49–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 114–199 

SBIC ADVISERS RELIEF ACT OF 2015 

JULY 14, 2015.—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. 432] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 432) to amend the Investment Advisers Act of 1940 to 

prevent duplicative regulation of advisers of small business investment companies, having considered the same, report favorably 

thereon without amendment and recommend that the bill do pass. 

PURPOSE AND SUMMARY

H.R. 432, the ‘‘SBIC Advisers Relief Act of 2015,’’ amends the Investment Advisers Act of 1940 to reduce unnecessary regulatory 

costs and eliminate duplicative regulation of advisers to Small 

Business Investment Companies (SBICs). The bill preempts any 

state registration requirements of those advisers solely advising 

SBIC funds; allows advisers to venture capital funds to continue to 

be ‘‘exempt reporting advisers’’ if they also advise an SBIC fund; 

and prevents the inclusion of the assets of an SBIC fund in the 

SEC registration calculation of assets under management for those 

advisers that advise private funds in addition to SBIC funds. 

BACKGROUND AND NEED FOR LEGISLATION

Private equity funds pool private investors’ money and invest it 

as new equity in an enterprise. Private equity funds typically hire 

advisers to counsel the fund on where to deploy its resources. The 

Dodd-Frank Act creates a regulatory regime for advisers of private 

equity funds, including advisers of private funds. Under this new 

system, advisers to private funds must register as investment advisers with the SEC. However, there are several exemptions from 


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SEC registration for advisers. Advisers to smaller private funds are 

exempted if the private funds’ ‘‘assets under management’’ (AUM) 

fall below a certain threshold. Advisers that solely advise Small 

Business Investment Companies (SBICs) and advisers that solely 

advise venture capital funds are also exempted from registration. 

However, the law is not clear on whether advisors to both venture 

capital funds (or private funds) and SBICs are exempted, potentially resulting in new regulatory costs for some advisers. 

H.R. 432 amends the Investment Advisers Act of 1940 to reduce 

unnecessary regulatory costs and eliminate duplicative regulation 

of advisers to SBICs. H.R. 432 preempts any state registration requirements of advisers solely advising SBIC funds; allows advisers 

to venture capital funds to continue to be ‘‘exempt reporting advisers’’ if they also advise an SBIC fund; and excludes the assets of 

an SBIC fund from the SEC’s calculation of AUM in determining 

whether advisers that advise private funds in addition to SBIC 

funds must register with the SEC. Eliminating duplicative regulation will allow the private equity funds to focus more of their time 

and resources to job-creating small businesses. In the 113th Congress, the House passed identical legislation by voice vote. 

Gayle Hughes, Partner and Founder of Merion Investment Partners, testified at the April 29, 2015, Capital Markets Subcommittee 

hearing about the duplicative regulation that could result under 

the current system of exemptions: 

The Dodd-Frank Act states that the SEC cannot register 

advisers that ‘‘solely’’ advise SBIC funds. The SEC then 

applied the term ‘‘solely’’ to mean that if an adviser 

oversaw a single penny outside of SBIC fund assets, then 

duplicative regulation was triggered. This was not the 

Congressional intent of Dodd-Frank and serves no practical investor protection or public benefit. As a result, 

while advisers to venture funds may remain ERA advisers 

if they only advise a venture fund, if they also enter the 

SBIC program with another venture fund, they are now required to register—a much more expensive proposition. As 

a result, venture funds are effectively penalized with additional costs if they choose to add an investment vehicle for 

domestic small business investments. This legislation 

would allow venture fund advisers to remain ERAs if they 

choose also to advise an SBIC fund. 

Due to the tailored nature of this legislation, the necessity to clarify the elements of Dodd-Frank to eliminate duplicative regulation, and the fact that all of these funds 

will continue to be subject to regulation once this legislation passes, Congress and this Committee should act swiftly to pass the SBIC Advisers Relief Act. 

Tom Quaadman, Vice President of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, also testified 

at the same hearing on the relief this bill would grant SBIC advisers: 

Congress exempted SBIC and venture capital fund advisers for good reason, and there is simply no valid argument for requiring someone to register simply because 

they advise both. SBICs and venture capital funds are a 


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vital source of capital in our economy, and unnecessary 

regulatory requirements inhibit their ability to invest in 

American businesses. This bill would codify Congressional 

intent and allow SBICs and venture capital funds to continue to play their important role in our economy. 

HEARINGS

The Committee on Financial Services held a hearing on April 29, 

2015, titled ‘‘Legislative Proposals to Enhance Capital Formation 

and Reduce Regulatory Burdens,’’ at which this matter was examined. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

May 20, 2015, and ordered H.R. 432 to be reported favorably to the 

House without amendment by a recorded vote of 53 yeas to 0 nays 

(Record vote no. FC–24), 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 vote in committee was a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 53 yeas to 0 nays (Record vote no. FC–24), 

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. 432 will reduce 

unnecessary regulatory costs and eliminate duplicative regulation 

by, among other things, ensuring that entities need not register as 

investment advisers with the Securities and Exchange Commission 

by virtue of the fact that they advise both Small Business Investment Companies and venture capital funds. 

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, June 17, 2015 

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. 432, the SBIC Advisers 

Relief Act of 2015. 

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

to provide them. The CBO staff contacts are Susan Willie and Ben 

Christopher. 

Sincerely, 

KEITH HALL. 

Enclosure. 


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H.R. 432—SBIC Advisers Relief Act of 2015 

H.R. 432 would direct the Securities and Exchange Commission 

(SEC) to exempt some investment advisors who advise Small Business Investment Companies (SBICs) from requirements to register 

with the agency. Specifically, advisors to venture capital funds that 

also advise SBICs would be exempt from registration requirements 

under the bill. Further, advisors to private funds would not be required to count the value of SBICs they advise in the calculation 

used to determine whether an advisor is large enough to require 

such registration. 

Based on information from the SEC, CBO estimates that implementing H.R. 432 would not have a significant effect on the number of registered investment advisors, and as a result, CBO estimates that implementing H.R. 432 would not significantly affect 

discretionary spending. Further, under current law, the SEC is authorized to collect fees sufficient to offset its appropriation each 

year; therefore, we estimate that the net cost to the SEC would not 

be significant, assuming appropriation action consistent with that 

authority. Enacting H.R. 432 would not affect direct spending or 

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

H.R. 432 would impose intergovernmental mandates as defined 

in the Unfunded Mandates Reform Act (UMRA) by prohibiting 

state governments from requiring some advisers of SBICs to comply with registration, licensing, or other qualification requirements. 

Some states require those advisers to pay a fee for registration. 

The cost of the mandate would be the forgone revenue that states 

could no longer collect. Information from organizations representing state security commissioners and SBICs indicates that 

both the number of SBIC advisers and the registration fees that 

states currently charge is small. Therefore, CBO estimates the annual cost for states to comply with the mandate would total less 

than $1 million and would thus fall well below the threshold established in UMRA ($77 million in 2015, adjusted annually for inflation). 

H.R. 432 contains no private-sector mandates as defined in 

UMRA. 

The CBO staff contacts for this estimate are Susan Willie and 

Ben Christopher (for federal costs) and Melissa Merrell (for the 

intergovernmental mandate). 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 


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

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 432 does not contain any congressional earmarks, limited 

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

XXI. 

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. 432 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. 432 does not require any directed 

rulemakings. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 432 as the ‘‘SBIC Advisers Relief Act of 

2015.’’ 

Section 2. Advisers of SBICs and Venture Capital Funds 

This section amends section 203(l) of the Investment Advisers 

Act of 1940 (15 U.S.C. 80b–3(1)) to provide that the term ‘‘venture 

capital fund’’ includes a Small Business Investment Company (unless such entity has elected to be regulated or is regulated as a 

business development company pursuant to section 54 of the Investment Company Act of 1940). 

Section 3. Advisers of SBICs and private funds 

This section amends section 203(m) of the Investment Advisers 

Act of 1940 (15 U.S.C. 80b–3(m)) to exclude the assets of Small 

Business Investment Companies from the calculation of assets 

under management for purposes of determining whether investment advisors that advise both private funds and SBICs must register with the Securities and Exchange Commission. 

Section 4. Relationship to state law 

This section amends section 203A(b)(1) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3a(b)(1)) to preempt state laws requiring the registration, licensing, or qualification of investment 

advisors or supervised persons of such entities who advise Small 

Business Investment Companies. 


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CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

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

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

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

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

roman): 

INVESTMENT ADVISERS ACT OF 1940 

TITLE II—INVESTMENT ADVISERS 

* * * * * * * 

REGISTRATION OF INVESTMENT ADVISERS

SEC. 203. (a) Except as provided in subsection (b) and section 

203A, it shall be unlawful for any investment adviser, unless registered under this section, to make use of the mails or any means 

or instrumentality of interstate commerce in connection with his or 

its business as an investment adviser. 

(b) The provisions of subsection (a) shall not apply to— 

(1) any investment adviser, other than an investment adviser who acts as an investment adviser to any private fund, 

all of whose clients are residents of the State within which 

such investment adviser maintains his or its principal office 

and place of business, and who does not furnish advice or issue 

analyses or reports with respect to securities listed or admitted 

to unlisted trading privileges on any national securities exchange; 

(2) any investment adviser whose only clients are insurance 

companies; 

(3) any investment adviser that is a foreign private adviser; 

(4) any investment adviser that is a charitable organization, 

as defined in section 3(c)(10)(D) of the Investment Company 

Act of 1940, or is a trustee, director, officer, employee, or volunteer of such a charitable organization acting within the 

scope of such person’s employment or duties with such organization, whose advice, analyses, or reports are provided only to 

one or more of the following: 

(A) any such charitable organization; 

(B) a fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act of 1940; or 

(C) a trust or other donative instrument described in 

section 3(c)(10)(B) of the Investment Company Act of 1940, 

or the trustees, administrators, settlors (or potential settlors), or beneficiaries of any such trust or other instrument; 

(5) any plan described in section 414(e) of the Internal Revenue Code of 1986, any person or entity eligible to establish 

and maintain such a plan under the Internal Revenue Code of 

1986, or any trustee, director, officer, or employee of or volunteer for any such plan or person, if such person or entity, acting in such capacity, provides investment advice exclusively to, 


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or with respect to, any plan, person, or entity or any company, 

account, or fund that is excluded from the definition of an investment company under section 3(c)(14) of the Investment 

Company Act of 1940; 

(6)(A) any investment adviser that is registered with the 

Commodity Futures Trading Commission as a commodity trading advisor whose business does not consist primarily of acting 

as an investment adviser, as defined in section 202(a)(11) of 

this title, and that does not act as an investment adviser to— 

(i) an investment company registered under title I of this 

Act; or 

(ii) a company which has elected to be a business development company pursuant to section 54 of title I of this 

Act and has not withdrawn its election; or 

(B) any investment adviser that is registered with the Commodity Futures Trading Commission as a commodity trading advisor and advises a private fund, provided that, if after the date of 

enactment of the Private Fund Investment Advisers Registration 

Act of 2010, the business of the advisor should become predominately the provision of securities-related advice, then such adviser 

shall register with the Commission. 

(7) any investment adviser, other than any entity that has 

elected to be regulated or is regulated as a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 80a–54), who solely advises— 

(A) small business investment companies that are licensees under the Small Business Investment Act of 1958; 

(B) entities that have received from the Small Business 

Administration notice to proceed to qualify for a license as 

a small business investment company under the Small 

Business Investment Act of 1958, which notice or license 

has not been revoked; or 

(C) applicants that are affiliated with 1 or more licensed 

small business investment companies described in subparagraph (A) and that have applied for another license 

under the Small Business Investment Act of 1958, which 

application remains pending. 

(c)(1) An investment adviser, or any person who presently contemplates becoming an investment adviser, may be registered by 

filing with the Commission an application for registration in such 

form and containing such of the following information and documents as the Commission, by rule, may prescribe as necessary or 

appropriate in the public interest or for the protection of investors: 

(A) the name and form of organization under which the investment adviser engages or intends to engage in business; the 

name of the State or other sovereign power under which such 

investment adviser is organized; the location of his or its principal office, principal place of business, and branch offices, if 

any; the names and addresses of his or its partners, officers, 

directors, and persons performing similar functions or, if such 

an investment adviser be an individual, of such individual; and 

the number of his or its employees; 

(B) the education, the business affiliations for the past ten 

years, and the present business affiliations of such investment 

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sons performing similar functions and of any controlling person 

thereof; 

(C) the nature of the business of such investment adviser, including the manner of giving advice and rendering analyses or 

reports; 

(D) a balance sheet certified by an independent public accountant and other financial statements (which shall, as the 

Commission specifies, be certified); 

(E) the nature and scope of the authority of such investment 

adviser with respect to clients’ funds and accounts; 

(F) the basis or bases upon which such investment adviser 

is compensated; 

(G) whether such investment adviser, or any person associated with such investment adviser, is subject to any disqualification which would be a basis for denial, suspension, or revocation of registration of such investment adviser under the 

provisions of subsection (e) of this section; and 

(H) a statement as to whether the principal business of such 

investment adviser consists or is to consist of acting as investment adviser and a statement as to whether a substantial part 

of the business of such investment adviser, consists or is to 

consist of rendering investment supervisory services. 

(2) Within forty-five days of the date of the filing of such application (or within such longer period as to which the applicant consents) the Commission shall— 

(A) by order grant such registration; or 

(B) institute proceedings to determine whether registration 

should be denied. Such proceedings shall include notice of the 

grounds for denial under consideration and opportunity for 

hearing and shall be concluded within one hundred twenty 

days of the date of the filing of the application for registration. 

At the conclusion of such proceedings the Commission, by 

order, shall grant or deny such registration. The Commission 

may extend the time for conclusion of such proceedings for up 

to ninety days if it finds good cause for such extension and 

publishes its reasons for so finding or for such longer period as 

to which the applicant consents. 

The Commission shall grant such registration if the Commission 

finds that the requirements of this section are satisfied and that 

the applicant is not prohibited from registering as an investment 

adviser under section 203A. The Commission shall deny such registration if it does not make such a finding or if it finds that if the 

applicant were so registered, its registration would be subject to 

suspension or revocation under subsection (e) of this section. 

(d) Any provision of this title (other than subsection (a) of this 

section) which prohibits any act, practice, or course of business if 

the mails or any means or instrumentality of interstate commerce 

are used in connection therewith shall also prohibit any such act, 

practice, or course of business by any investment adviser registered 

pursuant to this section or any person acting on behalf of such an 

investment adviser, irrespective of any use of the mails or any 

means or instrumentality of interstate commerce in connection 

therewith. 

(e) The Commission, by order, shall censure, place limitations on 

the activities, functions, or operations of, suspend for a period not 


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exceeding twelve months, or revoke the registration of any investment adviser if it finds, on the record after notice and opportunity 

for hearing, that such censure, placing of limitations, suspension, 

or revocation is in the public interest and that such investment adviser, or any person associated with such investment adviser, 

whether prior to or subsequent to becoming so associated— 

(1) has willfully made or caused to be made in any application for registration or report required to be filed with the 

Commission under this title, or in any proceeding before the 

Commission with respect to registration, any statement which 

was at the time and in the light of the circumstances under 

which it was made false or misleading with respect to any material fact, or has omitted to state in any such application or 

report any material fact which is required to be stated therein. 

(2) has been convicted within ten years preceding the filing 

of any application for registration or at any time thereafter of 

any felony or misdemeanor or of a substantially equivalent 

crime by a foreign court of competent jurisdiction which the 

Commission finds— 

(A) involves the purchase or sale of any security, the 

taking of a false oath, the making of a false report, bribery, perjury, burglary, any substantially equivalent activity however denominated by the laws of the relevant foreign government, or conspiracy to commit any such offense; 

(B) arises out of the conduct of the business of a broker, 

dealer, municipal securities dealer, investment adviser, 

bank, insurance company, government securities broker, 

government securities dealer, fiduciary, transfer agent, 

credit rating agency, foreign person performing a function 

substantially equivalent to any of the above, or entity or 

person required to be registered under the Commodity Exchange Act or any substantially equivalent statute or regulation; 

(C) involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds 

or securities or substantially equivalent activity however 

denominated by the laws of the relevant foreign government; or 

(D) involves the violation of section 152, 1341, 1342, or 

1343 or chapter 25 or 47 of title 18, United States Code, 

or a violation of substantially equivalent foreign statute. 

(3) has been convicted during the 10-year period preceding 

the date of filing of any application for registration, or at any 

time thereafter, of— 

(A) any crime that is punishable by imprisonment for 1 

or more years, and that is not described in paragraph (2); 

or 

(B) a substantially equivalent crime by a foreign court of 

competent jurisdiction. 

(4) is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction, including any foreign court of competent jurisdiction, from acting as 

an investment adviser, underwriter, broker, dealer, municipal 


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securities dealer, government securities broker, government securities dealer, transfer agent, credit rating agency, foreign 

person performing a function substantially equivalent to any of 

the above, or entity or person required to be registered under 

the Commodity Exchange Act or any substantially equivalent 

statute or regulation, or as an affiliated person or employee of 

any investment company, bank, insurance company, foreign 

entity substantially equivalent to any of the above, or entity or 

person required to be registered under the Commodity Exchange Act or any substantially equivalent statute or regulation, or from engaging in or continuing any conduct or practice 

in connection with any such activity, or in connection with the 

purchase or sale of any security. 

(5) has willfully violated any provision of the Securities Act 

of 1933, the Securities Exchange Act of 1934, the Investment 

Company Act of 1940, this title, the Commodity Exchange Act, 

or the rules or regulations under any such statutes or any rule 

of the Municipal Securities Rulemaking Board, or is unable to 

comply with any such provision. 

(6) has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any 

provision of the Securities Act of 1933, the Securities Exchange 

Act of 1934, the Investment Company Act of 1940, this title, 

the Commodity Exchange Act, the rules or regulations under 

any of such statutes, or the rules of the Municipal Securities 

Rulemaking Board, or has failed reasonably to supervise, with 

a view to preventing violations of the provisions of such statutes, rules, and regulations, another person who commits such 

a violation, if such other person is subject to his supervision. 

For the purposes of this paragraph no person shall be deemed 

to have failed reasonably to supervise any person, if— 

(A) there have been established procedures, and a system for applying such procedures, which would reasonably 

be expected to prevent and detect, insofar as practicable, 

any such violation by such other person, and 

(B) such person has reasonably discharged the duties 

and obligations incumbent upon him by reason of such procedures and system without reasonable cause to believe 

that such procedures and system were not being complied 

with. 

(7) is subject to any order of the Commission barring or suspending the right of the person to be associated with an investment adviser; 

(8) has been found by a foreign financial regulatory authority 

to have— 

(A) made or caused to be made in any application for 

registration or report required to be filed with a foreign securities authority, or in any proceeding before a foreign securities authority with respect to registration, any statement that was at the time and in light of the circumstances under which it was made false or misleading 

with respect to any material fact, or has omitted to state 

in any application or report to a foreign securities authority any material fact that is required to be stated therein; 


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(B) violated any foreign statute or regulation regarding 

transactions in securities or contracts of sale of a commodity for future delivery traded on or subject to the rules 

of a contract market or any board of trade; or 

(C) aided, abetted, counseled, commanded, induced, or 

procured the violation by any other person of any foreign 

statute or regulation regarding transactions in securities 

or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any 

board of trade, or has been found, by the foreign finanical 

regulatory authority, to have failed reasonably to supervise, with a view to preventing violations of statutory provisions, and rules and regulations promulgated thereunder, another person who commits such a violation, if 

such other person is subject to his supervision; or 

(9) is subject to any final order of a State securities commission (or any agency or officer performing like functions), State 

authority that supervises or examines banks, savings associations, or credit unions, State insurance commission (or any 

agency or office performing like functions), an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or the National Credit 

Union Administration, that— 

(A) bars such person from association with an entity regulated by such commission, authority, agency, or officer, or 

from engaging in the business of securities, insurance, 

banking, savings association activities, or credit union activities; or 

(B) constitutes a final order based on violations of any 

laws or regulations that prohibit fraudulent, manipulative, 

or deceptive conduct. 

(f) The Commission, by order, shall censure or place limitations 

on the activities of any person associated, seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with an investment adviser, or suspend 

for a period not exceeding 12 months or bar any such person from 

being associated with an investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, if the Commission 

finds, on the record after notice and opportunity for hearing, that 

such censure, placing of limitations, suspension, or bar is in the 

public interest and that such person has committed or omitted any 

act or omission enumerated in paragraph (1), (5), (6), (8), or (9) of 

subsection (e) or has been convicted of any offense specified in 

paragraph (2) or (3) of subsection (e) within ten years of the commencement of the proceedings under this subsection, or is enjoined 

from any action, conduct, or practice specified in paragraph (4) of 

subsection (e). It shall be unlawful for any person as to whom such 

an order suspending or barring him from being associated with an 

investment adviser is in effect willfully to become, or to be, associated with an investment adviser without the consent of the Commission, and it shall be unlawful for any investment adviser to permit such a person to become, or remain, a person associated with 

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viser knew, or in the exercise of reasonable care, should have 

known, of such order. 

(g) Any successor to the business of an investment adviser registered under this section shall be deemed likewise registered hereunder, if within thirty days from its succession to such business it 

shall file an application for registration under this section, unless 

and until the Commission, pursuant to subsection (c) or subsection 

(e) of this section, shall deny registration to or revoke or suspend 

the registration of such successor. 

(h) Any person registered under this section may, upon such 

terms and conditions as the Commission finds necessary in the 

public interest or for the protection of investors, withdraw from 

registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any person registered under 

this section, or who has pending an application for registration 

filed under this section, is no longer in existence, is not engaged 

in business as an investment adviser, or is prohibited from registering as an investment adviser under section 203A, the Commission shall by order cancel the registration of such person. 

(i) MONEY PENALTIES IN ADMINISTRATIVE PROCEEDINGS.— 

(1) AUTHORITY OF COMMISSION.— 

(A) IN GENERAL.—In any proceeding instituted pursuant 

to subsection (e) or (f) against any person, the Commission 

may impose a civil penalty if it finds, on the record after 

notice and opportunity for hearing, that such penalty is in 

the public interest and that such person— 

(i) has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, 

the Investment Company Act of 1940, or this title, or 

the rules or regulations thereunder; 

(ii) has willfully aided, abetted, counseled, commanded, induced, or procured such a violation by any 

other person; 

(iii) has willfully made or caused to be made in any 

application for registration or report required to be 

filed with the Commission under this title, or in any 

proceeding before the Commission with respect to registration, any statement which was, at the time and in 

the light of the circumstances under which it was 

made, false or misleading with respect to any material 

fact, or has omitted to state in any such application or 

report any material fact which was required to be stated therein; or 

(iv) has failed reasonably to supervise, within the 

meaning of subsection (e)(6), with a view to preventing 

violations of the provisions of this title and the rules 

and regulations thereunder, another person who commits such a violation, if such other person is subject 

to his supervision; 

(B) CEASE-AND-DESIST PROCEEDINGS.—In any proceeding 

instituted pursuant to subsection (k) against any person, 

the Commission may impose a civil penalty if the Commission finds, on the record, after notice and opportunity for 

hearing, that such person— 


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(i) is violating or has violated any provision of this 

title, or any rule or regulation issued under this title; 

or 

(ii) is or was a cause of the violation of any provision 

of this title, or any rule or regulation issued under this 

title. 

(2) MAXIMUM AMOUNT OF PENALTY.— (A) FIRST TIER.—The maximum amount of penalty for 

each act or omission described in paragraph (1) shall be 

$5,000 for a natural person or $50,000 for any other person. 

(B) SECOND TIER.—Notwithstanding subparagraph (A), 

the maximum amount of penalty for each such act or omission shall be $50,000 for a natural person or $250,000 for 

any other person if the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. 

(C) THIRD TIER.—Notwithstanding subparagraphs (A) 

and (B), the maximum amount of penalty for each such act 

or omission shall be $100,000 for a natural person or 

$500,000 for any other person if— 

(i) the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or 

reckless disregard of a regulatory requirement; and 

(ii) such act or omission directly or indirectly resulted in substantial losses or created a significant 

risk of substantial losses to other persons or resulted 

in substantial pecuniary gain to the person who committed the act or omission. 

(3) DETERMINATION OF PUBLIC INTEREST.—In considering 

under this section whether a penalty is in the public interest, 

the Commission may consider— 

(A) whether the act or omission for which such penalty 

is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; 

(B) the harm to other persons resulting either directly or 

indirectly from such act or omission; 

(C) the extent to which any person was unjustly enriched, taking into account any restitution made to persons 

injured by such behavior; 

(D) whether such person previously has been found by 

the Commission, another appropriate regulatory agency, or 

a self-regulatory organization to have violated the Federal 

securities laws, State securities laws, or the rules of a selfregulatory organization, has been enjoined by a court of 

competent jurisdiction from violations of such laws or 

rules, or has been convicted by a court of competent jurisdiction of violations of such laws or of any felony or misdemeanor described in section 203(e)(2) of this title; 

(E) the need to deter such person and other persons from 

committing such acts or omissions; and 

(F) such other matters as justice may require. 

(4) EVIDENCE CONCERNING ABILITY TO PAY.—In any proceeding in which the Commission may impose a penalty under 

this section, a respondent may present evidence of the respondVerDate Sep 11 2014 23:50 Jul 15, 2015 Jkt 049006 PO 00000 Frm 00015 Fmt 6659 Sfmt 6601 E:\HR\OC\HR199.XXX HR199

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ent’s ability to pay such penalty. The Commission may, in its 

discretion, consider such evidence in determining whether such 

penalty is in the public interest. Such evidence may relate to 

the extent of such person’s ability to continue in business and 

the collectability of a penalty, taking into account any other 

claims of the United States or third parties upon such person’s 

assets and the amount of such person’s assets. 

(j) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING

AND DISGORGEMENT.—In any proceeding in which the Commission 

may impose a penalty under this section, the Commission may 

enter an order requiring accounting and disgorgement, including 

reasonable interest. The Commission is authorized to adopt rules, 

regulations, and orders concerning payments to investors, rates of 

interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. 

(k) CEASE-AND-DESIST PROCEEDINGS.— 

(1) AUTHORITY OF THE COMMISSION.—If the Commission 

finds, after notice and opportunity for hearing, that any person 

is violating, has violated, or is about to violate any provision 

of this title, or any rule or regulation thereunder, the Commission may publish its findings and enter an order requiring 

such person, and any other person that is, was, or would be a 

cause of the violation, due to an act or omission the person 

knew or should have known would contribute to such violation, 

to cease and desist from committing or causing such violation 

and any future violation of the same provision, rule, or regulation. Such order may, in addition to requiring a person to cease 

and desist from committing or causing a violation, require such 

person to comply, or to take steps to effect compliance, with 

such provision, rule, or regulation, upon such terms and conditions and within such time as the Commission may specify in 

such order. Any such order may, as the Commission deems appropriate, require future compliance or steps to effect future 

compliance, either permanently or for such period of time as 

the Commission may specify, with such provision, rule, or regulation with respect to any security, any issuer, or any other 

person. 

(2) HEARING.—The notice instituting proceedings pursuant to 

paragraph (1) shall fix a hearing date not earlier than 30 days 

nor later than 60 days after service of the notice unless an earlier or a later date is set by the Commission with the consent 

of any respondent so served. 

(3) TEMPORARY ORDER.— 

(A) IN GENERAL.—Whenever the Commission determines 

that the alleged violation or threatened violation specified 

in the notice instituting proceedings pursuant to paragraph (1), or the continuation thereof, is likely to result in 

significant dissipation or conversion of assets, significant 

harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the Securities 

Investor Protection Corporation, prior to the completion of 

the proceedings, the Commission may enter a temporary 

order requiring the respondent to cease and desist from 

the violation or threatened violation and to take such action to prevent the violation or threatened violation and to 


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prevent dissipation or conversion of assets, significant 

harm to investors, or substantial harm to the public interest as the Commission deems appropriate pending completion of such proceedings. Such an order shall be entered 

only after notice and opportunity for a hearing, unless the 

Commission, notwithstanding section 211(c) of this title, 

determines that notice and hearing prior to entry would be 

impracticable or contrary to the public interest. A temporary order shall become effective upon service upon the 

respondent and, unless set aside, limited, or suspended by 

the Commission or a court of competent jurisdiction, shall 

remain effective and enforceable pending the completion of 

the proceedings. 

(B) APPLICABILITY.—This paragraph shall apply only to 

a respondent that acts, or, at the time of the alleged misconduct acted, as a broker, dealer, investment adviser, investment company, municipal securities dealer, government securities broker, government securities dealer, or 

transfer agent, or is, or was at the time of the alleged misconduct, an associated person of, or a person seeking to become associated with, any of the foregoing. 

(4) REVIEW OF TEMPORARY ORDERS.— 

(A) COMMISSION REVIEW.—At any time after the respondent has been served with a temporary cease-and-desist order pursuant to paragraph (3), the respondent may 

apply to the Commission to have the order set aside, limited, or suspended. If the respondent has been served with 

a temporary cease-and-desist order entered without a prior 

Commission hearing, the respondent may, within 10 days 

after the date on which the order was served, request a 

hearing on such application and the Commission shall hold 

a hearing and render a decision on such application at the 

earliest possible time. 

(B) JUDICIAL REVIEW.—Within— 

(i) 10 days after the date the respondent was served 

with a temporary cease-and-desist order entered with 

a prior Commission hearing, or 

(ii) 10 days after the Commission renders a decision 

on an application and hearing under subparagraph 

(A), with respect to any temporary cease-and-desist 

order entered without a prior Commission hearing, 

the respondent may apply to the United States district 

court for the district in which the respondent resides or 

has its principal office or place of business, or for the District of Columbia, for an order setting aside, limiting, or 

suspending the effectiveness or enforcement of the order, 

and the court shall have jurisdiction to enter such an 

order. A respondent served with a temporary cease-and-desist order entered without a prior Commission hearing 

may not apply to the court except after hearing and decision by the Commission on the respondent’s application 

under subparagraph (A) of this paragraph. 

(C) NO AUTOMATIC STAY OF TEMPORARY ORDER.—The 

commencement of proceedings under subparagraph (B) of 


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this paragraph shall not, unless specifically ordered by the 

court, operate as a stay of the Commission’s order. 

(D) EXCLUSIVE REVIEW.—Section 213 of this title shall 

not apply to a temporary order entered pursuant to this 

section. 

(5) AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT.—In any cease-and-desist proceeding 

under paragraph (1), the Commission may enter an order requiring accounting and disgorgement, including reasonable interest. The Commission is authorized to adopt rules, regulations, and orders concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems 

appropriate to implement this subsection. 

(l) EXEMPTION OF VENTURE CAPITAL FUND ADVISERS.—øNo investment adviser¿ 

(1) IN GENERAL.—No investment adviser that acts as an investment adviser solely to 1 or more venture capital funds 

shall be subject to the registration requirements of this title 

with respect to the provision of investment advice relating to 

a venture capital fund. Not later than 1 year after the date of 

enactment of this subsection, the Commission shall issue final 

rules to define the term ‘‘venture capital fund’’ for purposes of 

this subsection. The Commission shall require such advisers to 

maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary 

or appropriate in the public interest or for the protection of investors. 

(2) ADVISERS OF SBICS.—For purposes of this subsection, a 

venture capital fund includes an entity described in subparagraph (A), (B), or (C) of subsection (b)(7) (other than an entity 

that has elected to be regulated or is regulated as a business development company pursuant to section 54 of the Investment 

Company Act of 1940). 

(m) EXEMPTION OF AND REPORTING BY CERTAIN PRIVATE FUND

ADVISERS.— 

(1) IN GENERAL.—The Commission shall provide an exemption from the registration requirements under this section to 

any investment adviser of private funds, if each of such investment adviser acts solely as an adviser to private funds and has 

assets under management in the United States of less than 

$150,000,000. 

(2) REPORTING.—The Commission shall require investment 

advisers exempted by reason of this subsection to maintain 

such records and provide to the Commission such annual or 

other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors. 

(3) ADVISERS OF SBICS.—For purposes of this subsection, the 

assets under management of a private fund that is an entity described in subparagraph (A), (B), or (C) of subsection (b)(7) 

(other than an entity that has elected to be regulated or is regulated as a business development company pursuant to section 

54 of the Investment Company Act of 1940) shall be excluded 

from the limit set forth in paragraph (1). 


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(n) REGISTRATION AND EXAMINATION OF MID-SIZED PRIVATE FUND

ADVISERS.—In prescribing regulations to carry out the requirements of this section with respect to investment advisers acting as 

investment advisers to mid-sized private funds, the Commission 

shall take into account the size, governance, and investment strategy of such funds to determine whether they pose systemic risk, 

and shall provide for registration and examination procedures with 

respect to the investment advisers of such funds which reflect the 

level of systemic risk posed by such funds. 

SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES. 

(a) ADVISERS SUBJECT TO STATE AUTHORITIES.— 

(1) IN GENERAL.—No investment adviser that is regulated or 

required to be regulated as an investment adviser in the State 

in which it maintains its principal office and place of business 

shall register under section 203, unless the investment adviser— 

(A) has assets under management of not less than 

$25,000,000, or such higher amount as the Commission 

may, by rule, deem appropriate in accordance with the 

purposes of this title; or 

(B) is an adviser to an investment company registered 

under title I of this Act. 

(2) TREATMENT OF MID-SIZED INVESTMENT ADVISERS.— 

(A) IN GENERAL.—No investment adviser described in 

subparagraph (B) shall register under section 203, unless 

the investment adviser is an adviser to an investment 

company registered under the Investment Company Act of 

1940, or a company which has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940, and has not withdrawn the 

election, except that, if by effect of this paragraph an investment adviser would be required to register with 15 or 

more States, then the adviser may register under section 

203. 

(B) COVERED PERSONS.—An investment adviser described in this subparagraph is an investment adviser 

that— 

(i) is required to be registered as an investment adviser with the securities commissioner (or any agency 

or office performing like functions) of the State in 

which it maintains its principal office and place of 

business and, if registered, would be subject to examination as an investment adviser by any such commissioner, agency, or office; and 

(ii) has assets under management between— 

(I) the amount specified under subparagraph (A) 

of paragraph (1), as such amount may have been 

adjusted by the Commission pursuant to that subparagraph; and 

(II) $100,000,000, or such higher amount as the 

Commission may, by rule, deem appropriate in accordance with the purposes of this title. 

(3) DEFINITION.—For purposes of this subsection, the term 

‘‘assets under management’’ means the securities portfolios 


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with respect to which an investment adviser provides continuous and regular supervisory or management services. 

(b) ADVISERS SUBJECT TO COMMISSION AUTHORITY.— (1) IN GENERAL.—No law of any State or political subdivision 

thereof requiring the registration, licensing, or qualification as 

an investment adviser or supervised person of an investment 

adviser shall apply to any person— 

(A) that is registered under section 203 as an investment 

adviser, or that is a supervised person of such person, except that a State may license, register, or otherwise qualify 

any investment adviser representative who has a place of 

business located within that State; øor¿ 

(B) that is not registered under section 203 because that 

person is excepted from the definition of an investment adviser under section 202(a)(11)ø.¿; or 

(C) that is not registered under section 203 because that 

person is exempt from registration as provided in subsection (b)(7) of such section, or is a supervised person of 

such person. 

(2) LIMITATION.—Nothing in this subsection shall prohibit 

the securities commission (or any agency or office performing 

like functions) of any State from investigating and bringing enforcement actions with respect to fraud or deceit against an investment adviser or person associated with an investment adviser. 

(c) EXEMPTIONS.—Notwithstanding subsection (a), the Commission, by rule or regulation upon its own motion, or by order upon 

application, may permit the registration with the Commission of 

any person or class of persons to which the application of subsection (a) would be unfair, a burden on interstate commerce, or 

otherwise inconsistent with the purposes of this section. 

(d) STATE ASSISTANCE.—Upon request of the securities commissioner (or any agency or officer performing like functions) of any 

State, the Commission may provide such training, technical assistance, or other reasonable assistance in connection with the regulation of investment advisers by the State. 

* * * * * * * 

Æ 


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