House Passes Three Financial Services Bills

The House passed three financial services bills concerning: (i) angel investors (H.R. 4854: “Supporting America’s Innovators Act of 2016”), (ii) retail investor participation in crowdfunding (H.4. 4855: “Fix Crowdfunding Act”) and (iii) the prevention of financial abuse of senior citizens (H.R. 4538: “Senior$afe Act of 2016”).

H.R. 4854: The Supporting America’s Innovators Act of 2016 amends the Investment Company Act to exempt from coverage any issuer whose outstanding securities with respect to a qualifying venture capital fund (other than short-term paper) are beneficially owned by not more than 500 persons. The bill also defines qualifying venture capital fund as one that does not purchase more than $10 million (annually adjusted for inflation) in securities of any one issuer.

H.R. 4855: The Fix Crowdfunding Act amends:

  • the Securities Act to increase from $1 million to $5 million the aggregate amount of securities sold to all investors by an issuer that qualifies for the crowdfunding exemption from certain prohibitions relating to interstate commerce;
  • the JOBS Act to permit crowdfunding portals to disqualify issuers from offering securities through the portal if they discover through a background check that an issuer has made an untrue statement of a material fact, omitted to state a material fact necessary to avoid making misleading statements, or engaged in fraud or deceit;
  • the Securities Exchange Act to exempt crowdfunding securities transactions from its registration requirement; and
  • the Investment Company Act to: (i) exempt from the definition of investment company any issuer that, for the purpose of making a crowdfunding offering, holds the securities of not more than one issuer eligible to offer securities (a single-purpose fund); and (ii) permit an issuer, before commencing a crowdfunding offering, to solicit non-binding indications of interest from potential investors in the prospective offering under certain conditions.

H.R. 4538: The Senior$afe Act would provide new protections for financial institutions and certain of their employees (supervisors, compliance officers and legal advisors) that report suspected exploitation to authorities in the accounts of clients over the age of 65.

Lofchie Comment: For crowdfunding portals to work, Congress must provide a way for them to make money without being subject to such heavy regulatory requirements imposed by the SEC and FINRA. Otherwise, it’s simply hard to see the incentive for a crowdfunding portal to operate. Below, for example, is a list of the activities that a funding portal cannot engage in (read it and please explain why anyone would want to start one):

(a) provide advice or make recommendations;

(b) solicit transactions in the securities displayed on the portal;

(c) receive any compensation or pay its employees in connection with the sale of securities;

(d) hold securities;

(e) provide compensation to those who identify potential investors; or

(f) allow its directors or officers to have a financial interest in any issuer using the portal.

See generally Lofchie’s Guide to Broker-Dealer Regulation — Registration Requirement.