II 

112TH CONGRESS 

2D SESSION S. 2190 

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 

MARCH 13, 2012 

Mr. MERKLEY (for himself, Mr. BENNET, Mr. BROWN of Massachusetts, and 

Ms. LANDRIEU) 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 ‘‘Capital Raising Online 

5 While Deterring Fraud and Unethical Non-Disclosure Act 

6 of 2012’’ or the ‘‘CROWDFUND Act’’. 


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1 SEC. 2. CROWDFUNDING EXEMPTION. 

2 (a) SECURITIES ACT OF 1933.—Section 4 of the Se3 curities Act of 1933 (15 U.S.C. 77d) is amended by add4 ing at the end the following: 

5 ‘‘(6) transactions involving the offer or sale of 

6 securities by an issuer (including all entities con7 trolled by or under common control with the issuer), 

8 provided that— 

9 ‘‘(A) the aggregate amount sold to all in10 vestors by the issuer, including any amount sold 

11 in reliance on the exemption provided under 

12 this paragraph during the 12-month period pre13 ceding the date of such transaction, is not more 

14 than $1,000,000; 

15 ‘‘(B) the aggregate amount sold to any in16 vestor by an issuer, including any amount sold 

17 in reliance on the exemption provided under 

18 this paragraph during the 12-month period pre19 ceding the date of such transaction, does not 

20 exceed— 

21 ‘‘(i) the greater of $2,000 or 5 per22 cent of the annual income or net worth of 

23 such investor, as applicable, if either the 

24 annual income or the net worth of the in25 vestor is less than $100,000; and 


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1 ‘‘(ii) 10 percent of the annual income 

2 or net worth of such investor, as applica3 ble, not to exceed a maximum aggregate 

4 amount sold of $100,000, if either the an5 nual income or net worth of the investor is 

6 equal to or more than $100,000; 

7 ‘‘(C) the transaction is conducted through 

8 a broker or funding portal that complies with 

9 the requirements of section 4A(a); and 

10 ‘‘(D) the issuer complies with the require11 ments of section 4A(b).’’. 

12 (b) REQUIREMENTS TO QUALIFY FOR

13 CROWDFUNDING EXEMPTION.—The Securities Act of 

14 1933 (15 U.S.C. 77a et seq.) is amended by inserting after 

15 section 4 the following: 

16 ‘‘SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN 

17 SMALL TRANSACTIONS. 

18 ‘‘(a) REQUIREMENTS ON INTERMEDIARIES.—A per19 son engaged in the business of effecting transactions in 

20 securities for the account of others pursuant to section 

21 4(6) shall— 

22 ‘‘(1) register with the Commission as— 

23 ‘‘(A) a broker; or 


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1 ‘‘(B) a funding portal (as defined in sec2 tion 3(a)(80) of the Securities Exchange Act of 

3 1934); 

4 ‘‘(2) register with any applicable self-regulatory 

5 organization (as defined in section 3(a)(26) of the 

6 Securities Exchange Act of 1934); 

7 ‘‘(3) provide such disclosures, including disclo8 sures related to risks and other investor education 

9 materials, as the Commission shall, by rule, deter10 mine appropriate; 

11 ‘‘(4) ensure that each investor— 

12 ‘‘(A) reviews investor-education informa13 tion, in accordance with standards established 

14 by the Commission, by rule; 

15 ‘‘(B) positively affirms that the investor 

16 understands that the investor is risking the loss 

17 of the entire investment, and that the investor 

18 could bear such a loss; and 

19 ‘‘(C) answers questions demonstrating— 

20 ‘‘(i) an understanding of the level of 

21 risk generally applicable to investments in 

22 startups, emerging businesses, and small 

23 issuers; 

24 ‘‘(ii) an understanding of the risk of 

25 illiquidity; and 


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1 ‘‘(iii) an understanding of such other 

2 matters as the Commission determines ap3 propriate, by rule; 

4 ‘‘(5) take such measures to reduce the risk of 

5 fraud with respect to such transactions, as estab6 lished by the Commission, by rule, including obtain7 ing a background and securities enforcement regu8 latory history check on each officer, director, and 

9 person holding more than 20 percent of the out10 standing equity of every issuer whose securities are 

11 offered by such person; 

12 ‘‘(6) not later than 21 days prior to the first 

13 day on which securities are sold to any investor (or 

14 such other period as the Commission may establish), 

15 make available to the Commission and to potential 

16 investors any information provided by the issuer 

17 pursuant to subsection (b); 

18 ‘‘(7) ensure that all offering proceeds are only 

19 provided to the issuer when the aggregate capital 

20 raised from all investors is equal to or greater than 

21 a target offering amount, and allow all investors to 

22 cancel their commitments to invest, as the Commis23 sion shall, by rule, determine appropriate; 

24 ‘‘(8) make such efforts as the Commission de25 termines appropriate, by rule, to ensure that no inVerDate Mar 15 2010 00:06 Mar 14, 2012 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2190.IS S2190

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1 vestor in a 12-month period has purchased securities 

2 offered pursuant to section 4(6) that, in the aggre3 gate, from all issuers, exceed the investment limits 

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

5 ‘‘(9) take such steps to protect the privacy of 

6 information collected from investors as the Commis7 sion shall, by rule, determine appropriate; 

8 ‘‘(10) not compensate promoters, finders, or 

9 lead generators for providing the broker or funding 

10 portal with the personal identifying information of 

11 any potential investor; 

12 ‘‘(11) prohibit its directors, officers, or partners 

13 (or any person occupying a similar status or per14 forming a similar function) from having any finan15 cial interest in an issuer using its services; and 

16 ‘‘(12) meet such other requirements as the 

17 Commission may, by rule, prescribe, for the protec18 tion of investors and in the public interest. 

19 ‘‘(b) REQUIREMENTS FOR ISSUERS.—For purposes 

20 of section 4(6), an issuer who offers or sells securities 

21 shall— 

22 ‘‘(1) be organized under and subject to the laws 

23 of a State or territory of the United States or the 

24 District of Columbia; 

25 ‘‘(2) not be— 


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1 ‘‘(A) subject to the requirement to file re2 ports pursuant to section 13 or section 15(d) of 

3 the Securities Exchange Act of 1934 (15 

4 U.S.C. 78m, 78p(d)); or 

5 ‘‘(B) treated as— 

6 ‘‘(i) an investment company, as de7 fined in section 3 of the Investment Com8 pany Act of 1940 (15 U.S.C. 80a–3); 

9 ‘‘(ii) an issuer excluded from the In10 vestment Company Act of 1940 (15 U.S.C. 

11 80a et seq.); or 

12 ‘‘(iii) such other company as the Com13 mission, by rule or regulation, determines 

14 appropriate; 

15 ‘‘(3) file with the Commission and provide to 

16 investors and the relevant broker or funding portal, 

17 and make available to potential investors— 

18 ‘‘(A) the name, legal status, physical ad19 dress, and website address of the issuer; 

20 ‘‘(B) the names of the directors and offi21 cers (and any persons occupying a similar sta22 tus or performing a similar function), and each 

23 person holding more than 20 percent of the 

24 shares of the issuer; 


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1 ‘‘(C) a description of the business of the 

2 issuer and the anticipated business plan of the 

3 issuer; 

4 ‘‘(D) a description of the financial condi5 tion of the issuer, including, for offerings that, 

6 together with all other offerings of the issuer 

7 under section 4(6) within the preceding 12- 

8 month period, have, in the aggregate, target of9 fering amounts of— 

10 ‘‘(i) $100,000 or less— 

11 ‘‘(I) the income tax returns filed 

12 by the issuer for the most recently 

13 completed year (if any); and 

14 ‘‘(II) financial statements of the 

15 issuer, which shall be certified by the 

16 principal executive officer of the issuer 

17 to be true and complete in all material 

18 respects; 

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

20 more than $500,000, financial statements 

21 reviewed by a public accountant who is 

22 independent of the issuer, using profes23 sional standards and procedures for such 

24 review or standards and procedures estabVerDate Mar 15 2010 00:06 Mar 14, 2012 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2190.IS S2190

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1 lished by the Commission, by rule, for such 

2 purpose; and 

3 ‘‘(iii) more than $500,000 (or such 

4 other amount as the Commission may es5 tablish, by rule), audited financial state6 ments; 

7 ‘‘(E) a description of the stated purpose 

8 and intended use of the proceeds of the offering 

9 sought by the issuer with respect to the target 

10 offering amount; 

11 ‘‘(F) the target offering amount, the dead12 line to reach the target offering amount, and 

13 regular updates regarding the progress of the 

14 issuer in meeting the target offering amount; 

15 ‘‘(G) the price to the public of the securi16 ties or the method for determining the price, 

17 provided that, prior to sale, each investor shall 

18 be provided in writing the final price and all re19 quired disclosures, with a reasonable oppor20 tunity to rescind the commitment to purchase 

21 the securities; 

22 ‘‘(H) a description of the ownership and 

23 capital structure of the issuer, including— 

24 ‘‘(i) terms of the securities of the 

25 issuer being offered and each other class of 


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1 security of the issuer, including how such 

2 terms may be modified, and a summary of 

3 the differences between such securities, in4 cluding how the rights of the securities 

5 being offered may be materially limited, di6 luted, or qualified by the rights of any 

7 other class of security of the issuer; 

8 ‘‘(ii) a description of how the exercise 

9 of the rights held by the principal share10 holders of the issuer could negatively im11 pact the purchasers of the securities being 

12 offered; 

13 ‘‘(iii) the name and ownership level of 

14 each existing shareholder who owns more 

15 than 20 percent of any class of the securi16 ties of the issuer; 

17 ‘‘(iv) how the securities being offered 

18 are being valued, and examples of methods 

19 for how such securities may be valued by 

20 the issuer in the future, including during 

21 subsequent corporate actions; and 

22 ‘‘(v) the risks to purchasers of the se23 curities relating to minority ownership in 

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1 ances of shares, a sale of the issuer or of 

2 assets of the issuer, or transactions with 

3 related parties; and 

4 ‘‘(I) such other information as the Com5 mission may, by rule, prescribe, for the protec6 tion of investors and in the public interest; 

7 ‘‘(4) not advertise the terms of the offering, ex8 cept for notices which direct investors to the funding 

9 portal or broker; 

10 ‘‘(5) not compensate or commit to compensate, 

11 directly or indirectly, any person to promote its of12 ferings through communication channels provided by 

13 a broker or funding portal, without taking such 

14 steps as the Commission shall, by rule, require to 

15 ensure that such person clearly discloses the receipt, 

16 past or prospective, of such compensation, upon each 

17 instance of such promotional communication; 

18 ‘‘(6) not less than annually, file with the Com19 mission and provide to investors reports of the re20 sults of operations and financial statements of the 

21 issuer, as the Commission shall, by rule, determine 

22 appropriate, subject to such exceptions and termi23 nation dates as the Commission may establish, by 

24 rule; and 


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1 ‘‘(7) comply with such other requirements as 

2 the Commission may, by rule, prescribe, for the pro3 tection of investors and in the public interest. 

4 ‘‘(c) LIABILITY FOR MATERIAL MISSTATEMENTS

5 AND OMISSIONS.— 

6 ‘‘(1) ACTIONS AUTHORIZED.— 

7 ‘‘(A) IN GENERAL.—Subject to paragraph 

8 (2), a person who purchases a security in a 

9 transaction exempted by the provisions of sec10 tion 4(6) may bring an action against an issuer 

11 described in paragraph (2), either at law or in 

12 equity in any court of competent jurisdiction, to 

13 recover the consideration paid for such security 

14 with interest thereon, less the amount of any 

15 income received thereon, upon the tender of 

16 such security, or for damages if such person no 

17 longer owns the security. 

18 ‘‘(B) LIABILITY.—An action brought under 

19 this paragraph shall be subject to the provisions 

20 of section 12(b) and section 13, as if the liabil21 ity were created under section 12(a)(2). 

22 ‘‘(2) APPLICABILITY.—An issuer shall be liable 

23 in an action under paragraph (1), if the issuer— 

24 ‘‘(A) by the use of any means or instru25 ments of transportation or communication in 


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1 interstate commerce or of the mails, by any 

2 means of any written or oral communication, in 

3 the offering or sale of a security in a trans4 action exempted by the provisions of section 

5 4(6), makes an untrue statement of a material 

6 fact or omits to state a material fact required 

7 to be stated or necessary in order to make the 

8 statements, in the light of the circumstances 

9 under which they were made, not misleading, 

10 provided that the purchaser did not know of 

11 such untruth or omission; and 

12 ‘‘(B) does not sustain the burden of proof 

13 that such issuer did not know, and in the exer14 cise of reasonable care could not have known, of 

15 such untruth or omission. 

16 ‘‘(3) DEFINITION.—As used in this subsection, 

17 the term ‘issuer’ includes any person who is a direc18 tor or partner of the issuer, and the principal execu19 tive officer or officers, principal financial officer, and 

20 controller or principal accounting officer of the 

21 issuer (and any person occupying a similar status or 

22 performing a similar function) that offers or sells a 

23 security in a transaction exempted by the provisions 

24 of section 4(6), and any person who offers or sells 

25 the security in such offering. 


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1 ‘‘(d) INFORMATION AVAILABLE TO STATES.—The 

2 Commission shall make, or shall cause to be made by the 

3 relevant broker or funding portal, the information de4 scribed in subsection (b) and such other information as 

5 the Commission, by rule, determines appropriate, available 

6 to the securities commission (or any agency or office per7 forming like functions) of each State and territory of the 

8 United States and the District of Columbia. 

9 ‘‘(e) RESTRICTIONS ON SALES.—Securities issued 

10 pursuant to a transaction described in section 4(6)— 

11 ‘‘(1) may not be transferred by the purchaser 

12 of such securities during the 1-year period beginning 

13 on the date of purchase, unless such securities are 

14 transferred— 

15 ‘‘(A) to the issuer of the securities; 

16 ‘‘(B) to an accredited investor; 

17 ‘‘(C) as part of an offering registered with 

18 the Commission; or 

19 ‘‘(D) to a member of the family of the pur20 chaser or the equivalent, or in connection with 

21 the death or divorce of the purchaser or other 

22 similar circumstance, in the discretion of the 

23 Commission; and 

24 ‘‘(2) shall be subject to such other limitations 

25 as the Commission shall, by rule, establish. 


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1 ‘‘(f) RULE OF CONSTRUCTION.—Nothing in this sec2 tion or section 4(6) shall be construed as preventing an 

3 issuer from raising capital through methods not described 

4 under section 4(6). 

5 ‘‘(g) CERTAIN CALCULATIONS.— 

6 ‘‘(1) DOLLAR AMOUNTS.—Dollar amounts in 

7 section 4(6) and subsections (a)(9) and (b)(2) of 

8 this section shall be adjusted by the Commission not 

9 less frequently than once every 5 years, by notice 

10 published in the Federal Register to reflect any 

11 change in the Consumer Price Index for All Urban 

12 Consumers published by the Bureau of Labor Statis13 tics. 

14 ‘‘(2) INCOME AND NET WORTH.—The income 

15 and net worth of a natural person under section 

16 4(6)(B)(ii) and subsection (a)(9) of this section shall 

17 be calculated in accordance with any rules of the 

18 Commission under this title regarding the calcula19 tion of the income and net worth, respectively, of an 

20 accredited investor.’’. 

21 (c) RULEMAKING.—Not later than 270 days after the 

22 date of enactment of this Act, the Securities and Ex23 change Commission (in this Act referred to as the ‘‘Com24 mission’’) shall issue such rules as the Commission deter25 mines may be necessary or appropriate for the protection 


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1 of investors to carry out sections 4(6) and section 4A of 

2 the Securities Act of 1933, as added by this Act. In car3 rying out this section, the Commission shall consult with 

4 any securities commission (or any agency or office per5 forming like functions) of the States, any territory of the 

6 United States, and the District of Columbia, which seeks 

7 to consult with the Commission, and with any applicable 

8 national securities association. 

9 (d) DISQUALIFICATION.— 

10 (1) IN GENERAL.—Not later than 270 days 

11 after the date of enactment of this Act, the Commis12 sion shall, by rule, establish disqualification provi13 sions under which— 

14 (A) an issuer shall not be eligible to offer 

15 securities pursuant to section 4(6) of the Secu16 rities Act of 1933, as added by this Act; and 

17 (B) a broker or funding portal shall not be 

18 eligible to effect or participate in transactions 

19 pursuant to that section 4(6). 

20 (2) INCLUSIONS.—Disqualification provisions 

21 required by this subsection shall— 

22 (A) be substantially similar to the provi23 sions of section 230.262 of title 17, Code of 

24 Federal Regulations (or any successor thereto); 

25 and 


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1 (B) disqualify any offering or sale of secu2 rities by a person that— 

3 (i) is subject to a final order of a 

4 State securities commission (or an agency 

5 or officer of a State performing like func6 tions), a State authority that supervises or 

7 examines banks, savings associations, or 

8 credit unions, a State insurance commis9 sion (or an agency or officer of a State 

10 performing like functions), an appropriate 

11 Federal banking agency, or the National 

12 Credit Union Administration, that— 

13 (I) bars the person from— 

14 (aa) association with an en15 tity regulated by such commis16 sion, authority, agency, or officer; 

17 (bb) engaging in the busi18 ness of securities, insurance, or 

19 banking; or 

20 (cc) engaging in savings as21 sociation or credit union activi22 ties; or 

23 (II) constitutes a final order 

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1 nipulative, or deceptive conduct within 

2 the 10-year period ending on the date 

3 of the filing of the offer or sale; or 

4 (ii) has been convicted of any felony 

5 or misdemeanor in connection with the 

6 purchase or sale of any security or involv7 ing the making of any false filing with the 

8 Commission. 

9 SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM 

10 SHAREHOLDER CAP. 

11 (a) EXEMPTION.—Section 12(g) of the Securities Ex12 change Act of 1934 (15 U.S.C. 78l(g)) is amended by add13 ing at the end the following: 

14 ‘‘(6) EXCLUSION FOR PERSONS HOLDING CER15 TAIN SECURITIES.—The Commission shall, by rule, 

16 exempt, conditionally or unconditionally, securities 

17 acquired pursuant to an offering made under section 

18 4(6) of the Securities Act of 1933 from the provi19 sions of this subsection.’’. 

20 (b) RULEMAKING.—The Commission shall issue a 

21 rule to carry out section 12(g)(6) of the Securities Ex22 change Act of 1934 (15 U.S.C. 78c), as added by this 

23 section, not later than 270 days after the date of enact24 ment of this Act. 


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1 SEC. 4. FUNDING PORTAL REGULATION. 

2 (a) EXEMPTION.— 

3 (1) IN GENERAL.—Section 3 of the Securities 

4 Exchange Act of 1934 (15 U.S.C. 78c) is amended 

5 by adding at the end the following: 

6 ‘‘(h) LIMITED EXEMPTION FOR FUNDING POR7 TALS.— 

8 ‘‘(1) IN GENERAL.—The Commission shall, by 

9 rule, exempt, conditionally or unconditionally, a reg10 istered funding portal from the requirement to reg11 ister as a broker or dealer under section 15(a)(1), 

12 provided that such funding portal— 

13 ‘‘(A) remains subject to the examination, 

14 enforcement, and other rulemaking authority of 

15 the Commission; 

16 ‘‘(B) is a member of a national securities 

17 association registered under section 15A; and 

18 ‘‘(C) is subject to such other requirements 

19 under this title as the Commission determines 

20 appropriate under such rule. 

21 ‘‘(2) NATIONAL SECURITIES ASSOCIATION MEM22 BERSHIP.—For purposes of sections 15(b)(8) and 

23 15A, the term ‘broker or dealer’ includes a funding 

24 portal and the term ‘registered broker or dealer’ in25 cludes a registered funding portal, except to the ex26 tent that the Commission, by rule, determines otherVerDate Mar 15 2010 00:06 Mar 14, 2012 Jkt 019200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\S2190.IS S2190

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1 wise, provided that a national securities association 

2 shall only examine for and enforce against a reg3 istered funding portal rules of such national securi4 ties association written specifically for registered 

5 funding portals.’’. 

6 (2) RULEMAKING.—The Commission shall issue 

7 a rule to carry out section 3(h) of the Securities Ex8 change Act of 1934 (15 U.S.C. 78c), as added by 

9 this subsection, not later than 270 days after the 

10 date of enactment of this Act. 

11 (b) DEFINITION.—Section 3(a) of the Securities Ex12 change Act of 1934 (15 U.S.C. 78c(a)), as amended by 

13 title II of this Act, is amended by adding at the end the 

14 following: 

15 ‘‘(80) FUNDING PORTAL.—The term ‘funding 

16 portal’ means any person engaged in the business of 

17 effecting transactions in securities for the account of 

18 others, solely pursuant to section 4(6) of the Securi19 ties Act of 1933 (15 U.S.C. 77d(6)), that does not— 

20 ‘‘(A) offer investment advice or rec21 ommendations; 

22 ‘‘(B) solicit purchases, sales, or offers to 

23 buy the securities offered or displayed on its 

24 website or portal; 


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1 ‘‘(C) compensate employees, agents, or 

2 other persons for such solicitation or based on 

3 the sale of securities displayed or referenced on 

4 its website or portal; 

5 ‘‘(D) hold, manage, possess, or otherwise 

6 handle investor funds or securities; or 

7 ‘‘(E) engage in such other activities as the 

8 Commission, by rule, determines appropriate.’’. 

9 SEC. 5. RELATIONSHIP WITH STATE LAW. 

10 (a) IN GENERAL.—Section 18(b)(4) of the Securities 

11 Act of 1933 (15 U.S.C. 77r(b)(4)) is amended— 

12 (1) by redesignating subparagraphs (C) and 

13 (D) as subparagraphs (D) and (E), respectively; and 

14 (2) by inserting after subparagraph (B) the fol15 lowing: 

16 ‘‘(C) section 4(6);’’. 

17 (b) CLARIFICATION OF THE PRESERVATION OF

18 STATE ENFORCEMENT AUTHORITY.— 

19 (1) IN GENERAL.—The amendments made by 

20 subsection (a) relate solely to State registration, doc21 umentation, and offering requirements, as described 

22 under section 18(a) of Securities Act of 1933 (15 

23 U.S.C. 77r(a)), and shall have no impact or limita24 tion on other State authority to take enforcement 

25 action with regard to an issuer, funding portal, or 


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1 any other person or entity using the exemption from 

2 registration provided by section 4(6) of that Act. 

3 (2) CLARIFICATION OF STATE JURISDICTION

4 OVER UNLAWFUL CONDUCT OF FUNDING PORTALS

5 AND ISSUERS.—Section 18(c)(1) of the Securities 

6 Act of 1933 (15 U.S.C. 77r(c)(1)) is amended by 

7 striking ‘‘with respect to fraud or deceit, or unlawful 

8 conduct by a broker or dealer, in connection with se9 curities or securities transactions.’’ and inserting the 

10 following: ‘‘, in connection with securities or securi11 ties transactions 

12 ‘‘(A) with respect to— 

13 ‘‘(i) fraud or deceit; or 

14 ‘‘(ii) unlawful conduct by a broker or 

15 dealer; and 

16 ‘‘(B) in connection to a transaction de17 scribed under section 4(6), with respect to— 

18 ‘‘(i) fraud or deceit; or 

19 ‘‘(ii) unlawful conduct by a broker, 

20 dealer, funding portal, or issuer.’’. 

21 (c) NOTICE FILINGS PERMITTED.—Section 18(c)(2) 

22 of the Securities Act of 1933 (15 U.S.C. 77r(c)(2)) is 

23 amended by adding at the end the following: 

24 ‘‘(F) FEES NOT PERMITTED ON

25 CROWDFUNDED SECURITIES.—Notwithstanding 


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

2 fee may be required with respect to any security 

3 that is a covered security pursuant to sub4 section (b)(4)(B), or will be such a covered se5 curity upon completion of the transaction, ex6 cept for the securities commission (or any agen7 cy or office performing like functions) of the 

8 State of the principal place of business of the 

9 issuer, or any State in which purchasers of 50 

10 percent or greater of the aggregate amount of 

11 the issue are residents, provided that for pur12 poses of this subparagraph, the term ‘State’ in13 cludes the District of Columbia and the terri14 tories of the United States.’’. 

15 (d) FUNDING PORTALS.— 

16 (1) STATE EXEMPTIONS AND OVERSIGHT.—Sec17 tion 15(i) of the Securities Exchange Act of 1934 

18 (15 U.S.C. 78o(i)) is amended— 

19 (A) by redesignating paragraphs (2) and 

20 (3) as paragraphs (3) and (4), respectively; and 

21 (B) by inserting after paragraph (1) the 

22 following: 

23 ‘‘(2) FUNDING PORTALS.— 

24 ‘‘(A) LIMITATION ON STATE LAWS.—Ex25 cept as provided in subparagraph (B), no State 


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1 or political subdivision thereof may enforce any 

2 law, rule, regulation, or other administrative ac3 tion against a registered funding portal with re4 spect to its business as such. 

5 ‘‘(B) EXAMINATION AND ENFORCEMENT

6 AUTHORITY.—Subparagraph (A) does not apply 

7 with respect to the examination and enforce8 ment of any law, rule, regulation, or adminis9 trative action of a State or political subdivision 

10 thereof in which the principal place of business 

11 of a registered funding portal is located, pro12 vided that such law, rule, regulation, or admin13 istrative action is not in addition to or different 

14 from the requirements for registered funding 

15 portals established by the Commission. 

16 ‘‘(C) DEFINITION.—For purposes of this 

17 paragraph, the term ‘State’ includes the Dis18 trict of Columbia and the territories of the 

19 United States.’’. 

20 (2) STATE FRAUD AUTHORITY.—Section 

21 18(c)(1) of the Securities Act of 1933 (15 U.S.C. 

22 77r(c)(1)) is amended by striking ‘‘or dealer’’ and 

23 inserting ‘‘, dealer, or funding portal’’. 


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1 SEC. 6. REPORTS TO CONGRESS. 

2 (a) IN GENERAL.—The Commission, after consulta3 tion with the securities commission (or any agency or of4 fice performing like functions) of the States and State at5 torneys general, shall submit a report to the Committee 

6 on Banking, Housing, and Urban Affairs of the Senate 

7 and the Committee on Financial Services of the House of 

8 Representatives, not later than 1 year after the date on 

9 which the Commission issues final rules under section 

10 2(c), and every 2 years thereafter through the date that 

11 is 7 years after that date of issuance. 

12 (b) REPORTS.—Each report provided pursuant to 

13 subsection (a) shall include— 

14 (1) a description of the material risks posed to 

15 investors in securities issued pursuant to section 

16 4(6) of the Securities Act of 1933, as added by this 

17 Act, including risks related to valuations, subsequent 

18 corporate actions by the issuer, dilution of ownership 

19 interests or rights, and any other risks to investors 

20 that the Commission shall determine; 

21 (2) a description of the performance of invest22 ments made in securities issued pursuant to that 

23 section 4(6), to the extent that such information is 

24 available to the Commission; 

25 (3) a description of fraud or misconduct allega26 tions related to issuances made pursuant to that secVerDate Mar 15 2010 00:06 Mar 14, 2012 Jkt 019200 PO 00000 Frm 00025 Fmt 6652 Sfmt 6201 E:\BILLS\S2190.IS S2190

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•S 2190 IS

1 tion 4(6), including a description of actions by and 

2 complaints to the Commission involving material 

3 misstatements, material omissions, or other material 

4 problems associated with offerings in reliance on 

5 such exemption, provided that the description shall 

6 be limited to concluded enforcement actions or infor7 mation that is otherwise publicly available; 

8 (4) the approximate number of offerings made 

9 pursuant to that section 4(6); 

10 (5) a summary of information relating to pur11 chasers of securities offered pursuant to that section 

12 4(6), including investor income and net worth levels, 

13 the number of investments in such offerings made 

14 by such investors, and the average sizes of such in15 vestments, to the extent that such information is 

16 available to the Commission; 

17 (6) a summary of information relating to 

18 issuers of securities relying on that section 4(6), in19 cluding their asset sizes, revenues, numbers of inves20 tors, and the amounts raised, to the extent that such 

21 information is available to the Commission; 

22 (7) a description of any emerging trends in of23 ferings or issuances made pursuant to that section 

24 4(6); 


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1 (8) recommendations regarding enhancements, 

2 including additional issuer, broker, dealer, or fund3 ing portal requirements, regulatory oversight, or dis4 closures, that may improve protections for investors 

5 purchasing securities issued pursuant to that section 

6 4(6); and 

7 (9) any other information that the Commission 

8 deems necessary or appropriate. 

9 (c) STATE REPORTS.— 

10 (1) IN GENERAL.—If the securities commission 

11 (or any agency or office performing like functions) 

12 of a State or State attorney general issues a report 

13 in writing to the Commission identifying any emerg14 ing trends that have undermined investor protec15 tions, or other risks pertaining to investor protec16 tion, in offerings or issuances relying upon section 

17 4(6) of the Securities Act of 1933, as added by this 

18 Act, other than in connection with a review con19 ducted by the Commission pursuant to this section, 

20 the Commission shall— 

21 (A) conduct a preliminary review of such 

22 report; and 

23 (B) respond in writing to such report, not 

24 later than 120 days after the date of receipt of 


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•S 2190 IS

1 such report, with the results of its preliminary 

2 review. 

3 (2) COPIES OF REPORT.—The Commission shall 

4 provide a copy of any report of the securities com5 mission (or any agency or office performing like 

6 functions) of a State or State attorney general de7 scribed in paragraph (1) and the response of the 

8 Commission to the Committee on Banking, Housing, 

9 and Urban Affairs of the Senate and the Committee 

10 on Financial Services of the House of Representa11 tives, not later than 90 days after the date on which 

12 such response is provided. 

13 (d) DEFINITION OF STATE.—For purposes of this 

14 section, the term ‘‘State’’ includes any territory of the 

15 United States and the District of Columbia. 

Æ 


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