HR 4565

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IN THE HOUSE OF REPRESENTATIVES

May 6, 2014

Mr. McHenry (for himself and Mr. Garrett) introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To amend the securities laws to improve the small company capital formation provisions, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Startup Capital Modernization Act of 2014”.

SEC. 2. INCREASE IN SMALL ISSUES EXEMPTIVE AUTHORITY.

Section 3(b)(1) of the Securities Act of 1933 (15 U.S.C. 77c(b)(1)) is amended by striking “$5,000,000” and inserting “$10,000,000”.

SEC. 3. PREEMPTION OF STATE LAWS.

(a) In General.—The first subparagraph (D) of section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 77r(b)(4)) (relating to a rule or regulation adopted pursuant to section 3(b)(2)) is amended by inserting “section 3(b)(1) or” before “section 3(b)(2)”.

(b) Clarification of the Preservation of State Enforcement Authority.—

(1) In general.—The amendment made by subsection (a) relates solely to State registration, documentation, and offering requirements, as described under section 18(a) of the Securities Act of 1933 (15 U.S.C. 77r(a)), and shall have no impact or limitation on other State authority to take enforcement action with regard to an issuer, intermediary, or any other person or entity using the exemption from registration provided by section 3(b)(1) of such Act.

(2) Clarification of state jurisdiction over unlawful conduct of intermediaries, issuers, and custodians.—Section 18(c)(1) of the Securities Act of 1933 is amended—

(A) in subparagraph (A), by striking “and” at the end;

(B) in subparagraph (B), by striking the period at the end and inserting “; and”; and

(C) by adding at the end the following:

“(C) with respect to a transaction described under section 3(b), unlawful conduct by an issuer or custodian.”.

SEC. 4. EXCLUSION FROM SHAREHOLDER CAP.

(a) In General.—Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)) is amended by adding at the end the following:

“(7) Exclusion for securities issued under regulation a pursuant to section 3(b) of the securities act of 1933.—All securities issued under Regulation A (17 C.F.R. 230.251 et seq.) pursuant to section 3(b) of the Securities Act of 1933 shall be exempt from the provisions of this subsection if the issuer has filed audited financial statements with the Commission and the issuer is in compliance with all periodic disclosures required by the Commission pursuant to section 3(b)(4) of the Securities Act of 1933.”.

(b) Rulemaking.—The Securities and Exchange Commission shall issue a rule to carry out section 12(g)(7) of the Securities Exchange Act of 1934 (15 U.S.C. 78c), as added by this section, not later than 180 days after the date of enactment of this section.

(c) Rule of Applicability.—The exclusion provided under section 12(g)(7) of the Securities Exchange Act of 1934 (15 U.S.C. 78c), as added by this section, shall apply to securities issued before, on, or after the date of the enactment of this Act.

SEC. 5. EXEMPTED TRANSACTIONS.

(a) Exempted Transactions.—Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended—

(1) in subsection (a), by adding at the end the following new paragraph:

“(7) transactions meeting the requirements of subsection

(d).”;

(2) by redesignating the second subsection (b) (relating to securities offered and sold in compliance with Rule 506 of Regulation D) as subsection (c); and

(3) by adding at the end the following:

“(d)(1) The transactions referred to in subsection (a)(7) are transactions where—

“(A) each purchaser is an accredited investor, as that term is defined in section 230.501(a) of title 17, Code of Federal Regulations (or any successor thereto); and

“(B) if any securities sold in reliance on subsection (a)(7) are offered by means of any general solicitation or general advertising, the seller takes reasonable steps to verify, in the manner set forth in section 230.506(c)(ii) of title 17, Code of Federal Regulations (or any successor regulation), that each purchaser is an accredited investor.

“(2) Securities sold in reliance on subsection (a)(7) shall be deemed to have been acquired in a transaction not involving any public offering.

“(3) The exemption provided by this subsection shall not be available for a transaction where the seller is—

“(A) an issuer, its subsidiaries or parent;

“(B) an underwriter acting on behalf of the issuer, its subsidiaries or parent, which receives compensation from the issuer with respect to such sale; or

“(C) a dealer.

“(4) A transaction meeting the requirements of this subsection shall be deemed not to be a distribution for purposes of section 2(a)(11).”.

(b) Exemption in Connection With Certain Exempt Offerings.—Section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 77r(b)(4)) is amended—

(1) by redesignating the second subparagraph (D) and subparagraph (E) as subparagraphs (E) and (F), respectively;

(2) in subparagraph (E), as so redesignated, by striking “; or” and inserting a semicolon;

(3) in subparagraph (F), as so redesignated, by striking the period and inserting “; or”; and

(4) by adding at the end the following new subparagraph:

“(G) section 4(a)(7).”. <all>