Wednesday, December 07, 2016

House passes package of capital formation bills

By Mark S. Nelson, J.D.

The House passed a package of capital formation bills, some of which have previously passed the chamber as stand-alone bills. The collection of bills would put the onus on the SEC to address issues critical to smaller businesses, revise portions of the Jumpstart Our Business Startups (JOBS) Act’s crowdfunding provisions, broaden the definition of accredited investor, and remove Investment Company Act impediments regarding U.S. territories. The Creating Financial Prosperity for Businesses and Investors Act (H.R. 6427) passed by a vote of 391-2.

Sponsor Rep. Scott Garrett (R-NJ), who gave what may be his last floor speech, said the package contains bipartisan provisions that build upon the “measurable success” of the JOBS Act. Co-sponsor Nydia Velazquez (D-NY) offered her backing for the bill, which she characterized as a “bipartisan package of common sense measures.” She spoke specifically about the “historical artifact” within the Investment Company Act that one of the bill’s provisions will correct. Representative Patrick McHenry (R-NC) urged passage of provisions that would amend the crowdfunding title of the JOBS Act.

Key features of the bills in the package include:
  • Title I—Amends the Small Business Investment Incentive Act of 1980 to require the SEC to assess and respond to recommendations made by the Government-Business Forum on Small Business Capital Formation. 
  • Title II—Establishes the Office of the Advocate for Small Business Capital Formation and the Small Business Capital Formation Advisory Committee. 
  • Title III—Clarifies the Investment Company Act definition of “qualifying venture capital fund.” 
  • Title IV—Contains many of the provisions previously included in the Fix Crowdfunding Act, including Investment Company Act “crowdfunding vehicles” and clarifying the requirements under Exchange Act Section 12(g)(6). 
  • Title V—Broadens “accredited investor” to include natural persons who are licensed or registered broker-dealers, or who are verified by FINRA to have demonstrable educational or job experience giving them professional knowledge of a subject related to a particular investment. 
  • Title VI—Clarifies the treatment of U.S. territories under the Investment Company Act while imposing a safe harbor period of three years and allowing the SEC to extend that period for up to three years.