[House Report 114-281]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-281
======================================================================
REFORMING ACCESS FOR INVESTMENTS IN STARTUP ENTERPRISES ACT OF 2015
_______
October 6, 2015.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 1839]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1839) to amend the Securities Act of 1933 to
exempt certain transactions involving purchases by accredited
investors, and for other purposes, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Reforming Access for Investments in
Startup Enterprises Act of 2015'' or the ``RAISE Act of 2015''.
SEC. 2. 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) Certain Accredited Investor Transactions.--The transactions
referred to in subsection (a)(7) are transactions meeting the following
requirements:
``(1) Accredited investor requirement.--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 regulation).
``(2) Prohibition on general solicitation or advertising.--
Neither the seller, nor any person acting on the seller's
behalf, offers or sells securities by any form of general
solicitation or general advertising.
``(3) Information requirement.--In the case of a transaction
involving the securities of an issuer that is neither subject
to section 13 or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m; 78o(d)), nor exempt from reporting pursuant to
section 240.12g3-2(b) of title 17, Code of Federal Regulations,
nor a foreign government (as defined in section 230.405 of
title 17, Code of Federal Regulations) eligible to register
securities under Schedule B, the seller and a prospective
purchaser designated by the seller obtain from the issuer, upon
request of the seller, and the seller in all cases makes
available to a prospective purchaser, the following information
(which shall be reasonably current in relation to the date of
resale under this section):
``(A) The exact name of the issuer and the issuer's
predecessor (if any).
``(B) The address of the issuer's principal executive
offices.
``(C) The exact title and class of the security.
``(D) The par or stated value of the security.
``(E) The number of shares or total amount of the
securities outstanding as of the end of the issuer's
most recent fiscal year.
``(F) The name and address of the transfer agent,
corporate secretary, or other person responsible for
transferring shares and stock certificates.
``(G) A statement of the nature of the business of
the issuer and the products and services it offers,
which shall be presumed reasonably current if the
statement is as of 12 months before the transaction
date.
``(H) The names of the officers and directors of the
issuer.
``(I) The names of any persons registered as a
broker, dealer, or agent that shall be paid or given,
directly or indirectly, any commission or remuneration
for such person's participation in the offer or sale of
the securities.
``(J) The issuer's most recent balance sheet and
profit and loss statement and similar financial
statements, which shall--
``(i) be for such part of the two preceding
fiscal years as the issuer has been in
operation;
``(ii) be prepared in accordance with
generally accepted accounting principles or, in
the case of a foreign private issuer, be
prepared in accordance with generally accepted
accounting principles or the International
Financial Reporting Standards issued by the
International Accounting Standards Board;
``(iii) be presumed reasonably current if--
``(I) with respect to the balance
sheet, the balance sheet is as of a
date less than 16 months before the
transaction date; and
``(II) with respect to the profit and
loss statement, such statement is for
the 12 months preceding the date of the
issuer's balance sheet; and
``(iv) if the balance sheet is not as of a
date less than 6 months before the transaction
date, be accompanied by additional statements
of profit and loss for the period from the date
of such balance sheet to a date less than 6
months before the transaction date.
``(K) To the extent that the seller is a control
person with respect to the issuer, a brief statement
regarding the nature of the affiliation, and a
statement certified by such seller that they have no
reasonable grounds to believe that the issuer is in
violation of the securities laws or regulations.
``(4) Issuers disqualified.--The transaction is not for the
sale of a security where the seller is an issuer or a
subsidiary, either directly or indirectly, of the issuer.
``(5) Bad actor prohibition.--Neither the seller, nor any
person that has been or will be paid (directly or indirectly)
remuneration or a commission for their participation in the
offer or sale of the securities, including solicitation of
purchasers for the seller is subject to an event that would
disqualify an issuer or other covered person under Rule
506(d)(1) of Regulation D (17 C.F.R. 230.506(d)(1)) or is
subject to a statutory disqualification described under section
3(a)(39) of the Securities Exchange Act of 1934.
``(6) Business requirement.--The issuer is engaged in
business, is not in the organizational stage or in bankruptcy
or receivership, and is not a blank check, blind pool, or shell
company that has no specific business plan or purpose or has
indicated that the issuer's primary business plan is to engage
in a merger or combination of the business with, or an
acquisition of, an unidentified person.
``(7) Underwriter prohibition.--The transaction is not with
respect to a security that constitutes the whole or part of an
unsold allotment to, or a subscription or participation by, a
broker or dealer as an underwriter of the security or a
redistribution.
``(8) Outstanding class requirement.--The transaction is with
respect to a security of a class that has been authorized and
outstanding for at least 90 days prior to the date of the
transaction.
``(e) Additional Requirements.--
``(1) In general.--With respect to an exempted transaction
described under subsection (a)(7):
``(A) Securities acquired in such transaction shall
be deemed to have been acquired in a transaction not
involving any public offering.
``(B) Such transaction shall be deemed not to be a
distribution for purposes of section 2(a)(11).
``(C) Securities involved in such transaction shall
be deemed to be restricted securities within the
meaning of Rule 144 (17 C.F.R. 230.144).
``(2) Rule of construction.--The exemption provided by
subsection (a)(7) shall not be the exclusive means for
establishing an exemption from the registration requirements of
section 5.''.
(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).''.
Purpose and Summary
Introduced by Representative McHenry, H.R. 1839, the
``Reforming Access for Investments in Startup Enterprises Act
of 2015'' or ``RAISE'' Act, amends Section 4 of the Securities
Act of 1933 to increase market liquidity and resolve legal
uncertainty that impedes employees of private companies from
selling their company-issued securities. Currently, a holder of
securities issued in a private placement may resell the
securities on a public market after a holding period. However,
there is not a similar law for the private resale of restricted
securities. Accordingly, H.R. 1839 codifies a legal framework
for these transactions to facilitate private company capital
formation.
Background and Need for Legislation
H.R. 1839, as amended, facilitates the sale of company-
issued securities by employees of private companies by amending
Section 4 of the Securities Act of 1933 to provide that the
resale of any securities are ``exempted transactions'' (which
do not trigger the Act's registration provisions) as long as:
(1) each purchaser is an accredited investor; (2) the
securities are not offered by means of general solicitation or
general advertising; (3) the seller and a prospective purchaser
obtain from the issuer certain information relating to the
sale; and (4) the transaction does not involve a public
offering.
At an April 29, 2015, Capital Markets Subcommittee hearing,
Shane Kovacs, Executive Vice President and Chief Executive
Officer of PTC Therapeutics, Inc., testified that H.R. 1839
will enhance liquidity in the market for company-issued
securities and further improvements made by the Jumpstart Our
Business Startups Act (P.L. 112-106):
by ensuring that the legal framework at the SEC
supports the secondary market for the shares offered
and sold in Regulation A+ offerings. Without enhanced
liquidity on the secondary market, investors could be
hesitant to participate in Regulation A+ offerings--but
Representative McHenry has taken the important step to
codify the regulatory framework for the resale of
restricted securities, enhancing the capital potential
of a Regulation A+ offering and ensuring that Title IV
of the JOBS Act will have its intended impact.
At the same hearing, Tom Quaadman of the U.S. Chamber of
Commerce testified that H.R. 1839 ``would help foster a robust
secondary market for the resale of restricted securities that
were acquired in a private placement. While past court
decisions have had the effect of allowing the resale of certain
private offerings, restricted securities remain an illiquid
market and could benefit from a modernization of current SEC
rules.'' In a June 23, 2015, letter to Chairman Hensarling,
Sara Hanks, the Co-Founder and CEO of CrowdCheck, Inc., a
provider of due diligence services for investors looking for
investments and entrepreneurs seeking funding wrote that,
``[t]he employees of private companies, as well as founders and
early investors . . . have an increasing need for some level of
liquidity before those companies choose to publicly register an
IPO. Some companies (and CrowdCheck is among them) are unlikely
to make a registered public offering of their shares for many
years, if ever.''
Finally, Steven Bochner of the Palo Alto-based law firm
Wilson Sonsini Goodrich & Rosati wrote to Chairman Hensarling
on June 11, 2015, in support of H.R. 1839 that,
``[f]acilitating shareholder liquidity is critical to the
overall success of private companies. Private companies . . .
find it much easier to raise primary capital when prospective
investors understand that some degree of liquidity will be
available to them, particularly in the case of private
companies that wish to remain private and defer their IPOs.''
Hearings
The Committee on Financial Services' Subcommittee on
Capital Markets and Government Sponsored Enterprises held a
hearing examining matters relating to H.R. 1839 on April 29,
2015.
Committee Consideration
The Committee on Financial Services met in open session on
July 28, 2015 and July 29, 2015, and ordered H.R. 1839 to be
reported favorably to the House as amended by a recorded vote
of 58 yeas to 0 nays (Record vote no. FC-51), a quorum being
present. Before the vote to favorably report the measure was
ordered, the Committee adopted an amendment in the nature of a
substitute by unanimous consent.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole record vote in committee was a motion by Chairman
Hensarling to report the bill favorably to the House as
amended. The motion was agreed to by a recorded vote of 58 yeas
to 0 nays (Record vote no. FC-51, a quorum being present.
Record vote no. FC-51
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling................. X ........ ......... Ms. Waters (CA).. X ........ .........
Mr. King (NY).................. X ........ ......... Mrs. Maloney (NY) X ........ .........
Mr. Royce...................... X ........ ......... Ms. Velazquez.... X ........ .........
Mr. Lucas...................... X ........ ......... Mr. Sherman...... X ........ .........
Mr. Garrett.................... X ........ ......... Mr. Meeks........ X ........ .........
Mr. Neugebauer................. X ........ ......... Mr. Capuano...... X ........ .........
Mr. McHenry.................... X ........ ......... Mr. Hinojosa..... X ........ .........
Mr. Pearce..................... X ........ ......... Mr. Clay......... X ........ .........
Mr. Posey...................... X ........ ......... Mr. Lynch........ X ........ .........
Mr. Fitzpatrick................ X ........ ......... Mr. David Scott X ........ .........
(GA).
Mr. Westmoreland............... X ........ ......... Mr. Al Green (TX) X ........ .........
Mr. Luetkemeyer................ X ........ ......... Mr. Cleaver...... ........ ........ .........
Mr. Huizenga (MI).............. X ........ ......... Ms. Moore........ X ........ .........
Mr. Duffy...................... X ........ ......... Mr. Ellison...... X ........ .........
Mr. Hurt (VA).................. X ........ ......... Mr. Perlmutter... X ........ .........
Mr. Stivers.................... X ........ ......... Mr. Himes........ X ........ .........
Mr. Fincher.................... X ........ ......... Mr. Carney....... ........ ........ .........
Mr. Stutzman................... X ........ ......... Ms. Sewell (AL).. X ........ .........
Mr. Mulvaney................... X ........ ......... Mr. Foster....... X ........ .........
Mr. Hultgren................... X ........ ......... Mr. Kildee....... X ........ .........
Mr. Ross....................... X ........ ......... Mr. Murphy (FL).. X ........ .........
Mr. Pittenger.................. X ........ ......... Mr. Delaney...... X ........ .........
Mrs. Wagner.................... X ........ ......... Ms. Sinema....... X ........ .........
Mr. Barr....................... X ........ ......... Mrs. Beatty...... X ........ .........
Mr. Rothfus.................... X ........ ......... Mr. Heck (WA).... X ........ .........
Mr. Messer..................... X ........ ......... Mr. Vargas....... X ........ .........
Mr. Schweikert................. X ........ .........
Mr. Guinta..................... X ........ .........
Mr. Tipton..................... X ........ .........
Mr. Williams................... X ........ .........
Mr. Poliquin................... X ........ .........
Mrs. Love...................... X ........ .........
Mr. Hill....................... X ........ .........
Mr. Emmer...................... X ........ .........
----------------------------------------------------------------------------------------------------------------
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee, based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R. 1839
will facilitate private company capital formation by enhancing
liquidity in the market for certain securities that are issued
by such companies and owned by their employees.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 20, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1839, the
Reforming Access for Investments in Startup Enterprises Act of
2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Keith Hall.
Enclosure.
H.R. 1839--Reforming Access for Investments in Startup Enterprises Act
of 2015
H.R. 1839 would exempt certain securities from statutory
requirements that, among other things, they be registered with
the Securities and Exchange Commission (SEC) prior to being
offered for sale. To be eligible for the exemption, such
securities must be offered only in a private sale to accredited
investors that have received certain information about the
issuer of the security and the security itself.
Based on information from the SEC, CBO estimates that
implementing H.R. 1839 would cost less than $500,000 over the
2016-2020 period; the agency would not make any changes to
current regulations as a result of the bill. Under current law,
the SEC is authorized to collect fees to offset its annual
appropriation; therefore, assuming appropriation action
consistent with that authority, CBO estimates that implementing
the bill would have a negligible effect on net discretionary
spending. Enacting H.R. 1839 would not affect direct spending
or revenues; therefore, pay-as-you-go procedures do not apply.
H.R. 1839 would impose an intergovernmental mandate as
defined in the Unfunded Mandates Reform Act (UMRA) by
prohibiting states from requiring the registration or review of
the sale of securities in some cases. CBO estimates that the
cost to state governments of complying with the mandate would
be small and well below the annual threshold established in
UMRA for intergovernmental mandates ($76 million in 2014,
adjusted annually for inflation).
H.R. 1839 contains no private-sector mandates as defined in
UMRA.
The CBO staff contacts for this estimate are Susan Willie
(for federal costs) and Melissa Merrell (for intergovernmental
mandates). The estimate was approved by H. Samuel Papenfuss,
Deputy Assistant Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 1839 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Duplication of Federal Programs
Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015),
the Committee states that no provision of H.R. 1839 establishes
or reauthorizes a program of the Federal Government known to be
duplicative of another Federal program, a program that was
included in any report from the Government Accountability
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most
recent Catalog of Federal Domestic Assistance.
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015),
the Committee states that H.R. 1839 does not require any
directed rulemakings.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 1839 as the ``Reforming Access for
Investment in Startup Enterprises Act of 2015'' or the ``RAISE
Act of 2015.''
Section 2. Exempted transactions
This section establishes a class of transactions that are
exempt from the registration requirements of the Securities Act
of 1933.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
SECURITIES ACT OF 1933
TITLE I--SHORT TITLE
* * * * * * *
exempted transactions
Sec. 4. (a) The provisions of section 5 shall not apply to--
(1) transactions by any person other than an issuer,
underwriter, or dealer.
(2) transactions by an issuer not involving any
public offering.
(3) transactions by a dealer (including an
underwriter no longer acting as an underwriter in
respect of the security involved in such transaction),
except--
(A) transactions taking place prior to the
expiration of forty days after the first date
upon which the security was bona fide offered
to the public by the issuer or by or through an
underwriter,
(B) transactions in a security as to which a
registration statement has been filed taking
place prior to the expiration of forty days
after the effective date of such registration
statement or prior to the expiration of forty
days after the first date upon which the
security was bona fide offered to the public by
the issuer or by or through an underwriter
after such effective date, whichever is later
(excluding in the computation of such forty
days any time during which a stop order issued
under section 8 is in effect as to the
security), or such shorter period as the
Commission may specify by rules and regulations
or order, and
(C) transactions as to securities
constituting the whole or a part of an unsold
allotment to or subscription by such dealer as
a participant in the distribution of such
securities by the issuer or by or through an
underwriter.
With respect to transactions referred to in clause (B),
if securities of the issuer have not previously been
sold pursuant to an earlier effective registration
statement the applicable period, instead of forty days,
shall be ninety days, or such shorter period as the
Commission may specify by rules and regulations or
order.
(4) brokers' transactions executed upon customers'
orders on any exchange or in the over-the-counter
market but not the solicitation of such orders.
(5) transactions involving offers or sales by an
issuer solely to one or more accredited investors, if
the aggregate offering price of an issue of securities
offered in reliance on this paragraph does not exceed
the amount allowed under section 3(b)(1) of this title,
if there is no advertising or public solicitation in
connection with the transaction by the issuer or anyone
acting on the issuer's behalf, and if the issuer files
such notice with the Commission as the Commission shall
prescribe.
(6) transactions involving the offer or sale of
securities by an issuer (including all entities
controlled by or under common control with the issuer),
provided that--
(A) the aggregate amount sold to all
investors by the issuer, including any amount
sold in reliance on the exemption provided
under this paragraph during the 12-month period
preceding the date of such transaction, is not
more than $1,000,000;
(B) the aggregate amount sold to any investor
by an issuer, including any amount sold in
reliance on the exemption provided under this
paragraph during the 12-month period preceding
the date of such transaction, does not exceed--
(i) the greater of $2,000 or 5
percent of the annual income or net
worth of such investor, as applicable,
if either the annual income or the net
worth of the investor is less than
$100,000; and
(ii) 10 percent of the annual income
or net worth of such investor, as
applicable, not to exceed a maximum
aggregate amount sold of $100,000, if
either the annual income or net worth
of the investor is equal to or more
than $100,000;
(C) the transaction is conducted through a
broker or funding portal that complies with the
requirements of section 4A(a); and
(D) the issuer complies with the requirements
of section 4A(b).
(7) transactions meeting the requirements of
subsection (d).
(b) Offers and sales exempt under section 230.506 of title
17, Code of Federal Regulations (as revised pursuant to section
201 of the Jumpstart Our Business Startups Act) shall not be
deemed public offerings under the Federal securities laws as a
result of general advertising or general solicitation.
[(b)] (c)(1) With respect to securities offered and sold in
compliance with Rule 506 of Regulation D under this Act, no
person who meets the conditions set forth in paragraph (2)
shall be subject to registration as a broker or dealer pursuant
to section 15(a)(1) of this title, solely because--
---------------------------------------------------------------------------
\17\The reference to ``section 15(a)(1) of this title'' in
subsection (b)(1) probably should be a reference to ``section 15(a)(1)
of the Securities Exchange Act of 1934''.
---------------------------------------------------------------------------
(A) that person maintains a platform or
mechanism that permits the offer, sale,
purchase, or negotiation of or with respect to
securities, or permits general solicitations,
general advertisements, or similar or related
activities by issuers of such securities,
whether online, in person, or through any other
means;
(B) that person or any person associated with
that person co-invests in such securities; or
(C) that person or any person associated with
that person provides ancillary services with
respect to such securities.
(2) The exemption provided in paragraph (1) shall apply to
any person described in such paragraph if--
(A) such person and each person associated with that
person receives no compensation in connection with the
purchase or sale of such security;
(B) such person and each person associated with that
person does not have possession of customer funds or
securities in connection with the purchase or sale of
such security; and
(C) such person is not subject to a statutory
disqualification as defined in section 3(a)(39) of this
title and does not have any person associated with that
person subject to such a statutory disqualification.
(3) For the purposes of this subsection, the term ``ancillary
services'' means--
(A) the provision of due diligence services, in
connection with the offer, sale, purchase, or
negotiation of such security, so long as such services
do not include, for separate compensation, investment
advice or recommendations to issuers or investors; and
(B) the provision of standardized documents to the
issuers and investors, so long as such person or entity
does not negotiate the terms of the issuance for and on
behalf of third parties and issuers are not required to
use the standardized documents as a condition of using
the service.
(d) Certain Accredited Investor Transactions.--The
transactions referred to in subsection (a)(7) are transactions
meeting the following requirements:
(1) Accredited investor requirement.--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 regulation).
(2) Prohibition on general solicitation or
advertising.--Neither the seller, nor any person acting
on the seller's behalf, offers or sells securities by
any form of general solicitation or general
advertising.
(3) Information requirement.--In the case of a
transaction involving the securities of an issuer that
is neither subject to section 13 or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m;
78o(d)), nor exempt from reporting pursuant to section
240.12g3-2(b) of title 17, Code of Federal Regulations,
nor a foreign government (as defined in section 230.405
of title 17, Code of Federal Regulations) eligible to
register securities under Schedule B, the seller and a
prospective purchaser designated by the seller obtain
from the issuer, upon request of the seller, and the
seller in all cases makes available to a prospective
purchaser, the following information (which shall be
reasonably current in relation to the date of resale
under this section):
(A) The exact name of the issuer and the
issuer's predecessor (if any).
(B) The address of the issuer's principal
executive offices.
(C) The exact title and class of the
security.
(D) The par or stated value of the security.
(E) The number of shares or total amount of
the securities outstanding as of the end of the
issuer's most recent fiscal year.
(F) The name and address of the transfer
agent, corporate secretary, or other person
responsible for transferring shares and stock
certificates.
(G) A statement of the nature of the business
of the issuer and the products and services it
offers, which shall be presumed reasonably
current if the statement is as of 12 months
before the transaction date.
(H) The names of the officers and directors
of the issuer.
(I) The names of any persons registered as a
broker, dealer, or agent that shall be paid or
given, directly or indirectly, any commission
or remuneration for such person's participation
in the offer or sale of the securities.
(J) The issuer's most recent balance sheet
and profit and loss statement and similar
financial statements, which shall--
(i) be for such part of the two
preceding fiscal years as the issuer
has been in operation;
(ii) be prepared in accordance with
generally accepted accounting
principles or, in the case of a foreign
private issuer, be prepared in
accordance with generally accepted
accounting principles or the
International Financial Reporting
Standards issued by the International
Accounting Standards Board;
(iii) be presumed reasonably current
if--
(I) with respect to the
balance sheet, the balance
sheet is as of a date less than
16 months before the
transaction date; and
(II) with respect to the
profit and loss statement, such
statement is for the 12 months
preceding the date of the
issuer's balance sheet; and
(iv) if the balance sheet is not as
of a date less than 6 months before the
transaction date, be accompanied by
additional statements of profit and
loss for the period from the date of
such balance sheet to a date less than
6 months before the transaction date.
(K) To the extent that the seller is a
control person with respect to the issuer, a
brief statement regarding the nature of the
affiliation, and a statement certified by such
seller that they have no reasonable grounds to
believe that the issuer is in violation of the
securities laws or regulations.
(4) Issuers disqualified.--The transaction is not for
the sale of a security where the seller is an issuer or
a subsidiary, either directly or indirectly, of the
issuer.
(5) Bad actor prohibition.--Neither the seller, nor
any person that has been or will be paid (directly or
indirectly) remuneration or a commission for their
participation in the offer or sale of the securities,
including solicitation of purchasers for the seller is
subject to an event that would disqualify an issuer or
other covered person under Rule 506(d)(1) of Regulation
D (17 C.F.R. 230.506(d)(1)) or is subject to a
statutory disqualification described under section
3(a)(39) of the Securities Exchange Act of 1934.
(6) Business requirement.--The issuer is engaged in
business, is not in the organizational stage or in
bankruptcy or receivership, and is not a blank check,
blind pool, or shell company that has no specific
business plan or purpose or has indicated that the
issuer's primary business plan is to engage in a merger
or combination of the business with, or an acquisition
of, an unidentified person.
(7) Underwriter prohibition.--The transaction is not
with respect to a security that constitutes the whole
or part of an unsold allotment to, or a subscription or
participation by, a broker or dealer as an underwriter
of the security or a redistribution.
(8) Outstanding class requirement.--The transaction
is with respect to a security of a class that has been
authorized and outstanding for at least 90 days prior
to the date of the transaction.
(e) Additional Requirements.--
(1) In general.--With respect to an exempted
transaction described under subsection (a)(7):
(A) Securities acquired in such transaction
shall be deemed to have been acquired in a
transaction not involving any public offering.
(B) Such transaction shall be deemed not to
be a distribution for purposes of section
2(a)(11).
(C) Securities involved in such transaction
shall be deemed to be restricted securities
within the meaning of Rule 144 (17 C.F.R.
230.144).
(2) Rule of construction.--The exemption provided by
subsection (a)(7) shall not be the exclusive means for
establishing an exemption from the registration
requirements of section 5.
* * * * * * *
SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.
(a) Scope of Exemption.--Except as otherwise provided in this
section, no law, rule, regulation, or order, or other
administrative action of any State or any political subdivision
thereof--
(1) requiring, or with respect to, registration or
qualification of securities, or registration or
qualification of securities transactions, shall
directly or indirectly apply to a security that--
(A) is a covered security; or
(B) will be a covered security upon
completion of the transaction;
(2) shall directly or indirectly prohibit, limit, or
impose any conditions upon the use of--
(A) with respect to a covered security
described in subsection (b), any offering
document that is prepared by or on behalf of
the issuer; or
(B) any proxy statement, report to
shareholders, or other disclosure document
relating to a covered security or the issuer
thereof that is required to be and is filed
with the Commission or any national securities
organization registered under section 15A of
the Securities Exchange Act of 1934, except
that this subparagraph does not apply to the
laws, rules, regulations, or orders, or other
administrative actions of the State of
incorporation of the issuer; or
(3) shall directly or indirectly prohibit, limit, or
impose conditions, based on the merits of such offering
or issuer, upon the offer or sale of any security
described in paragraph (1).
(b) Covered Securities.--For purposes of this section, the
following are covered securities:
(1) Exclusive federal registration of nationally
traded securities.--A security is a covered security if
such security is--
(A) listed, or authorized for listing, on the
New York Stock Exchange or the American Stock
Exchange, or listed, or authorized for listing,
on the National Market System of the Nasdaq
Stock Market (or any successor to such
entities);
(B) listed, or authorized for listing, on a
national securities exchange (or tier or
segment thereof) that has listing standards
that the Commission determines by rule (on its
own initiative or on the basis of a petition)
are substantially similar to the listing
standards applicable to securities described in
subparagraph (A); or
(C) a security of the same issuer that is
equal in seniority or that is a senior security
to a security described in subparagraph (A) or
(B).
(2) Exclusive federal registration of investment
companies.--A security is a covered security if such
security is a security issued by an investment company
that is registered, or that has filed a registration
statement, under the Investment Company Act of 1940.
(3) Sales to qualified purchasers.--A security is a
covered security with respect to the offer or sale of
the security to qualified purchasers, as defined by the
Commission by rule. In prescribing such rule, the
Commission may define the term ``qualified purchaser''
differently with respect to different categories of
securities, consistent with the public interest and the
protection of investors.
(4) Exemption in connection with certain exempt
offerings.--A security is a covered security with
respect to a transaction that is exempt from
registration under this title pursuant to--
(A) paragraph (1) or (3) of section 4, and
the issuer of such security files reports with
the Commission pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934;
(B) section 4(4);
(C) section 4(6);
(D) a rule or regulation adopted pursuant to
section 3(b)(2) and such security is--
(i) offered or sold on a national
securities exchange; or
(ii) offered or sold to a qualified
purchaser, as defined by the Commission
pursuant to paragraph (3) with respect
to that purchase or sale;
[(D)] (E) section 3(a), other than the offer
or sale of a security that is exempt from such
registration pursuant to paragraph (4), (10),
or (11) of such section, except that a
municipal security that is exempt from such
registration pursuant to paragraph (2) of such
section is not a covered security with respect
to the offer or sale of such security in the
State in which the issuer of such security is
located; [or]
[(E)] (F) Commission rules or regulations
issued under section 4(2), except that this
subparagraph does not prohibit a State from
imposing notice filing requirements that are
substantially similar to those required by rule
or regulation under section 4(2) that are in
effect on September 1, 1996[.]; or
(G) section 4(a)(7).
(c) Preservation of Authority.--
(1) Fraud authority.--Consistent with this section,
the securities commission (or any agency or office
performing like functions) of any State shall retain
jurisdiction under the laws of such State to
investigate and bring enforcement actions, in
connection with securities or securities transactions
(A) with respect to--
(i) fraud or deceit; or
(ii) unlawful conduct by a broker or
dealer; and
(B) in connection to a transaction described
under section 4(6), with respect to--
(i) fraud or deceit; or
(ii) unlawful conduct by a broker,
dealer, funding portal, or issuer.
(2) Preservation of filing requirements.--
(A) Notice filings permitted.--Nothing in
this section prohibits the securities
commission (or any agency or office performing
like functions) of any State from requiring the
filing of any document filed with the
Commission pursuant to this title, together
with annual or periodic reports of the value of
securities sold or offered to be sold to
persons located in the State (if such sales
data is not included in documents filed with
the Commission), solely for notice purposes and
the assessment of any fee, together with a
consent to service of process and any required
fee.
(B) Preservation of fees.--
(i) In general.--Until otherwise
provided by law, rule, regulation, or
order, or other administrative action
of any State or any political
subdivision thereof, adopted after the
date of enactment of the National
Securities Markets Improvement Act of
1996, filing or registration fees with
respect to securities or securities
transactions shall continue to be
collected in amounts determined
pursuant to State law as in effect on
the day before such date.
(ii) Schedule.--The fees required by
this subparagraph shall be paid, and
all necessary supporting data on sales
or offers for sales required under
subparagraph (A), shall be reported on
the same schedule as would have been
applicable had the issuer not relied on
the exemption provided in subsection
(a).
(C) Availability of preemption contingent on
payment of fees.--
(i) In general.--During the period
beginning on the date of enactment of
the National Securities Markets
Improvement Act of 1996 and ending 3
years after that date of enactment, the
securities commission (or any agency or
office performing like functions) of
any State may require the registration
of securities issued by any issuer who
refuses to pay the fees required by
subparagraph (B).
(ii) Delays.--For purposes of this
subparagraph, delays in payment of fees
or underpayments of fees that are
promptly remedied shall not constitute
a refusal to pay fees.
(D) Fees not permitted on listed
securities.--Notwithstanding subparagraphs (A),
(B), and (C), no filing or fee may be required
with respect to any security that is a covered
security pursuant to subsection (b)(1), or will
be such a covered security upon completion of
the transaction, or is a security of the same
issuer that is equal in seniority or that is a
senior security to a security that is a covered
security pursuant to subsection (b)(1).
(F) Fees not permitted on crowdfunded
securities.--Notwithstanding subparagraphs (A),
(B), and (C), no filing or fee may be required
with respect to any security that is a covered
security pursuant to subsection (b)(4)(B), or
will be such a covered security upon completion
of the transaction, except for the securities
commission (or any agency or office performing
like functions) of the State of the principal
place of business of the issuer, or any State
in which purchasers of 50 percent or greater of
the aggregate amount of the issue are
residents, provided that for purposes of this
subparagraph, the term ``State'' includes the
District of Columbia and the territories of the
United States.
(3) Enforcement of requirements.--Nothing in this
section shall prohibit the securities commission (or
any agency or office performing like functions) of any
State from suspending the offer or sale of securities
within such State as a result of the failure to submit
any filing or fee required under law and permitted
under this section.
(d) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Offering document.--The term ``offering
document''--
(A) has the meaning given the term
``prospectus''' in section 2(a)(10), but
without regard to the provisions of
subparagraphs (a) and (b) of that section; and
(B) includes a communication that is not
deemed to offer a security pursuant to a rule
of the Commission.
(2) Prepared by or on behalf of the issuer.--Not
later than 6 months after the date of enactment of the
National Securities Markets Improvement Act of 1996,
the Commission shall, by rule, define the term
``prepared by or on behalf of the issuer'' for purposes
of this section.
(3) State.--The term ``State'' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.
(4) Senior security.--The term ``senior security''
means any bond, debenture, note, or similar obligation
or instrument constituting a security and evidencing
indebtedness, and any stock of a class having priority
over any other class as to distribution of assets or
payment of dividends.
* * * * * * *