Fix Crowdfunding Act

Bill: 114-hr-4855
Sponsor: full_name: Rep. McHenry, Patrick T. [R-NC-10]
Introduced: 2016-03-23
Policy area: Finance and Financial Sector
Subjects: Business investment and capital

Financial services and investments

Securities
Latest action: action_date: 2016-07-06
text: Received in the Senate.

Summaries:
action_date: 2016-03-23
action_desc: Introduced in House
text: <p><b>Fix Crowdfunding Act</b></p> <p>This bill amends the Securities Act of 1933 (Act) to increase from $1 million to $5 million the aggregate amount of securities sold to all investors by an issuer that qualify for the crowdfunding exemption from certain prohibitions relating to interstate commerce and the mails.</p> <p>(Crowdfunding is a method of capital formation where groups of people pool money, typically composed of small individual contributions, and often via Internet platforms, either to invest in a company or to support an effort by others to accomplish a specific goal.)</p>  <p>The bill amends the Jumpstart Our Business Startups Act (JOBS Act) to declare that a crowdfunding portal shall have a reasonable basis for disqualifying issuers from offering securities through the portal if through a background check it has found that an issuer has made an untrue statement of a material fact, omitted to state a material fact necessary to avoid making misleading statements, or engaged in fraud or deceit. No intermediary (crowdfunding portal) shall be liable for an issuer's material misstatements and omissions unless, in connection with the offer or sale of a security, it knowingly made or omitted such statements or engaged in fraud or deceit.</p> <p>The bill amends the Securities Exchange Act of 1934 to exempt crowdfunding securities transactions from its registration requirements. </p> <p>The Investment Company Act of 1940 is amended to exempt from the definition of investment company, and so exclude from coverage by that Act, any issuer that, for the purpose of making a crowdfunding offering, holds the securities of not more than one issuer eligible to offer securities (a single-purpose fund). </p> <p>The bill allows single-purpose funds to sell and offer for sale securities according to crowdfunding requirements, and considers them venture capital funds.</p> <p>The Act is further amended to permit an issuer, before commencing a crowdfunding offering, to solicit non-binding indications of interest from potential investors in the prospective offering if:</p> <ul> <li>no investor funds are accepted by the issuer, and</li> <li>any material change in the information furnished during the actual offering from the information furnished during the solicitation of interest is highlighted to potential investors in the information filed with the Securities and Exchange Commission. </li> </ul> <p>No enforcement action may be brought before May 16, 2021, against crowdfunding portals established under the JOBS Act. </p>

action_date: 2016-07-05
action_desc: Passed House amended
text: <p><b>Fix Crowdfunding Act</b></p> <p>(Sec. 2) This bill amends the Securities Act of 1933 to allow a crowdfunding issuer to sell shares through a crowdfunding vehicle.</p> <p>(Crowdfunding is a method of capital formation in which groups of people pool money, typically composed of small individual contributions, and often via Internet platforms, either to invest in a company or to support an effort by others to accomplish a specific goal.)</p>  <p>A &quot;crowdfunding vehicle&quot; is a company that:</p> <ul> <li> has purposes limited to acquiring, holding, and disposing securities issued by a single company in one or more transactions and made pursuant to crowdfunding exemption transaction requirements;</li> <li>issues only one class of securities;</li> <li>receives no compensation for such acquisition, holding, or disposition of securities;</li> <li>is a co-issuer with the company whose securities it holds; and</li> <li>meets specified requirements related to disclosure obligations and the use of investment advisers.</li> </ul> <p>(Sec. 3) The bill amends the Securities Exchange Act of 1934 to revise the conditions upon which the Securities and Exchange Commission (SEC) shall exempt securities issued in crowdfunding transactions from SEC registration requirements.</p> <p> Under current law, holders of crowdfunded shares do not count toward the shareholder threshold beyond which an issuer is required to register its securities with the SEC, provided that the issuer: (1) is current in its annual reporting obligations, (2) retains the services of a registered transfer agent, and (3) has less than $25 million in assets. The bill maintains this exemption but removes and replaces the conditions upon which it applies. Specifically, holders of crowdfunded shares shall not count toward the shareholder threshold if the issuer has: (1) a public float of less than $75 million, and (2) annual revenues of less than $50 million.</p>

tv_txt: I 114th CONGRESS 2d Session H. R. 4855 IN THE HOUSE OF REPRESENTATIVES March 23, 2016 Mr. McHenry introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend provisions in the securities laws relating to regulation crowdfunding to raise the dollar amount limit and to clarify certain requirements and exclusions for funding portals established by such Act.

1. Short title This Act may be cited as the Fix Crowdfunding Act . 2. Qualification for crowdfunding exemption (1) Increase in limit of amount sold in reliance on the crowdfunding exemption Section 4(a)(6)(A) of the Securities Act of 1933 ( 15 U.S.C. 77d(6)(A) ) is amended by striking $1,000,000 and inserting $5,000,000 . (2) Clarification of transaction caps Section 4(a)(6)(B) of such Act is amended— (A) in clause (i), by inserting the greater of after 5 percent of ; and (B) in clause (ii), by inserting the greater of after 10 percent of . 3. Clarification of certain funding portal requirements and exclusions for Regulation Crowdfunding (a) Exclusion of issuers from funding portals (1) Clarification of certain exclusion requirements Section 302 of the Jumpstart Our Business Startups Act is amended by adding at the end the following: (e) Clarification of certain exclusion requirements for funding portals Under the rules issued pursuant to subsection (d), a funding portal shall have a reasonable basis for disqualifying an issuer from offering securities through such funding portal pursuant to section 4(a)(6) of the Securities Act of 1933 if the funding portal, through a background check of the issuer or other means, has found that such issuer, in connection with the offer, purchase, or sale of securities, has knowingly— (1) made any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (2) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. . (2) Clarification of other obligations to reduce the risk of fraud Section 4A(a)(5) of the Securities Act of 1933 ( 15 U.S.C. 77d–1(a)(5) ) is amended to read as follows: (5) as a minimum to reduce the risk of fraud with respect to such transactions obtain a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person; . (3) Clarification of liability of funding portals for material misstatements and omissions Section 4A(c) of such Act ( 15 U.S.C. 77d–1(c) ) is amended by adding the end the following: (4) Liability of funding portals For purposes of this subsection, an intermediary shall not be considered an issuer unless, in connection with the offer or sale of a security, it knowingly— (A) made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (B) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. . (b) Exemption from registration Section 12(g)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78 l (g)(6)) is amended— (1) by striking The Commission and all that follows through securities and inserting Securities ; and (2) by inserting shall be exempt after Securities Act of 1933 . (c) Allowing single-Purpose funds (1) Amendment to the Securities Act of 1933 Section 4A(f) of the Securities Act of 1933 ( 15 U.S.C. 77d–1(f) ) is amended— (A) by striking paragraph (2); and (B) by redesignating paragraph (3) as paragraph (2) and in such paragraph, by inserting paragraphs (1) to (14) of after section 3(b) or . (2) Amendment to the Investment Company Act of 1940 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 issuer that holds, for the purpose of making an offering pursuant to section 4(a)(6) of the Securities Act of 1933 and the rules issued pursuant to such section, the securities of not more than one issuer eligible to offer securities pursuant to such section and such rules. . (3) Application of rules Single-purpose funds that are excluded from the definition of investment company under paragraph (15) of section 3(c) of the Investment Company Act ( 15 U.S.C. 80a–3(c) )— (A) shall be allowed to sell and offer for sale securities under section 4(a)(6) of the Securities Act of 1933 ( 15 U.S.C. 77d(a)(6) ) under the rules adopted on October 30, 2015, pursuant to title III of the JOBS Act ( Public Law 112–106 ); and (B) shall be considered venture capital funds for purposes of section 275.203(l)–1 of title 17, Code of Federal Regulations. (d) Solicitation of interest Section 4A of the Securities Act of 1933 ( 15 U.S.C. 77d–1 ) is further amended— (1) by redesignating subsections (f) (as amended by subsection (c)(1)), (g), and (h) as subsections (g), (h), and (i), respectively; and (2) by inserting after subsection (e) the following: (f) Solicitation of interest (1) In general At any time prior to the filing of information with the Commission and the commencement of an offering made in reliance on section 4(a)(6), an issuer may solicit non-binding indications of interest from potential investors in a prospective offering using the same means and pursuant to the same regulations (other than the filing of information with the Commission) as if conducting an offering pursuant to such section if— (A) no investor funds are accepted by such issuer; and (B) any material change in the information provided to potential investors during the actual offering pursuant to such section from the information provided to potential investors during such solicitation of interest are highlighted to potential investors in the information filed with the Commission. (2) Status Such solicitation of interest shall not be considered an offer or sale of securities under this Act or the Securities Exchange Act of 1934, regardless of whether or not the issuer actually conducts an offering pursuant to such section 4(a)(6). . (e) Grace period Consistent with the effective date of the final rules on regulation crowdfunding adopted by the Securities and Exchange Commission on October 30, 2015, pursuant to title III of the JOBS Act ( Public Law 112–106 ), funding portals established under such Act shall make a good faith effort to comply with all such rules. Notwithstanding such effective date, no enforcement action may be brought against a funding portal before May 16, 2021.

tv_txt: I 114th CONGRESS 2d Session H. R. 4855 IN THE HOUSE OF REPRESENTATIVES AN ACT To amend provisions in the securities laws relating to regulation crowdfunding to raise the dollar amount limit and to clarify certain requirements and exclusions for funding portals established by such Act.

1. Short title This Act may be cited as the Fix Crowdfunding Act . 2. Crowdfunding vehicles (a) Amendments to the Securities Act of 1933 The Securities Act of 1933 ( 15 U.S.C. 77a et seq. ) is amended— (1) in section 4A(f)(3), by inserting by any of paragraphs (1) through (14) of before section 3(c) ; and (2) in section 4(a)(6)(B), by inserting after any investor the following: , other than a crowdfunding vehicle (as defined in section 2(a) of the Investment Company Act of 1940), . (b) Amendments to the Investment Company Act of 1940 The Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ) is amended— (1) in section 2(a), by adding at the end the following: (55) The term crowdfunding vehicle means a company— (A) whose purpose (as set forth in its organizational documents) is limited to acquiring, holding, and disposing securities issued by a single company in one or more transactions and made pursuant to section 4(a)(6) of the Securities Act of 1933; (B) which issues only one class of securities; (C) which receives no compensation in connection with such acquisition, holding, or disposition of securities; (D) no associated person of which receives any compensation in connection with such acquisition, holding or disposition of securities unless such person is acting as or on behalf of an investment adviser registered under the Investment Advisers Act of 1940 or registered as an investment adviser in the State in which the investment adviser maintains its principal office and place of business; (E) the securities of which have been issued in a transaction made pursuant to section 4(a)(6) of the Securities Act of 1933, where both the crowdfunding vehicle and the company whose securities it holds are co-issuers; (F) which is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 CFR 227.202); (G) the company whose securities it holds is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 CFR 227.202); and (H) is advised by an investment adviser registered under the Investment Advisers Act of 1940 or registered as an investment adviser in the State in which the investment adviser maintains its principal office and place of business. ; and (2) in section 3(c), by adding at the end the following: (15) Any crowdfunding vehicle. . 3. Crowdfunding exemption from registration Section 12(g)(6) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78l(g)(6) ) is amended— (1) by striking The Commission and inserting the following: (A) In general The Commission ; (2) by striking section 4(6) and inserting section 4(a)(6) ; and (3) by adding at the end the following: (B) Treatment of securities issued by certain issuers An exemption under subparagraph (A) shall be unconditional for securities offered by an issuer that had a public float of less than $75,000,000 as of the last business day of the issuer’s most recently completed semiannual period, computed by multiplying the aggregate worldwide number of shares of the issuer’s common equity securities held by non-affiliates by the price at which such securities were last sold (or the average bid and asked prices of such securities) in the principal market for such securities or, in the event the result of such public float calculation is zero, had annual revenues of less than $50,000,000 as of the issuer’s most recently completed fiscal year. .

Passed the House of Representatives July 5, 2016. Karen L. Haas, Clerk.

tv_txt: IB Union Calendar No. 512 114th CONGRESS 2d Session H. R. 4855 [Report No. 114–661] IN THE HOUSE OF REPRESENTATIVES March 23, 2016 Mr. McHenry introduced the following bill; which was referred to the Committee on Financial Services July 5, 2016 Additional sponsor: Mr. Schweikert July 5, 2016 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 For text of introduced bill, see copy of bill as introduced on March 23, 2016 A BILL To amend provisions in the securities laws relating to regulation crowdfunding to raise the dollar amount limit and to clarify certain requirements and exclusions for funding portals established by such Act.

1. Short title This Act may be cited as the Fix Crowdfunding Act . 2. Crowdfunding vehicles (a) Amendments to the Securities Act of 1933 The Securities Act of 1933 ( 15 U.S.C. 77a et seq. ) is amended— (1) in section 4A(f)(3), by inserting by any of paragraphs (1) through (14) of before section 3(c) ; and (2) in section 4(a)(6)(B), by inserting after any investor the following: , other than a crowdfunding vehicle (as defined in section 2(a) of the Investment Company Act of 1940), . (b) Amendments to the Investment Company Act of 1940 The Investment Company Act of 1940 ( 15 U.S.C. 80a-1 et seq. ) is amended— (1) in section 2(a), by adding at the end the following: (55) The term crowdfunding vehicle means a company— (A) whose purpose (as set forth in its organizational documents) is limited to acquiring, holding, and disposing securities issued by a single company in one or more transactions and made pursuant to section 4(a)(6) of the Securities Act of 1933; (B) which issues only one class of securities; (C) which receives no compensation in connection with such acquisition, holding, or disposition of securities; (D) no associated person of which receives any compensation in connection with such acquisition, holding or disposition of securities unless such person is acting as or on behalf of an investment adviser registered under the Investment Advisers Act of 1940; (E) the securities of which have been issued in a transaction made pursuant to section 4(a)(6) of the Securities Act of 1933, where both the crowdfunding vehicle and the company whose securities it holds are co-issuers; (F) which is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 C.F.R. 227.202); (G) the company whose securities it holds is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 C.F.R. 227.202); and (H) is advised by an investment adviser registered under the Investment Advisers Act of 1940. ; and (2) in section 3(c), by adding at the end the following: (15) Any crowdfunding vehicle. . 3. Crowdfunding exemption from registration Section 12(g)(6) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78l(g)(6) is amended— (1) by striking The Commission and inserting the following: (A) In general The Commission ; (2) by striking section 4(6) and inserting section 4(a)(6) ; and (3) by adding at the end the following: (B) Treatment of securities issued by certain issuers An exemption under subparagraph (A) shall be unconditional for securities offered by an issuer that had a public float of less than $75,000,000 as of the last business day of the issuer’s most recently completed semiannual period, computed by multiplying the aggregate worldwide number of shares of the issuer’s common equity securities held by non-affiliates by the price at which such securities were last sold (or the average bid and asked prices of such securities) in the principal market for such securities or, in the event the result of such public float calculation is zero, had annual revenues of less than $50,000,000 as of the issuer’s most recently completed fiscal year. .

July 5, 2016 Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

tv_txt: II 114th CONGRESS 2d Session H. R. 4855 IN THE SENATE OF THE UNITED STATES July 6, 2016 Received AN ACT To amend provisions in the securities laws relating to regulation crowdfunding to raise the dollar amount limit and to clarify certain requirements and exclusions for funding portals established by such Act.

1. Short title This Act may be cited as the Fix Crowdfunding Act . 2. Crowdfunding vehicles (a) Amendments to the Securities Act of 1933 The Securities Act of 1933 ( 15 U.S.C. 77a et seq. ) is amended— (1) in section 4A(f)(3), by inserting by any of paragraphs (1) through (14) of before section 3(c) ; and (2) in section 4(a)(6)(B), by inserting after any investor the following: , other than a crowdfunding vehicle (as defined in section 2(a) of the Investment Company Act of 1940), . (b) Amendments to the Investment Company Act of 1940 The Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ) is amended— (1) in section 2(a), by adding at the end the following: (55) The term crowdfunding vehicle means a company— (A) whose purpose (as set forth in its organizational documents) is limited to acquiring, holding, and disposing securities issued by a single company in one or more transactions and made pursuant to section 4(a)(6) of the Securities Act of 1933; (B) which issues only one class of securities; (C) which receives no compensation in connection with such acquisition, holding, or disposition of securities; (D) no associated person of which receives any compensation in connection with such acquisition, holding or disposition of securities unless such person is acting as or on behalf of an investment adviser registered under the Investment Advisers Act of 1940 or registered as an investment adviser in the State in which the investment adviser maintains its principal office and place of business; (E) the securities of which have been issued in a transaction made pursuant to section 4(a)(6) of the Securities Act of 1933, where both the crowdfunding vehicle and the company whose securities it holds are co-issuers; (F) which is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 CFR 227.202); (G) the company whose securities it holds is current in its ongoing disclosure obligations under Rule 202 of Regulation Crowdfunding (17 CFR 227.202); and (H) is advised by an investment adviser registered under the Investment Advisers Act of 1940 or registered as an investment adviser in the State in which the investment adviser maintains its principal office and place of business. ; and (2) in section 3(c), by adding at the end the following: (15) Any crowdfunding vehicle. . 3. Crowdfunding exemption from registration Section 12(g)(6) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78l(g)(6) ) is amended— (1) by striking The Commission and inserting the following: (A) In general The Commission ; (2) by striking section 4(6) and inserting section 4(a)(6) ; and (3) by adding at the end the following: (B) Treatment of securities issued by certain issuers An exemption under subparagraph (A) shall be unconditional for securities offered by an issuer that had a public float of less than $75,000,000 as of the last business day of the issuer’s most recently completed semiannual period, computed by multiplying the aggregate worldwide number of shares of the issuer’s common equity securities held by non-affiliates by the price at which such securities were last sold (or the average bid and asked prices of such securities) in the principal market for such securities or, in the event the result of such public float calculation is zero, had annual revenues of less than $50,000,000 as of the issuer’s most recently completed fiscal year. .

Passed the House of Representatives July 5, 2016. Karen L. Haas, Clerk