Jumpstart Our Business Startups Act

Floor Speech

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Mr. MERKLEY. Madam President, I rise to address the amendment on crowdfunding that we will be considering shortly on the floor of the Senate. Specifically, the goal is to create a solid foundation for success of enabling Americans to invest in startup companies, invest in small companies through the Internet, and to do so in a fashion that does not result in predatory scams but results in capital formation that helps small business thrive across our Nation.

The House bill, as it came over to us, has crowdfunding provisions that are simply a pathway to predatory scams, a paved highway to predatory scams. What do I mean by that? They say basically that a company seeking to raise investment capital doesn't have to give any financial information of any kind about their company. If they do provide information, they don't have to have accountability for the accuracy of that information. By the way, they can hire people to pump their stock, and that is OK under the law. In other words, everything we associate with the worst boiler rooms, the worst pump-and-dump schemes, is made legal by the House legislation. That is why we need to fix this on the floor of the Senate.

We lay out a provision that says, if you raise less than $100,000, you as the CEO assert the accuracy of the information you are putting out--simple financial statements. If you raise a larger amount of funds, you proceed to have an accountant-reviewed statement that you can vouch for. If you raise yet more funds, at a higher level, then you have an audited financial statement. So it is adjusted in degrees and it streamlines it to the appropriate levels, based on the amount of investment you are asking.

This amendment says directors and officers should take responsibility for the accuracy of that information. That will give investors a great deal more confidence that what they are reading is actually and truly the case. That is a foundation for successful investment.

There are many folks across the country who have looked at these crowdfunding positions, different measures. I thought I would read from Motaavi, a crowdfunding intermediary based out of North Carolina. On the House bill, they say:

The crowdfunding language in the [House bill] lacks critical investor protection features. It does not require offerings to be conducted through an intermediary, which opens the door to fraudulent activity. ..... It also does not require appropriate disclosures or inspections. The bill does not require the issuer to inform investors of dilution risk or capital structure.

Crowdfunding is premised on openness. Without disclosure, investors cannot protect themselves or accurately price the securities they are buying. If issuers are not willing to provide information over and above what is required, the [House] language does not provide investors with other alternatives short of giving up on crowdfunding altogether.

They then comment on the bipartisan amendment we are presenting on the floor of the Senate, and they note: It strikes the right balance between disclosure and flexibility. The language is tightly integrated with existing securities laws to provide investor protection. It places easily met obligations on the issuer and the intermediary to ensure that investors have the information they need to make sound decisions. The bill has many provisions for appropriate rulemaking, and is written in a way that reflects how crowdfunding actually works.

Remember, this is a crowdfunding intermediary based in North Carolina--one working to occupy this Internet space and wants a platform, a structure, that works and makes crowdfunding a legitimate strategy for capital formation.

The letter continues: We think crowdfunding can be a valuable and integral part of the capital formation process. The Crowd Funding Act is the right bill [the amendment we are considering today] to make this happen.

Launcht is a crowdfunding portal provider. They say: For the first time, we have a Senate bill with bipartisan sponsorship, a balance of state oversight and Federal uniformity, industry standard investor protections, and workable funding caps.

Let's turn to the startup exemption--three entrepreneurs who have led the charge in our Capitol for flexible provisions for crowdfunding: We write to suggest that if you consider the House version of the bill, you consider adding the following crucial components:

1. Crowdfunding investing intermediaries that are SEC-regulated to provide appropriate oversight.

2. All or nothing financing so that an entrepreneur must hit 100 percent of his funding target, or no funds will be exchanged.

3. State notification, rather than state registration, so the states are aware of who is crowdfunding in their states. This ensures they retain their enforcement ability while creating an efficient marketplace.

These provisions are in the amendment we are considering and the amendment they have endorsed.

Finally, we have SoMoLend, a peer-to-peer lending site. Here is their commentary, where they say this amendment is:..... robust enough to provide guidance to a new industry, but will also benefit the crowdfunding industry in the long-term, as compared to a possible race to the bottom with a ``no regulatory'' approach. The disclosure and regulatory requirements will provide adequate information to investors, advising of risk but also deterring fraud.

It continues: Again, this has long-term benefits to the industry as a whole. This hits at the heart of why these investor protections are so important. Not only do they deter scams and fraud, not only do they protect vulnerable investors, such as seniors and others, who have little experience in the investing market, but they build a strong capital formation market, a successful platform for capital formation, a market that puts capital where citizens would like to put it--the wisdom of the crowd, if you will--a market that allows good ideas to rise to the top, a market that will create jobs now and in the future.

I urge my colleagues to support amendment No. 1884 to provide the right balance of streamlining and investor protection.

I yield the floor and suggest the absence of a quorum.

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Mr. MERKLEY. Madam President, I have 1 minute?

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Mr. MERKLEY. Colleagues, I want to encourage you to adopt amendment No. 1884. The House bill, as it came to us, on crowdfunding is a pathway to predatory scams. It requires no information to be provided by a company; and if the company provides information, it requires no responsibility or accountability for the accuracy of that information. It allows companies to hire people to pump the stocks, which is exactly what we all know, from pump-and-dump schemes, is very devastating to any sort of solid financial foundation for capital aggregation, capital formation.

I want to applaud my colleagues Senator Bennet, Senator Landrieu, and Senator Brown of Massachusetts, who have worked together to bring this bipartisan amendment forward. It provides the right amount of streamlining for the companies, the right amount of streamlining for portals on the Internet, and the right set of investor protections, information, and accountability necessary to make crowdfunding fulfill the exciting potential it has.

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