S.Amdt. 1924

SA 1924. Mr. MERKLEY submitted an amendment intended to be proposed
to amendment SA 1884 submitted by Mr. Merkley (for himself, Mr. Bennet,
and Mr. Brown of Massachusetts) and intended to be proposed to the bill
H.R. 3606, to increase American job creation and economic growth by
improving access to the public capital markets for emerging growth
companies; which was ordered to lie on the table; as follows:

On page 1, strike line 2 and all that follows through page
24, line 14 and insert the following:

SEC. 301. CROWDFUNDING EXEMPTION.

(a) Securities Act of 1933.--Section 4 of the Securities
Act of 1933 (15 U.S.C. 77d) is amended by adding at the end
the following:
``(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).''.
(b) Requirements To Qualify for Crowdfunding Exemption.--
The Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended
by inserting after section 4 the following:

``SEC. 4A. REQUIREMENTS WITH RESPECT TO CERTAIN SMALL
TRANSACTIONS.

``(a) Requirements on Intermediaries.--A person acting as
an intermediary in a transaction involving the offer or sale
of securities for the account of others pursuant to section
4(6) shall--
``(1) register with the Commission as--
``(A) a broker; or
``(B) a funding portal (as defined in section 3(a)(80) of
the Securities Exchange Act of 1934);
``(2) register with any applicable self-regulatory
organization (as defined in section 3(a)(26) of the
Securities Exchange Act of 1934);
``(3) provide such disclosures, including disclosures
related to risks and other investor education materials, as
the Commission shall, by rule, determine appropriate;
``(4) ensure that each investor--
``(A) reviews investor-education information, in accordance
with standards established by the Commission, by rule;
``(B) positively affirms that the investor understands that
the investor is risking the loss of the entire investment,
and that the investor could bear such a loss; and
``(C) answers questions demonstrating--
``(i) an understanding of the level of risk generally
applicable to investments in startups, emerging businesses,
and small issuers;
``(ii) an understanding of the risk of illiquidity; and
``(iii) an understanding of such other matters as the
Commission determines appropriate, by rule;
``(5) take such measures to reduce the risk of fraud with
respect to such transactions, as established by the
Commission, by rule, including obtaining a background and
securities enforcement regulatory history check on each
officer, director, and person holding more than 20 percent of
the outstanding equity of every issuer whose securities are
offered by such person;
``(6) not later than 21 days prior to the first day on
which securities are sold to any investor (or such other
period as the Commission may establish), make available to
the Commission and to potential investors any

[[Page S1859]]

information provided by the issuer pursuant to subsection
(b);
``(7) ensure that all offering proceeds are only provided
to the issuer when the aggregate capital raised from all
investors is equal to or greater than a target offering
amount, and allow all investors to cancel their commitments
to invest, as the Commission shall, by rule, determine
appropriate;
``(8) make such efforts as the Commission determines
appropriate, by rule, to ensure that no investor in a 12-
month period has purchased securities offered pursuant to
section 4(6) that, in the aggregate, from all issuers, exceed
the investment limits set forth in section 4(6)(B);
``(9) take such steps to protect the privacy of information
collected from investors as the Commission shall, by rule,
determine appropriate;
``(10) not compensate promoters, finders, or lead
generators for providing the broker or funding portal with
the personal identifying information of any potential
investor;
``(11) prohibit its directors, officers, or partners (or
any person occupying a similar status or performing a similar
function) from having any financial interest in an issuer
using its services; and
``(12) meet such other requirements as the Commission may,
by rule, prescribe, for the protection of investors and in
the public interest.
``(b) Requirements for Issuers.--For purposes of section
4(6), an issuer who offers or sells securities shall--
``(1) file with the Commission and provide to investors and
the relevant broker or funding portal, and make available to
potential investors--
``(A) the name, legal status, physical address, and website
address of the issuer;
``(B) the names of the directors and officers (and any
persons occupying a similar status or performing a similar
function), and each person holding more than 20 percent of
the shares of the issuer;
``(C) a description of the business of the issuer and the
anticipated business plan of the issuer;
``(D) a description of the financial condition of the
issuer, including, for offerings that, together with all
other offerings of the issuer under section 4(6) within the
preceding 12-month period, have, in the aggregate, target
offering amounts of--
``(i) $100,000 or less--

``(I) the income tax returns filed by the issuer for the
most recently completed year (if any); and
``(II) financial statements of the issuer, which shall be
certified by the principal executive officer of the issuer to
be true and complete in all material respects;

``(ii) more than $100,000, but not more than $500,000,
financial statements reviewed by a public accountant who is
independent of the issuer, using professional standards and
procedures for such review or standards and procedures
established by the Commission, by rule, for such purpose; and
``(iii) more than $500,000 (or such other amount as the
Commission may establish, by rule), audited financial
statements;
``(E) a description of the stated purpose and intended use
of the proceeds of the offering sought by the issuer with
respect to the target offering amount;
``(F) the target offering amount, the deadline to reach the
target offering amount, and regular updates regarding the
progress of the issuer in meeting the target offering amount;
``(G) the price to the public of the securities or the
method for determining the price, provided that, prior to
sale, each investor shall be provided in writing the final
price and all required disclosures, with a reasonable
opportunity to rescind the commitment to purchase the
securities;
``(H) a description of the ownership and capital structure
of the issuer, including--
``(i) terms of the securities of the issuer being offered
and each other class of security of the issuer, including how
such terms may be modified, and a summary of the differences
between such securities, including how the rights of the
securities being offered may be materially limited, diluted,
or qualified by the rights of any other class of security of
the issuer;
``(ii) a description of how the exercise of the rights held
by the principal shareholders of the issuer could negatively
impact the purchasers of the securities being offered;
``(iii) the name and ownership level of each existing
shareholder who owns more than 20 percent of any class of the
securities of the issuer;
``(iv) how the securities being offered are being valued,
and examples of methods for how such securities may be valued
by the issuer in the future, including during subsequent
corporate actions; and
``(v) the risks to purchasers of the securities relating to
minority ownership in the issuer, the risks associated with
corporate actions, including additional issuances of shares,
a sale of the issuer or of assets of the issuer, or
transactions with related parties; and
``(I) such other information as the Commission may, by
rule, prescribe, for the protection of investors and in the
public interest;
``(2) not advertise the terms of the offering, except for
notices which direct investors to the funding portal or
broker;
``(3) not compensate or commit to compensate, directly or
indirectly, any person to promote its offerings through
communication channels provided by a broker or funding
portal, without taking such steps as the Commission shall, by
rule, require to ensure that such person clearly discloses
the receipt, past or prospective, of such compensation, upon
each instance of such promotional communication;
``(4) not less than annually, file with the Commission and
provide to investors reports of the results of operations and
financial statements of the issuer, as the Commission shall,
by rule, determine appropriate, subject to such exceptions
and termination dates as the Commission may establish, by
rule; and
``(5) comply with such other requirements as the Commission
may, by rule, prescribe, for the protection of investors and
in the public interest.
``(c) Liability for Material Misstatements and Omissions.--
``(1) Actions authorized.--
``(A) In general.--Subject to paragraph (2), a person who
purchases a security in a transaction exempted by the
provisions of section 4(6) may bring an action against an
issuer described in paragraph (2), either at law or in equity
in any court of competent jurisdiction, to recover the
consideration paid for such security with interest thereon,
less the amount of any income received thereon, upon the
tender of such security, or for damages if such person no
longer owns the security.
``(B) Liability.--An action brought under this paragraph
shall be subject to the provisions of section 12(b) and
section 13, as if the liability were created under section
12(a)(2).
``(2) Applicability.--An issuer shall be liable in an
action under paragraph (1), if the issuer--
``(A) by the use of any means or instruments of
transportation or communication in interstate commerce or of
the mails, by any means of any written or oral communication,
in the offering or sale of a security in a transaction
exempted by the provisions of section 4(6), makes an untrue
statement of a material fact or omits to state a material
fact required to be stated or necessary in order to make the
statements, in the light of the circumstances under which
they were made, not misleading, provided that the purchaser
did not know of such untruth or omission; and
``(B) does not sustain the burden of proof that such issuer
did not know, and in the exercise of reasonable care could
not have known, of such untruth or omission.
``(3) Definition.--As used in this subsection, the term
`issuer' includes any person who is a director or partner of
the issuer, and the principal executive officer or officers,
principal financial officer, and controller or principal
accounting officer of the issuer (and any person occupying a
similar status or performing a similar function) that offers
or sells a security in a transaction exempted by the
provisions of section 4(6), and any person who offers or
sells the security in such offering.
``(d) Information Available to States.--The Commission
shall make, or shall cause to be made by the relevant broker
or funding portal, the information described in subsection
(b) and such other information as the Commission, by rule,
determines appropriate, available to the securities
commission (or any agency or office performing like
functions) of each State and territory of the United States
and the District of Columbia.
``(e) Restrictions on Sales.--Securities issued pursuant to
a transaction described in section 4(6)--
``(1) may not be transferred by the purchaser of such
securities during the 1-year period beginning on the date of
purchase, unless such securities are transferred--
``(A) to the issuer of the securities;
``(B) to an accredited investor;
``(C) as part of an offering registered with the
Commission; or
``(D) to a member of the family of the purchaser or the
equivalent, or in connection with the death or divorce of the
purchaser or other similar circumstance, in the discretion of
the Commission; and
``(2) shall be subject to such other limitations as the
Commission shall, by rule, establish.
``(f) Applicability.--Section 4(6) shall not apply to
transactions involving the offer or sale of securities by any
issuer that--
``(1) is not organized under and subject to the laws of a
State or territory of the United States or the District of
Columbia;
``(2) is subject to the requirement to file reports
pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934;
``(3) is an investment company, as defined in section 3 of
the Investment Company Act of 1940, or is excluded from the
definition of investment company by section 3(b) or section
3(c) of that Act; or
``(4) the Commission, by rule or regulation, determines
appropriate.
``(g) Rule of Construction.--Nothing in this section or
section 4(6) shall be construed as preventing an issuer from
raising capital through methods not described under section
4(6).
``(h) Certain Calculations.--
``(1) Dollar amounts.--Dollar amounts in section 4(6) and
subsection (b) of this section shall be adjusted by the
Commission not less frequently than once every 5 years, by
notice published in the Federal Register to reflect any
change in the Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics.
``(2) Income and net worth.--The income and net worth of a
natural person under section 4(6)(B) shall be calculated in
accordance with any rules of the Commission under this

[[Page S1860]]

title regarding the calculation of the income and net worth,
respectively, of an accredited investor.''.
(c) Rulemaking.--Not later than 270 days after the date of
enactment of this Act, the Securities and Exchange Commission
(in this title referred to as the ``Commission'') shall issue
such rules as the Commission determines may be necessary or
appropriate for the protection of investors to carry out
sections 4(6) and section 4A of the Securities Act of 1933,
as added by this title. In carrying out this section, the
Commission shall consult with any securities commission (or
any agency or office performing like functions) of the
States, any territory of the United States, and the District
of Columbia, which seeks to consult with the Commission, and
with any applicable national securities association.
(d) Disqualification.--
(1) In general.--Not later than 271 days after the date of
enactment of this Act, the Commission shall, by rule,
establish disqualification provisions under which--
(A) an issuer shall not be eligible to offer securities
pursuant to section 4(6) of the Securities Act of 1933, as
added by this title; and
(B) a broker or funding portal shall not be eligible to
effect or participate in transactions pursuant to that
section 4(6).
(2) Inclusions.--Disqualification provisions required by
this subsection shall--
(A) be substantially similar to the provisions of section
230.262 of title 17, Code of Federal Regulations (or any
successor thereto); and
(B) disqualify any offering or sale of securities by a
person that--
(i) is subject to a final order of a State securities
commission (or an agency or officer of a State performing
like functions), a State authority that supervises or
examines banks, savings associations, or credit unions, a
State insurance commission (or an agency or officer of a
State performing like functions), an appropriate Federal
banking agency, or the National Credit Union Administration,
that--

(I) bars the person from--

(aa) association with an entity regulated by such
commission, authority, agency, or officer;
(bb) engaging in the business of securities, insurance, or
banking; or
(cc) engaging in savings association or credit union
activities; or

(II) constitutes a final order based on a violation of any
law or regulation that prohibits fraudulent, manipulative, or
deceptive conduct within the 10-year period ending on the
date of the filing of the offer or sale; or

(ii) has been convicted of any felony or misdemeanor in
connection with the purchase or sale of any security or
involving the making of any false filing with the Commission.

SEC. 302. EXCLUSION OF CROWDFUNDING INVESTORS FROM
SHAREHOLDER CAP.

(a) Exemption.--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:
``(6) Exclusion for persons holding certain securities.--
The Commission shall, by rule, exempt, conditionally or
unconditionally, securities acquired pursuant to an offering
made under section 4(6) of the Securities Act of 1933 from
the provisions of this subsection.''.
(b) Rulemaking.--The Commission shall issue a rule to carry
out section 12(g)(6) of the Securities Exchange Act of 1934
(15 U.S.C. 78c), as added by this section, not later than 270
days after the date of enactment of this Act.

SEC. 303. FUNDING PORTAL REGULATION.

(a) Exemption.--
(1) In general.--Section 3 of the Securities Exchange Act
of 1934 (15 U.S.C. 78c) is amended by adding at the end the
following:
``(h) Limited Exemption for Funding Portals.--
``(1) In general.--The Commission shall, by rule, exempt,
conditionally or unconditionally, a registered funding portal
from the requirement to register as a broker or dealer under
section 15(a)(1), provided that such funding portal--
``(A) remains subject to the examination, enforcement, and
other rulemaking authority of the Commission;
``(B) is a member of a national securities association
registered under section 15A; and
``(C) is subject to such other requirements under this
title as the Commission determines appropriate under such
rule.
``(2) National securities association membership.--For
purposes of sections 15(b)(8) and 15A, the term `broker or
dealer' includes a funding portal and the term `registered
broker or dealer' includes a registered funding portal,
except to the extent that the Commission, by rule, determines
otherwise, provided that a national securities association
shall only examine for and enforce against a registered
funding portal rules of such national securities association
written specifically for registered funding portals.''.
(2) Rulemaking.--The Commission shall issue a rule to carry
out section 3(h) of the Securities Exchange Act of 1934 (15
U.S.C. 78c), as added by this subsection, not later than 270
days after the date of enactment of this Act.
(b) Definition.--Section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the
end the following:
``(80) Funding portal.--The term `funding portal' means any
person acting as an intermediary in a transaction involving
the offer or sale of securities for the account of others,
solely pursuant to section 4(6) of the Securities Act of 1933
(15 U.S.C. 77d(6)), that does not--
``(A) offer investment advice or recommendations;
``(B) solicit purchases, sales, or offers to buy the
securities offered or displayed on its website or portal;
``(C) compensate employees, agents, or other persons for
such solicitation or based on the sale of securities
displayed or referenced on its website or portal;
``(D) hold, manage, possess, or otherwise handle investor
funds or securities; or
``(E) engage in such other activities as the Commission, by
rule, determines appropriate.''.

SEC. 304. RELATIONSHIP WITH STATE LAW.

(a) In General.--Section 18(b)(4) of the Securities Act of
1933 (15 U.S.C. 77r(b)(4)) is amended--
(1) by redesignating subparagraphs (C) and (D) as
subparagraphs (D) and (E), respectively; and
(2) by inserting after subparagraph (B) the following:
``(C) section 4(6);''.
(b) Clarification of the Preservation of State Enforcement
Authority.--
(1) In general.--The amendments made by subsection (a)
relate solely to State registration, documentation, and
offering requirements, as described under section 18(a) of
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, funding portal,
or any other person or entity using the exemption from
registration provided by section 4(6) of that Act.
(2) Clarification of state jurisdiction over unlawful
conduct of funding portals and issuers.--Section 18(c)(1) of
the Securities Act of 1933 (15 U.S.C. 77r(c)(1)) is amended
by striking ``with respect to fraud or deceit, or unlawful
conduct by a broker or dealer, in connection with securities
or securities transactions.'' and inserting the following:
``, 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.''.
(c) Notice Filings Permitted.--Section 18(c)(2) of the
Securities Act of 1933 (15 U.S.C. 77r(c)(2)) is amended by
adding at the end the following:
``(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.''.
(d) Funding Portals.--
(1) State exemptions and oversight.--Section 15(i) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(i)) is
amended--
(A) by redesignating paragraphs (2) and (3) as paragraphs
(3) and (4), respectively; and
(B) by inserting after paragraph (1) the following:
``(2) Funding portals.--
``(A) Limitation on state laws.--Except as provided in
subparagraph (B), no State or political subdivision thereof
may enforce any law, rule, regulation, or other
administrative action against a registered funding portal
with respect to its business as such.
``(B) Examination and enforcement authority.--Subparagraph
(A) does not apply with respect to the examination and
enforcement of any law, rule, regulation, or administrative
action of a State or political subdivision thereof in which
the principal place of business of a registered funding
portal is located, provided that such law, rule, regulation,
or administrative action is not in addition to or different
from the requirements for registered funding portals
established by the Commission.
``(C) Definition.--For purposes of this paragraph, the term
`State' includes the District of Columbia and the territories
of the United States.''.
(2) State fraud authority.--Section 18(c)(1) of the
Securities Act of 1933 (15 U.S.C. 77r(c)(1)) is amended by
striking ``or dealer'' and inserting ``, dealer, or funding
portal''.
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