Expanding Access to Capital Act of 2023
Floor Speech
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Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
Mr. Chair, I rise today in strong opposition to H.R. 2799, a bill that would cause significant long-term harm to both small businesses trying to raise money and mom-and-pop investors trying to save for their retirements.
A primary reason our capital markets are the envy of the world is because investors have confidence in the financial products that they are investing in. That confidence is hard won to be sure. It is the result of a robust disclosure regime that has been in place for decades and requires public companies to transparently and accurately tell investors about the inner workings of their businesses, their financials, and the risk involved with purchasing their shares.
Investor confidence is also rooted in strong legal protections for investors and their right to have a say in the company's direction through the proxy process.
And importantly, investor confidence is based on having a strong enforcer, the Securities and Exchange Commission, or SEC, that sets clear rules of the road, and keeps fraudsters out of the system.
While our capital markets are far from perfect, trillions of dollars are invested every year because investors are confident that they won't be ripped off.
Unfortunately, the bill before us today threatens to undermine that investor confidence.
First, H.R. 2799 would expand the number of companies that are able to offer securities without needing to register with the SEC or provide critical disclosures to ordinary investors.
This expansion will only benefit moderate to large companies rather than the small businesses this act purports to help. By exempting more companies from public SEC registration requirements, this bill expands the size of the private securities markets, which are growing rapidly and already outnumber the public securities markets 2-1.
Second, this bill makes it easier for financial middlemen to peddle opaque, illiquid, and high-risk private securities to retail investors who won't receive the information they need to make informed investment decisions.
This isn't democratizing finance or creating investment opportunities; this is Wall Street creating another target to dump its bottom-of-the-barrel investment products onto retail investors.
Private securities, compared to public securities, are significantly more risky and more volatile, less transparent, harder to cash out, and have fewer legal protections.
The bottom-of-the-barrel private securities that will be sold to retail investors as a result of this bill are especially dangerous because they will only be offered to retail investors after private equity and venture capital funds have already passed on them. It is important to notice that 90 percent of startups fail and private equity would love to dump these stocks on your constituents.
Third, H.R. 2799 undermines the ability of State securities regulators to help small businesses raise capital and stop fraudsters. State securities regulators are on the front line of our capital markets, investigating complaints of investor fraud, enforcing State securities laws, educating investors about their rights, and helping small businesses raise money to fund their goals and comply with the law. We should not preempt States by blocking these important overseers from doing their jobs.
To summarize, H.R. 2799 is a Wall Street wish list that collectively exempts big corporations and investment funds from transparency and accountability while gutting critical legal safeguards for Main Street investors. By weakening investor protections in numerous ways, this bill would allow fraud to proliferate and retirees and other mom-and- pop investors to be ripped off by bad actors.
This bill would ultimately harm confidence in our capital markets while doing nothing to assist the very small businesses the bill purports to help. In fact, as investors lose confidence in our markets, small businesses will see their capital costs rise, not fall.
I want to thoroughly debunk the notion that this bill somehow helps small businesses because the truth is that it would do just the opposite. I am very supportive of small businesses.
In fact, I have worked extensively this Congress with Chair McHenry on bipartisan ways that we can help small businesses raise capital. We have worked together to strengthen crowdfunding and to change the rules on accredited investors. There are several policy solutions that we have agreed on that represent targeted ways to increase capital formation without harming investor protection.
In fact, we worked together to pass 13 bills last year that represent bipartisan, commonsense reforms that support small businesses, enabling those who are knowledgeable about the risks of private securities to make informed investments, while ensuring robust investor protections.
Most of these bills also passed under suspension on the House floor, so there is a bipartisan way forward on this issue, but instead of working with Democrats to get these bipartisan bills to the President's desk, Republicans have packaged together this toxic combination of partisan bills and are focusing their time and energy here.
Mr. Chair, Democrats on the Financial Services Committee voted unanimously to oppose this bill at a markup last April. I urge all of my colleagues to unanimously reject it on the floor today.
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Ms. WATERS. Mr. Chair, I yield such time as she may consume to the gentlewoman from New York (Ms. Velazquez), the ranking member of the Small Business Committee.
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Ms. WATERS. Mr. Chair, I yield 4 minutes to the gentleman from California (Mr. Sherman), who is also the ranking member of the Subcommittee on Capital Markets.
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Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
Let's be clear. This Wall Street wish list bill is going nowhere in the Senate, but we have several bipartisan bills that support small businesses and retail investors that actually have a chance of getting into law.
Chair McHenry and I have worked together for several years on legislation to strengthen our capital markets, going back to the JOBS Act and our efforts on crowdfunding and legislation to support angel investors.
In fact, this Congress, we worked extensively together on 13 bipartisan bills, including my bill, H.R. 2796, the Promoting Opportunities for Non-Traditional Capital Formation Act, which requires the SEC's Office of the Advocate for Small Business Capital Formation to provide educational resources and host events to promote capital- raising options for underrepresented small businesses and businesses in rural areas and to meet annually with representatives of State securities commissions; Mr. Meeks' bill, H.R. 2795, the Enhancing Multi-Class Share Disclosures Act, which requires an issuer with the multi-class share structure to disclose certain information regarding the voting power of specified persons; Mr. Himes' bill, H.R. 2812, the Middle Market IPO Underwriting Cost Act, which requires the SEC to study the costs encountered by small- and medium-sized companies when undertaking initial public offerings and certain offerings exempt from securities registration requirements; and Mr. Gottheimer's bill, H.R. 2593, the Senior Security Act, which establishes a senior investor task force within the SEC. The task force must report on topics relating to investors over the age of 65 and make recommendations for actions to address problems encountered by senior investors.
Committee Democrats also supported several more Republican bills that help promote capital formation. We could have worked together to get these all included in the NDAA, but Chair McHenry knows why that didn't happen--Republicans blocked all of these bills from being added.
Today, Republicans are pivoting to a completely partisan approach to the issue with this bill. This is par for the course with extreme MAGA Republicans who prefer to pander to their base instead of actually getting things done.
When Republicans are done wasting their time on this extreme MAGA bill, Democrats will be ready to get to work on solutions that actually have a chance of making a difference for small businesses and retail investors.
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Ms. WATERS. Mr. Chair, the following organizations oppose this bill: the North American Securities Administrators Association, Consumer Federation of America, AFL-CIO, AFSCME, Communications Workers of America, SEIU, Steelworkers, Transport Workers Union of America, Americans for Financial Reform, Public Citizen, Center for American Progress, and Main Street Alliance.
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Ms. WATERS. Mr. Chair, I have no further speakers, and I yield myself the balance of my time.
Mr. Chair, in all my years in Congress, this is one of the worst examples I have ever seen of a Wall Street wish list masquerading as a lifeline for small businesses and ordinary investors.
Let me be clear. This bill does nothing to help small businesses. It only helps big business avoid transparency and accountability, and that is why the Biden administration opposes this bill.
This bill does nothing to help ordinary investors. It only helps make it easier for investors to be duped by conflicted middlemen into purchasing some of the riskiest securities out there.
Under this bill, these middlemen will have free rein to mask critical details about investment risk and target elderly people and others with what they claim is a great investment opportunity that will help them build wealth but, in reality, is a fraud.
For example, these middlemen will be able to take the failing businesses off private equity balance sheets and offload them onto Main Street investors.
This bill also hinders small businesses' ability to raise money by preempting State law and preventing State securities regulators from doing their job.
Mr. Chair, we see this bill for what it is: a Wall Street wish list that throws Main Street investors under the bus.
Mr. Chair, I urge my colleagues to vote for Main Street, not Wall Street, by voting ``no'' on this bill. I yield back the balance of my time.
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Ms. WATERS. Mr. Chair, I claim the time in opposition.
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Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
This amendment sponsored by Mr. Lawler codifies a controversial Trump-era SEC rule that is opposed by many investor advocates.
The amendment allows high-risk startups to tout their businesses in front of retail investors. This is currently prohibited in part because roughly 75 percent of VC-backed startups fail.
The amendment would specifically allow angel investors and issuers to market their startup ventures to prospective investors at colleges and nonprofits, including churches.
Broadly marketing your securities to the public in this fashion-- known as a general solicitation--is usually prohibited for private offerings like these because the public nature of the market effectively makes the offering itself public, and therefore, requires registration with the SEC.
At universities and churches, students and congregants gather to learn, and they generally trust the information they receive. I don't believe these are spaces where it is appropriate to market highly risky investment opportunities.
In my own district, a church was the victim of an investment scheme in which an issuer conned the church out of nearly $6 million. I previously offered an amendment during our committee's markup last year that would prevent future frauds like this from happening again--frauds that would be further enabled by this amendment.
As such, I urge my colleagues to oppose Mr. Lawler's amendment, and I reserve the balance of my time.
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Ms. WATERS. Mr. Chair, what Mr. Lawler doesn't recognize is that the underlying bill makes the accredited investor definition meaningless. All you have to do is check a box, and poof, able to invest.
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Ms. WATERS. Mr. Chair, I yield myself the balance of my time to close.
Simply put, this amendment allows failure-prone startups to market their private offerings to unaccredited investors who do not fully understand the risks involved.
Colleges and churches are not the place startups should be raising money, and in general, we should not make it easier for them to push their risky private securities on unsuspecting retail investors, as this provision does.
Mr. Chair, I urge my colleagues to vote ``no,'' and I yield back the balance of my time.
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Ms. WATERS. Mr. Chair, I demand a recorded vote.
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Ms. WATERS. Madam Chair, I claim the time in opposition to the amendment.
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Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
This amendment ignores the reality that many investors, particularly seniors, do not have access to or the ability to review electronic documents or simply do not prefer electronic delivery of financial documents. It would require investors to opt in to receive paper documents, which would effectively prevent individuals who do not have easy access to the internet from viewing important financial documents about the securities they invest in.
Several major investor advocate groups strongly oppose this bill, including the AARP, the North American Securities Administrators Association, the Consumer Federation of America, Americans for Financial Reform, and Public Citizen, to name a few.
I strongly urge my colleagues to vote ``no'' on this terrible amendment.
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Ms. WATERS. Madam Speaker, I yield myself the balance of my time.
The name of this amendment, Improving Disclosure for Investors, is an oxymoron. It does absolutely nothing to improve disclosure for investors. Rather, by forcing them to opt in to paper filings, it would make it more difficult, if not impossible, for many investors to see what fees they pay for their funds, brokerage accounts, and retirement savings. Instead of having easy, instant access via paper copies, they would need to go online to search for that information.
This amendment is more appropriately called the improving Wall Street profits at the expense of retail investors act.
I strongly urge my colleagues to protect elderly investors and to vote ``no'' on this amendment.
Madam Chair, I yield back the balance of my time.
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Ms. WATERS. Madam Chair, I claim the time in opposition to the amendment.
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Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
This amendment, sponsored by Mr. Lucas, would be better titled the retirement hazard for charities and educational institutions amendment because it puts the retirement savings of public interest professionals at risk.
403(b) retirement plans cater to teachers, school administrators, professors, nonprofit employees, and healthcare workers. These individuals dedicate their lives to the public interest. They invest in the future of our children. They ensure we get the healthcare we need, even during a global pandemic, and too often, they aren't paid nearly enough to do the work that they do.
There are current restrictions on how 403(b) plans can invest their assets, and this is to ensure that these retirement accounts are generally safe investments. However, this amendment would allow 403(b) plans to invest in two types of risky, unregistered securities: collective investment trusts, or CITs, which is a type of pooled investment vehicle, and insurance products called variable annuities, both of which are considered fairly risky products for unsophisticated investors.
Madam Chair, under this amendment, neither of these products would be subject to regulation or oversight by the SEC.
More than half of all 403(b) plans are not covered by ERISA protections, meaning that this newly allowed risky investment activity would also escape the oversight of the Department of Labor.
While Republicans claim they are creating parity with 401(k) plans, this is simply untrue because all 401(k) plans are, in fact, covered by ERISA. To create true parity, we would need to restrict the sale of CITs and variable annuities to only 403(b) plans covered by ERISA.
All in all, this amendment would carve out over $1.4 trillion of retirement funds from Federal oversight. This would constitute the single largest deregulation of our capital markets in years.
Ultimately, this amendment would put the hard-earned retirement savings of public interest professionals at risk. That is why I strongly oppose it.
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Ms. WATERS. Madam Chair, I continue to reserve the balance of my time.
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Ms. WATERS. Madam Chair, I yield myself the balance of my time.
Madam Chair, by allowing unregistered financial professionals to sell unregistered products to 403(b) plans, this amendment would leave America's teachers, healthcare workers, and other public interest professionals vulnerable to losing their retirement funds.
Neither of the two unregistered products contemplated nor the sales of these products would be subject to regulation or oversight by the SEC, which allows them to skirt investor protections and exposes plan participants to greater risk of loss. Congress must do everything in its power to ensure our teachers and dedicated public servants have a comfortable retirement, but this amendment would do anything but that.
Madam Chair, I strongly urge my colleagues to vote ``no,'' and I yield back the balance of my time.
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Ms. WATERS. Madam Chair, I demand a recorded vote.
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Ms. WATERS. Madam Chair, I claim the time in opposition.
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Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
Madam Chair, this amendment would be better titled increasing investor risks.
Currently, closed-end funds, which are a type of mutual fund, are only allowed to invest up to 15 percent of their assets into private funds. This current limit of 15 percent gives closed-end funds some flexibility to invest in private funds but establishes a reasonable restriction, considering private funds are subject to less regulation and disclosure. This restriction also accounts for the fact that private funds invest in fledgling startups and distressed companies, which are significantly more risky than public securities, and most of their investments fail.
Mrs. Wagner's amendment would eliminate the restriction on closed-end fund investments into private funds, allowing them to invest up to 100 percent of their assets into private funds. Moreover, the amendment provides zero safeguards to mitigate the new risks created by this blunt deregulation.
Like all the rest of the capital markets-related amendments before us today, this one is opposed by investor groups, consumer and investor advocates, and State regulators.
For these reasons, Madam Chair, I oppose this amendment.
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Ms. WATERS. Madam Chair, I yield myself the balance of my time.
Madam Chair, as I stated, the assets that private funds purchase are significantly more risky than public securities. In fact, 9 out of every 10 of their investments fail.
Allowing closed-end funds to invest all of their assets into private funds can be risky for America's retirement savers, who should be able to trust that these funds are safe investments for them to save for retirement.
As such, Madam Chair, I strongly urge my colleagues to vote ``no,'' and I yield back the balance of my time.
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Ms. WATERS. Madam Chair, I demand a recorded vote.
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