Jumpstart Our Business Startups Act

Floor Speech

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Mr. MERKLEY. Mr. President, I rise today to ask my colleagues to give serious consideration to a major piece of legislation that is a crowdfunding amendment introduced by Senator Bennet and myself and has the support of Senator Landrieu, Senator Brown, and a number of others. I thank Senator Landrieu for the points she has been making and for her fierce advocacy for creating a highway for Americans to build wealth without creating avenues that essentially send people into either blind alleys or over a cliff.

That is what this conversation is all about today. We want to enable aspiring entrepreneurs to access capital and to do so in ways that allow new opportunities to create, but to make sure investors have the information they need to make reasonable choices.

The amendment I am introducing specifically is a crowdfunding amendment. My colleagues have probably heard this term a number of times. It enables aspiring entrepreneurs to access investment capital via the Internet from small dollar investors across America. This is very exciting stuff. We have seen some similar Internet models. One model, for example, enables individuals across America to look at projects--projects for art and civics, projects across the country--and say: Yes, I want to make a small dollar investment--which is truly, in this case, a donation--to that social project, to that art project. Such a site is kickstarter.com. So on the site is a list of projects, and then people can go in and decide what they want to support to help make it happen. Whereas in the past, someone who wanted to do a documentary film might have had to seek out some substantial dollars, some large dollar funders, now they can go to kickstarter.com, present their project, and possibly raise the capital they need from thousands of small dollar donors.

For instance, in 2010, a filmmaker raised $345,000 to make a documentary about jazz from a pool of 3,000 donors, most of whom donated $100 or less. We also have peer-to-peer lending on the Internet where folks can say this is what they would like to borrow money for, and people can get on and say, yes, they will lend that money.

But what we do not have is a process in which companies can list themselves on the Internet and say: Do you want to invest in my company? Here is my dream. I am going to make a better coffee shop. I am going to make a small wedding cake company. Do you want to invest in my vision, in my dream? Here are the details.

Folks can get on and join and help create that startup capital or create the capital for a small business to expand.

So that is what crowdfunding is. It is parallel to these other efforts. What we have in the House bill is basically a provision which says: No rules. Do whatever you want.

Now, unfortunately, that does not work. It does not work because if we do not require the company to give information about their company, if we do not provide rules that require accountability for the accuracy of that information, then what we are simply doing is saying here is a Web site where predators can put up a fictitious story about what they want to do, make it as exciting as possible, and run away with people's money--no consequences; pay themselves a salary, dump out the money. The House bill requires no information. If folks do put up information, it does not require that information to be accurate. It legalizes predatory scams. It says people can list and close in a single day.

So for those who say: Well, information will get out in some kind of miraculous manner, there will not be the time to get it out because a predator can put up their false story, collect the donations, close the investment in a single day, and walk away, having scammed thousands of Americans out of their hard-earned cash. So we need basic rules of the road.

The possibility for capital formation through the Internet through crowdfunding is enormous. In 2011, Americans had invested $17 trillion in retirement funds. Imagine if 1 percent of those investments went into crowdfunding. The result would be $170 billion of investment in our startups and small businesses. That is extraordinarily powerful--more powerful than loans to small businesses across this country. So it has huge potential.

So a small business or startup company would provide basic financial information and vouch for the accuracy of this information. The company would explain its vision of how it is going to invest that money. The projects might range from small- to medium-sized. A small wedding cake company might want to buy an industrial oven. Another company might want to seek a new manufacturing line. And the crowd--that is all of us--surfing the Internet would visit the portal, review the financials, review the vision, and say: I want to be part of that, I am going to invest, and here is the percent of the company I get in return.

The key to this is that the companies provide accurate information; otherwise, as I have described, we simply pave the path for predatory tactics. That would destroy the reputation of crowdfunding. That would destroy the ability to create a powerful capital formation market through the Internet.

The amendment we are presenting does three things: It streamlines the process for setting up a crowdfunding portal; it streamlines the process for companies to list themselves on that portal; and it provides basic investor protections, the most important of which is to provide basic information about the company and for the company's officers and directors to ensure the accuracy of that information.

Let's examine each of the three of these in turn. First, the streamlined registration for Web sites that offer crowdfunding. Our amendment provides two pathways: The first pathway is for a portal to register as a broker-dealer. The second is a streamlined funding portal registration. These portals agree to provide a neutral market environment; that is, they do not solicit purchases, they do not offer investment advice, and they do not handle investor funds. They operate a marketplace, much as the New York Stock Exchange operates a marketplace without recommending particular stocks.

It also creates a unified national framework; otherwise, the portal would have to deal with rules from 50 States. That is an untenable structure. So we create a unified national structure for a portal to thrive in.

Now, turning to the second piece, which is the streamlined process for companies to register, the amendment allows existing small businesses and startup companies to raise up to $1 million per year. That is a substantial amount for a small business. It also provides flexibility in how a company would do this. A company could basically say: Here is our target. If the target is met, the investment closes.

So if they say: I am seeking $550,000 to do X, when Americans across the country have put forward enough small investments to reach that goal of $550,000, the investment would close. But it also allows, if investors decide they are offering more--maybe folks sign up, and they are so excited about this vision, this product, this invention, this strategy, that they say: I am putting up $750,000, even though you only asked for $550,000--it would still enable the small company to say: No, we can use that extra $200,000, thank you very much, if they should choose to do so.

It also provides a very important provision so the small investors do not count against the shareholder number that drives companies to have to become a fully public company. That is critical and interrelates with other parts of the crowd formation bill before us.

Then, turning to the third area, basic rules of the road to protect investors and ensure the accuracy of information companies post, companies participating in this marketplace must disclose their basic financial information: a business plan, a target offering amount, and the intended use.

The Web sites are subject to oversight by the SEC and security regulators of their principal States. There are aggregate annual caps. This is a key predatory protection to prevent pump-and-dump schemes. If you have seen the movie ``Boiler Room,'' you will know what I am talking about, where folks were set to pump up a stock, and the only folks trading it were those who kind of received special information. Then, as soon as they invested--normally they are investing, buying the stock owned by the folks who are doing the pumping--the whole thing collapsed afterwards and their investment was worthless.

So this is an essential part of making sure we establish a responsible marketplace that will succeed in being a foundation for capital formation.

Also, we get rid of this 1-day, list-and-close process. So there is a 21-day period--a very small amount of time in the course of raising capital to create a startup or to advance a small business--21 days, which allows for the opportunity for the sort of oversight that a portal can provide or the SEC can provide to stop known bad actors and fraudsters.

Finally, the officers and directors are accountable for the accuracy of the information. This is essential. Without this sort of accountability, every fraudster out there will spin out a story and try to raise money for their schemes. But by holding them accountable for the accuracy of the information, it says to them: No, I cannot do that. I can be held accountable.

This is exactly the right balance because it provides a due diligence safe harbor. It requires that any information in dispute be material. So it does not put the officers and directors at risk. It simply says, when they provide material information they have to do appropriate due diligence to make sure it is accurate.

Crowdfunding has enormous potential to bring more Americans than ever into the exciting process of powering up startups and expanding small businesses. I hope in the course of the consideration of the capital formation bill before us, we will have a chance to present a variety of amendments, including this crowdfunding amendment.

I certainly encourage my colleagues to listen very carefully to the points Senator Landrieu has been making, Senator Jack Reed has been making, Senator Durbin has been making. The point is this: Let's take and make a powerful tool work. Let's not, however, take and destroy a powerful tool by opening it to all kinds of predatory schemes and scams.

Mr. President, I yield the floor.

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