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Union Calendar No. 175 

112TH CONGRESS 

1ST SESSION H. R. 2930 

[Report No. 112–262] 

To amend the securities laws to provide for registration exemptions for 

certain crowdfunded securities, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

SEPTEMBER 14, 2011 

Mr. MCHENRY introduced the following bill; which was referred to the 

Committee on Financial Services 

OCTOBER 31, 2011 

Additional sponsors: Mr. SCHWEIKERT, Mr. DOLD, Mr. DUFFY, Mrs. 

SCHMIDT, and Mr. BRADY of Texas 

OCTOBER 31, 2011 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

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A BILL 

To amend the securities laws to provide for registration 

exemptions for certain crowdfunded securities, and for 

other purposes. 

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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 ‘‘Entrepreneur Access 

5 to Capital Act’’. 

6 SEC. 2. CROWDFUNDING EXEMPTION. 

7 (a) SECURITIES ACT OF 1933.—Section 4 of the Se8 curities Act of 1933 (15 U.S.C. 77d) is amended by add9 ing at the end the following: 

10 ‘‘(6) transactions involving the issuance of secu11 rities for which— 

12 ‘‘(A) the aggregate annual amount raised 

13 through the issue of the securities is 

14 $5,000,000 or less; and 

15 ‘‘(B) individual investments in the securi16 ties are limited to an aggregate annual amount 

17 equal to the lesser of— 

18 ‘‘(i) $10,000; and 

19 ‘‘(ii) 10 percent of the investor’s an20 nual income.’’. 

21 (b) VERIFICATION OF INCOME.—For purposes of sec22 tion 4(6) of the Securities Act of 1933, an issuer may rely 

23 on certifications provided by investors. 

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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(6) of the 

15 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 subparagraphs (C) and 

20 (D) as (D) and (E), respectively; and 

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

23 ‘‘(C) section 4(6);’’. 

24 SECTION 1. SHORT TITLE. 

25 This Act may be cited as the ‘‘Entrepreneur Access to 

26 Capital Act’’. 

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1 SEC. 2. CROWDFUNDING EXEMPTION. 

2 (a) SECURITIES ACT OF 1933.—Section 4 of the Secu3 rities Act of 1933 (15 U.S.C. 77d) is amended by adding 

4 at the end the following: 

5 ‘‘(6) transactions involving the issuance of secu6 rities for which— 

7 ‘‘(A) the aggregate annual amount raised 

8 through the issue of the securities is— 

9 ‘‘(i) $1,000,000 or less; or 

10 ‘‘(ii) if the issuer provides potential in11 vestors with audited financial statements, 

12 $2,000,000 or less; 

13 ‘‘(B) individual investments in the securi14 ties are limited to an aggregate annual amount 

15 equal to the lesser of— 

16 ‘‘(i) $10,000; and 

17 ‘‘(ii) 10 percent of the investor’s an18 nual income; 

19 ‘‘(C) in the case of a transaction involving 

20 an intermediary between the issuer and the in21 vestor, such intermediary complies with the re22 quirements under section 4A(a); and 

23 ‘‘(D) in the case of a transaction not involv24 ing an intermediary between the issuer and the 

25 investor, the issuer complies with the require26 ments under section 4A(b).’’. 

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1 (b) REQUIREMENTS TO QUALIFY FOR CROWDFUNDING

2 EXEMPTION.—The Securities Act of 1933 is amended by in3 serting after section 4 the following: 

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

5 SMALL TRANSACTIONS. 

6 ‘‘(a) REQUIREMENTS ON INTERMEDIARIES.—For pur7 poses of section 4(6), a person acting as an intermediary 

8 in a transaction involving the issuance of securities shall 

9 comply with the requirements of this subsection if the inter10 mediary— 

11 ‘‘(1) warns investors, including on the 

12 intermediary’s website, of the speculative nature gen13 erally applicable to investments in startups, emerging 

14 businesses, and small issuers, including risks in the 

15 secondary market related to illiquidity; 

16 ‘‘(2) warns investors that they are subject to the 

17 restriction on sales requirement described under sub18 section (e); 

19 ‘‘(3) takes reasonable measures to reduce the risk 

20 of fraud with respect to such transaction; 

21 ‘‘(4) provides the Commission with the 

22 intermediary’s physical address, website address, and 

23 the names of the intermediary and employees of the 

24 person, and keep such information up-to-date; 

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1 ‘‘(5) provides the Commission with continuous 

2 investor-level access to the intermediary’s website; 

3 ‘‘(6) requires each potential investor to answer 

4 questions demonstrating competency in— 

5 ‘‘(A) recognition of the level of risk gen6 erally applicable to investments in startups, 

7 emerging businesses, and small issuers; 

8 ‘‘(B) risk of illiquidity; and 

9 ‘‘(C) such other areas as the Commission 

10 may determine appropriate; 

11 ‘‘(7) requires the issuer to state a target offering 

12 amount and withhold capital formation proceeds 

13 until aggregate capital raised from investors other 

14 than the issuer is no less than 60 percent of the target 

15 offering amount; 

16 ‘‘(8) carries out a background check on the 

17 issuer’s principals; 

18 ‘‘(9) provides the Commission with basic notice 

19 of the offering, not later than the first day funds are 

20 solicited from potential investors, including— 

21 ‘‘(A) the issuer’s name, legal status, phys22 ical address, and website address; 

23 ‘‘(B) the names of the issuer’s principals; 

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1 ‘‘(C) the stated purpose and intended use of 

2 the capital formation funds sought by the issuer; 

3 and 

4 ‘‘(D) the target offering amount; 

5 ‘‘(10) outsources cash-management functions to a 

6 qualified third party custodian, such as a traditional 

7 broker or dealer or insured depository institution; 

8 ‘‘(11) maintains such books and records as the 

9 Commission determines appropriate; 

10 ‘‘(12) makes available on the intermediary’s 

11 website a method of communication that permits the 

12 issuer and investors to communicate with one an13 other; and 

14 ‘‘(13) does not offer investment advice. 

15 ‘‘(b) REQUIREMENTS ON ISSUERS IF NO INTER16 MEDIARY.—For purposes of section 4(6), an issuer who of17 fers securities without an intermediary shall comply with 

18 the requirements of this subsection if the issuer— 

19 ‘‘(1) warns investors, including on the issuer’s 

20 website, of the speculative nature generally applicable 

21 to investments in startups, emerging businesses, and 

22 small issuers, including risks in the secondary market 

23 related to illiquidity; 

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1 ‘‘(2) warns investors that they are subject to the 

2 restriction on sales requirement described under sub3 section (e); 

4 ‘‘(3) takes reasonable measures to reduce the risk 

5 of fraud with respect to such transaction; 

6 ‘‘(4) provides the Commission with the issuer’s 

7 physical address, website address, and the names of 

8 the principals and employees of the issuers, and keeps 

9 such information up-to-date; 

10 ‘‘(5) provides the Commission with continuous 

11 investor-level access to the issuer’s website; 

12 ‘‘(6) requires each potential investor to answer 

13 questions demonstrating competency in— 

14 ‘‘(A) recognition of the level of risk gen15 erally applicable to investments in startups, 

16 emerging businesses, and small issuers; 

17 ‘‘(B) risk of illiquidity; and 

18 ‘‘(C) such other areas as the Commission 

19 may determine appropriate; 

20 ‘‘(7) states a target offering amount and with21 holds capital formation proceeds until the aggregate 

22 capital raised from investors other than the issuer is 

23 no less than 60 percent of the target offering amount; 

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1 ‘‘(8) provides the Commission with basic notice 

2 of the offering, not later than the first day funds are 

3 solicited from potential investors, including— 

4 ‘‘(A) the stated purpose and intended use of 

5 the capital formation funds sought by the issuer; 

6 and 

7 ‘‘(B) the target offering amount; 

8 ‘‘(9) outsources cash-management functions to a 

9 qualified third party custodian, such as a traditional 

10 broker or dealer or insured depository institution; 

11 ‘‘(10) maintains such books and records as the 

12 Commission determines appropriate; 

13 ‘‘(11) makes available on the issuer’s website a 

14 method of communication that permits the issuer and 

15 investors to communicate with one another; 

16 ‘‘(12) does not offer investment advice; and 

17 ‘‘(13) discloses to potential investors, on the 

18 issuer’s website, that the issuer has an interest in the 

19 issuance. 

20 ‘‘(c) VERIFICATION OF INCOME.—For purposes of sec21 tion 4(6), an issuer or intermediary may rely on certifi22 cations provided by an investor to verify the investor’s in23 come. 

24 ‘‘(d) INFORMATION AVAILABLE TO STATES.—The Com25 mission shall make the notices described under subsections 

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1 (a)(9) and (b)(8) and the information described under sub2 sections (a)(4) and (b)(4) available to the States. 

3 ‘‘(e) RESTRICTION ON SALES.—With respect to a 

4 transaction involving the issuance of securities described 

5 under section 4(6), an investor may not sell such securities 

6 during the 1-year period beginning on the date of purchase, 

7 unless such securities are sold to— 

8 ‘‘(1) the issuer of such securities; or 

9 ‘‘(2) an accredited investor. 

10 ‘‘(f) CONSTRUCTION.— 

11 ‘‘(1) NO TREATMENT AS BROKER.—With respect 

12 to a transaction described under section 4(6) involv13 ing an intermediary, such intermediary shall not be 

14 treated as a broker under the securities laws solely by 

15 reason of participation in such transaction. 

16 ‘‘(2) NO PRECLUSION OF OTHER CAPITAL RAIS17 ING.—Nothing in this section or section 4(6) shall be 

18 construed as preventing an issuer from raising cap19 ital through methods not described under section 

20 4(6).’’. 

21 (c) RULEMAKING.—Not later than 90 days after the 

22 date of the enactment of this Act, the Securities and Ex23 change Commission shall issue such rules as may be nec24 essary to carry out section 4A of the Securities Act of 1933. 

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1 In issuing such rules, the Commission shall carry out the 

2 cost-benefit analysis required under section 2(b) of such Act. 

3 (d) DISQUALIFICATION.—Not later than 90 days after 

4 the date of the enactment of this Act, the Securities and 

5 Exchange Commission shall by rule or regulation establish 

6 disqualification provisions under which a person shall not 

7 be eligible to utilize the exemption under section 4(6) of the 

8 Securities Act of 1933 or to participate in the affairs of 

9 an intermediary facilitating the use of that exemption. 

10 Such provisions shall be substantially similar to the dis11 qualification provisions contained in the regulations adopt12 ed in accordance with section 926 of the Dodd-Frank Wall 

13 Street Reform and Consumer Protection Act (15 U.S.C. 77d 

14 note). 

15 SEC. 3. EXCLUSION OF CROWDFUNDING INVESTORS FROM 

16 SHAREHOLDER CAP. 

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

18 1934 (15 U.S.C. 78l(g)(5)) is amended— 

19 (1) by striking ‘‘(5) For the purposes’’ and in20 serting: 

21 ‘‘(5) DEFINITIONS.— 

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

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

24 ‘‘(B) EXCLUSION FOR PERSONS HOLDING

25 CERTAIN SECURITIES.—For purposes of this submstockstill on DSK4VPTVN1PROD with BILLS

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1 section, the term ‘held of record’ shall not include 

2 holders of securities issued pursuant to trans3 actions described under section 4(6) of the Secu4 rities Act of 1933.’’. 

5 SEC. 4. PREEMPTION OF STATE LAW. 

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

7 U.S.C. 77r(b)(4)) is amended— 

8 (1) by redesignating subparagraphs (C) and (D) 

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

10 (2) by inserting after subparagraph (B) the fol11 lowing: 

12 ‘‘(C) section 4(6);’’. 

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Union Calendar No. 175 

112TH CONGRESS 

1ST SESSION H. R. 2930 

[Report No. 112–262] 

A BILL 

To amend the securities laws to provide for regcurities, and for other purposes. istration exemptions for certain crowdfunded seOCTOBER 31, 2011 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union, 

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