II 

112TH CONGRESS 

1ST SESSION S. 1791 

To amend the securities laws to provide for registration exemptions for 

certain crowdfunded securities, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 2, 2011 

Mr. BROWN of Massachusetts introduced the following bill; which was read 

twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To amend the securities laws to provide for registration 

exemptions for certain crowdfunded securities, and for 

other purposes. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Democratizing Access 

5 to Capital Act of 2011’’. 

6 SEC. 2. CROWDFUNDING EXEMPTION. 

7 Section 4 of the Securities Act of 1933 (15 U.S.C. 

8 77d) is amended— 


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1 (1) in paragraph (2), by inserting before the pe2 riod at the end ‘‘, other than as provided in para3 graph (6)’’; 

4 (2) by striking ‘‘The provisions’’ and inserting 

5 the following: 

6 ‘‘(a) IN GENERAL.—The provisions’’; and 

7 (3) by adding at the end the following: 

8 ‘‘(6) subject to subsection (b), transactions in9 volving the issuance of securities through a 

10 crowdfunding intermediary, whether or not the 

11 transaction involves a public offering, for which— 

12 ‘‘(A) the aggregate annual amount raised 

13 through the issue of the securities is 

14 $1,000,000 or less during any 12-month period, 

15 by any incorporated entity formed under and 

16 subject to the law of any State; and 

17 ‘‘(B) individual investments in the securi18 ties are limited to an aggregate annual amount 

19 of not more than $1,000. 

20 ‘‘(b) CERTAIN CROWDFUNDING EXEMPTION CRI21 TERIA.— 

22 ‘‘(1) IN GENERAL.—In order to qualify for the 

23 exemption under subsection (a)(6), the issuer 

24 shall— 


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1 ‘‘(A) disclose to investors all rights of in2 vestors, including complete information about 

3 the risks, obligations, benefits, history, and 

4 costs of offering; 

5 ‘‘(B) be an incorporated entity formed 

6 under and subject to the law of a State; and 

7 ‘‘(C) file such notice with the Commission 

8 as the Commission shall prescribe. 

9 ‘‘(2) DISQUALIFICATION.—Not later than 90 

10 days after the date of enactment of this Act, the 

11 Commission shall, by rule or regulation, establish 

12 disqualification provisions under which a person 

13 shall not be eligible to utilize the exemption under 

14 subsection (a)(6), or to participate in the affairs of 

15 a crowdfunding intermediary facilitating the use of 

16 that exemption. Such provisions shall be substan17 tially similar to the disqualification provisions con18 tained in the regulations adopted in accordance with 

19 section 926 of the Dodd-Frank Wall Street Reform 

20 and Consumer Protection Act (1512 U.S.C. 77d 

21 note). 

22 ‘‘(3) RESTRICTED SECURITIES.—Securities 

23 issued under a transaction described in subsection 

24 (a)(6) shall be considered restricted securities, sub25 ject to a one-year holding period.’’. 


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1 SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM 

2 SHAREHOLDER CAP. 

3 Section 12(g)(5) of the Securities Exchange Act of 

4 1934 (15 U.S.C. 78l(g)(5)) is amended— 

5 (1) by striking ‘‘For the purposes’’ and insert6 ing: 

7 ‘‘(A) IN GENERAL.—For the purposes’’; 

8 and 

9 (2) by adding at the end the following: 

10 ‘‘(B) EXCLUSION FOR PERSONS HOLDING

11 CERTAIN SECURITIES.—For purposes of this 

12 subsection, the term ‘held of record’ shall not 

13 include holders of securities issued pursuant to 

14 transactions described under section 4(a)(6) of 

15 the Securities Act of 1933.’’. 

16 SEC. 4. PREEMPTION OF STATE LAW. 

17 Section 18(b)(4) of the Securities Act of 1933 (15 

18 U.S.C. 77r(b)(4)) is amended— 

19 (1) by redesignating subparagraph (C) as sub20 paragraph (D); and 

21 (2) by inserting after subparagraph (B) the fol22 lowing: 

23 ‘‘(C) section 4(a)(6);’’. 


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1 SEC. 5. STATE FRAUD AUTHORITY. 

2 Section 18(c)(1) of the Securities Act of 1933 (15 

3 U.S.C. 77r(c)(1)) is amended by striking ‘‘or dealer’’ and 

4 inserting ‘‘, dealer, or crowdfunding intermediaries’’. 

5 SEC. 6. NOTICE FILINGS PERMITTED. 

6 Section 18(c)(2) of the Securities Act of 1933 (15 

7 U.S.C. 77r(c)(2)) is amended by inserting after subsection 

8 (D) the following: 

9 ‘‘(E) FEES NOT PERMITTED ON

10 CROWDFUNDED SECURITIES.—Notwithstanding 

11 subparagraphs (A), (B), and (C), no filing or 

12 fee may be required with respect to any security 

13 that is a covered security pursuant to sub14 section (b)(4)(C), or will be such a covered se15 curity upon completion of the transaction, ex16 cept for the securities commission (or any agen17 cy or office performing like functions) of the 

18 State of the issuer’s State of organization, or 

19 any State in which purchasers of 50 percent or 

20 greater of the aggregate amount of the issue 

21 are a residents.’’. 

22 SEC. 7. BROKER AND DEALER EXEMPTIONS. 

23 (a) BROKERS.—Section 3(a)(4) of the Securities Ex24 change Act of 1934 (15 U.S.C. 780c(a)(4)) is amended 

25 by adding at the end the following: 


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1 ‘‘(G) EXEMPTION FOR CROWDFUNDING

2 INTERMEDIARIES.— 

3 ‘‘(i) IN GENERAL.—The term ‘broker’ 

4 does not include any crowdfunding inter5 mediary. 

6 ‘‘(ii) DEFINITION.—For purposes of 

7 this paragraph, the term ‘crowdfunding 

8 intermediary’ means any intermediary 

9 that— 

10 ‘‘(I) is open to and accessible by 

11 the general public; 

12 ‘‘(II) provides public communica13 tion portals for investors and potential 

14 investors; 

15 ‘‘(III) warns investors of the 

16 speculative nature generally applicable 

17 to investments in startups, emerging 

18 businesses, and small issuers, includ19 ing risks in the secondary market re20 lated to illiquidity; 

21 ‘‘(IV) warns investors that they 

22 are subject to a 1-year restriction on 

23 sales of securities issued; 


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1 ‘‘(V) takes reasonable measures 

2 to reduce the risk of fraud with re3 spect to such transaction; 

4 ‘‘(VI) prohibits its employees 

5 from investing in the offerings made 

6 through the crowdfunding inter7 mediary, or to have any financial in8 terest in the companies posting offer9 ings through the crowdfunding inter10 mediary; 

11 ‘‘(VII) does not offer investment 

12 advice or recommendations; 

13 ‘‘(VIII) provides to the Commis14 sion— 

15 ‘‘(aa) the crowdfunding in16 termediary’s physical address, 

17 website address, and the names 

18 of the crowdfunding intermediary 

19 and employees of the crowdfund20 ing intermediary, keeping such 

21 information up-to-date; and 

22 ‘‘(bb) continuous investor23 level access to the intermediary’s 

24 website; 


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1 ‘‘(IX) requires each potential in2 vestor to answer questions dem3 onstrating competency in— 

4 ‘‘(aa) recognition of the level 

5 of risk generally applicable to in6 vestments in startups, emerging 

7 businesses, and small issuers; 

8 ‘‘(bb) risk of illiquidity; and 

9 ‘‘(cc) such other areas as 

10 the Commission may determine 

11 appropriate; 

12 ‘‘(X) requires the issuer to state 

13 a target offering amount and withhold 

14 capital formation proceeds until ag15 gregate capital raised from investors 

16 other than the issuer is not less than 

17 60 percent of the target offering 

18 amount; 

19 ‘‘(XI) carries out a background 

20 check on the issuer’s principals; 

21 ‘‘(XII) provides the Commission 

22 with basic notice of the offering, not 

23 later than the first day on which 

24 funds are solicited from potential in25 vestors, including— 


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1 ‘‘(aa) the issuer’s name, 

2 legal status, physical address, 

3 and website address; 

4 ‘‘(bb) the names of the 

5 issuer’s principals; 

6 ‘‘(cc) the stated purpose and 

7 intended use of the capital for8 mation funds sought by the 

9 issuer; and 

10 ‘‘(dd) the target offering 

11 amount; 

12 ‘‘(XIII) outsources cash-manage13 ment functions to a qualified third14 party custodian, such as a traditional 

15 broker or dealer or insured depository 

16 institution; 

17 ‘‘(XIV) maintains such books 

18 and records as the Commission deter19 mines appropriate; and 

20 ‘‘(XV) defines and makes avail21 able the process for raising and re22 solving a complaint, including alter23 natives available to investors if the 

24 crowdfunding intermediary is unable 


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1 to resolve a dispute to the satisfaction 

2 of the investor.’’. 

3 (b) DEALERS.—Section 3(a)(5) of the Securities Ex4 change Act of 1934 (15 U.S.C. 780c(a)(4)) is amended 

5 by adding at the end the following: 

6 ‘‘(D) EXEMPTION FOR CROWDFUNDING

7 INTERMEDIARIES.—The term ‘dealer’ does not 

8 include any crowdfunding intermediary de9 scribed in paragraph (4)(G).’’. 

10 SEC. 8. CONFORMING AMENDMENTS. 

11 (a) SECURITIES ACT OF 1933.—The Securities Act 

12 of 1933 (15 U.S.C. 77a et seq.) is amended by striking 

13 ‘‘section 4’’ each place that term appears (other than in 

14 the amendments made by sections 1 through 4 of this Act) 

15 and inserting ‘‘section 4(a)’’. 

16 (b) SECURITIES EXCHANGE ACT OF 1934.—Section 

17 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 

18 U.S.C. 78bb(f)(5)(E)) is amended by striking ‘‘section 

19 4(2)’’ and inserting ‘‘section 4(a)(2)’’. 

Æ 


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