Date: 2016-04-27
Speaker: MAXINE WATERS (democrat)
Chamber: H
State: California

Mr. Speaker. I yield myself such time as I may consume. I rise in opposition to H.R. 4498. the Helping Angels Lead Our Startups Act. This bill will make changes to investor protections under the JOBS Act that I believe are illadvised and could lead to unintended consequences for our regulatory framework. It would do so by broadening the scope of when private securities offerings can be solicited or advertised to the public without first verifying that the purchaser is financially sophisticated enough to understand the risk involved. what we call "accredited investors." Specifically. the bill would require the SEC to amend its safe harbor rules for private placements under Rule 506 of Regulation D so that the current verification requirements for general solicitation and advertising do not effectively apply to sales events that are sponsored by certain groups. colleges. nonprofits. trade associations. or angel investor groups. for example. The bills intent is to expand the role of angel investors in capital formation. It is a laudable goal. but it is one that needs appropriate rules to ensure investors have the protection and legal recourse needed to make sound investments. So. while the bill would limit the amount and type of information that can be communicated for these events. it would still allow companies to condition the markets for their securities and offer them to any member of the public who walks in the door. Let me be clear. If a university wants to sponsor a socalled demo day with companies that want to pitch their ideas and products. they already can. and the entire public can attend. The companies. however. just cant talk about offers or sell securities in their companies. I am concerned that this bill. however. would cause real harm to retail investors. For example. a hedge fund could set up an event that is sponsored by a questionable college. like Corinthian. could pass out flyers on campus that advertise their shares. and then sell those shares to anyone who had attended the event. including the students who may know nothing about how this whole operation works. They would not have to take reasonable steps to verify that these purchasers are accredited investors. Furthermore. events sponsored by government entities. nonprofits. and universities are likely to attract the very people we are trying to protect. investors who are not accredited and do not have enough financial sophistication or wherewithal to understand the investments or bear their high risk of loss. We created the Rule 506 exemption under the JOBS Act to expand the market for private offerings. Private companies can now advertise and solicit offerings to the general public. which helps them to raise the capital they need to grow their businesses. In exchange for the expanded framework and lower levels of investor protection. we passed a simple amendment that I offered to require companies to just take reasonable steps to verify that the purchaser of the security is an accredited investor. The intent was simple. If a company is going to advertise riskier private offerings. it must ensure that the buyer has the necessary income and assets to qualify for such a purchase rather than rely on socalled selfcertification. The bill would effectively reverse this sensible amendment during these sales events. At best. the bill is also unnecessary. The SEC has already provided relief to angel investor groups if they curate the people who attend these sales events. They have to either make sure they have a preexisting relationship with the investor or verify their income and assets at the time of purchase. which is consistent with our regulatory framework. I have offered an amendment. which will be debated later today. that would codify the SECs relief and prevent harm to everyday investors. It would also limit the exemptions to operating companies so that shell companies and investment vehicles. like hedge funds. cant solicit potentially risky offerings to unknowing investors. These revisions to the bill would strike an appropriate balance between capital formation and investor protection while still supporting angel investor groups. However. without my amendment. I cannot support this bill. Mr. Speaker. I reserve the balance of my time.