Crowdfunding Amendments Act

IIB 116TH CONGRESS 1ST SESSION H. R. 4860 IN THE SENATE OF THE UNITED STATES OCTOBER 29, 2019 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To amend the Securities Act of 1933 to subject crowdfunding vehicles to the jurisdiction of the Securities and Ex- change Commission, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 2 HR 4860 RFS SECTION 1. SHORT TITLE. 1 This Act may be cited as the ‘‘Crowdfunding Amend- 2 ments Act’’. 3 SEC. 2. CROWDFUNDING VEHICLES. 4 (a) AMENDMENTS TO THE SECURITIES ACT OF 5 1933.—The Securities Act of 1933 (15 U.S.C. 77a et 6 seq.) is amended— 7 (1) in section 2(a) (15 U.S.C. 77b(a)), by add- 8 ing at the end the following: 9 ‘‘(20) The term ‘crowdfunding vehicle’ has the 10 meaning given the term in section 3(c)(15)(B) of the 11 Investment Company Act of 1940 (15 U.S.C. 80a– 12 3(c)(15)(B)).’’; 13 (2) in section 4(a)(6) (15 U.S.C. 77d(a)(6))— 14 (A) in subparagraph (A)— 15 (i) by inserting ‘‘, other than a 16 crowdfunding vehicle,’’ after ‘‘sold to all 17 investors’’; and 18 (ii) by inserting ‘‘other than a 19 crowdfunding vehicle,’’ after ‘‘the issuer,’’; 20 and 21 (B) in subparagraph (B), in the matter 22 preceding clause (i), by inserting ‘‘, other than 23 a crowdfunding vehicle,’’ after ‘‘any investor’’; 24 and 25 (3) in section 4A(f) (15 U.S.C. 77d–1(f))— 26 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 3 HR 4860 RFS (A) in the matter preceding paragraph (1), 1 by striking ‘‘Section 4(6)’’ and inserting ‘‘Sec- 2 tion 4(a)(6)’’; and 3 (B) in paragraph (3), by inserting ‘‘by any 4 of paragraphs (1) through (14) of’’ before ‘‘sec- 5 tion 3(c)’’. 6 (b) AMENDMENTS TO THE INVESTMENT COMPANY 7 ACT OF 1940.—Section 3(c) of the Investment Company 8 Act of 1940 (15 U.S.C. 80a–3(c)) is amended by adding 9 at the end the following: 10 ‘‘(15)(A) Any crowdfunding vehicle. 11 ‘‘(B) For purposes of this paragraph, the term 12 ‘crowdfunding vehicle’ means a company— 13 ‘‘(i) the purpose of which (as set forth in 14 the organizational documents of the company) 15 is limited to acquiring, holding, and disposing 16 of securities issued by a single company in one 17 or more transactions made under section 18 4(a)(6) of the Securities Act of 1933 (15 19 U.S.C. 77d(a)(6)); 20 ‘‘(ii) that issues only one class of securi- 21 ties; 22 ‘‘(iii) that receives no compensation in con- 23 nection with the acquisition, holding, or disposi- 24 tion of securities described in clause (i); 25 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 4 HR 4860 RFS ‘‘(iv) no investment adviser or associated 1 person of which receives any compensation on 2 the basis of a share of capital gains upon, or 3 capital appreciation of, any portion of the funds 4 of an investor of the company; 5 ‘‘(v) the securities of which have been 6 issued in a transaction made under section 7 4(a)(6) of the Securities Act of 1933 (15 8 U.S.C. 77d(a)(6)), where both the 9 crowdfunding vehicle and the company whose 10 securities the crowdfunding vehicle holds are co- 11 issuers; 12 ‘‘(vi) that is current with respect to ongo- 13 ing reporting requirements under section 14 227.202 of title 17, Code of Federal Regula- 15 tions, or any successor regulation; 16 ‘‘(vii) that holds securities of a company 17 that is subject to ongoing reporting require- 18 ments under section 227.202 of title 17, Code 19 of Federal Regulations, or any successor regula- 20 tion; 21 ‘‘(viii) that is advised by an investment ad- 22 viser that is— 23 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 5 HR 4860 RFS ‘‘(I) registered under the Investment 1 Advisers Act of 1940 (15 U.S.C. 80b–1 et 2 seq.); and 3 ‘‘(II) required to— 4 ‘‘(aa) disclose to the investors of 5 the company any fees charged by the 6 investment adviser; and 7 ‘‘(bb) obtain approval from a ma- 8 jority of the investors of the company 9 with respect to any increase in the 10 fees described in item (aa); and 11 ‘‘(ix) that meets such other requirements 12 as the Commission may, by rule, determine nec- 13 essary or appropriate in the public interest and 14 for the protection of investors.’’. 15 (c) AMENDMENTS TO THE INVESTMENT ADVISERS 16 ACT OF 1940.—The Investment Advisers Act of 1940 (15 17 U.S.C. 80b–1 et seq.) is amended— 18 (1) in section 202(a) (15 U.S.C. 80b–2(a))— 19 (A) by redesignating the second paragraph 20 (29) as paragraph (31); and 21 (B) by adding at the end the following: 22 ‘‘(32) The term ‘crowdfunding vehicle’ has the 23 meaning given the term in section 3(c)(15)(B) of the 24 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 6 HR 4860 RFS Investment Company Act of 1940 (15 U.S.C. 80a– 1 3(c)(15)(B)). 2 ‘‘(33)(A) The term ‘crowdfunding vehicle ad- 3 viser’ means an investment adviser that acts as an 4 investment adviser solely with respect to 5 crowdfunding vehicles. 6 ‘‘(B) A determination, for the purposes of sub- 7 paragraph (A), regarding whether an investment ad- 8 viser acts as an investment adviser solely with re- 9 spect to crowdfunding vehicles shall not include any 10 consideration of the activity of any affiliate of the 11 investment adviser.’’; 12 (2) in section 203 (15 U.S.C. 80b–3), by add- 13 ing at the end the following: 14 ‘‘(o) CROWDFUNDING VEHICLE ADVISERS.— 15 ‘‘(1) IN GENERAL.—A crowdfunding vehicle ad- 16 viser shall be required to register under this section. 17 ‘‘(2) TAILORED REQUIREMENTS.—As necessary 18 or appropriate in the public interest and for the pro- 19 tection of investors, and to promote efficiency, com- 20 petition, and capital formation, the Commission shall 21 tailor the requirements under section 275.206(4)–2 22 of title 17, Code of Federal Regulations, with re- 23 spect to the application of those requirements to a 24 crowdfunding vehicle adviser.’’; and 25 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 7 HR 4860 RFS (3) in section 203A(a) (15 U.S.C. 80b–3a(a))— 1 (A) in paragraph (1)— 2 (i) in subparagraph (A), by striking 3 ‘‘or’’ at the end; 4 (ii) in subparagraph (B), by striking 5 the period at the end and inserting ‘‘; or’’; 6 and 7 (iii) by adding at the end the fol- 8 lowing: 9 ‘‘(C) is a crowdfunding vehicle adviser.’’; 10 and 11 (B) in paragraph (2)— 12 (i) in subparagraph (A), by inserting 13 ‘‘a crowdfunding vehicle adviser,’’ after 14 ‘‘unless the investment adviser is’’; and 15 (ii) in subparagraph (B)(ii), in the 16 matter preceding subclause (I), by insert- 17 ing ‘‘except with respect to a crowdfunding 18 vehicle adviser,’’ before ‘‘has assets’’. 19 SEC. 3. CROWDFUNDING EXEMPTION FROM REGISTRA- 20 TION. 21 Section 12(g)(6) of the Securities Exchange Act of 22 1934 (15 U.S.C. 78l(g)(6)) is amended— 23 (1) by striking ‘‘The Commission’’ and insert- 24 ing the following: 25 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 8 HR 4860 RFS ‘‘(A) IN GENERAL.—The Commission’’; 1 (2) in subparagraph (A), as so designated, by 2 striking ‘‘section 4(6)’’ and inserting ‘‘section 3 4(a)(6)’’; and 4 (3) by adding at the end the following: 5 ‘‘(B) TREATMENT OF SECURITIES ISSUED 6 BY CERTAIN ISSUERS.— 7 ‘‘(i) IN GENERAL.—An exemption 8 under subparagraph (A) shall be uncondi- 9 tional for securities offered by an issuer 10 that had a public float of less than 11 $75,000,000, as of the last business day of 12 the most recently completed semiannual 13 period of the issuer, which shall be cal- 14 culated in accordance with clause (ii). 15 ‘‘(ii) CALCULATION.— 16 ‘‘(I) IN GENERAL.—A public 17 float described in clause (i) shall be 18 calculated by multiplying the aggre- 19 gate worldwide number of shares of 20 the common equity securities of an 21 issuer that are held by non-affiliates 22 by the price at which those securities 23 were last sold (or the average bid and 24 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 9 HR 4860 RFS asked prices of those securities) in the 1 principal market for those securities. 2 ‘‘(II) CALCULATION OF ZERO.— 3 If a public float calculation under sub- 4 clause (I) with respect to an issuer is 5 zero, an exemption under subpara- 6 graph (A) shall be unconditional for 7 securities offered by the issuer if the 8 issuer had annual revenues of less 9 than $50,000,000, as of the most re- 10 cently completed fiscal year of the 11 issuer.’’. 12 SEC. 4. RULE OF CONSTRUCTION. 13 Nothing in this Act or the amendments made by this 14 Act may be construed to allow an issuer or a crowdfunding 15 vehicle to offer or sell securities in excess of the limitation 16 described under section 4(a)(6) of the Securities Act of 17 1933 (15 U.S.C. 77d(a)(6)). 18 SEC. 5. DETERMINATION OF BUDGETARY EFFECTS. 19 The budgetary effects of this Act, for the purpose of 20 complying with the Statutory Pay-As-You-Go Act of 2010, 21 shall be determined by reference to the latest statement 22 titled ‘‘Budgetary Effects of PAYGO Legislation’’ for this 23 Act, submitted for printing in the Congressional Record 24 by the Chairman of the House Budget Committee, pro- 25 VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS 10 HR 4860 RFS vided that such statement has been submitted prior to the 1 vote on passage. 2 Passed the House of Representatives October 28, 2019. Attest: CHERYL L. JOHNSON, Clerk. VerDate Sep 11 2014 00:45 Oct 30, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H4860.RFS H4860 pamtmann on DSKBC07HB2PROD with BILLS