Private Company Flexibility and Growth Act

Mr. President, I ask unanimous consent to speak as in morning business.

Mr. President, it is probably clear to all of us that the American people have a very high level of frustration with the lack of productivity of this Congress. The fact is, when we go home to our respective States, I am sure we are all hearing what I heard last week as I traveled across Pennsylvania. People ask me: Why can't you guys work together? Why can't you get something done? Why does it seem there is so much partisan bickering that you can't come together even on simple things that could help grow this economy, help make progress in these very difficult times?

Well, on this front I think we have some good news, and I am delighted to talk about this tonight. I hope this early sign of good news reaches fruition and we actually have a meaningful accomplishment soon in this body as well as the other body.

Specifically, I am referring to the work that has been coming together of late on a series of capital formation bills that will help small and growing companies raise the capital they need to expand, to hire new workers, to help improve our economy and give us a healthier economy with the job growth we badly need.

In particular, I want to thank House majority leader Eric Cantor. Congressman Cantor took the step of pulling together a series of separate bills and putting them together in a package--a capital formation package. There is very broad support for this package in the House. I think under his leadership it is very likely to pass the House and will present a tremendous opportunity for us because there is broad bipartisan support for these commonsense reforms that will help companies raise capital and grow.

The bipartisan support includes the President of the United States. Much to his credit, the President--I believe just yesterday--issued a formal Statement of Administrative Policy indicating his full support for the passage of the measure that Leader Cantor is proposing in the House. Many of these proposals come from the work that the President initiated. Some of them are included in the startup America jobs plan that the President proposed. Some of them were recommended by commissions that the President assembled. The President spoke about the need for enhancing small- and medium-sized companies' access to capital in his State of the Union Address. So I think the President has been very clear and very strong in his support as the House Republican leadership has been.

In this body I think the leadership on both sides of the aisle has indicated support. The majority leader and the minority leader have both indicated their support for moving in this direction. The chairman and the ranking member of the Banking Committee have expressed a desire to move forward with the capital formation package, and there is wide support among outside groups. In fact, there is very broad support and very little opposition. The support includes support of entrepreneurs, whether they be from convenience stores, financial services firms, or high-tech firms.

In Pennsylvania, the life science companies feel very strongly about this because for them access to capital is a huge challenge. It is the absolutely essential precondition for their growth, and they are not alone. Manufacturers generally, supermarkets, all kinds of trade associations, the support for these kinds of capital foundation bills is very broad.

I want to touch specifically on three of the bills that I have been working on for quite some time now, and I am very hopeful and optimistic. First of all, these three bills are among six bills. The House companion version of these bills is in the package that Leader Cantor has proposed, and I believe there is broad support in this body for these bills as well.

The first I want to refer to is a bill that I have introduced with Senator Tester. It is S. 1544, and it is called the Small Company Capital Formation Act. It is more commonly known as the reg A bill. What it does is lift the current ceiling on the amount of money that a business can raise under the regulation provision of the securities law. That is a provision that allows a small

company to issue a modest amount of debt or equity without being subject to the full range of very costly regulations. The limit has been at $5 million for many years, and the bill that Senator Tester and I have proposed would raise that limit to $50 million. It has not been updated in almost two decades, and there is no question that raising the ceiling would allow a lot of companies that need to raise substantially more than $5 million the ability to do so and to thereby grow.

This is something the President has supported as well, and it passed the House by a pretty stunning margin of 421 to 1. It was not very controversial. I don't think it is controversial here, so I am glad this bill is included in this package in the House.

The second bill I would like to mention is S. 1824, the Toomey-Carper bill. It has to do with the limit on the number of shareholders a closely held company can have without triggering the full SEC compliance. Currently, that limit is at 500 shareholders. If you reach 500 or go above 500, then you are treated as a public company such as ExxonMobile for reporting purposes. That might have been appropriate many years ago, but in the modern era where communication is so much easier, access to information is so much greater and so much faster, the necessary information for shareholders can be distributed more broadly, more quickly, more easily, it is high time we raised that limit from 500 to 2,000 as this bill would do.

I appreciate Senator Carper's support for this legislation.

This is a bill that has a companion measure in the House that was raised at the House Financial Services Committee. They voted on it. They voted by voice vote and approved it. By voice vote that means, generally speaking, there is no opposition and nobody bothered with the rollcall vote because everybody supported it. That is a big, broad committee that represents virtually every constituency in the House of Representatives, and it was passed by a voice vote. This has very strong and broad support.

The third bill I want to mention is S. 1933, the Schumer-Toomey bill. The technical name is Reopening American Capital Markets to Emerging Growth Companies Act. We call this more colloquially the on-ramp bill. The reason we call it that is because we think of it as an on-ramp to becoming a publicly traded company, a path to launching an IPO that will facilitate this.

There has been a big reduction in the number of IPOs that occur in the United States. The IPO, initial public offering, is the process by which a private company becomes a public company. It can be a very substantial opportunity to raise capital. As I mentioned earlier, when companies raise capital, they put that money to work by expanding and hiring new workers. An IPO is a hugely important step in a company's progress and almost invariably follows a substantial increase in hiring, and that is why this is so important.

One of the reasons companies are slower to go public now than they were in the past is because we in Congress created a much more expensive set of regulations when a company does go public. Part of that is the Sarbanes-Oxley bill, and certain features within Sarbanes- Oxley are enormously complex and expensive to comply with.

Our bill says if you are a relatively small company--specifically, less than $1 billion in revenues or less than $700 million in public float, the amount of stock that is traded, then you can do an IPO without having to comply with all of the Sarbanes-Oxley regulations immediately. Over time you will have to comply if you exceed those thresholds that I mentioned, or within 5 years. In any case, you have to comply as everybody else does, but at least you have the opportunity to grow and the ability to afford the expense that is associated with it.

A companion measure to this bill--an identical version in the House was considered by the House Financial Services Committee, and that passed just a week ago. It passed the Financial Services Committee by a vote of 54 to 1. This is not very controversial. This has very broad bipartisan support, and this is the kind of legislation that is going to help businesses grow. I cannot stress enough the link between raising capital and growing one's company and hiring new workers. Capital and jobs are completely linked. What these bills will do, together with the other bills that make the broader package, is they will encourage a wealthier economy, stronger job growth, and more people working.

Let me stress one other aspect about this that I think is important to note. This came out at a hearing we had earlier this week on this very topic; that is, for many small companies, young companies, growing companies, there are a number of steps along the way to becoming a larger and more successful company, employing more people.

There are a number of steps along the way in raising capital that can start with an angel investor, followed by venture capital, followed by private equity, followed by maybe a securities issuance, followed by an IPO. This sequence of capital-raising is very important. If you facilitate any one step along the way, as these bills would, the experts who came and testified before our committee confirmed that by facilitating one step along the way, you facilitate the capital-raising at the earlier steps because what happens is the investors are more confident they will have the opportunity to liquidate their investment at a later stage if they see that the regulations have been made more amenable to that liquidation further down the road. So even if a company is not yet necessarily poised, for instance, to do the IPO, the fact that the IPO is easier to achieve when that company gets there increases their chance of raising money now through other vehicles, through other sources, and therefore increases their ability to grow.

I am very enthusiastic, as my colleagues can tell, about this legislation--certainly the three bills I have been working on and the other bills as well, which are a perfect complement to this and really constitute a portfolio of bills that will facilitate portfolio-raising across the board.

I thank my Democratic cosponsors of these particular bills, including Senators Tester, Carper, and Schumer, for working with me. I also wish to commend Leader McConnell for his leadership and Senator Reid for his, as well as Ranking Member Shelby and Chairman Johnson. I think what our constituents have been telling us for a long time is they want to see us working together and doing what is right for our country, for our economy, for job growth. This is a wonderful opportunity to do that.

I think it is quite likely that a package of these bills is going to pass the House very soon. I hope some comparable measure will pass in the Senate. The President has already indicated he supports it and wants to sign it. I don't think we should waste any time at all in passing the legislation that will be good for small and medium-sized businesses and good for their ability to grow and hire more workers.

With that, Mr. President, I yield the floor and suggest the absence of a quorum.

Mr. President, I wish rise to speak about jobs and the Massachusetts innovation economy.

In July 2010, the Kauffman Foundation noted that ``startups aren't everything when it comes to job growth. They're the only thing.'' In fact, the Kauffman Foundation found that ``without startups, there would be no net job growth in the U.S. economy.'' In Massachusetts, where we have the second largest venture capital market in the country, venture capital helps drive our innovation technology. Massachusetts public companies that were once venture-backed start-ups account for 775,151 jobs and $190 billion in revenue in the United States.

However, in the current economic climate, institutional investors are wary of investing in ideas that carry significant entrepreneurial and technological risk. With a high risk of failure and often a lack of collateral, small start-up companies cannot qualify for traditional commercial loans. Alternative capital markets are therefore critical to these engines of future economic prosperity. To give entrepreneurs and start-ups the access to capital they need to get their businesses off the ground, I introduced the Democratizing Access to Capital Act--S. 1791--to legalize crowdfunding on November 2, 2011. Crowdfunding will create a new alternative market for capital formation by allowing every American--regardless of income or wealth--to invest in a start-up or a great idea. And according to an economic model by Regional Economic Models, Inc.--REMI, crowdfunding has the potential to increase the number of start-ups by 10 percent, potentially creating hundreds of thousands of new jobs.

Recognizing that crowdfunding could provide a huge new growth engine for the Massachusetts tech sector and the Internet, our brightest economic frontier, I wrote to President Obama on February 3, 2012 to ask for his help in urging the Senate to pass crowdfunding legislation. On February 27, 2012, I hosted a roundtable with Massachusetts entrepreneurs and small businesses at Boston City Hall. And on February 29, 2012, I called on my colleagues to work together and pass a crowdfunding bill in a speech from the Senate floor.

At the same time, entrepreneurs from the Cambridge Innovation Center created a petition to show Congress their support for crowdfunding. These entrepreneurs founded wefunder.com to rally support for crowdfunding. On March 5, 2012, wefunder.com and MassChallenge, a not- for-profit organization dedicated to supporting the work of entrepreneurs, hosted a roundtable on crowdfunding in Boston. As of March 26, 2012, 3 thousand investors pledged to invest $7.5 million when crowdfunding becomes legal.

On March 8, 2012, the House of Representatives passed the Jumpstart Our Business Startups (JOBS) Act by a vote of 390 23, which included crowdfunding legislation. President Obama also issued a statement in support of the JOBS Act. Although my focus was on legalizing crowdfunding, I felt that the JOBS Act bill lacked basic investor protection standards that would give investors some confidence and help the market grow. I worked with Senators Michael Bennet and Jeff Merkley to introduce a bipartisan compromise crowdfunding bill, the CROWDFUND Act--S. 2190, on March 13, 2012. On March 22, 2012, the Senate passed the CROWDFUND Act as an amendment to the JOBS Act, which was approved by a vote of 73 26.

The CROWDFUND Act sets the framework for developing a new market in which entrepreneurs can raise capital and ordinary investors can invest in new ideas. To create a new marketplace for investment, the CROWDFUND Act creates investor protections that are designed to balance entrepreneurs' ease of access to capital with the need for transparency.

In prescribing requirements for issuers, the CROWDFUND Act addresses the importance of providing investors accurate information. While financial disclosures are necessary for investors to make wise investment decisions, the importance of disclosure should be balanced with individuals' right to privacy. The SEC should therefore, under its rulemaking authority provided in Section 4A(b), clarify that entrepreneurs will not be asked to disclose individual personal tax returns. In addition, while the bill clearly states that issuers should be liable for material misrepresentations or omissions, issuers should not be held liable for misstatements or omissions that were made by mistake. The standard of liability for issuers as described in Section 4A(c) should be ``due diligence.'' In other words, issuers must do their ``due diligence'' to make sure that the information that they are providing to potential investors is accurate. This is a widely accepted liability standard.

Although issuers may not advertise the specific terms of an offering, the CROWDFUND Act ensures that issuers are allowed to generally advertise their offerings through email and social media channels, as long as the intermediary website remains the location for all offerings. Potential investors should be given enough information about offerings to spark their interest. To discourage fraudulent operators, provide proper investor education and ``crowdvetting'' of opportunities by impartial third parties, issuers should not be allowed to encourage investment

outside of the intermediary. In addition to facilitating communication between issuers and investors, intermediaries should allow fellow investors to endorse or provide feedback about issuers and offerings, provided that these investors are not employees of the intermediary. Investors' credentials should be included with their comments to aid the collective wisdom of the crowd.

Regulated intermediaries are necessary for investor protection; however, intermediaries should not be over-regulated. Specifically, none of the requirements placed on intermediaries should prevent an intermediary or funding portal from removing or preventing the public display of an offering that it deems not credible. To guarantee the quality of offerings, intermediaries should be able to employ a Kickstarter-like process, in which the staff of an intermediary determines which issuers are invited to present their offerings to site visitors. Intermediaries should also be allowed to inform its users about offerings that may interest them, provided that this is not explicitly or implicitly recommending the offering to an investor. Although intermediaries must only provide offering proceeds to issuers once the issuers' target offering amount is reached, intermediaries should not be required to escrow proceeds.

To streamline the offering process, it makes sense to allow intermediaries to place a hold on investor credit cards until an offer is fully subscribed. At that time, investors' credit cards should be charged and the proceeds immediately transferred to the issuer. Intermediaries should also be permitted to act as the holder of record for offerings that they facilitate to reduce compliance complexity for issuers and to increase the likelihood of subsequent funding from institutional investors. Providing holder of record services will reduce compliance complexity for issuers and place the burden of managing crowdfunded investors on the intermediary. Without this mechanism, issuer capitalization tables may become unwieldy, discouraging subsequent funding from institutional investors. In addition, intermediaries should be allowed to take an equity stake in offerings. This however, does not mean that intermediaries should be able to choose which offerings to participate in but rather it should be a standard process for any offering that the intermediary facilitates. This will incentivize an intermediary to focus on issuer quality over quantity, providing more vetting for investors and greater alignment of interests. Of course, any equity stakes by the intermediary must be fully and meaningfully disclosed to investors. Of course, any equity stakes by the intermediary must be fully and meaningfully disclosed to investors. The SEC should carefully monitor any developments in this area and adjust practices, including restricting the ability for intermediaries to take equity positions, should fraud or manipulative practices arise.

Although the CROWDFUND Act requires intermediaries to register with the SEC and become members of a self-regulatory association, all rules, regulations and registration requirements should be developed with minimal burden and cost to the intermediaries. The SEC and any relevant self-regulatory association should bear in mind that these costs will ultimately be passed through to issuers--costs should not undermine the goals of crowdfunding to create low-burden alternative means of raising capital. In addition, the crowdfunding community may develop its own self-regulatory association to specifically oversee crowdfunding intermediaries.

While preemption of State securities law is necessary for crowdfunding to function, State securities regulators should play a role in crowdfunding offerings. In addition to allowing limited State securities registration, State should retain its authority to take enforcement action with regard to any issuer or intermediary. Further, where state authority is not specifically preempted, the SEC will not presume preemption. State securities regulators are the first line of defense against fraud and their ability to continue to combat fraud should not be curtailed.

Finally, I urge the SEC to take seriously the statutory directive to complete within 270 days of enactment the rulemaking necessary to make the law effective. Crowdfunding entrepreneurs and intermediaries are eagerly awaiting the rules to take full advantage of crowdfunding's potential to unlock capital for start-ups and small businesses. Based on my office's interactions with the SEC, I believe that the SEC is committed the success of this new market, and the rulemaking should be easily completed within 270 days.

Few entrepreneurs take a new start-up to a mature company on their own. New ideas need the support of investors to survive and thrive. Investments power payrolls across our nation and every sector. It's the grease that keeps the gears in the American economy turning. Crowdfunding will allow small businesses to bypass Wall Street and go straight to Main Street for financing. We know that new businesses are the source of all of the net job creation in the United States. This CROWDFUND Act provides an avenue for new growth for that crucial sector with unlimited potential.

Mr. President, I rise today to speak on H.R. 3606, the Jumpstart Our Business Startups, or JOBS, Act, which the Senate passed on Thursday, March 22, 2012, by a vote of 73 to 26. I am particularly pleased that H.R. 3606 included language from S. 1824, the Private Company Flexibility and Growth Act, which I introduced on November 8, 2011, with Senator Carper. We authored this important measure to update the shareholder threshold after which entities must register their securities with the Securities and Exchange Commission. This and other provisions contained in H.R. 3606 will provide companies and small banks with the flexibility to grow, which will in turn lead to economic growth and job creation.

As the Commission amends its rules implementing title V of H.R. 3606, it is important that it be mindful of Congress's intent that the rules provide clear guidance to issuers on how to comply with the new provisions. For instance, section 503 of the JOBS Act requires that the SEC adopt safe harbor provisions that issuers can follow when determining whether holders of their securities received the securities pursuant to an employee compensation plan in transactions that were exempt from the registration requirements of section 5 of the Securities Act of 1933.

The issues that we would expect the Commission to address when adopting the safe harbor provisions include the steps issuers can take to obtain comfort that securities are held by persons who received the securities pursuant to an employee compensation plan and whether the issuance of those securities were exempt from Securities Act registration. To provide issuers appropriate comfort under the rules, the Commission could adopt a safe harbor provision that allows issuers, absent actual knowledge of information to the contrary, to rely on information it has about a person at the time the securities are issued. The Commission could also adopt a safe harbor provision that allows issuers to consider an issuance of securities exempt from the Securities Act if it has a reasonable belief that the exemption existed at the time the securities were issued.

The definition of an ``employee compensation plan'' should be interpreted broadly. For purposes of determining whether a person is an employee who need not be counted when an issuer is calculating the number of holders of record under section 12(g)(1)(A) of the Securities Exchange Act of 1934, the term ``employee'' would include persons who are current or former employees of the issuer. We would also include but not limit this exemption to other persons such as surviving spouses or family members who inherit equity securities from the employee and who need not be included in the calculation of the number of holders of record. ``Employee compensation plans'' would include but is not limited to a written compensatory benefit plan or written contract as defined in SEC rule 701 under the Securities Act of 1933.

In revising rule 506 and rule 144A to remove the prohibitions on general solicitation or general advertising, the Commission should consider practice in the market for rule 144A securities and ensure that offerings and sales of rule 144A securities can proceed on the same basis as they do currently, including from a state blue sky perspective, regardless of whether there is general solicitation or general advertising.

The Commission should also consider adopting similar safe harbor provisions for how issuers can determine whether their investors are accredited for purposes of revised Exchange Act section 12(g)(1)(A) and whether securities are held by persons who purchase such securities in crowdfunding transactions described under new Securities Act section 4(6), in accordance with new Exchange Act section 12(g)(5)(B). We believe these additional safe harbor protections would provide important guidance for issuers and should be strongly considered by the

Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. President, first of all, I don't think apologies are in order. We have been doing the best we can for several days now. We have a typical agreement, not one that either side jumps for joy about. In the near future, we are going to be able to finish this important piece of legislation.

Mr. President, I ask unanimous consent that the motion to recommit be withdrawn; that the pending second-degree amendment be withdrawn; that the Reid of Nevada amendment No. 1761 be agreed to; that the bill, as amended, be considered original text for the purposes of further amendment; that the following amendments be the only first-degree amendments remaining in order to S. 1813:

Vitter No. 1535; Baucus or designee relative to rural schools; Collins No. 1660; Coburn No. 1738; Nelson of Florida, Shelby, Landrieu No. 1822, with a modification in order if agreed to by Senators Nelson of Florida, Shelby, Landrieu, and Baucus; Wyden No. 1817; Hoeven No. 1537; Levin No. 1818;

McConnell or designee with a side-by-side to Stabenow No. 1812; Stabenow No. 1812; Demint No. 1589; Menendez-Burr No. 1782; DeMint No. 1756; Coats No. 1517; Brown of Ohio No. 1819; Blunt No. 1540; Merkley No. 1653; Portman No. 1736; Klobuchar No. 1617; Corker No. 1785, with a modification; Shaheen No. 1678; Portman No. 1742; Corker No. 1810; Carper No. 1670; Hutchison No. 1568; McCain No. 1669, modified with changes at the desk; Alexander No. 1779; Boxer No. 1816; and Paul No. 1556; that on Thursday, March 8, at a time to be determined by the majority leader, after consultation with the Republican leader, the Senate proceed to votes in relation to the amendments in the order listed; that the following amendments be subject to a 60-vote affirmative threshold: Vitter No. 1535; Baucus or designee relative to rural schools; Collins No. 1660; Coburn No. 1738; Nelson of Florida- Shelby-Landrieu No. 1822; Wyden No. 1817; Hoeven No. 1537; McConnell or designee side-by-side to Stabenow No. 1812; Stabenow No. 1812; DeMint No. 1589; Menendez-Burr No. 1782; that there be no other amendments in order to the bill or the amendments listed other than the managers' package and there be no points of order or motions in order to any of these amendments other than budget points of order and the applicable motions to waive; that it be in order for a managers' package to be considered and, if approved by the managers and the two leaders, the managers' package be agreed to; further, the bill, as amended, then be read the third time and the Senate proceed to a vote on passage of the bill, as amended, and if the bill is passed, it be held at the desk; finally, that when the Senate receives the House companion to S. 1813, as determined by the two leaders, it be in order for the majority leader to proceed to its immediate consideration, strike all after the enacting clause and insert the text of S. 1813, as passed by the Senate, in lieu thereof; that the House bill, as amended, be read the third time, a statutory pay-go statement be read, if needed, and the bill, as amended, be passed, the motions to reconsider be considered made and laid upon the table; that upon passage, the Senate insist on its amendment, request a conference with the House on the disagreeing votes of the two Houses and that the Chair be authorized to appoint conferees on the part of the Senate.

Mr. President, I wish to discuss our bipartisan efforts to pass a crowdfunding amendment that provides needed flexibility but also ensures that crowdfunding has sufficient oversight and investor protections. I was proud to work with Senators Merkley and Brown in crafting this bipartisan proposal. The Senate passed our amendment by a 64 to 35 margin. The House of Representatives subsequently passed our language when it considered the JOBS legislation earlier this week.

As the Securities and Exchange Commission works to implement this new law, it is my hope that it will recognize that the funding portal registration process is meant to be more streamlined and less burdensome than traditional broker-dealer registration. Given the size of the investments that are likely to occur in crowdfunding, the SEC should work to provide an appropriate level of oversight without making it cost-prohibitive to become a funding portal.

Funding portals should be allowed to organize and sort information based on certain criteria. This will make it easier for individuals to find the types of companies in which they can potentially invest. This type of capability--commonly referred to as curation--should not constitute investment advice or recommendations, which the law otherwise prohibits.

Similarly, funding portals should be allowed to engage in due diligence services. This would include providing templates and forms, which will enable issuers to comply with the underlying statute. In crafting this law, it was our intent to allow funding portals to provide such services.

We also sought to provide the Securities and Exchange Commission sufficient flexibility to promulgate rules to ensure individuals have the necessary information and protections to make informed investment decisions. It is my hope that the Commission will exercise such discretion judiciously and will not create a regulatory regime that is too cumbersome and expensive for funding portals to operate or for issuers to sell their securities. In preparing the law, we sought to find the right balance, preserving basic investor protections while ensuring enough entrepreneurial flexibility to help this promising medium take off for the good of our economy. I am hopeful that the Commission will respect this balance as it moves forward to implement this law.

Finally, we provided 270 days for the Commission to implement this new law. I hope the SEC will make every effort possible to meet this deadline.