respect 

of a security futures product traded on a national securities exchange. 

(b) A security may be registered on a national securities exchange by the issuer filing an application with the exchange (and 

filing with the Commission such duplicate originals thereof as the 

Commission may require), which application shall contain— 

(1) Such information, in such detail, as to the issuer and any 

person directly or indirectly controlling or controlled by, or 

under direct or indirect common control with, the issuer, and 

any guarantor of the security as to principal or interest or 

both, as the Commission may by rules and regulations require, 

as necessary or appropriate in the public interest or for the 

protection of investors, in respect of the following: 

(A) the organization, financial structures, and nature of 

the business; 

(B) the terms, position, rights, and privileges of the different classes of securities outstanding; 

(C) the terms on which their securities are to be, and 

during the preceding three years have been, offered to the 

public or otherwise; 

(D) the directors, officers, and underwriters, and each security holder of record holding more than 10 per centum 

of any class of any equity security of the issuer (other than 

an exempted security), their remuneration and their interests in the securities of, and their material contracts with, 

the issuer and any person directly or indirectly controlling 

or controlled by, or under direct or indirect common control 

with, the issuer; 

(E) remuneration to others than directors and officers 

exceeding $20,000 per annum; 

(F) bonus and profit-sharing arrangements; 

(G) management and service contracts; 

(H) options existing or to be created in respect of their 

securities; 

(I) material contracts, not made in the ordinary course 

of business, which are to be executed in whole or in part 

at or after the filing of the application or which were made 

not more than two years before such filing, and every material patent or contract for a material patent right shall 

be deemed a material contract; 

(J) balance sheets for not more than the three preceding 

fiscal years, certified if required by the rules and regulations of the Commission by a registered public accounting 

firm; 

(K) profit and loss statements for not more than the 

three preceding fiscal years, certified if required by the 


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rules and regulations of the Commission by a registered 

public accounting firm; and 

(L) any further financial statements which the Commission may deem necessary or appropriate for the protection 

of investors. 

(2) Such copies of articles of incorporation, bylaws, trust indentures, or corresponding documents by whatever name 

known, underwriting arrangements, and other similar documents of, and voting trust agreements with respect to, the 

issuer and any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the 

issuer as the Commission may require as necessary or appropriate for the proper protection of investors and to insure fair 

dealing in the security. 

(3) Such copies of material contracts, referred to in paragraph (1)(I) above, as the Commission may require as necessary or appropriate for the proper protection of investors and 

to insure fair dealing in the security. 

(c) If in the judgment of the Commission any information required under subsection (b) of this section is inapplicable to any 

specified class or classes of issuers, the Commission shall require 

in lieu thereof the submission of such other information of comparable character as it may deem applicable to such class of 

issuers. 

(d) If the exchange authorities certify to the Commission that the 

security has been approved by the exchange for listing and registration, the registration shall become effective thirty days after 

the receipt of such certification by the Commission or within such 

shorter period of time as the Commission may determine. A security registered with a national securities exchange may be withdrawn or stricken from listing and registration in accordance with 

the rules of the exchange and, upon such terms as the Commission 

may deem necessary to impose for the protection of investors, upon 

application by the issuer or the exchange to the Commission; 

whereupon the issuer shall be relieved from further compliance 

with the provisions of this section and section 13 of this title and 

any rules or regulations under such sections as to the securities so 

withdrawn or stricken. An unissued security may be registered 

only in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 

(e) Notwithstanding the foregoing provisions of this section, the 

Commission may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of 

investors permit securities listed on any exchange at the time the 

registration of such exchange as a national securities exchange becomes effective, to be registered for a period ending not later than 

July 1, 1935, without complying with the provisions of this section. 

(f)(1)(A) Notwithstanding the preceding subsections of this section, any national securities exchange, in accordance with the requirements of this subsection and the rules hereunder, may extend 

unlisted trading privileges to— 

(i) any security that is listed and registered on a national securities exchange, subject to subparagraph (B); and 


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(ii) any security that is otherwise registered pursuant to this 

section, or that would be required to be so registered except for 

the exemption from registration provided in subparagraph (B) 

or (G) of subsection (g)(2), subject to subparagraph (E) of this 

paragraph. 

(B) A national securities exchange may not extend unlisted trading privileges to a security described in subparagraph (A)(i) during 

such interval, if any, after the commencement of an initial public 

offering of such security, as is or may be required pursuant to subparagraph (C). 

(C) Not later than 180 days after the date of enactment of the 

Unlisted Trading Privileges Act of 1994, the Commission shall prescribe, by rule or regulation, the duration of the interval referred 

to in subparagraph (B), if any, as the Commission determines to be 

necessary or appropriate for the maintenance of fair and orderly 

markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this title. Until the earlier 

of the effective date of such rule or regulation or 240 days after 

such date of enactment, such interval shall begin at the opening of 

trading on the day on which such security commences trading on 

the national securities exchange with which such security is registered and end at the conclusion of the next day of trading. 

(D) The Commission may prescribe, by rule or regulation such 

additional procedures or requirements for extending unlisted trading privileges to any security as the Commission deems necessary 

or appropriate for the maintenance of fair and orderly markets, the 

protection of investors and the public interest, or otherwise in furtherance of the purposes of this title. 

(E) No extension of unlisted trading privileges to securities described in subparagraph (A)(ii) may occur except pursuant to a 

rule, regulation, or order of the Commission approving such extension or extensions. In promulgating such rule or regulation or in 

issuing such order, the Commission— 

(i) shall find that such extension or extensions of unlisted 

trading privileges is consistent with the maintenance of fair 

and orderly markets, the protection of investors and the public 

interest, and otherwise in furtherance of the purposes of this 

title; 

(ii) shall take account of the public trading activity in such 

securities, the character of such trading, the impact of such extension on the existing markets for such securities, and the desirability of removing impediments to and the progress that 

has been made toward the development of a national market 

system; and 

(iii) shall not permit a national securities exchange to extend 

unlisted trading privileges to such securities if any rule of such 

national securities exchange would unreasonably impair the 

ability of a dealer to solicit or effect transactions in such securities for its own account, or would unreasonably restrict competition among dealers in such securities or between such dealers acting in the capacity of market makers who are specialists 

and such dealers who are not specialists. 

(F) An exchange may continue to extend unlisted trading privileges in accordance with this paragraph only if the exchange and 

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bility under this paragraph, including any rules and regulations 

issued by the Commission pursuant to this paragraph, except that 

unlisted trading privileges may continue with regard to securities 

which had been admitted on such exchange prior to July 1, 1964, 

notwithstanding the failure to satisfy such requirements. If unlisted trading privileges in a security are discontinued pursuant to 

this subparagraph, the exchange shall cease trading in that security, unless the exchange and the subject security thereafter satisfy 

the requirements of this paragraph and the rules issued hereunder. 

(G) For purposes of this paragraph— 

(i) a security is the subject of an initial public offering if— 

(I) the offering of the subject security is registered under 

the Securities Act of 1933; and 

(II) the issuer of the security, immediately prior to filing 

the registration statement with respect to the offering, was 

not subject to the reporting requirements of section 13 or 

15(d) of this title; and 

(ii) an initial public offering of such security commences at 

the opening of trading on the day on which such security commences trading on the national securities exchange with which 

such security is registered. 

(2)(A) At any time within 60 days of commencement of trading 

on an exchange of a security pursuant to unlisted trading privileges, the Commission may summarily suspend such unlisted trading privileges on the exchange. Such suspension shall not be reviewable under section 25 of this title and shall not be deemed to 

be a final agency action for purposes of section 704 of title 5, 

United States Code. Upon such suspension— 

(i) the exchange shall cease trading in the security by the 

close of business on the date of such suspension, or at such 

time as the Commission may prescribe by rule or order for the 

maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of 

the purposes of this title; and 

(ii) if the exchange seeks to extend unlisted trading privileges to the security, the exchange shall file an application to 

reinstate its ability to do so with the Commission pursuant to 

such procedures as the Commission may prescribe by rule or 

order for the maintenance of fair and orderly markets, the protection of investors and the public interest, or otherwise in furtherance of the purposes of this title. 

(B) A suspension under subparagraph (A) shall remain in effect 

until the Commission, by order, grants approval of an application 

to reinstate, as described in subparagraph (A)(ii). 

(C) A suspension under subparagraph (A) shall not affect the validity or force of an extension of unlisted trading privileges in effect 

prior to such suspension. 

(D) The Commission shall not approve an application by a national securities exchange to reinstate its ability to extend unlisted 

trading privileges to a security unless the Commission finds, after 

notice and opportunity for hearing, that the extension of unlisted 

trading privileges pursuant to such application is consistent with 

the maintenance of fair and orderly markets, the protection of investors and the public interest, and otherwise in furtherance of the 

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listed trading privileges to a security described in paragraph 

(1)(A)(ii), the Commission— 

(i) shall take account of the public trading activity in such 

security, the character of such trading, the impact of such extension on the existing markets for such a security, and the desirability of removing impediments to and the progress that 

has been made toward the development of a national market 

system; and 

(ii) shall not grant any such application if any rule of the national securities exchange making application under this subsection would unreasonably impair the ability of a dealer to solicit or effect transactions in such security for its own account, 

or would unreasonably restrict competition among dealers in 

such security or between such dealers acting in the capacity of 

marketmakers who are specialists and such dealers who are 

not specialists. 

(3) Notwithstanding paragraph (2), the Commission shall by 

rules and regulations suspend unlisted trading privileges in whole 

or in part for any or all classes of securities for a period not exceeding twelve months, if it deems such suspension necessary or appropriate in the public interest or for the protection of investors or to 

prevent evasion of the purposes of this title. 

(4) On the application of the issuer of any security for which unlisted trading privileges on any exchange have been continued or 

extended pursuant to this subsection, or of any broker or dealer 

who makes or creates a market for such security, or of any other 

person having a bona fide interest in the question of termination 

or suspension of such unlisted trading privileges, or on its own motion, the Commission shall by order terminate, or suspend for a period not exceeding twelve months, such unlisted trading privileges 

for such security if the Commission finds, after appropriate notice 

and opportunity for hearing, that such termination or suspension 

is necessary or appropriate in the public interest or for the protection of investors. 

(5) In any proceeding under this subsection in which appropriate 

notice and opportunity for hearing are required, notice of not less 

than ten days to the applicant in such proceeding, to the issuer of 

the security involved, to the exchange which is seeking to continue 

or extend or has continued or extended unlisted trading privileges 

for such security, and to the exchange, if any, on which such security is listed and registered, shall be deemed adequate notice, and 

any broker or dealer who makes or creates a market for such security, and any other person having a bona fide interest in such proceeding, shall upon application be entitled to be heard. 

(6) Any security for which unlisted trading privileges are continued or extended pursuant to this subsection shall be deemed to be 

registered on a national securities exchange within the meaning of 

this title. The powers and duties of the Commission under this title 

shall be applicable to the rules of an exchange in respect to any 

such security. The Commission may, by such rules and regulations 

as it deems necessary or appropriate in the public interest or for 

the protection of investors, either unconditionally or upon specified 

terms and conditions, or for stated periods, exempt such securities 

from the operation of any provision of section 13, 14, or 16 of this 

title. 


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(g)(1) Every issuer which is engaged in interstate commerce, or 

in a business affecting interstate commerce, or whose securities are 

traded by use of the mails or any means or instrumentality of 

interstate commerce shall— 

(A) within 120 days after the last day of its first fiscal year 

ended on which the issuer has total assets exceeding 

$10,000,000 and a class of equity security (other than an exempted security) held of record by either— 

(i) 2,000 persons, or 

(ii) 500 persons who are not accredited investors (as such 

term is defined by the Commission), and 

(B) in the case of an issuer that is a bank, a savings and 

loan holding company (as defined in section 10 of the Home 

Owners’ Loan Act), or a bank holding company, as such term 

is defined in section 2 of the Bank Holding Company Act of 

1956 (12 U.S.C. 1841), not later than 120 days after the last 

day of its first fiscal year ended after the effective date of this 

subsection, on which the issuer has total assets exceeding 

$10,000,000 and a class of equity security (other than an exempted security) held of record by 2,000 or more persons, 

register such security by filing with the Commission a registration 

statement (and such copies thereof as the Commission may require) 

with respect to such security containing such information and documents as the Commission may specify comparable to that which is 

required in an application to register a security pursuant to subsection (b) of this section. Each such registration statement shall 

become effective sixty days after filing with the Commission or 

within such shorter period as the Commission may direct. Until 

such registration statement becomes effective it shall not be 

deemed filed for the purposes of section 18 of this title. Any issuer 

may register any class of equity security not required to be registered by filing a registration statement pursuant to the provisions 

of this paragraph. The Commission is authorized to extend the date 

upon which any issuer or class of issuers is required to register a 

security pursuant to the provisions of this paragraph. 

(2) The provisions of this subsection shall not apply in respect 

of— 

(A) any security listed and registered on a national securities 

exchange. 

(B) any security issued by an investment company registered 

pursuant to section 8 of the Investment Company Act of 1940. 

(C) any security, other than permanent stock, guaranty 

stock, permanent reserve stock, or any similar certificate evidencing nonwithdrawable capital, issued by a savings and loan 

association, building and loan association, cooperative bank, 

homestead association, or similar institution, which is supervised and examined by State or Federal authority having supervision over any such institution. 

(D) any security of an issuer organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, 

and no part of the net earnings of which inures to the benefit 

of any private shareholder or individual; or any security of a 

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pany under section 3(c)(10)(B) of the Investment Company Act 

of 1940. 

(E) any security of an issuer which is a ‘‘cooperative association’’ as defined in the Agricultural Marketing Act, approved 

June 15, 1929, as amended, or a federation of such cooperative 

associations, if such federation possesses no greater powers or 

purposes than cooperative associations so defined. 

(F) any security issued by a mutual or cooperative organization which supplies a commodity or service primarily for the 

benefit of its members and operates not for pecuniary profit, 

but only if the security is part of a class issuable only to persons who purchase commodities or services from the issuer, the 

security is transferable only to a successor in interest or occupancy of premises serviced or to be served by the issuer, and 

no dividends are payable to the holder of the security. 

(G) any security issued by an insurance company if all of the 

following conditions are met: 

(i) Such insurance company is required to and does file 

an annual statement with the Commissioner of Insurance 

(or other officer or agency performing a similar function) 

of its domiciliary State, and such annual statement conforms to that prescribed by the National Association of Insurance Commissioners or in the determination of such 

State commissioner, officer or agency substantially conforms to that so prescribed. 

(ii) Such insurance company is subject to regulation by 

its domiciliary State of proxies, consents, or authorizations 

in respect of securities issued by such company and such 

regulation conforms to that prescribed by the National Association of Insurance Commissioners. 

(iii) After July 1, 1966, the purchase and sales of securities issued by such insurance company by beneficial owners, directors, or officers of such company are subject to 

regulation (including reporting) by its domiciliary State 

substantially in the manner provided in section 16 of this 

title. 

(H) any interest or participation in any collective trust funds 

maintained by a bank or in a separate account maintained by 

an insurance company which interest or participation is issued 

in connection with (i) a stock-bonus, pension, or profit-sharing 

plan which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1954, (ii) an annuity 

plan which meets the requirements for deduction of the employer’s contribution under section 404(a)(2) of such Code, or 

(iii) a church plan, company, or account that is excluded from 

the definition of an investment company under section 3(c)(14) 

of the Investment Company Act of 1940. 

(3) The Commission may by rules or regulations or, on its own 

motion, after notice and opportunity for hearing, by order, exempt 

from this subsection any security of a foreign issuer, including any 

certificate of deposit for such a security, if the Commission finds 

that such exemption is in the public interest and is consistent with 

the protection of investors. 

(4) Registration of any class of security pursuant to this subsection shall be terminated ninety days, or such shorter period as 


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the Commission may determine, after the issuer files a certification 

with the Commission that the number of holders of record of such 

class of security is reduced to less than 300 persons, or, in the case 

of a bank, a savings and loan holding company (as defined in section 10 of the Home Owners’ Loan Act), or a bank holding company, as such term is defined in section 2 of the Bank Holding 

Company Act of 1956 (12 U.S.C. 1841), 1,200 persons persons. The 

Commission shall after notice and opportunity for hearing deny termination of registration if it finds that the certification is untrue. 

Termination of registration shall be deferred pending final determination on the question of denial. 

(5) For the purposes of this subsection the term ‘‘class’’ shall include all securities of an issuer which are of substantially similar 

character and the holders of which enjoy substantially similar 

rights and privileges. The Commission may for the purpose of this 

subsection define by rules and regulations the terms ‘‘total assets’’ 

and ‘‘held of record’’ as it deems necessary or appropriate in the 

public interest or for the protection of investors in order to prevent 

circumvention of the provisions of this subsection. For purposes of 

this subsection, a security futures product shall not be considered 

a class of equity security of the issuer of the securities underlying 

the security futures product. For purposes of determining whether 

an issuer is required to register a security with the Commission 

pursuant to paragraph (1), the definition of ‘‘held of record’’ shall 

not include securities held by persons who received the securities 

pursuant to an employee compensation plan in transactions exempted from the registration requirements of section 5 of the Securities Act of 1933. 

(6) EXCLUSION FOR PERSONS HOLDING CERTAIN SECURITIES.— 

øThe Commission¿ 

(A) IN GENERAL.—The Commission shall, by rule, exempt, conditionally or unconditionally, securities acquired 

pursuant to an offering made under øsection 4(6)¿ section 

4(a)(6) of the Securities Act of 1933 from the provisions of 

this subsection. 

(B) TREATMENT OF SECURITIES ISSUED BY CERTAIN

ISSUERS.—An exemption under subparagraph (A) shall be 

unconditional for securities offered by an issuer that had a 

public float of less than $75,000,000 as of the last business 

day of the issuer’s most recently completed semiannual period, computed by multiplying the aggregate worldwide 

number of shares of the issuer’s common equity securities 

held by non-affiliates by the price at which such securities 

were last sold (or the average bid and asked prices of such 

securities) in the principal market for such securities or, in 

the event the result of such public float calculation is zero, 

had annual revenues of less than $50,000,000 as of the 

issuer’s most recently completed fiscal year. 

(h) The Commission may by rules and regulations, or upon application of an interested person, by order, after notice and opportunity for hearing, exempt in whole or in part any issuer or class 

of issuers from the provisions of subsection (g) of this section or 

from section 13, 14, or 15(d) or may exempt from section 16 any 

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section (g) hereof, upon such terms and conditions and for such period as it deems necessary or appropriate, if the Commission finds, 

by reason of the number of public investors, amount of trading interest in the securities, the nature and extent of the activities of 

the issuer, income or assets of the issuer, or otherwise, that such 

action is not inconsistent with the public interest or the protection 

of investors. The Commission may, for the purposes of any of the 

above-mentioned sections or subsections of this title, classify 

issuers and prescribe requirements appropriate for each such class. 

(i) In respect of any securities issued by banks and savings associations the deposits of which are insured in accordance with the 

Federal Deposit Insurance Act, the powers, functions, and duties 

vested in the Commission to administer and enforce sections 

10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of this Act, and sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the SarbanesOxley Act of 2002, (1) with respect to national banks and Federal 

savings associations, the accounts of which are insured by the Federal Deposit Insurance Corporation are vested in the Comptroller 

of the Currency, (2) with respect to all other member banks of the 

Federal Reserve System are vested in the Board of Governors of 

the Federal Reserve System, and (3) with respect to all other insured banks and State savings associations, the accounts of which 

are insured by the Federal Deposit Insurance Corporation, are 

vested in the Federal Deposit Insurance Corporation. The Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation shall 

have the power to make such rules and regulations as may be necessary for the execution of the functions vested in them as provided 

in this subsection. In carrying out their responsibilities under this 

subsection, the agencies named in the first sentence of this subsection shall issue substantially similar regulations to regulations 

and rules issued by the Commission under sections 10A(m), 12, 13, 

14(a), 14(c), 14(d), 14(f) and 16 of this Act, and sections 302, 303, 

304, 306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act of 

2002, unless they find that implementation of substantially similar 

regulations with respect to insured banks and insured institutions 

are not necessary or appropriate in the public interest or for protection of investors, and publish such findings, and the detailed reasons therefor, in the Federal Register. Such regulations of the 

above-named agencies, or the reasons for failure to publish such 

substantially similar regulations to those of the Commission, shall 

be published in the Federal Register within 120 days of the date 

of enactment of this subsection, and, thereafter, within 60 days of 

any changes made by the Commission in its relevant regulations 

and rules. 

(j) The Commission is authorized, by order, as it deems necessary 

or appropriate for the protection of investors to deny, to suspend 

the effective date of, to suspend for a period not exceeding twelve 

months, or to revoke the registration of a security, if the Commission finds, on the record after notice and opportunity for hearing, 

that the issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder. No member of a national securities exchange, broker, or dealer shall make 

use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale 


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of, any security the registration of which has been and is suspended or revoked pursuant to the preceding sentence. 

(k) TRADING SUSPENSIONS; EMERGENCY AUTHORITY.— (1) TRADING SUSPENSIONS.—If in its opinion the public interest and the protection of investors so require, the Commission 

is authorized by order— 

(A) summarily to suspend trading in any security (other 

than an exempted security) for a period not exceeding 10 

business days, and 

(B) summarily to suspend all trading on any national securities exchange or otherwise, in securities other than exempted securities, for a period not exceeding 90 calendar 

days. 

The action described in subparagraph (B) shall not take effect 

unless the Commission notifies the President of its decision 

and the President notifies the Commission that the President 

does not disapprove of such decision. If the actions described 

in subparagraph (A) or (B) involve a security futures product, 

the Commission shall consult with and consider the views of 

the Commodity Futures Trading Commission. 

(2) EMERGENCY ORDERS.— (A) IN GENERAL.—The Commission, in an emergency, 

may by order summarily take such action to alter, supplement, suspend, or impose requirements or restrictions with 

respect to any matter or action subject to regulation by the 

Commission or a self-regulatory organization under the securities laws, as the Commission determines is necessary 

in the public interest and for the protection of investors— 

(i) to maintain or restore fair and orderly securities 

markets (other than markets in exempted securities); 

(ii) to ensure prompt, accurate, and safe clearance 

and settlement of transactions in securities (other 

than exempted securities); or 

(iii) to reduce, eliminate, or prevent the substantial 

disruption by the emergency of— 

(I) securities markets (other than markets in exempted securities), investment companies, or any 

other significant portion or segment of such markets; or 

(II) the transmission or processing of securities 

transactions (other than transactions in exempted 

securities). 

(B) EFFECTIVE PERIOD.—An order of the Commission 

under this paragraph shall continue in effect for the period 

specified by the Commission, and may be extended. Except 

as provided in subparagraph (C), an order of the Commission under this paragraph may not continue in effect for 

more than 10 business days, including extensions. 

(C) EXTENSION.—An order of the Commission under this 

paragraph may be extended to continue in effect for more 

than 10 business days if, at the time of the extension, the 

Commission finds that the emergency still exists and determines that the continuation of the order beyond 10 

business days is necessary in the public interest and for 

the protection of investors to attain an objective described 


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48 

in clause (i), (ii), or (iii) of subparagraph (A). In no event 

shall an order of the Commission under this paragraph 

continue in effect for more than 30 calendar days. 

(D) SECURITY FUTURES.—If the actions described in subparagraph (A) involve a security futures product, the Commission shall consult with and consider the views of the 

Commodity Futures Trading Commission. 

(E) EXEMPTION.—In exercising its authority under this 

paragraph, the Commission shall not be required to comply with the provisions of— 

(i) section 19(c); or 

(ii) section 553 of title 5, United States Code. 

(3) TERMINATION OF EMERGENCY ACTIONS BY PRESIDENT.— 

The President may direct that action taken by the Commission 

under paragraph (1)(B) or paragraph (2) of this subsection 

shall not continue in effect. 

(4) COMPLIANCE WITH ORDERS.—No member of a national securities exchange, broker, or dealer shall make use of the mails 

or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, 

any security in contravention of an order of the Commission 

under this subsection unless such order has been stayed, modified, or set aside as provided in paragraph (5) of this subsection or has ceased to be effective upon direction of the President as provided in paragraph (3). 

(5) LIMITATIONS ON REVIEW OF ORDERS.—An order of the 

Commission pursuant to this subsection shall be subject to review only as provided in section 25(a) of this title. Review shall 

be based on an examination of all the information before the 

Commission at the time such order was issued. The reviewing 

court shall not enter a stay, writ of mandamus, or similar relief unless the court finds, after notice and hearing before a 

panel of the court, that the Commission’s action is arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law. 

(6) CONSULTATION.—Prior to taking any action described in 

paragraph (1)(B), the Commission shall consult with and consider the views of the Secretary of the Treasury, the Board of 

Governors of the Federal Reserve System, and the Commodity 

Futures Trading Commission, unless such consultation is impracticable in light of the emergency. 

(7) DEFINITION.—For purposes of this subsection, the term 

‘‘emergency’’ means— 

(A) a major market disturbance characterized by or constituting— 

(i) sudden and excessive fluctuations of securities 

prices generally, or a substantial threat thereof, that 

threaten fair and orderly markets; or 

(ii) a substantial disruption of the safe or efficient 

operation of the national system for clearance and settlement of transactions in securities, or a substantial 

threat thereof; or 

(B) a major disturbance that substantially disrupts, or 

threatens to substantially disrupt— 


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(i) the functioning of securities markets, investment 

companies, or any other significant portion or segment 

of the securities markets; or 

(ii) the transmission or processing of securities 

transactions. 

(l) It shall be unlawful for an issuer, any class of whose securities 

is registered pursuant to this section or would be required to be so 

registered except for the exemption from registration provided by 

subsection (g)(2)(B) or (g)(2)(G) of this section, by the use of any 

means or instrumentality of interstate commerce, or of the mails, 

to issue, either originally or upon transfer, any of such securities 

in a form or with a format which contravenes such rules and regulations as the Commission may prescribe as necessary or appropriate for the prompt and accurate clearance and settlement of 

transactions in securities. The provisions of this subsection shall 

not apply to variable annuity contracts or variable life policies 

issued by an insurance company or its separate accounts. 

* * * * * * * 

Æ 


rfrederick on DSK6VPTVN1PROD with HEARING