Entrepreneur Access to Capital Act

Floor Speech

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Mr. PERLMUTTER. Mr. Chairman, I yield myself such time as I may consume.

I thank my friend from North Carolina for bringing this matter to the floor, for being the sponsor of this bill and for working with us to make this bill better.

Now, as Mr. McHenry said, this is a bill that really allows money to be raised, investments to be made by people without a lot of money. They are investors who are going to make smaller investments but in a large volume. As my friend said, this isn't 1933, and this isn't 1934 when those acts were passed. But still, what we've got to remember is sales can be made on the Internet now, or this bill will ask that sales be made of securities on the Internet. Originally, it could be on the phone, it could have been by mail, and it could have been by word of mouth. But what we've got to do with this ability to raise money across the Internet is ensure that the proper protections are put into place so that those who might deceive or defraud or in some other way mislead investors who are making these investments can be policed and the laws can be enforced if, in fact, there is some type of fraudulent act.

Now H.R. 2930 enables small companies and individuals to make use of Internet-based social networks to raise up to $1 million from friends, family, and other interested investors. While the bill caps both the total level of securities and the amount investors can invest, Democrats expressed strong concerns about the potential harm this new market could pose to investors. Originally, the bill provided few investor protections and no SEC or State regulatory oversight.

During the committee markup of H.R. 2930, Democrats added provisions requiring crowdfunding. And ``crowdfunding'' is a term that really isn't seen in our law to date. And what it is is the sale of securities, the solicitation of investments across the Internet in small amounts. So Democrats asked that there be notice given to State regulators so that they could police the activities against wrongful conduct, deception, fraud, embezzlement, or other kinds of misdeeds. Democrats successfully added a provision to disqualify bad actors, individuals that have been convicted of either State or Federal securities law violations or other financial law violations. Democrats also requested, and the gentleman from North Carolina and the Republicans agreed, to create a regulatory framework for the crowdfunding Web sites that would provide additional disclosures, safeguards, and protections for investors who wanted to buy into one of these investments.

We recently had a financial crisis that we're still continuing to dig our way out of. There were Ponzi schemes. Everybody is aware of the Madoff Ponzi scheme and others. We need to have protections for investors as businesses seek to form and develop capital. We thank the gentleman from North Carolina in working with us to place some of those investor protections into this bill.

We know there will be a number of amendments that are proposed that will continue to strengthen those investor protections. We thank the gentleman from North Carolina for bringing this bill forward.

I reserve the balance of my time.

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Mr. PERLMUTTER. Madam Chair, I yield myself such time as I may consume.

For the record, H.R. 2930 creates a new exemption from registration under the Securities Act of 1933 for what we call ``crowdfunding'' securities. I think the record should have a definition. Crowdfunding refers to a technique for raising money over the Internet in relatively small amounts from a large number of people. And that's the exemption that's being sought pursuant to this bill, a different way to raise money. Would the gentleman agree?

I yield to my friend from North Carolina.

Mr. McHENRY. I thank my colleague for submitting that for the record, the definition.

Now, the intention is that you have an Internet portal of sorts, but this could be done on any mass basis. But the disclosures have to be very clear--which we specify in the legislation--and we've given the SEC the ability to specify additional pieces. I have a technical amendment to clarify what the Securities and Exchange Commission staff thinks is very important to add to this bill. But I do appreciate the gentleman offering the definition.

Mr. PERLMUTTER. I thank my friend.

One other new term in the bill that we ought to have some discussion about is ``intermediary.'' Intermediary in the bill is more or less a custodian of funds. Am I correct or not?

I yield to my friend.

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Mr. PERLMUTTER. Madam Chair, I yield myself such time as I may consume.

I would like to thank my friend from North Carolina for bringing this bill forward.

It is a good idea. It allows for investments to be made in smaller amounts by more people using mass kinds of solicitations through the Internet, through some other vehicle that we may not know of at this point. And that is a good step. And as we've gone through the process, we've built it into a better bill by adding in investor protections because this is something where people could be misled. There could be misrepresentations, and there has to be some penalty for that. As the amendment process goes forward today, we will build those amendments into this.

Now, having said all of that, having listened to the description of the bill that preceded us about making it easier to sell securities, sell investments, sell deals to accredited investors, that's a nice step, too. Again, we need to have investor protection restrictions in there just to make sure people don't get defrauded. We just suffered through that in 2008 with the likes of Madoff and Stanford and a number of other fraudsters, con artists. We want to minimize that if we can as we try to make capital available to businesses to grow.

Now, let's not make any mistake here. These are nice steps, but they're not going to put a lot of people back to work.

My friend, Mr. McHenry, described the President speaking in this very Chamber about this bill, but what he was really talking about was the American Jobs Act. And the American Jobs Act is what this body needs to pass as well. We need to keep teachers on the job. We need to keep firefighters on the job. We need to put construction workers back on the job.

There were complaints about the United States Senate slowing things down, blocking things. Well, today, the United States Senate, the Republicans in the United States Senate, blocked rebuilding the infrastructure of this country--the roads, the bridges, the energy system, the sewer systems, the basic things that this country needs which would put thousands and thousands of construction workers back on the job.

So it would be jobs today, investments for a long time for this country.

We need to keep those teachers on the job. We need to put our veterans, as they come home from Iraq and from Afghanistan, we need to make sure they have a job. That's part of the Jobs Act. That's what needs to be done today. This is a good step in capital formation. But it isn't putting people to work right away. That's what this Nation needs.

This Jobs Act that the President proposed when he talked about crowdfunding, as we have been in this bill, what he was here for was to get the Jobs Act, to get these tax credits passed that would help our veterans get to work, to get our infrastructure rebuilt, to rebuild our schools and to keep teachers on the job. That's what this Nation needs. That's what this Nation wants. That's what our people expect.

So I thank my friend from North Carolina for bringing this bill forward. It's a good idea. He's been willing to work with us to make it a better idea, and we thank him. We also ask him and his colleagues on the Republican side of the aisle to pass this Jobs Act today. America needs it today.

With that, I yield back the balance of my time.

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Mr. PERLMUTTER. Madam Chair, I yield myself such time as I may consume.

This is the amendment we've been visiting about over the course of this bill. And what it does, the structure of the bill is such that it solicits, an issuer can solicit small investments via the Internet or some other mass type of media, and that solicitation then, a notification is made to the Securities and Exchange Commission. Once that notification is made, then notice of the solicitation on the Internet, this crowdfunding so to speak, is then given to each State so that the State regulators, the State enforcement authorities, are given notice of this solicitation, of this crowdfunding request for sale of securities.

The amendment that Mr. McHenry and I have prepared makes sure that when the States get this notice, they can use their police powers, their enforcement authority, to make sure that the issuer, or anyone involved with the solicitation, anyone involved with this crowdfunding which is being used across the Internet, can then, the laws can be enforced to stop any kinds of fraud, defalcation of funds, embezzlement, misrepresentation, any kinds of bad acts related to the solicitation under the crowdfunding.

This applies to both the issuer and the intermediaries. Anybody holding the funds will still be subject to the police powers of the State. So we maintain the States' rights for police power.

Mr. McHENRY. Will the gentleman yield?

Mr. PERLMUTTER. I yield to my friend from North Carolina.

Mr. McHENRY. I thank my colleague from Colorado for offering this amendment, and I thank my colleague for working diligently across the aisle. This was an idea that he had in the full committee markup. We worked diligently to get that done at full committee markup. It was not able to be done, but the language we have here today is a very good amendment.

The amendment ensures that the States' securities regulators have the means to police fraud, deceit, misrepresentation, and other unlawful behavior to protect investors. Since States' securities regulators already have the resources and expertise, much more so than the SEC, to examine unlawful behavior at a micro-level, it is essential that this legislation recognize and authorize them to continue to fight unlawful conduct. The powers of State securities regulators for crowdfunding are no different from what that which they have for any covered security.

Mr. PERLMUTTER. I reserve the balance of my time.

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Mr. PERLMUTTER. I yield to my other friend from North Carolina.

Mr. McHENRY. I thank my colleague Mr. Perlmutter for working diligently with us on this language. He raised significant concerns. The language that we have that the gentleman was integral in crafting actually is perhaps part of the reason why the President supports the legislation. And I appreciate Mr. Perlmutter's working diligently on this.

I would remind my colleagues that in our legislative hearing on this bill, the Democrat witness before the committee said that crowdfunding will not work but for this exemption from individual State registration. It is a very key part of this process. When it costs $150 to register a security in Connecticut, and all you're trying to do is raise $150 from Connecticut, you net zero. And beyond that, asking a lawyer to file the paperwork. What we want to do is preserve that anti-fraud bit that the States do very well at, and we have done that with this language.

I thank my colleague for yielding.

Mr. PERLMUTTER. I reserve the balance of my time.

Mr. WATT. Madam Chair, I yield myself the balance of my time, although I won't take it.

I want to express my thanks also to Mr. Perlmutter, and to my colleague from North Carolina (Mr. McHenry). As I indicated, they made an effort to move this in the right direction. They, in fact, moved it. This amendment is better than the underlying bill, which totally preempted State law. So it moves in the right direction, it just does not move far enough in the right direction. Because of that--I mean, I'm not going to vote against the amendment. I'm not even going to ask for a recorded vote on the amendment itself. But it will make it necessary for me to oppose the bill itself. And I thought it was important enough for me to come down and express this because there are a significant number of people out there, including a number of State Attorneys General and/or Secretaries of State who believe this does not go far enough.

With that, I yield back the balance of my time.

Mr. PERLMUTTER. In closing, Madam Chair, I appreciate Mr. Watt's comments. They're legitimate, except that the purpose of this is to have in effect a national solicitation notification nationally to the SEC, and then the powers of the States kick in, as opposed to individual notification State by State. And I appreciate his concern--it's legitimate, but to make this work, you have to have a structure that allows for the national offering, notice to the States, and then the States' police powers kick in. And the SEC has its police powers as well if there is any fraud, manipulation, misrepresentation, or the like.

With that, I would urge adoption of the amendment.

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