[Congressional Record Volume 162, Number 18 (Monday, February 1, 2016)]
[House]
[Pages H378-H379]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FAIR INVESTMENT OPPORTUNITIES FOR PROFESSIONAL EXPERTS ACT
Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2187) to direct the Securities and Exchange Commission to
revise its regulations regarding the qualifications of natural persons
as accredited investors, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2187
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 ``Fair Investment
Opportunities for Professional Experts Act''.
SEC. 2. DEFINITION OF ACCREDITED INVESTOR.
Section 2(a)(15) of the Securities Act of 1933 (15 U.S.C.
77b(a)(15) is amended--
(1) by redesignating clauses (i) and (ii) as subparagraphs
(A) and (F), respectively;
(2) in subparagraph (A) (as so redesignated), by striking
``; or'' and inserting a semicolon, and inserting after such
subparagraph the following:
``(B) any natural person whose individual net worth, or
joint net worth with that person's spouse, exceeds $1,000,000
(which amount, along with the amounts set forth in
subparagraph (C), shall be adjusted for inflation by the
Commission every five years to the nearest $10,000 to reflect
the change in the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics) where,
for purposes of calculating net worth under this
subparagraph--
``(i) the person's primary residence shall not be included
as an asset;
``(ii) indebtedness that is secured by the person's primary
residence, up to the estimated fair market value of the
primary residence at the time of the sale of securities,
shall not be included as a liability (except that if the
amount of such indebtedness outstanding at the time of sale
of securities exceeds the amount outstanding 60 days before
such time, other than as a result of the acquisition of the
primary residence, the amount of such excess shall be
included as a liability); and
``(iii) indebtedness that is secured by the person's
primary residence in excess of the estimated fair market
value of the primary residence at the time of the sale of
securities shall be included as a liability;
``(C) any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000
in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
``(D) any natural person who is currently licensed or
registered as a broker or investment adviser by the
Commission, the Financial Industry Regulatory Authority, or
an equivalent self-regulatory organization (as defined in
section 3(a)(26) of the Securities Exchange Act of 1934), or
the securities division of a State or the equivalent State
division responsible for licensing or registration of
individuals in connection with securities activities;
``(E) any natural person the Commission determines, by
regulation, to have demonstrable education or job experience
to qualify such person as having professional knowledge of a
subject related to a particular investment, and whose
education or job experience is verified by the Financial
Industry Regulatory Authority or an equivalent self-
regulatory organization (as defined in section 3(a)(26) of
the Securities Exchange Act of 1934); or''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentleman from Delaware (Mr. Carney) each
will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days to revise and extend their remarks and to
include any extraneous materials on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT. Mr. Speaker, I yield myself 3 minutes.
Mr. Speaker, I rise in support of H.R. 2187, the Fair Investment
Opportunities for Professional Experts Act.
I would like to thank Mr. Schweikert from Arizona for his diligent
work on this bill and members on both sides of the aisle who approved
this bill in the Financial Services Committee by an overwhelming vote
of 54-2.
Mr. Speaker, small and emerging companies play a significant role as
drivers of the U.S. economic activity, innovation, and job creation. In
fact, the majority of net jobs created in the U.S. are from companies
less than 5 years old. Most of these companies are privately held
companies, and their ability to raise capital in the private market is
critical to the economic well-being of the U.S. and millions of
American families.
But in order for small companies to raise capital in the private
market, under SEC regulations they must sell securities only to what
are known as ``accredited investors.'' And what exactly determines
whether an investor is accredited? Well, the SEC has for years
determined that an individual investor's financial status should be the
sole proxy for determining whether or not they are able to understand
the risks and rewards.
In other words, the SEC has taken the position that only very wealthy
individuals should be allowed to invest in such offerings. That really
makes very little sense.
Under the SEC's logic, a random winner of the Powerball lottery would
be automatically deemed a sophisticated investor. But an individual who
holds advanced degrees and works in finance or a related field, but who
happens to make slightly below what the SEC's threshold is, that person
would be barred from investing in private offerings.
You see, despite the paternalistic view taken by Washington
regulators, there are plenty--plenty--of hardworking and smart
Americans who are plenty capable of understanding investments in
private businesses.
Congress must, therefore, amend the definition of ``accredited
investor'' in order to expand the pool of potential investors in a
private placement market.
H.R. 2187 will do just that by codifying the current accredited
investor income and net worth thresholds, adjusted for inflation going
forward. Additionally, it will extend accredited investor status to
persons who the SEC determines have a demonstrable education or job
experience to qualify as having professional subject matter knowledge
related to that investment.
In other words, the expansion of the accredited definition will
enhance small companies' ability to raise capital and to grow by
increasing the pool of potential investors, while at the same time
increase investment opportunities for more Americans. In fact, allowing
more individuals to invest in both public and private companies could
ultimately have the effect of decreasing the risk in these portfolios
themselves.
Finally, as SEC Commissioner Mike Piwowar pointed out in a speech
last year:
``By holding a diversified portfolio of assets, investors reap the
benefits of diversification, that is, the risk of the portfolio as a
whole is lower than the risk of any individual asset . . . if the
correlations are low enough, the overall portfolio risk could actually
decrease.''
Mr. Speaker, what that means is H.R. 2187 has a double benefit of
affording American businesses more opportunities to raise capital,
while actually providing hardworking Americans a greater opportunity to
create wealth for themselves and their families. I ask my colleagues on
both sides of the aisle to join me in supporting H.R. 2187.
I reserve the balance of my time.
Mr. CARNEY. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, let me first thank the gentleman from Arizona (Mr.
[[Page H379]]
Schweikert) and the gentlewoman from Arizona (Ms. Sinema) for their
hard work on this bill. As was pointed out by Chairman Garrett, all the
votes in the committee were in support of the bill, except for two.
This legislation expands the definition of a ``accredited investor,''
a status reserved for investors who possess the sophistication and
financial means necessary to invest in private, unregistered securities
offerings.
Many of these thresholds have not been updated, Mr. Speaker, since
1982, and the committee determined it was past time to do so.
It is important to note that the SEC Investor Advisory Committee as
well issued bipartisan recommendations, which acknowledge that the
current income and net worth tests ``don't begin to measure the type or
level of financial sophistication needed to evaluate the potential
risks and benefits of private offerings.''
We can all agree, and a vast majority of the members of the Financial
Services Committee did agree, that an updated definition is long
overdue. The authors of this legislation and the sponsors, Mr.
Schweikert and Ms. Sinema, have worked to consider the risks of private
offerings to ensure that investors in those offerings can understand
and bear those risks.
With those comments, Mr. Speaker, I reserve the balance of my time.
Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the
gentleman from Arizona (Mr. Schweikert), the sponsor of the underlying
legislation, and the gentleman who has put all the time and hard work
on this great bipartisan piece of legislation.
Mr. SCHWEIKERT. Mr. Speaker, I thank the chairman, and I also thank
my friend, Mr. Carney.
This is one of those occasions where we actually get to show up here
and have something that is bipartisan that we agree upon. But partially
because being my piece of legislation, and something we have been
working on for a while, I would like to tell a quick story of where
this sort of came from conceptually.
About 4 years ago, we were doing a little townhall at that time
before redistricting in Tempe, Arizona, and most of the discussion in
this townhall was a discussion about the haves and have nots, and why
do some people seem to be making wealth and others are not. We sort of
tried to actually address it intellectually with some analysis of what
are the barriers out there. You are a middle income, hardworking
family, and you have some talents; what is your optionality to be able
to grow into that next tier of assets, of wealth? This actually became
part of that discussion, that we actually have had this barrier now for
decades that say we are going to judge you on your income and your
wealth and that income and wealth is your threshold that says you get
to invest in something over here, not your knowledge.
There was a gentleman in the audience who stood up and said: I have
got a story for you. I have a Ph.D. in electrical engineering. I work
at the Intel plant in Chandler. I have some friends that started a
business a year or two ago. I am an expert. I have a Ph.D. in
electrical engineering and I worked with these guys for years. They
started a business, and I am not allowed to invest in it because I
don't meet the income and assets threshold.
That is partially what we have accomplished here. The neat thing that
has gone back and forth in discussion with my Democrat friends and many
of my friends on our side working the bill--it is not everything I
wanted--but conceptually it is a terrific idea that income, your wealth
is not the only prerequisite for your right to invest in something,
that it also can be your knowledge and your talent. If we really care
about everyone getting a fair chance at that American Dream, we need to
do more like this where you get judged by what you know, your
expertise, and not just the fact that you already have made it.
Mr. CARNEY. Mr. Speaker, I have no further requests for time.
I yield back the balance of my time.
Mr. GARRETT. Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore. The gentleman from New Jersey has 14\1/2\
minutes remaining.
Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the
gentleman from Arkansas (Mr. Hill).
Mr. HILL. Mr. Speaker, I thank the chairman, and Mr. Carney, my
colleague on the distinguished minority, for this bill. I also want to
thank Mr. Schweikert for his work on developing H.R. 2187, Fair
Investment Opportunities for Professional Experts Act, which makes reg
D offerings and private placements more effective by broadening the
definition of an accredited investor to account for educational or
professional expertise.
Because of significant costs and barriers to raising capital in the
U.S. public markets, many of our small companies raise start-up funds
or expansion funds in the private market, and many of those private
market transactions are through accredited investors.
The current definition focuses only on financial status of the
investor, and as a result, only wealthy individuals typically can
participate in reg D offerings.
H.R. 2187 expands the accredited investor definition, recognizing
that the ability to participate is not based on an asset test, but on
their sophistication and knowledge.
I have been in this business before I was in Congress on and off for
three decades, and I know that many of our Nation's accountants, stock
brokers, venture capitalists, and engineers have money management
experience or have a series 7 FINRA license, they work in money
management, they work in specific kinds of industries, but they are not
able to invest in private placements due to the fact that they don't
meet this income or asset test.
Mr. Schweikert's bill revises these rules so that investment and
finance professionals who have this kind of level of professional
sophistication are now treated as accredited investors, irrespective of
whether they meet an arbitrary test.
It is a matter, Mr. Speaker, of basic fairness. The government should
not limit investing options to only investors they deem worthy.
Expanding the accredited investor definition will not only increase
investment opportunities for more Americans, but will help us grow
thousands of small and emerging markets that struggle to raise capital.
I thank the gentleman from Arizona for all of his work on this
commonsense legislation. I enjoyed working with him on it.
I am proud to support this bill, and I urge my colleagues to do so.
Mr. GARRETT. Mr. Speaker, I yield myself 10 seconds to again thank
Mr. Carney, and especially the gentleman from Arizona (Mr. Schweikert)
for his work on this.
I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 2187, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. SCHWEIKERT. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this motion will be postponed.
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