Encouraging Employee Ownership Act of 2015
Floor Speech
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Mr. HUIZENGA of Michigan. Mr. Chairman, I rise today to alert the American people: we have a red herring alert. This is a legislative equivalent to an Amber Alert because we have folks who talk a good game behind closed doors, who come out here, though, in the light of day and do something very different, and they are missing. They are missing in action from solving the problem. This red herring alert is very disturbing. We instead are seeing today trumped-up attacks on commonsense reforms that need to happen that many people will behind closed doors agree need to happen.
In my particular case with section 3, we have a ``no-action'' letter put out by the SEC that those on the other side of the aisle say, ``We don't need to do anything. The SEC is taking care of it.'' The problem is that it took years for the SEC to even address the issue. Apparently what is good enough for a ``no-action'' letter should be good enough for the law. So they know full well that many of the things that we are trying to address in H.R. 1675 are coming from unintended consequences.
This important piece of legislation is a package of bipartisan ideas designed to help Main Street businesses promote job creation and economic growth. The Second District of Michigan, west Michigan, is full of these types of family-owned companies.
Mr. Chairman, small businesses, private companies, and entrepreneurs need access to capital, but burdensome, needless regulations out of Washington and the SEC have created barriers to that investment capital.
Main Street small businesses are the heart and soul of our Nation. In fact, they have created the majority of the Nation's new jobs over the last couple of decades. So what does that mean? It is not the big, major companies that are creating those job opportunities. It is our small, innovative companies that are. For these small businesses to survive and thrive in a healthy, growing economy, we must reduce barriers to capital and encourage small business growth and the small business entrepreneur without putting the taxpayer or the economy at risk.
H.R. 1675 does exactly that. This compilation of bipartisan regulatory relief provisions will ensure that Main Street businesses continue to have access to the capital that they need to grow the economy and create new jobs.
Mr. Chairman, I urge a ``yes'' vote on H.R. 1675. You need to ignore the red herrings that are getting thrown out there. The capital markets need to have these reforms. I look forward to working with my Senate colleagues to see H.R. 1675 make its way to President Obama's desk for his signature.
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Mr. HUIZENGA of Michigan. Mr. Chairman, I offer an amendment.
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Mr. HUIZENGA of Michigan. Mr. Chairman, it has been estimated that approximately $10 trillion--with a T, 12 zeros--worth of small, privately owned, and family-operated businesses will be sold or closed in the coming years as baby boomers retire. Mergers and acquisitions brokers, or M&A brokers as they are often called, will play a critical role in facilitating the transfer of ownership of these small, privately held companies.
If you were here earlier today, you would have heard me issue a red herring alert. This is exhibit A, what we are dealing with right now, as to what that red herring alert is and as you are hearing from my colleagues on the other side of the aisle. This is exhibit A, what I used to use as an example of Washington working.
Last Congress, I had this exact bill, and it passed this body unanimously. Let me repeat that--unanimously. There were zero votes against it. It went on as a suspension bill. It went on suspension because it was noncontroversial. It was agreed that this was the right direction to go. Unfortunately, I now have to use this bill and my portion--this amendment that we are dealing with--as an example of how D.C. is broken, and we wonder why the American people are cynical. Let's get to the heart of the matter.
Why do we need to do this? Why do we need to address this particular issue regarding these M&A brokers?
Today, Federal securities regulations require an M&A broker to be registered and regulated by the Securities and Exchange Commission and FINRA, just like Wall Street investment bankers who buy and sell publicly traded companies. So let's just get this point clear. These are not folks on Wall Street. These are folks in Holland, Michigan, in Grand Rapids, Michigan, in California, in Texas, in Florida, and anywhere else that one is selling a small, family-owned business. That is right. Anyone who is dealing with a sale or who is brokering the sale of a business anywhere in America is forced to register with the Federal Government and be regulated as a securities broker-dealer regardless of the size of the business or the sale transaction. This red tape is, of course, in addition to the State laws that already regulate those transfers.
How did we get here?
This bill corrects an unintended consequence of a 1985 Supreme Court ruling that overturned a lower court that created the sale of business doctrine. Prior to that decision, private company sales were exempted from Federal regulation. Since 1985, the SEC has issued many nonaction--or no action--letters that, under various but differing factual circumstances, have granted relief for M&A brokers. However, the other side is not willing to actually put it into law.
Let's be clear. Title III of H.R. 1675 does not do away and does not change in any way, affect, or limit the SEC's jurisdiction or powers to investigate and enforce Federal securities laws. Rather, it simply exempts M&A brokers from SEC registration as broker-dealers, which makes the transfer of these small, family-owned businesses affordable. In fact, what do you do when you own a small family business? I own one. If I am able to save money on one side, I am able to invest it into my employees, and I am able to invest it into the equipment that is in my business.
Federal securities regulation is primarily designed to protect passive investors in public security markets. Passive investors are people like you and me who might just buy a share in a company somewhere. Privately negotiated M&A transactions are vastly different and benefit little from SEC and FINRA registration and regulation but are burdened by the same regulatory requirements, obligations, and associated costs. M&A brokers, themselves, are small businesses.
Title III of H.R. 1675 includes my bipartisan legislation, H.R. 686, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act, which would create a simplified system for brokers facilitating the transfer of ownership of small, privately held companies. Yes, it was a bipartisan bill that passed our committee.
My amendment would further clarify two things:
First, any broker or associated person who is subject to suspension or revocation of registration is disqualified from the exemption. In other words, if you are a bad actor, you are exempted. You are not allowed to take part in this;
Second is the inapplicability of the exemption to any M&A transaction where one party or more is a shell company. We heard that being brought up as a reason we shouldn't be doing this. Again, we offer an exemption. If there is a shell company, that is not allowed to be used.
By including these additional investor protections--let me repeat, ``additional''--this amendment strikes an appropriate balance between the legitimate interests of all stakeholders and maintains strong protections for investors and small businesses.
Today, Mr. Chairman, I just hope that we will see some common sense, that we will not chase after the red herrings that are being thrown out there, and that we will support H.R. 1675.
I yield back the balance of my time.
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Mr. HUIZENGA of Michigan. Mr. Chairman, I appreciate the efforts of my colleague from California. We have worked well on a number of these issues.
I would point out, though, that maybe not you, but some others are trying to act like this is the monumental thing whereas mergers and acquisitions are going to fail or flounder whether your amendment is passed.
While it may be of some interest and I think it has some things that are either benign or not terribly objectionable, we do know--and I think we probably would both jointly agree--that oftentimes our problem isn't between us. It is between trying to get this body and the Senate to agree. If we can have one less thing to have a disagreement with them on as we are advancing this, I am all for it.
I will specifically say subsection (C) on page 1, as you are talking about, my amendment adds what you have in there and more bad actor disqualifications. Actually, your amendment would roll that back. I don't think that was your intention, but that is what it would do.
In subsection (D), our amendment adds the same disqualification, but is shorter and simpler to understand, which is also important as we are dealing with the Senate.
In subsection (E), there is no apparent reason to prevent private business sellers and buyers from getting a transaction fee from a bank that is affiliated with an M&A broker. There shouldn't be some sort of exclusion on that.
In subsection (F), it is highly, highly unusual that an M&A broker would work for both the seller and the buyer in the same transaction. So I think this is maybe a section in search of a problem.
Subsection (G), adding this prohibition is frankly redundant, in our view, and could cause some more confusion.
In subsection (H), the reasonable belief element sort of does the same thing. I am not sure what we are trying to get at other than maybe causing some more confusion. It is not, again, an intention of that but is what it would do.
Subsection (I) is simply restating the existing law.
So I think, as we are going through this, we are not wildly out of disagreement. I just believe that the amendment that was offered and passed earlier, which puts us in line, again, with the efforts of the Senate, is a better way to go.
Again, to my friend from California, this is not you that I will direct this at, but others on your side of the aisle who are pointing to the no-action letter as the reason why we don't have to do this legislation.
Yet, now we are saying we have to pass your amendment because it is only a no-action letter and we need this into the law. So we can't have it both ways.
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