Expanding Access to Capital Act of 2023

Floor Speech

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Mr. LYNCH. Madam Chair, in the interest of investor protection, my amendment would prevent H.R. 2799 from taking effect unless the Securities and Exchange Commission certifies to Congress that this misguided legislation will not increase the amount of fraud in our financial system.

Importantly, this certification would be based on SEC consultation with our State securities regulators.

As ranking member of the Subcommittee on Digital Assets, Financial Technology and Inclusion, I am strongly supportive of reducing barriers to capital market participation in a manner that maximizes investor protection, regulatory oversight, and responsible capital formation. Unfortunately, this bill removes basic protections and promotes reckless deregulation at the expense of all three.

Not surprisingly, our State securities regulators are overwhelmingly opposed to the so-called Expanding Access to Capital Act because it would preempt critical State laws that are in place to protect retail investors against fraud and other financial misconduct.

In my own State of Massachusetts, our longtime Secretary of the Commonwealth and chief securities regulator, Bill Galvin, reports this bill would significantly undermine the State's ability to regulate financial middlemen such as finders and private placement brokers and that these financial intermediaries regularly promote private investments that are both high risk and nonliquid.

By providing these individuals with a virtual safe harbor from registration and other important investor protection requirements, H.R. 2799 will weaken oversight and enforcement in this area. According to Secretary Galvin, finders will be ``invisible to regulators and market observers until problems arise.''

The Massachusetts Securities Division has, in fact, commenced several recent enforcement actions related to finder misconduct, including the solicitation of fraudulent promissory notes to further a Ponzi scheme and the use of scam investment tactics to raise small business capital for businesses that never materialized. These schemes have cost Massachusetts investors millions of dollars.

Similarly, the North American Securities Administrators Association, which is on the front line of investor protections across our country, strongly opposes this legislation on the grounds that it would make it impossible for State securities regulators to promote responsible capital formation and protect investors in the States.

Under existing investor protection statutes and registration requirements, regulators are able to directly engage with small business owners and entrepreneurs to educate them on responsible options for raising capital, help them avoid compliance mistakes, and deter fraud that will harm investors and businesses alike.

The bill before us, however, would undermine these efforts by obscuring finders and other middlemen from the lines of sight of State and Federal regulatory authorities.

Moreover, bad actors are increasingly peddling cryptocurrency asset securities. In the wake of the abrupt collapse of FTX and the conviction of its founder, Sam Bankman-Fried, for stealing nearly $10 billion in customer funds, we are well aware of the volatility of the cryptocurrency sector and its susceptibility to financial fraud. We should be strengthening transparency and accountability in the private securities markets rather than facilitating reckless financial behavior.

Madam Chair, our capital markets are the envy of the world, specifically because of the robust State and Federal regulatory regimes that function to protect investors and promote confidence in capital formation.

H.R. 2799 will dismantle this framework. That is precisely why a variety of consumer and investor protection advocates also strongly oppose the bill, including the Consumer Federation of America, Americans for Financial Reform, and Public Citizen. They report that an alarming proportion of the individuals who act as financial middlemen already have numerous red flags on their records, presenting an elevated risk of fraud to investors.

Madam Chair, I urge my colleagues on both sides of the aisle to support this commonsense investor protection amendment, and I reserve the balance of my time.

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Mr. LYNCH. Madam Chair, may I inquire how much time I have remaining.

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Mr. LYNCH. Very briefly, Madam Chair, I would just add that in this bill there are several preemption provisions that prevent State regulators from actually doing their jobs, and that is problematic. They are, in many cases, elected officials. They are not unelected officials. Their responsibility is to protect investors, and they have done a good job in all 50 States.

So, again, Madam Chair, for all the reasons I previously stated, I ask Members on both sides of the aisle to please support this commonsense amendment.

Madam Chair, I yield back the balance of my time.

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Mr. LYNCH. Madam Chair, I demand a recorded vote.

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