On November 15, the House Financial Services Committee approved 23 bills, which included various bills that facilitate capital formation and reduce certain regulatory requirements.‎  Chairman of the Committee, Jeb Hensarling, stated that these bills “…will provide smaller businesses with greater access to the capital markets so those businesses can grow and create jobs.”  The following were included among the approved bills:

  • H.R. 4263‎, the Regulation A+ Improvement Act, which proposes to increase ‎the amount that companies can offer and sell under SEC Regulation A, Tier II, from $50 million to $75 million. The bill passed 37-23.
  • H.R. 4015, the Corporate Governance Reform and Transparency Act of 2017, which provides for the registration of proxy advisory firms with the SEC, disclosure of proxy firms’ potential conflicts of interest and codes of ethics, and the disclosure of proxy firms’ methodologies for formulating proxy recommendations and analyses.  The bill passed 40-20.
  • H.R. 4248, which proposes to repeal Section 1502 of the Dodd-Frank Act, and would require public companies to disclose in annual reports filed with the SEC whether the company sources “conflict minerals” from the Democratic Republic of Congo and its nine neighboring countries. The bill passed 32-27.
  • H.R. 4267, the Small Business Credit Availability Act, which proposes to amend the Investment Company Act of 1940 in order to require the SEC to streamline the offering, filing, and registration processes for BDCs.  The bill also increases a BDCs’ ability to deploy capital to businesses by reducing its asset coverage ratio—or required ratio of assets to debt—from 200% to 150% if certain requirements are met. The bill passed 58-2.
  • H.R. 4279, the ‎Expanding Investment Opportunities Act, which directs the SEC to amend its rules to enable closed-end funds that meet certain requirements to be considered “well-known seasoned issuers” (WKSIs) and to conform the filing and offering regulations for closed-end funds to those of traditional operating companies. The bill passed 58-2.
  • H.R. 4281, the Expanding Access to Capital for Rural Job Creators Act, which proposes to amend the Securities Exchange Act of 1934 to have the SEC’s Advocate for Small Business Capital Formation identify any unique challenges to rural area small businesses when identifying problems that small businesses have with securing access to capital. H.R. 4281 also requires that the annual report made by the SEC’s Small Business Advocate include a summary of any unique issues encountered by rural area small businesses. The bill passed 60-0.

On November 9, 2017, the House of Representatives passed H.R. 2201, the Micro Offering Safe Harbor Act, by a vote of 232-188.  The bill proposes to amend the Securities Act of 1933 to exempt certain micro offerings from state regulation of securities offerings and federal limitations relating to interstate solicitation.  In order to qualify for the exemption, a micro offering must have a purchaser that has a substantive preexisting relationship with the issuer; no more than 35 purchasers relying on the exemption during the 12-month period preceding the transaction; and the amount of all securities sold by the issuer does not exceed $500,000, during the 12-month period preceding the transaction.  House Financial Services Committee Chairman Jeb Hensarling noted that this “…bill will help unlock seed capital for small businesses and startup companies.”

HR 1585, sponsored by Rep. Schweikart, titled The Fair Investment Opportunities for Professional Experts Act, passed the House by a voice vote.  This bill would amend the “accredited investor” definition to add persons, regardless of the net worth/net income test, holding certain financial services licenses as well as persons determined by the SEC to be financially sophisticated by virtue of education or job experience.

The House also passed the Meeks bill, HR 3903, Encouraging Public Offerings Act, about which we previously blogged, which would extend JOBS Act IPO-related accommodations, including the ability to test the waters, to all issuers.  HR 3903 passed 419-0.

Last week, the Senate passed three bipartisan bills that promote access to capital for small businesses and startups.  The Senate bills, the House corollaries of which originally passed on March 9, 2017, include the following:

  • S. 444, the Supporting America’s Innovators Act (H.R. 1219).  Amends the Investment Company Act of 1940 to exempt from the definition of an “investment company,” for purposes of specified limitations applicable to such a company under the Act, a qualifying venture capital fund that has no more than 250 investors. Specifically, the bill applies to a venture capital fund that has less than $10 million in aggregate capital contributions and uncalled committed capital.
  • S. 416, the Small Business Capital Formation Enhancement Act (H.R. 1312). Amends the Small Business Investment Incentive Act of 1980 with respect to the annual government-business forum of the SEC to review the current status of problems and programs relating to small business capital formation.
  • S. 488, Encouraging Employee Ownership Act (H.R. 1343). Requires the SEC to increase, from $5 million to $10 million the threshold beyond which an issuer is required to provide investors with additional disclosures related to compensatory benefit plans.

On September 5, 2017, the U.S. House of Representatives approved H.R. 2864 (Improving Access to Capital Act) by a vote of 403-3.  The bill, which was sponsored by Rep. Krysten Sinema and previously amended by the Committee on House Financial Services on September 5, 2017, directs the SEC to amend Regulation A to permit Exchange Act reporting companies who otherwise meet all of the requirements under Regulation A to issue securities under Regulation A.  Currently, Regulation A only applies to non-reporting companies.  Allowing reporting companies to use Regulation A would provide them with a cheaper and faster way to raise capital due to the shorter SEC review process, and in the case of Tier 2 offerings, exemption from state blue sky review.  The expansion of Regulation A to include reporting companies might also increase the quality of future Regulation A issuers, broaden the investor base for Regulation A offerings and ultimately enhance liquidity in the secondary market.  In addition, the ability to use Regulation A could prove useful to reporting companies that do not qualify to use Form S-3 for primary offerings.

The full text of the bill can be found here.

On July 27, 2017, Ranking Member of the House Committee on Financial Services, Congresswoman Maxine Waters, introduced the Bad Actor Disqualification Act of 2017.  This draft legislation directs the SEC to implement more rigorous and public processes for granting waivers that restore certain benefits to bad actors.  These benefits include reduced oversight, reduced disclosure requirements and limited liability.  The current draft of the bill specifically requires:

  • that the waiver process be conducted and voted on at the Commission level, rather than staff level;
  • that the SEC consider whether granting a waiver would protect investors, be in the public’s interest and promote market integrity;
  • that the SEC to publish notice and allow for public comment on whether a particular waiver will be approved or denied; and
  • that the SEC create a public database of all disqualified actors and keep complete/public records of all waiver requests.

This legislation follows the Congresswoman’s previous legislation from 2015 aimed at reforming the SEC’s waiver approval process, which was in response to a 2014 study that concluded that 82% of waivers were granted to financial firms in the last 11 years.

The full text of the bill can be found here.

The House Financial Services Committee met on Tuesday, July 25, 2017 and approved four bipartisan bills. Among them, H.R. 2864, the Improving Access to Capital Act, was approved by the Committee by a vote of 59-0.

The bill proposes to amend Regulation A to remove the requirement that an issuer not be subject to certain reporting requirements under the Securities Exchange Act of 1934, immediately before an offering. The bill also proposes to amend Tier 2 offering reporting requirements under the Securities Exchange Act of 1933.

The legislation was introduced in an effort to allow for a streamlined SEC review process and promote capital raising for smaller reporting companies. The full bill text can be found here.

The SEC’s Investor Advisory Committee has announced the agenda for its June 22 meeting.  The committee will discuss issues relating to capital formation for smaller companies, including the decline in IPOs. The committee will also review certain provisions of the Financial CHOICE Act, as they relate to the SEC.

The meeting is open to the public and will be webcast live from the SEC’s website.

On June 8, 2017, the House passed H.R. 10, the Financial “CHOICE” Act with a vote of 233 to 186.  Introduced on April 27, 2017, the Financial CHOICE Act proposes to amend the Dodd-Frank Act to repeal the Volcker Rule, eliminate the FDIC’s orderly liquidation authority, and repeal certain limitations imposed by the Durbin Amendment.  The bill would also remove FSOC’s authority to designate non-bank financial institutions and financial market utilities as “systemically important” (also known as “too big to fail”).

Furthermore, in addition to the numerous amendments to the Consumer Financial Protection Act of 2010, the bill intends to (1) modify provisions related to the SEC’s managerial structure and enforcement authority; (2) eliminate the Office of Financial Research within the Department of the Treasury; and (3) revise provisions related to capital formation, insurance regulation, civil penalties for securities laws violations, and community financial institutions.

The bill would also repeal the Department of Labor’s fiduciary rule which, when fully implemented, significantly expands the categories of persons considered fiduciaries.  The DOL would be prohibited from adopting any similar rule until after the U.S. Securities and Exchange Commission (“SEC”) adopts a fiduciary standard for broker-dealers.

Chairman of the House Financial Services Committee, Jeb Hensarling, said in a statement after the passing of the bill: “We will make sure there is needed regulatory relief for our small banks and credit unions, because it’s our small banks and credit unions that lend to our small businesses that are the jobs engine of our economy and make sure the American dream is not a pipe dream.”

For a summary of current pending legislation relating to capital formation, click here.

As the 115th United States Congress is currently in session, a number of bills designed to promote capital raising for companies have been introduced in both the House and the Senate. In the last two months, both the House and Senate approved a handful of these bills, further advancing potential legislative reform relating to corporate capital formation.

For a summary of the status of these various bills, see our Pending Legislation tracker.