Fix Crowdfunding Act

Floor Speech

Mr. Speaker, I would like to thank my colleague from North Carolina for his efforts to work with me to craft this bipartisan legislation. H.R. 4855 is an example of how Congress can assist startups to finance their operations while still protecting the investors who entrust their hard-earned funds to those companies.

Equity crowdfunding, through which startup companies sell stock to hundreds or even thousands of everyday people, has been and will always be a high-risk, high-reward investment.

The sad reality is that most new businesses fail. As a result, Congress and the Securities and Exchange Commission have put in place guardrails to prevent less-sophisticated investors from suffering financial ruin.

In 2012, Congress cautiously approached equity crowdfunding by creating a number of investor protections in the Jumpstart Our Business Startups Act, or JOBS Act. The SEC followed our directions and finalized a crowdfunding rule that protects investors by setting reasonable investment limits based on income and provides helpful disclosures for investors to weigh the risk. Last month, those rules went live, with hundreds of businesses successfully raising capital that, in turn, funds American jobs.

H.R. 4855, as amended in committee, seeks to enhance the investor and company experience in crowdfunding. The bill would authorize crowdfunding portals to pool investors together in order to make a joint investment in a business. These vehicles would only make investments in one company and would be advised by a registered investment adviser with a fiduciary duty to the fund. Importantly, the investors would have the same rights to sue the company as if they had directly invested in the company itself.

This provision will also aid companies as they will be able to more efficiently make financial decisions, provided that the investment adviser agrees that they are in the best interest of the fund's investors.

H.R. 4855 also clarifies that as long as a crowdfunding company continues to make ongoing disclosures to investors required under the SEC's rules, it would not have to make the more detailed public reports until it had either a $75 million value or $50 million in revenue. This change is consistent with the levels set under Regulation A, another exempt offering sold to retail investors.

I am pleased that the amended bill no longer includes problematic provisions that were opposed by advocates like the Consumer Federation of America. Instead, the bill is now crafted to make target improvements to crowdfunding for all investors and startups.

Now, although crowdfunding should be viewed as a highly risky investment, especially for retail investors, both of the changes in H.R. 4855 will ensure a longer choice of high-quality crowdfunding companies and a higher degree of finance savvy for investors.

Mr. Speaker and Members, I had reservations about crowdfunding. I had real concerns, but I am very pleased that I was able to work with Mr. McHenry, and he was so very cooperative in dealing with those concerns that made me feel even better about crowdfunding than I had been feeling. So I am just so hopeful that this works and it works well, and that even though there is some risk involved in this, that we have the opportunity for people who want to take a little risk to go out there and to be able to organize the kind of funding that perhaps can make them reap substantial profits in a real credible way.

So I want to thank, again, Mr. McHenry for his cooperation and for the work and the time that he has put into this.

I am sure there are those who wonder why we on the opposite side of the aisle work so hard to pay attention to our constituents as it relates to investment and why we work so hard to pay attention to our consumers. I will tell you why.

Everyone recognizes what happened in 2008 in this country. We literally had a meltdown. We went into a recession--almost a depression. Why did we do that?

We went into a recession and almost a depression because our regulatory agencies were not paying attention and people were being taken advantage of. We had a very difficult time trying to explain to the people of this country why we had so many foreclosures, why people were losing their homes, and why communities were so displaced.

But we recognized that our regulatory agencies who had the responsibility for oversight and who had the responsibility for making sure people weren't taken advantage of just had not been doing their jobs. I want you to know that with Dodd-Frank reforms, we have gone a long way to correct that. In addition to looking at our markets and looking at Wall Street, we created the Consumer Financial Protection Bureau that is doing a magnificent job in looking out for our consumers and making sure that what happened that led up to the 2008 meltdown does not happen again in America.

So I am very pleased that the Obama administration in the last 75 months has had consecutive job growth. It looks as if it is about 14.5 million private-sector jobs. Of course, when Mr. Obama took over, we know that about 800 jobs per month were being lost. So we don't take our job lightly, and we don't play with this.

We want to make sure that there is capital available for startups because we support business and we absolutely support small business. We want to make sure they have access to capital. But what we don't want is we don't want, then, to be tricked or fooled or to be led into so-called opportunities that are really not opportunities at all.

I am so pleased that the gentleman from New Jersey recognized that the regulatory agencies were not doing their job. We don't agree on much, but he did indicate just a moment ago that he agreed that the regulatory agencies had not protected consumers or our small business people--or anybody--and that is why we ended up with the Dodd-Frank reform. We may disagree about Dodd-Frank reform, but I think with that recognition I am sure he would logically conclude that something had to be done, and so I am very pleased about that.

Let me just say to Mr. McHenry again, I want to thank him for the work that he has done and the leadership that he has provided. He is absolutely correct, whether it is in the cities or in urban areas, we need to have access to capital for our small businesses and our start- ups. In addition, he has led the way for us to make investing and venture capital, et cetera, more accessible. I think we still have more work to do.

One of the things we are going to have to take a very close look at is why our bigger banks and financial institutions are not investing in these communities and why they are not welcoming small businesses in to the banks and to these financial institutions and listen to their dreams and their ideas about businesses and provide the capital for that.

Again, I am very pleased about what he has done, his leadership, and the work that we are doing.

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