I 
113TH CONGRESS 
2D SESSION 
H. R. 4564 
To amend the Jumpstart Our Business Startups Act to improve the 
crowdfunding provisions, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 6, 2014 
Mr. MCHENRY (for himself and Mr. GARRETT) introduced the following bill; 
which was referred to the Committee on Financial Services 
A BILL 
To amend the Jumpstart Our Business Startups Act to 
improve the crowdfunding provisions, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Equity Crowdfunding 
Improvement Act of 2014’’. 
SEC. 2. CROWDFUNDING. 
(a) 
REPEAL
OF
EXISTING
LAW.—The 
CROWDFUND Act is hereby repealed and the provisions 
of law amended by such Act are revived or restored as 
if such Act had not been enacted. 
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(b) NEW CROWDFUNDING LAW.—The Jumpstart 
Our Business Startups Act is amended— 
(1) by inserting after title II the following: 
‘‘TITLE III—ENTREPRENEUR 
ACCESS TO CAPITAL 
‘‘SEC. 301. CROWDFUNDING EXEMPTION. 
‘‘(a) IN GENERAL.—Section 4(a) of the Securities 
Act of 1933 (15 U.S.C. 77d(a)(6)) is amended by adding 
at the end the following: 
‘‘ ‘(6) transactions involving the offer or sale of 
securities by an issuer, provided that— 
‘‘ ‘(A) the aggregate amount sold within 
the previous 12-month period in reliance upon 
this exemption is— 
‘‘ ‘(i) $3,000,000, as such amount is 
adjusted by the Commission to reflect the 
annual change in the Consumer Price 
Index for All Urban Consumers published 
by the Bureau of Labor Statistics, or less; 
or 
‘‘ ‘(ii) if the issuer provides potential 
investors with audited financial statements, 
$5,000,000, as such amount is adjusted by 
the Commission to reflect the annual 
change in the Consumer Price Index for 
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All Urban Consumers published by the Bu-
reau of Labor Statistics, or less; 
‘‘ ‘(B) the aggregate amount sold to any 
investor who is not an accredited investor in re-
liance on this exemption within the previous 12- 
month period does not exceed the greater of— 
‘‘ ‘(i) $5,000, as such amount is ad-
justed by the Commission to reflect the an-
nual change in the Consumer Price Index 
for All Urban Consumers published by the 
Bureau of Labor Statistics; 
‘‘ ‘(ii) 10 percent of the investor’s an-
nual income; or 
‘‘ ‘(iii) 10 percent of the investor’s net 
worth; 
‘‘ ‘(C) in the case of a transaction involving 
an intermediary between the issuer and the in-
vestor, such intermediary complies with the re-
quirements under section 4A(a); 
‘‘ ‘(D) if the aggregate amount sold within 
the previous 12-month period in reliance upon 
this exemption is— 
‘‘ ‘(i) $500,000 or less, the issuer pro-
vides potential investors with financial 
statements that have been certified by the 
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principal executive officer of the issuer to 
be true and complete in all material re-
spects; and 
‘‘ ‘(ii) more than $500,000 and less 
than $3,000,000, the issuer provides po-
tential investors with financial statements 
that have been reviewed by a public ac-
countant who is independent of the issuer, 
using professional standards and proce-
dures for such review; and 
‘‘ ‘(E) at the time such securities are 
issued, the issuer is a corporation.’. 
‘‘(b) REQUIREMENT ON INTERMEDIARIES.—The Se-
curities Act of 1933 (15 U.S.C. 77a et seq.) is amended 
by inserting after section 4 the following: 
‘‘ ‘SEC. 4A. REQUIREMENTS ON INTERMEDIARIES WITH RE-
SPECT TO CROWDFUNDING TRANSACTIONS. 
‘‘ ‘(a) REQUIREMENTS
ON INTERMEDIARIES.—For 
purposes of section 4(a)(6), a person acting as an inter-
mediary in a transaction involving the offer or sale of secu-
rities shall comply with the requirements of this subsection 
if the intermediary— 
‘‘ ‘(1) registers with the Commission as— 
‘‘ ‘(A) a broker; or 
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‘‘ ‘(B) a person acting as an intermediary 
who does not— 
‘‘ ‘(i) offer investment advice or rec-
ommendations; 
‘‘ ‘(ii) 
explicitly 
solicit 
purchases, 
sales, or offers to buy particular securities 
offered or displayed on its website or por-
tal; 
‘‘ ‘(iii) directly compensate employees, 
agents, or other persons for direct sale of 
securities displayed or referenced on its 
website or portal; or 
‘‘ ‘(iv) manage, possess, or otherwise 
handle investor funds or securities; 
‘‘ ‘(2) 
warns 
investors, 
including 
on 
the 
intermediary’s website used for the offer and sale of 
such securities, of the speculative nature generally 
applicable to investments in startups, emerging busi-
nesses, and small issuers, including risks in the sec-
ondary market related to illiquidity; 
‘‘ ‘(3) warns investors that they are subject to 
the restriction on sales requirement described under 
subsection (d); 
‘‘ ‘(4) takes reasonable measures to reduce the 
risk of fraud with respect to such transaction; 
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‘‘ ‘(5) provides the Commission with the 
intermediary’s physical address, website address, 
and the names of the intermediary, the chief officer 
of the intermediary (or person fulfilling a similar 
role), and any employee of the intermediary respon-
sible for the intermediary’s direct compliance with 
the securities laws (as defined under section 3 of the 
Securities Exchange Act of 1934), and updates such 
information with the Commission within 6 business 
days of such information changing; 
‘‘ ‘(6) provides the Commission with continuous 
investor-level access to the intermediary’s website; 
‘‘ ‘(7) requires each potential investor to answer 
questions demonstrating— 
‘‘ ‘(A) an understanding of the level of risk 
generally applicable to investments in startups, 
emerging businesses, and small issuers; 
‘‘ ‘(B) an understanding of the risk of 
illiquidity; and 
‘‘ ‘(C) such other areas as the Commission, 
in consultation with self-regulatory organiza-
tions (as defined in section 3 of the Securities 
Exchange Act of 1934), may determine appro-
priate by rule or regulation; 
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‘‘ ‘(8) requires the issuer to state a target offer-
ing amount and a deadline to reach the target offer-
ing amount and ensure the third party custodian de-
scribed under paragraph (11) withholds offering pro-
ceeds until— 
‘‘ ‘(A) aggregate capital raised from inves-
tors other than the issuer is no less than 100 
percent of the target offering amount; and 
‘‘ ‘(B) the issuer has complied with all re-
quirements under this section; 
‘‘ ‘(9) carries out a background check on the ex-
ecutive officers, directors, and shareholders with 15 
percent or more voting control of the issuer (or per-
sons fulfilling similar roles) to ensure such persons 
would not meet the disqualification provisions adopt-
ed in accordance with section 926 of the Dodd- 
Frank Wall Street Reform and Consumer Protection 
Act; 
‘‘ ‘(10) provides the Commission and potential 
investors with notice of the offering, not later than 
the first day securities are offered to potential inves-
tors, including— 
‘‘ ‘(A) the issuer’s name, legal status, phys-
ical address, and website address; 
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‘‘ ‘(B) the names of the executive officers, 
directors, and shareholders with 15 percent or 
more voting control of the issuer (or persons 
fulfilling similar roles); 
‘‘ ‘(C) the intended use of the proceeds of 
the offering; and 
‘‘ ‘(D) the target offering amount and the 
deadline to reach the target offering amount; 
‘‘ ‘(11) outsources cash functions to a qualified 
third party custodian, such as a broker or dealer 
registered under section 15(b)(1) of the Securities 
Exchange Act of 1934 or an insured depository in-
stitution; 
‘‘ ‘(12) maintains such books and records as the 
Commission determines appropriate; 
‘‘ ‘(13) makes available on the intermediary’s 
website a method of communication that permits the 
issuer and investors to communicate with one an-
other; 
‘‘ ‘(14) provides the Commission with a notice 
upon completion of the offering, which shall include 
the aggregate offering amount and the number of 
purchasers; and 
‘‘ ‘(15) does not offer investment advice. 
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‘‘ ‘(b) VERIFICATION OF INVESTOR INFORMATION.— 
For purposes of section 4(a), an intermediary may rely 
on a certification by an investor as to— 
‘‘ ‘(1) the investor’s status as an accredited in-
vestor; and 
‘‘ ‘(2) with respect to an unaccredited investor, 
the investor’s annual income, net worth, and the ag-
gregate amount of securities sold to the investor in 
reliance on the exemption provided by section 4(a) 
within the previous 12-month period. 
‘‘ ‘(c) INFORMATION AVAILABLE TO STATES.—The 
Commission shall make the notices described under sub-
sections (a)(10) and (a)(14) and the information described 
under subsection (a)(5) available to the States. 
‘‘ ‘(d) RESTRICTION ON SALES.—Newly issued securi-
ties purchased in a transaction made in reliance on section 
4(a)(6) may not be resold by any person during the 1- 
year period beginning on the date of original purchase, 
unless such securities are sold to— 
‘‘ ‘(1) the issuer of such securities; or 
‘‘ ‘(2) an accredited investor. 
‘‘ ‘(e) REQUIREMENT FOR USE OF INTERMEDIARIES 
WHEN SELLING TO UNACCREDITED INVESTORS.—With 
respect to a transaction described under section 4(a)(6), 
an issuer may only enter into a transaction with an 
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unaccredited investor through the use of an intermediary, 
and any resale of a security originally issued in reliance 
on section 4(a)(6) may only be made with an unaccredited 
investor through the use of an intermediary. 
‘‘ ‘(f) RULES OF CONSTRUCTION.— 
‘‘ ‘(1) NO REGISTRATION AS BROKER.—With re-
spect to a transaction either made pursuant to sec-
tion 4(a)(6) or involving the resale of a security 
originally issued pursuant to section 4(a)(6) and in-
volving an intermediary, such intermediary shall not 
be required to register as a broker under section 
15(a)(1) of the Securities Exchange Act of 1934 
solely by reason of participation in such transaction. 
‘‘ ‘(2) RIGHT TO SELECT TRANSACTIONS.—An 
intermediary may select in which transactions to 
serve as an intermediary, and such selection shall 
not be considered investment advice or subject the 
intermediary to regulation under the Investment Ad-
visers Act of 1940. 
‘‘ ‘(3) RIGHT TO TERMINATE TRANSACTION.— 
An intermediary may review the transaction and ter-
minate the transaction at any time if— 
‘‘ ‘(A) in carrying out the intermediary’s 
due diligence under the transaction, the inter-
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mediary determines that termination is appro-
priate; 
‘‘ ‘(B) the intermediary is able to return all 
funds provided by potential investors; and 
‘‘ ‘(C) the custodian has not transferred 
the offering proceeds to the issuer. 
‘‘ ‘(4) NO
PRECLUSION
OF
OTHER
CAPITAL 
RAISING.—Nothing in this section or section 4(a)(6) 
shall be construed as preventing an issuer from rais-
ing capital through securities offerings made in reli-
ance on other exemptions from registration.’. 
‘‘(c) RULEMAKING.—Not later than 120 days after 
the date of the enactment of this title, the Securities and 
Exchange Commission shall issue such rules as may be 
necessary to carry out section 4A of the Securities Act 
of 1933. In issuing such rules, the Commission shall con-
sider the costs and benefits of the action. 
‘‘(d) DISQUALIFICATION.—Not later than 120 days 
after the date of the enactment of this title, the Securities 
and Exchange Commission shall by rule or regulation es-
tablish disqualification provisions under which an issuer 
shall not be eligible to utilize the exemption under section 
4(a)(6) of the Securities Act of 1933 based on the discipli-
nary history of the issuer or its predecessors, affiliates, 
officers, directors, or persons fulfilling similar roles. The 
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Commission shall also establish disqualification provisions 
under which an intermediary shall not be eligible to act 
as an intermediary in connection with an offering utilizing 
the exemption under section 4(a)(6) of the Securities Act 
of 1933 based on the disciplinary history of the inter-
mediary or its predecessors, affiliates, officers, directors, 
or persons fulfilling similar roles. Such provisions shall be 
substantially similar to the disqualification provisions con-
tained in the regulations adopted in accordance with sec-
tion 926 of the Dodd-Frank Wall Street Reform and Con-
sumer Protection Act (15 U.S.C. 77d note). 
‘‘(e) TREATMENT OF CROWDFUNDING INVESTMENT 
COMPANIES.—Section 3(c) of the Investment Company 
Act of 1940 (15 U.S.C. 80a–3(c)) is amended by adding 
at the end the following: 
‘‘ ‘(15) Any person substantially all of whose 
business is confined to investing in securities pur-
chased in a transaction made in reliance on section 
4(a)(6) of the Securities Act of 1933.’. 
‘‘SEC. 302. EXCLUSION OF CROWDFUNDING INVESTORS 
FROM SHAREHOLDER CAP. 
‘‘Section 12(g)(5) of the Securities Exchange Act of 
1934 (15 U.S.C. 78l(g)(5)) is amended— 
‘‘(1) by striking ‘(5) For the purposes’; and in-
serting the following: 
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‘‘ ‘(5) DEFINITIONS.— 
‘‘ ‘(A) IN
GENERAL.—For the purposes’; 
and 
‘‘(2) by adding at the end the following: 
‘‘ ‘(B) EXCLUSION FOR PERSONS HOLDING 
CERTAIN
SECURITIES.—For purposes of this 
subsection, securities originally issued in trans-
actions described under section 4(a)(6) of the 
Securities Act of 1933 shall neither be deemed 
to be nor counted towards the definition of 
‘‘held of record’’.’. 
‘‘SEC. 303. PREEMPTION OF STATE LAW. 
‘‘(a) IN GENERAL.—Section 18(b)(4) of the Securi-
ties Act of 1933 (15 U.S.C. 77r(b)(4)) is amended— 
‘‘(1) by redesignating subparagraphs (C) and 
(D) as subparagraphs (D) and (E), respectively; and 
‘‘(2) by inserting after subparagraph (B) the 
following: 
‘‘ ‘(C) section 4(a)(6);’. 
‘‘(b) CLARIFICATION
OF
THE PRESERVATION
OF 
STATE ENFORCEMENT AUTHORITY.— 
‘‘(1) IN GENERAL.—The amendments made by 
subsection (a) relate solely to State registration, doc-
umentation, and offering requirements, as described 
under section 18(a) of the Securities Act of 1933 
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(15 U.S.C. 77r(a)), and shall have no impact or lim-
itation on other State authority to take enforcement 
action with regard to an issuer, intermediary, or any 
other person or entity using the exemption from reg-
istration provided by section 4(a)(6) of such Act. 
‘‘(2) CLARIFICATION OF STATE JURISDICTION 
OVER
UNLAWFUL
CONDUCT
OF
INTERMEDIARIES, 
ISSUERS, AND CUSTODIANS.—Section 18(c)(1) of the 
Securities Act of 1933 is amended by striking ‘with 
respect to fraud or deceit, or unlawful conduct by a 
broker or dealer, in connection with securities or se-
curities transactions.’ and inserting the following: ‘, 
in connection with securities or securities trans-
actions, with respect to— 
‘‘ ‘(A) fraud or deceit; 
‘‘ ‘(B) unlawful conduct by a broker or 
dealer; and 
‘‘ ‘(C) with respect to a transaction de-
scribed under section 4(a)(6), unlawful conduct 
by an intermediary, issuer, or custodian.’.’’; and 
(2) in the table of contents for such Act by 
amending the items relating to title III to read as 
follows: 
‘‘TITLE III—ENTREPRENEUR ACCESS TO CAPITAL 
‘‘Sec. 301. Crowdfunding exemption. 
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‘‘Sec. 302. Exclusion of crowdfunding investors from shareholder cap. 
‘‘Sec. 303. Preemption of State law.’’. 
Æ 
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