North Carolina’s Patrick McHenry is at it again folks. For those of you who don’t know, McHenry’s bill the “Entrepreneur Access to Capital Act” was the pioneer of the JOBS Act and largely integrated into the JOBS Act. Hats off to Representative McHenry.
On March 23, 2016, Representative McHenry introduced H.R. 4855 dubbed the “Fix Crowdfunding Act.” H.R. 4855 increases the amount companies can raise in an equity crowdfunding round from $1 million to $5 million per year (remember, according to the JOBS Act there is no integration of concurrent Regulation D offerings so this dramatically expands small business access to capital).
It will also raise the limits investors will be able to invest in crowdfunding companies from the “lower of” 5 or 10 percent of their net worth to the “greater of” 5 or 10 percent of their net worth.
The full text of the bill is here:
To amend provisions in the securities laws relating to regulation crowdfunding to raise the dollar amount limit and to clarify certain requirements and exclusions for funding portals established by such Act.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
This Act may be cited as the “Fix Crowdfunding Act”.
SEC. 2. QUALIFICATION FOR CROWDFUNDING EXEMPTION.
(1) INCREASE IN LIMIT OF AMOUNT SOLD IN RELIANCE ON THE CROWDFUNDING EXEMPTION.—Section 4(a)(6)(A) of the Securities Act of 1933 (15 U.S.C. 77d(6)(A)) is amended by striking “$1,000,000” and inserting “$5,000,000”.
(2) CLARIFICATION OF TRANSACTION CAPS.—Section 4(a)(6)(B) of such Act is amended—
(A) in clause (i), by inserting “the greater of” after “5 percent of”; and
(B) in clause (ii), by inserting “the greater of” after “10 percent of”.
SEC. 3. CLARIFICATION OF CERTAIN FUNDING PORTAL REQUIREMENTS AND EXCLUSIONS FOR REGULATION CROWDFUNDING.
(a) Exclusion Of Issuers From Funding Portals.—
(1) CLARIFICATION OF CERTAIN EXCLUSION REQUIREMENTS.—Section 302 of the Jumpstart Our Business Startups Act is amended by adding at the end the following:
“(e) Clarification Of Certain Exclusion Requirements For Funding Portals.—Under the rules issued pursuant to subsection (d), a funding portal shall have a reasonable basis for disqualifying an issuer from offering securities through such funding portal pursuant to section 4(a)(6) of the Securities Act of 1933 if the funding portal, through a background check of the issuer or other means, has found that such issuer, in connection with the offer, purchase, or sale of securities, has knowingly—
“(1) made any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
“(2) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”.
(2) CLARIFICATION OF OTHER OBLIGATIONS TO REDUCE THE RISK OF FRAUD.—Section 4A(a)(5) of the Securities Act of 1933 (15 U.S.C. 77d–1(a)(5)) is amended to read as follows:
“(5) as a minimum to reduce the risk of fraud with respect to such transactions obtain a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;”.
(3) CLARIFICATION OF LIABILITY OF FUNDING PORTALS FOR MATERIAL MISSTATEMENTS AND OMISSIONS.—Section 4A(c) of such Act (15 U.S.C. 77d–1(c)) is amended by adding the end the following:
“(4) LIABILITY OF FUNDING PORTALS.—For purposes of this subsection, an intermediary shall not be considered an issuer unless, in connection with the offer or sale of a security, it knowingly—
“(A) made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
“(B) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”.
(b) Exemption From Registration.—Section 12(g)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(6)) is amended—
(1) by striking “The Commission” and all that follows through “securities” and inserting “Securities”; and
(2) by inserting “shall be exempt” after “Securities Act of 1933”.
(c) Allowing Single-Purpose Funds.—
(1) AMENDMENT TO THE SECURITIES ACT OF 1933.—Section 4A(f) of the Securities Act of 1933 (15 U.S.C. 77d–1(f)) is amended—
(A) by striking paragraph (2); and
(B) by redesignating paragraph (3) as paragraph (2) and in such paragraph, by inserting “paragraphs (1) to (14) of” after “section 3(b) or”.
(2) AMENDMENT TO THE INVESTMENT COMPANY ACT OF 1940.—Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)) is amended by adding at the end the following:
“(15) any issuer that holds, for the purpose of making an offering pursuant to section 4(a)(6) of the Securities Act of 1933 and the rules issued pursuant to such section, the securities of not more than one issuer eligible to offer securities pursuant to such section and such rules.”.
(3) APPLICATION OF RULES.—Single-purpose funds that are excluded from the definition of investment company under paragraph (15) of section 3(c) of the Investment Company Act (15 U.S.C. 80a–3(c))—
(A) shall be allowed to sell and offer for sale securities under section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)) under the rules adopted on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106); and
(B) shall be considered venture capital funds for purposes of section 275.203(l)–1 of title 17, Code of Federal Regulations.
(d) Solicitation Of Interest.—Section 4A of the Securities Act of 1933 (15 U.S.C. 77d–1) is further amended—
(1) by redesignating subsections (f) (as amended by subsection (c)(1)), (g), and (h) as subsections (g), (h), and (i), respectively; and
(2) by inserting after subsection (e) the following:
“(f) Solicitation Of Interest.—
“(1) IN GENERAL.—At any time prior to the filing of information with the Commission and the commencement of an offering made in reliance on section 4(a)(6), an issuer may solicit non-binding indications of interest from potential investors in a prospective offering using the same means and pursuant to the same regulations (other than the filing of information with the Commission) as if conducting an offering pursuant to such section if—
“(A) no investor funds are accepted by such issuer; and
“(B) any material change in the information provided to potential investors during the actual offering pursuant to such section from the information provided to potential investors during such solicitation of interest are highlighted to potential investors in the information filed with the Commission.
“(2) STATUS.—Such solicitation of interest shall not be considered an offer or sale of securities under this Act or the Securities Exchange Act of 1934, regardless of whether or not the issuer actually conducts an offering pursuant to such section 4(a)(6).”.
(e) Grace Period.—Consistent with the effective date of the final rules on regulation crowdfunding adopted by the Securities and Exchange Commission on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106), funding portals established under such Act shall make a good faith effort to comply with all such rules. Notwithstanding such effective date, no enforcement action may be brought against a funding portal before May 16, 2021.
