Fair Investment Opportunities for Professional Experts Act

Floor Speech

Mr. Speaker, I rise in support of H.R. 835, the Fair Investment Opportunities for Professional Experts Act sponsored by the gentleman from Arkansas (Mr. Hill). This bill passed the committee by voice vote. I was there. I didn't hear a single ``no'' vote.

This bill deals with the overall process of investing in stock being sold by the company to investors to raise money. We see this happen through public offerings, and most of us one way or another or through a pension plan are invested in publicly traded stocks.

The process for a company to go public is an expensive one, and so smaller companies also do private offerings.

We have a process of restricting investments in these private offerings to those who can afford and understand the risks and those who understand that they can't necessarily sell the security that they have purchased readily.

We do need a framework for accredited investors who are allowed to buy in these private offerings. Up until now, our definition of accredited investor has focused too much on wealth or income of the investor and not on the expertise of the investor.

This bill, I think, moves us in the right direction as far as allowing those with expertise to invest. I also look forward to narrowing the definition of those or eliminating those from investing solely because they are wealthy. Just because you have a million dollars does not mean that you have understanding or knowledge.

The accredited investor framework protects the general public from being sold high-risk, illiquid private securities. This is because private securities do not come with anywhere near the same level of financial or other disclosures to investors that public securities do. Nor do private securities come with the same legal protections for investors and oversight from the SEC and State regulators as compared to public securities.

Finally, they don't come with the same level of liquidity and ability to sell or a posted price where you can be assured that there is a big public market, and you know what the fair price is.

Both accredited investor bills being considered on suspension today aim to return to this concept of accredited investor but focus on the knowledge of the investor as to the high-risk nature of the private security offering.

We all know that just because you have a million dollars does not mean you understand the complexities of the private markets.

Conversely, you should not be prohibited from investing in these products if you do have knowledge of the risks involved but don't happen to have a million dollars.

This is why it is so important for the SEC to update its definition of accredited investors to protect investors who are not sufficiently informed while creating pathways for those who are or those who make themselves sufficiently knowledgeable.

Mr. Hill's bill would allow individuals with certain credentials, such as an MBA or a FINRA certification--that is a certification from the Financial Industry Regulatory Authority that would allow one to actually be a broker-dealer. People who meet those two qualifications would be deemed accredited investors without reference to their income or wealth.

I am under no illusion about the riskiness of these products. We will all hear the stories. Every friend I have who goes to Vegas and tells me about it, comes back saying they won everything. I have nine other friends who go to Vegas. They never tell me how well they did.

Likewise, we all will hear about somebody who invested in Apple at the beginning, but nobody talks about their investment in pear, tangerine, or kumquat.

This is an opportunity to make a lot of money. It is also an opportunity to lose a lot of money. I believe that the reforms to the definition of accredited investors are necessary and fair, and this bill is a reasonable expansion of the definition of people who can be expected to have the requisite knowledge or expertise to make an informed investment about the very risky private securities.

I support this bill. Every voice on the committee supports this bill, and I urge my colleagues to vote for it.

The accredited investor framework is in need of improvement. Today, millions of families can be targeted to invest in high-risk, illiquid, nontransparent financial products solely because of the inflated value of their assets, putting at risk their ability to live comfortably in retirement. At the same time, others who are knowledgeable are prevented from investing.

When the accredited investor framework was first established by the SEC in 1982, less than 2 percent of our population could be solicited by broker-dealers or companies raising capital on the basis of their income or on the basis of their assets.

Today, that has risen to 20 percent. That is not because investors are more knowledgeable and it is really not because there are more investors who can afford to take major losses. It is simply because we have had a lot of inflation since 1982, and so you can meet the asset requirements with real estate and your retirement nest egg.

To be clear, no one thinks that the amount you need for your retirement in 2023 is the amount you needed in 1982. That is why the SEC needs to revise the thresholds to better protect working families.

That said, Mr. Hill's bill is sensible. It would return to the original concept of the accredited investor, focusing on investors who are knowledgeable about the risks of private securities.

I would also point out that while we are protecting investors, another function of our securities laws is to help companies raise capital and, obviously, this bill will help many companies to raise the capital they need to expand; so I believe that is a balanced bill.

I look forward to other steps to change the accredited investor framework. I urge my colleagues to support this bill, and I yield back the balance of my time.

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