Risk-Based Credit Examination Act

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, H.R. 2201 would create an unnecessary and potentially dangerous loophole in Federal and State securities laws by allowing companies to sell unregistered securities without important safeguards that normally apply to such transactions. Specifically, the bill would allow a company to raise up to $500,000 from 35 or fewer investors, subject only to the requirement that each of these investors has a substantive preexisting relationship with the company.

Currently, before a company can offer or sell its securities, it must either register the offering with the Securities and Exchange Commission--that is the SEC--or qualify for at least one of several existing exemptions from registration. These exemptions provide reduced regulatory requirements for businesses conducting the offerings, but are limited to investors who have the financial sophistication to understand the risks, or enough assets to bear losses without the full protections of the securities laws.

Additionally, unlike H.R. 2201, these existing exemptions include several critical investor protections, such as notice to regulators, limitations on advertising, and restrictions on resale. For example, securities offered pursuant to rule 506 of regulation D are restricted, meaning they cannot be resold for at least a year without registering them; that is, re-registering them.

Additionally, the re-registration exemptions available under the crowdfunding rules and regulation A impose limitations on the amounts an individual can invest in a year, thereby placing a cap on potential losses.

H.R. 2201's lack of basic safeguards would leave investors vulnerable to an array of investment scams. For example, a purchaser of securities offered pursuant to H.R. 2201 would be able to immediately resell the securities in secondary transactions. In the past, the failure to restrict the resale of unregistered securities has exposed secondary investors to ``pump and dump'' schemes, a form of fraud that involves hyping up cheap junk stock in order to resell it at a higher price to unwitting investors.

Additionally, investor and consumer advocates, like Americans for Financial Reform, Center for American Progress, and Public Citizen, oppose H.R. 2201 because it would enable a particularly deceptive scam known as ``affinity fraud.'' Bad actors perpetrating affinity fraud could use H.R. 2201 to prey upon religious communities, ethnic groups, and the elderly.

Just a few years ago, the SEC shut down a scheme targeting the Hispanic community in southern California. The perpetrators raised more than $800,000 by representing to close friends and family members that their investment would be used to develop a financial services firm serving the Hispanic community.

The SEC found that, instead of developing the purported business, the scammers ``used a large part of the investors' money to engage unsuccessfully in high risk `day-trading' of stocks; pay personal living, travel, and entertainment expenses; or make other unexplained expenditures with no connection to the purported startup business activities.''

H.R. 2201 would provide a roadmap for bad actors to similarly rip off investors. The bill's $500,000 cap on offerings does not eliminate the need for robust safeguards against fraud and abuse. In fact, these protections are even more important for offerings of this size, given the proliferation of investment schemes in the smaller offering space.

The SEC has found that ``fraud in the micro cap stock markets is of increasing concern to regulators, as such markets have proven to be fertile grounds for fraud and abuse.''

While $500,000 may not seem like a lot on Wall Street, for Main Street Americans, losing even a fraction of that amount would destroy the hope of one day retiring with dignity. Existing exemptions such as those available under the SEC's regulation D, regulation A, and crowdfunding rules provide ample opportunities for companies to raise capital while also protecting investors.

H.R. 2201 would only expose hardworking Americans to a new and wholly unnecessary risk. For these reasons, I urge my colleagues to vote ``no'' on H.R. 2201, and I reserve the balance of my time.

General Leave

Mr. Speaker, I yield such time as he may consume to the gentleman from Rhode Island (Mr. Cicilline).

Mr. Speaker, may I inquire as to how much time I have remaining.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, we have laid out this morning exactly how vulnerable groups and individuals can be taken advantage of with legislation like this. I don't know exactly where this legislation originated, but I can almost guarantee you that we are creating opportunities for individuals who don't have the best interest of our constituents at heart to literally get small groups together, 35, I guess, or less, and sell them on ideas where they are raising funds that probably will not result in profits as expected by those who are investing in these schemes.

No, there are no protections. There is no notice. The SEC will not know when and where these schemes are arising. So I would say to my colleagues on the opposite side of the aisle: When are we going to act as if we have the best interests of our constituents at heart? When are we going to be about protecting consumers rather than opening up opportunities for them to be the victims of fraud?

We have fraudulent schemes that are directed at the most vulnerable people. I know where those people who are organizing these schemes will go. They will go to our churches where well-meaning ministers and parishioners will be taken advantage of.

In these vulnerable communities that are always taken advantage of, we have people who are the victims of payday loans where they are paying 400 percent for moneys that they are borrowing when they are desperate in between paychecks. We have rent-to-own schemes. We have all kinds of schemes where these convenience stores, in places where we have food deserts, are charging extremely high prices for food that is basically being sold for regular, ordinary, good prices in other communities.

In some communities, even in California, the gas taxes are rising. We have the rental market that is going off the scale all over this country with people not being able to afford a decent lease or a decent rental space, and so here we are just opening up another opportunity for folks to be ripped off.

It is going to happen; I can guarantee you that. When you have something like this that is passed by the Congress of the United States, it is going to be taken advantage of, and the way that this is constructed, it almost begs to be taken advantage of.

So do you know what happens when this kind of thing takes place and Members of Congress put their reputations on passing this kind of legislation? When the rip-offs start and people are harmed a few years later, then they are going to come back with legislation talking about how they are correcting the fraud and the rip-offs that we caused in the first place.

When is this going to stop? We have a Consumer Financial Protection Bureau that is struggling every day to protect our consumers. Prior to Dodd-Frank, we had our oversight agencies with the responsibility of protecting consumers, but they didn't have any real protection. So Dodd-Frank reforms helped to create opportunities for Members of Congress to be able to protect their consumers and not to be involved in these kinds of schemes.

But the opposite side of the aisle has spent an inordinate amount of time trying to kill off the Consumer Financial Protection Bureau, and they have done it in so many ways. Not only do they come up with amendments time and time again to try and shut down the Consumer Financial Protection Bureau, they treat the Director of the Consumer Financial Protection Bureau so badly that they almost deny him the opportunity to come before our committee and to be heard.

So I don't know whose side legislators are on who create this kind of crap. I don't understand why it is deemed to be important to open up the opportunity for schemes and to not give the SEC the ability to know when they are getting started, to have the

kind of disclosures, and to have the kind of oversight that would protect the most vulnerable people in our society.

Mr. Speaker, yes, this legislation will probably pass today. The Republicans have the majority votes in this Congress, and I suppose they are going to get all of their people to vote for this bill that is going to rip off some of their constituents, and, again, we won't be able to stop it because, again, they have the majority votes.

But I want the people of this country to know and understand what is happening, who is doing it to them, and why they are having a difficult time. At a time when the rental market is going off the scale and they can't afford to pay the first and the last month's rent to get into a place, I want them to know who is creating the difficulties in their lives when their jobs have not increased their pay, they are still trying to have a decent quality of life for their families, despite the fact that the pay does not match the job that they are doing, and they haven't had the pay increases.

When are we going to show that we stand up for the least of these? When your churches get ripped off--and we are working on some of those schemes now where, even with the responsibilities that the SEC has, we have people who are getting ripped off, and here we come with another piece of legislation. Then what we do is we shade it in terms of this is for small business development. Then we hear from the opposite side about all the other companies who started as little-bitty companies in their garage. Well, they all started without this bill. They didn't need this bill to start.

So why are you doing this? Yeah, you are right; there are a lot of companies, and you have named them, particularly in the high tech industries that started, and they had some of their own money to get started with, and maybe the family helped them, I don't know, but they didn't have this legislation. They didn't need this legislation. Nobody needs this legislation.

This legislation is harmful, and I would ask my colleagues to vote against the bill. If there are any Members on the opposite side of the aisle who really are concerned about their constituents, I would ask them to defy their leadership and vote against this bill.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, by allowing entities to sell unregistered securities based solely on a preexisting relationship with the investor, H.R. 2201 would create a road map for affinity fraud.

Affinity fraud is a type of investment scam where swindlers prey upon members of identifiable groups such as ethnic or religious communities or the elderly. Often, affinity fraudsters take advantage of preexisting relationships to engender trust and convince victims that a dubious investment is legitimate.

The Securities and Exchange Commission has found that such frauds pose heightened risks to investors because they can be difficult for regulators or law enforcement officials to detect, particularly where the fraudsters have used respected community or religious leaders to convince others to join the investment.

The following cases represent a sampling of recent affinity fraud actions from around the United States.

In August, 2013, the SEC halted an offering fraud scheme where Steven Bruce Heinz, a Utah resident purporting to be an investment adviser, sold phony investment contracts to more than 15 of his former clients, family members, and friends. According to the SEC's complaint, Heinz raised $4 million in investor funds he used to engage in high-risk trading of future contracts and to pay his own personal expenses such as family vacations to Mexico and a $600,000 loan.

Among the investors taken in by Heinz scam was ``the recent widow of a church associate of Heinz who invested with Heinz after he volunteered to assist her with her finances and investments after her spouse died.''

In 2012, the SEC stopped a $7.5 million fraud operation targeting the Persian-Jewish community in Los Angeles. The SEC's assistant regional director stated that Shervin Neman ``deceived members of his own community to raise money in this fraudulent Ponzi scheme. By exploiting investors' trust in him, Neman was continually able to raise more money to pay back existing investors and finance an extravagant lifestyle.''

According to the SEC's complaint, among other things, Neman spent investor funds to pay for his wedding and honeymoon, his wife's engagement ring, luxury cars, and VIP tickets to entertainment venues.

In 2015, the SEC permanently barred John Allan Russell from the securities industry after Russell pled guilty to securities fraud in Colorado State court. The SEC's administrative law judge found that Russell obtained almost $300,000 by selling debt securities to an elderly victim who suffered from dementia and Alzheimer's disease. The ALJ also determined that ``Russell's scheme may have involved affinity fraud because the misconduct began a few years after the victim acted as Russell's godfather at his baptism.''

These cases demonstrate that H.R. 2201's preexisting relationship requirement would not provide any meaningful deterrent against abuse. On the contrary, it would encourage opportunistic conduct targeting communities.

Mr. Speaker, I urge my colleagues to join me in voting ``no'' for this bill.

Given all that the SEC is able to do, they can't keep up with these schemes, and now you are going to open up the door for them to have to wrestle with trying to help people who are victims of these kinds of schemes.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, the North American Securities Administrators Association sent this letter of concern. They said that H.R. 2201 would result in an overly broad Federal exemption that would allow public solicitation and sales to any investor, regardless of sophistication or financial wherewithal, subject only to the requirement that there be a previously existing relationship, a standard that is not difficult to establish.

In practical terms, this means that Main Street investors could be solicited and sold up to $500,000 in private security by bad actors, including persons having been convicted of crimes or subject to one or more previous State enforcement actions, without any disclosure to the investor and without any notice to State or Federal regulators.

There is no valid basis for Congress to prevent State officials charged with protecting their constituents from making decisions about purely local or regional issues that would rely on the exemption established by H.R. 2201.

Further, preemption of State review or even notification for the type of small, localized offerings contemplated by H.R. 2201 would effectively handcuff the regulators best positioned to oversee such offerings.

Public Citizen said this bill ``would permit small offerings with no investor protections, such as notice of the offerings. It will enable a type of affinity fraud, where the seller can unload dubious securities, provided there is some relationship between seller and purchaser. This bill assumes that a preexisting relationship will deter abuse, which is a tenuous foundation, at best. Further, the relationship can begin with the offer.''

They don't have to have a previous relationship. It would start when the offer takes place.

Public Citizen further stated that ``the bill says the relationship must only exist before the purchase.''

Mr. Speaker, I include in the Record letters from these groups, as well as a letter from Americans for Financial Reform.

North American Securities

Administrators Association, Inc.,

Washington, DC, November 7, 2017.

Re H.R. 2201--The Micro-Offering Safe Harbor Act.

Hon. Paul Ryan,

Speaker, House of Representatives,

Washington, DC.

Hon. Nancy Pelosi,

Democratic Leader, House of Representatives,

Washington, DC.

Dear Speaker Ryan and Leader Pelosi: On behalf of the North

American Securities Administrators Association (``NASAA''), I

write to express concern and raise specific objections to

certain provisions of H.R. 2201, The Micro-Offering Safe

Harbor Act, which is scheduled to be considered by the House

of Representatives this week. The legislation would amend

securities laws in ways that could be profoundly detrimental

to investors, and detract from the viability of the

marketplace for offerings from new or smaller issuers that

are compliant with securities law.

The Micro-Offering Safe Harbor Act amends Section 4 of the

Securities Act of 1933 to create a new exemption from

registration. To qualify for the exemption, an offering would

have to meet certain criteria regarding the number of

purchasers, their relationship to the issuer, and the amount

of capital raised. However, as more fully discussed below,

the legislation fails to include critical investor protection

measures and would preempt state regulatory authority.

State securities regulators understand the need of small

businesses to efficiently raise capital and the role strong

investor protection plays in facilitating this goal.

Unfortunately, the changes embodied in H.R. 2201, while well

intended, are ill-advised and potentially quite dangerous.

For example, unregistered securities purchased under the

exemption established by H.R. 2201 would not be

``restricted,'' and could thus be sold immediately, exposing

investors to classic ``pump and dump'' schemes. Furthermore,

NASAA is aware of no evidence to support the proposition that

Congress should create a ``safe harbor'' to permit

unregistered securities offerings to be offered and sold,

including through general solicitation, regardless of

investor sophistication or financial wherewithal. Even as the

bill stands to introduce new and totally unnecessary risk

into securities markets--failing to even disqualify ``bad

actors'' from these markets--the goal of the legislation

remains unclear and its necessity is, at best, not well-

established. It is clear, however, from the terms of the

exemption, and its failure to impose even the modicum of

regulatory oversight that exists for similar ``private''

offerings under SEC Regulation D Rule 506, that offerings

made under the new exemption are likely to be

disproportionately risky and illiquid. This fact alone should

be cause for concern by Congress.

Beyond stark new risks to investors, this legislation

threatens to jeopardize the continued viability of

established markets geared to smaller issuers, many of which

operate lawfully within existing federal and state securities

laws. Such markets include securities sold pursuant to SEC

Rule 506, new federal exemptions established by the JOBS Act,

and exemptions adopted in many states to permit intrastate

crowdfunding. Without effective investor protection measures

a potential effect of H.R. 2201 could be to cause investors

to abandon the markets for smaller issues.

In closing, NASAA reiterates strong opposition to the

preemption of state registration and notice filing authority

in H.R. 2201. There is no valid basis for Congress to prevent

states from making decisions about the local or regional

issues that H.R. 2201 seeks to encourage. Failure to register

or at the very least, to notice file with state regulators

results in unknown sales, by unknown actors of unknown

enterprises and result in no gatekeeper function to protect

retail investors whose only source of recourse for fraudulent

sales are the state securities regulators. At a minimum H.R.

2201 should:

1) Include bad actor disqualifications;

2) Establish a holding period to reduce the likelihood of

``pump and dump'' schemes;

3) Provide at least a notice filing with state regulators

so that in the event of a fraudulent offering, state

regulators can begin an investigation to try and protect

retail investors;

4) Limit the sale amount to retail investors so that

investors are not ``encouraged'' to place all their eggs in

one basket; and

5) Prohibit or restrict general solicitation of what are

clearly high risk securities.

Thank you for your consideration of NASAA's views.

Sincerely,

Joseph P. Borg,

NASAA President and Alabama

Securities Director.

Mr. Speaker, I don't understand why Members of Congress would disregard what the State regulators are saying. State regulators are saying: Don't do this. Don't preempt us. Don't pass legislation that would undermine our ability to protect your constituents.

Yet they are ignoring this altogether. I know that they received this information. I know that they know that the association had cautioned against this legislation. Let me just make sure that everybody knows. It is the North American Securities Administrators Association. They represent all of the States in cautioning against this legislation.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

For my colleagues on the opposite side of the aisle who are bemoaning the fact that small businesses don't have access to capital, they have these relationships with all of these big banks.

Why don't they get to the big banks and tell them they ought to be making loans to small businesses?

I don't hear them, as a part of, you know, their rhetoric, talking about how many of the big banks are not being responsible. And so my colleague on the opposite side of the aisle and my friend talk about what is common sense. I tell you what is common sense. Common sense is not to place vulnerable people in a position where they are going to get ripped off.

Mr. Speaker, H.R. 2201 is a harmful bill that would simply serve as an invitation for investment scams. The bill fails to take into account the numerous other exemptions we have for small-dollar offerings, including under regulation D, regulation A, and crowdfunding rules. These exemptions already permit small businesses to raise capital while also protecting against fraud.

In light of these exemptions, there seems to be no reasonable explanation for the amount of legislative effort that has been wasted on this bill. Instead of H.R. 2201, which is unwarranted and may actually harm investors and the integrity of our markets, the House should be focused on passing legislation that can actually improve the lives of the Americans whom we serve.

Mr. Speaker, I urge my colleagues to vote ``no'' on H.R. 2201. Don't be a part of enacting one more scheme that is going to rip off our constituents, and then, you know, a few years later, come back here and talk about what a terrible thing it is that people are being ripped off by these investors, some of them who are criminals, but nobody knows it. The disclosure does not have to take place. They don't know that they have people who have already been involved in crimes who are coming to them talking about: let me help you earn some profits on this investment.

We know better. Common sense tells us better. If, in fact, we are committed to the proposition that we have a responsibility to protect our constituents from rip-offs, from fraud, from being taken advantage of, we will not support this bill. And I would hope that my friends on the opposite side of the aisle, despite how far they have gone in trying to represent that this bill is something that it is not, would at least change their minds today and support their constituents and vote ``no'' on this bill.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, I claim the time in opposition to the amendment, even though I am not opposed.

Mr. Speaker, under the current language of H.R. 2201, investors could be sold private securities by persons who have committed fraud or have violated security laws. Representative Emmer's amendment purports to add a layer of investor protections by adding a provision to so-called disqualify certain bad actors from utilizing the exemption.

While I applaud Mr. Emmer's attempt to add this most basic guardrail to a bill that otherwise creates an unmitigated safe harbor for fraudsters, I wonder why this provision was dropped from a similar bill that Mr. Emmer introduced last Congress.

Unfortunately, this amendment is woefully inadequate to address the otherwise dangerous new exemption created by H.R. 2201. Because the underlying bill requires no disclosure to investors and imposes no obligation to notify regulators of the offering, even if amended, H.R. 2201 would lead convicted fraudsters and lawbreakers to police themselves.

Moreover, the bill ties the hands of State securities regulators, who are the primary watchdogs over small, local securities offerings. If enacted, H.R. 2201 would leave a gaping hole in oversight of the very offerings it permits.

H.R. 2201 is a misguided attempt to support small businesses that is not meaningfully improved by the meager protections of this amendment. For these reasons, I continue to oppose this bill, and I urge all of my colleagues to vote ``no'' on H.R. 2201.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I would like to warn the Members of this House not to take the compliments seriously that are being given by the gentleman who would have you believe that somehow I have totally embraced this amendment because I think it is going to change the fact that there is no disclosure to those who would be investing and no notice to the SEC.

So don't take him seriously when he talks about thanking me for encouraging and embracing. I have not done that. I am going to tolerate this amendment. It is late. It doesn't do what he says it is going to do. The bill is still a bad bill. It is a bill that is going to harm people. It is a bill that targets the most vulnerable people in our society. It is a bill where fraudsters are going to go into churches and convince ministers and parishioners that they are out to help them.

Members of Congress, do the right thing. Today, stand up against another attempt by misguided folks who would have you believe that they are helping people when, in fact, they are opening up opportunities for them to be ripped off one more time, ripped off in ways that could have been avoided.

Mr. Speaker, I oppose this bill. I ask everybody to vote against this bill.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, I thank the ranking member for yielding and for his continued leadership on behalf of America's workers.

Mr. Speaker, more and more employees today are working for a company whose name is not on the front of their office building. Instead of hiring employees directly, companies are renting employees from staffing agencies. Let me say that again. Companies are renting employees from staffing agencies and then evading responsibility for upholding the rights of those workers, even as they profit from their work.

For decades, sensible joint employment standards under the Fair Labor Standards Act have ensured that workers can hold employers accountable for violating wage and hour laws.

Instead of refining those standards to reflect the complex relationship between workers and employers in today's economy, this legislation sets a dramatically and intentionally narrow standard so that no large corporation can be held accountable if their contractors violate workplace laws.

Mr. Speaker, I include a letter of support in the Record, a letter by the National Employment Law Project and signed by more than 200 organizations opposing H.R. 3441 because it opens the door to widespread wage theft and hurts law-abiding small businesses.

Hon. Paul Ryan,

House of Representatives,

Washington, DC.

Hon. Nancy Pelosi,

House of Representatives,

Washington, DC.

Hon. Virginia Foxx,

House of Representatives,

Washington, DC.

Hon. Robert C. Scott,

House of Representatives,

Washington, DC.

Dear Speaker Ryan, Leader Pelosi, Chairwoman Foxx and

Ranking Member Scott: The undersigned organizations write in

opposition to H.R. 3441, the so-called Save Local Business

Act, which would amend the Fair Labor Standards Act (FLSA)

and the National Labor Relations Act (NLRA) to prevent

workers from holding more than one employer jointly

accountable for wage theft, child labor, equal pay

violations, or unfair labor practices even when the employers

jointly exercise and share control over working conditions.

Under our nation's long-standing laws dating back as far as

the late 1800s, employers who share control with their

subcontractors over working conditions may also share

accountability as joint employers for violations of workers'

rights so that they will provide better oversight of working

conditions, and in so doing, ensure broader compliance with

basic labor and employment laws.

H.R. 3441 seeks to dramatically narrow the long-standing

definitions of ``employer'' in the FLSA and NLRA and it is

neither good for workers nor for law-abiding businesses.

H.R. 3441 opens the door to widespread wage theft and worker harms in

occupations across the economy, including in our nation's growth

industries

The bill would undermine protections for millions of

workers across the economy, especially in low-wage sectors

where subcontracting is common: construction, agriculture,

garment, janitorial, home care, delivery and logistics,

warehousing, retail, temp and staffing, and manufacturing,

just to name a few.

Wage theft and other workplace dangers are prevalent in

many of these jobs, and even under current law, millions of

workers today are no longer sure who their boss is--and

indeed, have no way to navigate the intricacies of companies'

contracting relationships to ascertain who is responsible for

workplace violations. When there's no clear line of

accountability, work conditions are more likely to

deteriorate: pay declines, wage theft increases, and

workplace injuries rise. In addition, outsourced jobs pay

less--sometimes as much as 30 percent less--than in-house

jobs, likely due to a lack of worker and subcontractor

bargaining power. In today's economy, we should be looking

for ways to increase workers' pay and economic security, not

laying the groundwork for more sweatshops.

When a subcontractor cannot pay, joint employer standards

ensure that workers have remedies against the contracting

company for the legal violations. Workers should be able to

recover when cheated out of wages, exposed to dangerous

working conditions, or otherwise treated unlawfully.

This bill would also impede workers from bringing equal

pay claims to close the gender pay gap. Because the Equal Pay

Act is a part of the FLSA, and uses the FLSA's definition of

an employer, H.R. 3441 would make it harder for subcontracted

workers to hold their employers accountable for gender-based

pay discrimination.

The bill actually hurts, not helps, law-abiding small businesses

Although framed as a bill to help protect the independence

of small businesses, including those that operate as

franchisees, the bill would in fact insulate corporations,

including franchisors, from liability. Unscrupulous

businesses that employ abusive labor contractors to cheat

workers would gain a competitive advantage over law-abiding

businesses. In addition, franchisees whose business practices

are all but dictated to them by larger corporations will be

hung out to dry for decisions that aren't their own, without

any indemnification from the entity that often all but forces

labor and employment violations on them.

Corporations that engage low-road contractors and then look

the other way gain an unfair advantage over companies that

play by the rules, resulting in a race to the bottom that

rewards cheaters. It's one reason why the job quality of what

were formerly middle-class jobs in America is suffering

today. Working people struggle enough in today's economy.

Don't let Congress make this worse by legislatively rigging

the system in favor of corporations that don't care about the

workers who build their businesses. Oppose H.R. 3441.

Sincerely,

9to5 Colorado; 9to5 Wisconsin; 9to5, National Assoc of

Working Women; A Better Balance; Advocates for Basic

Legal Equality, Inc.; AFL-CIO; American Federation of

State, County and Municipal Employees (AFSCME);

American Federation of Teachers, AFL-CIO; Arizona

Employment Lawyers Association; Asian American Legal

Defense and Education Fund; Barkan Meizlish LLP;

Bricklayers & Allied Craftsmen Local 3 MA/ME/NH/RI;

California Employment Lawyers Association; Center for

Law and Social Policy (CLASP); Center for Popular

Democracy; Center for Worker Justice of Eastern Iowa.

Centro de los Derechos del Migrante, Inc. (CDM); Centro

Legal de la Raza; Change to Win; Chicago Jobs Council;

Cincinnati Interfaith Workers Center; Coalition for

Social Justice; Coalition of Labor Union Women;

Coalition on Human Needs; Colorado Fiscal Institute;

Columbia Legal Services, Washington State;

Communications Workers of America (CWA); Community

Labor United; Community Legal Services in East Palo

Alto; Community Legal Services of Philadelphia;

Community, Faith & Labor Coalition, Indianapolis;

Congregation of Our Lady of Charity of the Good

Shepherd, US Provinces.

Congregation of Our Lady of the Good Shepherd, US

Provinces; Connecticut Legal Services, Inc.; Council on

American-Islamic Relations (CAIR); Democratic

Socialists of America; Demos; Disciples Center for

Public Witness (Disciples of Christ); Economic Policy

Institute Policy Center; Economic Progress Institute;

El Comite de Apoyo a los Trabajadores Agricolas;

Employee Rights Center; Equal Justice Center;

Equal Rights Advocates; Fair Work Center; Fair World

Project; Faith and Justice Worker Center; Family Values

@ Work; Farmworker Association of Florida.

Farmworker Justice; Florida Legal Services, Inc.; Food

Chain Workers Alliance; Forward Community Investments;

Franciscan Action Network; Friends Committee on

National Legislation; Fuerza del Valle Workers' Center;

Fuerza Laboral; Futures Without Violence; Genesis

Masonry Contracting, LLC; Getman, Sweeney & Dunn, PLLC;

Good Jobs First; Good Jobs Nation; Greater Boston Legal

Services; Greater Hartford Legal Aid, Inc.

Greater Rochester Coalition for Immigration Justice;

Greater SE Mass Labor Council; Hardin & Hughes, LLP;

Head Law Firm, LLC; Hudson Valley Justice Center;

Immigrant Solidarity DuPage, Casa DuPage Workers

Center; Immigrant Worker Center Collaborative (IWCC);

In The Public Interest; Indianapolis Worker Justice

Center; Interfaith Coalition for Worker Justice of

South Central WI; Interfaith Worker Justice;

International Brotherhood of Teamsters; International

Federation of Professional & Technical Engineers

(IFPTE); International Union of Painters and Allied

Trades District Council 35; IWJSD.

Jewish Community Relations Council, Milwaukee; Jobs With

Justice; Justice in Motion; Kansas City Workers' Rights

Board of Missouri Jobs with Justice; Kentucky Equal

Justice Center; Kids for College; Kids Forward; Labor

Justice Committee; Labor Project for Working Families;

Laundry Workers Center; Lebau and Neuworth; The

Leadership Conference on Civil and Human Rights; Legal

Aid at Work; The Legal Aid Society.

Legal Services of Central New York; Legal Voice; Local 3,

Bricklayers & Allied Craftsmen; Los Angeles Alliance

for a New Economy; Madison-area Urban Ministry; Main

Street Alliance; Maine Labor Group on Health; Maine

Women's Lobby; Maintenance Cooperation Trust Fund;

Massachusetts Coalition of Domestic Workers;

Massachusetts Interfaith Worker Justice; Massachusetts

Law Reform Institute; MassCOSH (Massachusetts Coalition

for Occupational Safety & Health); Mechanic Law Firm,

Portland OR; Metrowest Worker Center; Miami Workers

Center.

Michigan League for Public Policy; Missouri Jobs with

Justice; Moms Rising; NAACP; National Advocacy Center

of the Sisters of the Good Shepherd; National Asian

Pacific American Women's Forum (NAPAWF); National

Center for Law and Economic Justice; National Center

for Transgender Equality; National Council for

Occupational Safety and Health; National Council of

Churches; National Domestic Worker Alliance; National

Education Association; National Employment Law Project;

National Employment Lawyers Association; National

Guestworker Alliance; National Immigration Law Center.

National LGBTQ Task Force; National Partnership for Women

& Families; National Women's Law Center; National

Workrights Institute; NETWORK Lobby for Catholic Social

Justice; New Haven Legal Assistance; New Jersey Citizen

Action; New Jersey Policy Perspective; New Jersey Time

to Care Coalition; New Jersey Work Environment Council;

New Labor; New Mexico Center on Law and Poverty; New

Mexico Voices for Children; North Carolina Justice

Center; NWA Workers' Justice Center; Oregon Center for

Public Policy.

Oxfam America; Patriotic Millionaires; Phillips Dayes Law

Firm PC; Pilipino Workers Center of Southern

California; Policy Matters Ohio; PolicyLink; Pride at

Work; Progressive Congress Action Fund; Project IRENE;

Public Citizen; Public Justice Center; Restaurant

Opportunities Centers United; Safe Harbor Law, LLC;

Sargent Shriver National Center on Poverty Law; SE Mass

Building Trades Council; SEIU Local 888.

Service Employees International Union; South Central

Federation of Labor, AFL-CIO; South Florida AFL-CIO;

South Florida Interfaith Worker Justice; Southern

Poverty Law Center; St. Louis Workers Rights Board,

Missouri Jobs with Justice; Stephan Zouras, LLP;

Teamsters Joint Council 7; Teamsters Local Union 350;

Teamsters Local Union 469; The Commonwealth Institute

for Fiscal Analysis (Virginia); The Law Offices of

Gilda A. Hernandez, PLLC; The North Dakota Economic

Security and Prosperity Alliance; The Rhode Island

Center for Justice; The Stolarz Law Firm; The Warehouse

Worker Resource Center.

UltraViolet; Union for Reform Judaism; Union of Rutgers

Administrators, AFT Local 1766; Unitarian Universalist

Association; United Auto Workers (UAW); United

Community Center of Westchester, Inc.; United Food and

Commercial Workers International Labor Union; United

Food and Commercial Workers Union Local 1445; United

Steel, Paper and Forestry, Rubber, Manufacturing,

Energy, Allied; Industrial and Services Workers

International Union (USW); Washington State Budget &

Policy Center; Wayne Action for Racial Equality;

WeCount!; Werman Salas PC; West Virginia Center on

Budget and Policy; Winebrake & Santillo, LLC.

Wisconsin Alliance for Retired Americans; Wisconsin

Alliance for Women's Health; Wisconsin Coalition

Against Sexual Assault; Wisconsin Community Program

Association (WISCAP); Wisconsin Council of Churches;

Wisconsin Faith Voices for Justice; Wisconsin Network

for Peace, Justice, and Sustainability; Women Employed;

Women's Law Project; Workers' Center of Central New

York; Workers Defense Project; Workers' Rights Center

of Madison WI; Workers' Rights Project, Main Street

Legal Services. Inc; Working Families Party; Working

Partnerships USA; Workplace Fairness; Workplace Justice

Project at Loyola College of Law Clinic; Worksafe; WV

Citizen Action Group; Yezbak Law Offices.

Mr. Speaker, from 2001 to 2013, Wal-Mart was contracting with three warehouses in my community, and those warehouses contracted out their staffing to a company that was accused of committing egregious wage and hour law violations.

Thanks to the FLSA joint employer standard, 1,700 warehouse workers were able to reach a $22 million settlement to collect the pay that they were owed from their employer. Under this bill, they would likely have gotten nothing.

The questions we face today are: Will millions of workers, like the warehouse workers in my district, lose what little power they have left to fight against wage theft; will organized workers lose the basic right to bring all responsible parties to the table to collectively bargain for better wages and workplaces; will shrewd corporations be allowed to claim immunity from the laws that protect employees; and, most of all, will the people's House stand with the people or stand with the corporations that continue to rig the economy against the American worker?

Mr. Speaker, I strongly urge my colleagues to oppose H.R. 3441.

Mr. Speaker, I rise in opposition to H.R. 3441, the so-called Save Local Business Act.

This bill virtually eliminates joint employer liability under the National Labor Relations Act and under the Fair Labor Standards Act. As my colleagues have highlighted, there are numerous unintended consequences presented by this bill.

I want to highlight the impact on an often overlooked segment of our workforce: our Nation's farmworkers.

Farmworkers are among our Nation's most vulnerable workers. Farmworkers work long hours in poor conditions for low pay. Many farmworkers are undocumented and subject to severe abuse. The Migrant and Seasonal Agricultural Worker Protection Act is the principal labor statute protecting agriculture workers and establishes wage, health, safety, and recordkeeping standards for both seasonal and temporary farmworkers. Joint employment standards under this law and the Fair Labor Standards Act are vital to protecting the rights and protections afforded to these workers.

Oftentimes, farmworkers are recruited, hired, supervised, or transported by intermediaries, sometimes referred to as farm labor contractors. Farm operators utilizing farm labor contractors maintain control over working conditions seeking to ensure the financial success of their operation.

Despite this shared responsibility, farm operators may argue that the farm labor contractors they engage are the farmworkers' sole employer responsible for compliance. Farm labor contractors are often thinly capitalized. This means if a farmworker seeks redress for a violation, he or she may not be able to collect from the farm labor contractors. Under the Migrant and Seasonal Agricultural Worker Protection Act, joint employer liability helps ensure covered workers can also hold liability from farm operators that share responsibility.

By amending the Fair Labor Standards Act's broad definition of ``employ'' and creating a new extremely narrow definition of ``joint employer,'' H.R. 3441 upends the Fair Labor Standards Act's joint employer framework upon which we rely on.

Mr. Speaker, I include in the Record a statement from Farmworker Justice in opposition to this bill.

Statememt on ``Save Local Business Act,'' House Education and Workforce Committee--Bruce Goldstein, President, Farmworker Justice, October 2,

2017

Farmworker Justice appreciates the opportunity to submit

this statement to the House Committee on Education and the

Workforce. Farmworker Justice, a national advocacy, education

and litigation organization for farmworkers founded in 1981

and based in Washington, D.C. Farmworker Justice has played a

leading role in advocacy, education and litigation regarding

the joint employer concept to remedy and prevent labor

abuses. I am President of Farmworker Justice and have 37

years of experience as an attorney, including at the National

Labor Relations Board, Legal Services, in private practice

and at this organization.

Farmworker Justice opposes the ``Save Local Business Act,''

HR 3441 because it would remove an important mechanism to

protect farmworkers and other low-wage workers from suffering

violations of the minimum wage and child labor requirements.

The bill would make it extremely difficult to hold two

businesses jointly liable as ``joint employers'' of the same

worker or group of workers. This bill, if enacted, would

result in massive violations of the minimum wage and other

labor abuses that would harm farmworkers and harm the

reputation of the entire agricultural sector.

This bill, if enacted, would reverse more than 130 years of

knowledge developed in the

quest to eradicate sweatshops. The Fair Labor Standards Act

of 1938, which sets minimum wage, overtime, and child labor

standards, adopted a definition of employment relationships

based on 50 years of experience under state laws that evolved

to address employers' efforts to evade child labor and other

labor laws.

During the mid- to late-1800's states adopted laws to

regulate and limit the hours of employment of children and

quickly confronted employers' efforts to evade the laws.

Business owners that operated a manufacturing plant would

claim that the children in the plant were employed solely by

a subcontractor within the plant or had been brought to the

plant by a parent or sibling and therefore should not be

considered to have ``employed'' the child. Even if the

subcontractor or parent were punished, in the absence of

liability on the part of the plant operator it would suffer

no adverse impact and would be free to find another

subcontractor or parent to bring children to do the work. In

addition, often a labor contractor lack sufficient assets to

pay a court judgement, leaving workers remedy-less.

One of the responses of state legislatures was to adopt a

broad definition of employment relationships that imposed

employer status on the larger business owner even where there

existed a labor intermediary. Numerous states adopted

language defining employment relationships that later became

the model for the Fair Labor Standards Act of 1938.

The state laws and the FLSA defined employers as entities

that directly or indirectly employed a worker and defined the

word ``employ'' as including not just the restrictive common

law definition's ``right to control test'' but also as ``to

suffer or permit to work.'' 29 USC Sec. 203(g). To ``suffer''

in this context means to acquiesce in, passively allow or to

fail to prevent the worker's work.

This broad definition imposed liability on a company that

had the power to prevent the work of the worker from

happening and denied the business the ability to hide its

head in the sand about what was happening in its business,

including where it utilized labor contractors or other

intermediaries which were considered employers of those

workers. See Goldstein et al., ``Enforcing Fair Labor

Standards in the Modern American Sweatshop: Rediscovering the

Statutory Definition of Employment,'' 46 UCLA Law Review 983

(1999). The purpose of establishing joint responsibility is

also reflected in FLSA's definition of ``employer,'' 29 USC

Sec. 203(d), `` 'Employer' includes any person acting

directly or indirectly in the interest of an employer in

relation to an employee.''

The facts in the U.S. Supreme Court's decision in

Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947)

illustrate the concept. A slaughterhouse company retained a

contractor to assemble a crew of workers to de-bone meat in a

special room within the slaughterhouse. The Department of

Labor sued the defendant company for recordkeeping and

overtime violations. The company denied that it employed the

meat de-boners, arguing that the contractor was their sole

employer. The Court found that the definition of employment

relationships in the FLSA imposed liability on the

slaughterhouse.

The Save Local Business Act would alter the longstanding

meaning of employment relationships under the FLSA and the

National Labor Relations Act. The NLRA excludes agricultural

workers from its protections, so I will focus on the FLSA.

The FLSA's minimum wage applies to farmworkers on most (but

not all) larger farms; small farms generally are excluded

from the minimum wage. 29 USC 213(a)(6). Agricultural workers

are excluded from overtime pay. 29 USC Sec. 213(b)(13)-(16).

FLSA prohibits certain types of child labor although it

allows large agricultural employers, as well as small family

farms, to employ children at younger ages than is allowed in

other occupations. Id. at (c)(1)-(2).

The bill would set criteria so onerous that it would be

rare for two businesses that shared responsibilities

regarding workers to be held to be joint employers; just one

business would be held to be an employer. Because the Migrant

and Seasonal Agricultural Worker Protection Act (AWPA) refers

to the definition of ``employ'' in the Fair Labor Standards

Act, the proposed law may also apply to AWPA. 29 USC

Sec. 1802(5). AWPA is the principal federal employment law

for farmworkers, regulating employment contracts and the use

of farm labor contractors.

Many agricultural workers suffer violations of the Fair

Labor Standards Act's minimum wage and other basic labor

protections. Often, when such workers try to remedy illegal

employment practices, they run into a problem: the farm

operator that really determines their job terms and has the

capacity to prevent abuses, denies that it is their

``employer'' for purposes of the minimum wage and other labor

protections. Instead, the farm operator claims that a ``farm

labor contractor'' or other intermediary is the sole

``employer'' of the farmworkers on its farm. Often a labor

contractor competes for business by promising low labor costs

and when sued by victimized workers cannot afford to pay a

court judgment.

In most such cases, the definition of employment

relationships in the FLSA enables courts and the Department

of Labor to ensure compliance with the law by considering the

farm operator and the farm labor contractor to be ``joint

employers'' and jointly responsible for meeting FLSA's

obligations. This issue has been the subject of numerous

lawsuits in which farm operators have been held to be joint

employers with their farm labor contractors.

This Committee played a historic role in addressing abuses

of migrant workers at the hands of farm operators and their

labor contractors and recognized the importance of the joint

employer concept in ensuring a law-abiding, prosperous

agricultural sector. The Farm Labor Contractor Registration

Act of 1964 was passed in part in response to the powerful

documentary by Edward R. Murrow, ``Harvest of Shame'' that

aired during Thanksgiving weekend in 1960. Congress revised

its provisions and replaced it with the Migrant and Seasonal

Agricultural Worker Protection Act of 1983, 29 U.S.C.

Sec. 1801 et seq. At the heart of this Committee's motivation

was ensuring joint employer responsibility.

``This broad scope of joint employment--and joint employer

liability--is one of the AWPA's most important features. The

AWPA's legislative history indicates that Congress considered

the joint employer doctrine ``a central foundation'' of this

new law. 29 C.F.R. Sec. 500.20(h)(5)(ii); citing House

Report, n.2 at 4552. It is the ``indivisible hinge'' that

allows workers to hold accountable all those responsible for

violating the AWPA's protections. Id, citing H.R. Rep. 97-

885, 97th Cong., 2d Sess.1, reprinted in 1982 U.S.C.C.A.N.

4547, 4552 (1982) (``House Report'').

The economic reality is that few farm operators will risk

their profitability and the survival of their business by

delegating all responsibility to a labor contractor. Most

farm operators who engage labor intermediaries exercise

substantial decision-making regarding the impact of

subcontracted workers on their business. If strawberries or

grapes are harvested when they are over-ripe or under-ripe,

are subjected to pathogens transmitted on the footwear or

hands of farmworkers, or are not handled carefully to prevent

bruising, huge financial losses could result. A farm operator

generally makes these and other major decisions to ensure its

profitability, even if it uses a farm labor contractor,

instead of its own supervisor, to ensure that its decisions

are carried out. Such farm operators should not be able to

avoid complying with the minimum wage or child labor

requirements by blaming a labor contractor as the sole

employer. In most cases, there is shared responsibility among

the farm operator and the labor contractor so that the

workers on the farm ensure the profitability of that

business. That shared responsibility means shared liability

is appropriate.

The joint employer concept does not deprive farms or other

businesses of the ability or right to engage labor

contractors or other intermediaries such as staffing

agencies. Nor does it prevent businesses from entering into

agreements that require labor contractors to comply with all

employment-law obligations, purchase liability insurance

against employment-law claims and hold the larger business

harmless for any litigation and liability that may result.

Joint employer liability creates an incentive to ensure

that a business selects its labor contractors, as well as its

directly-hired supervisors, wisely and ensures compliance

with employment laws. In addition to ensuring protections for

workers, joint employer liability helps protect law-abiding

businesses from unfair competition by unscrupulous employers

that keep their labor costs low by using labor contractors

that violate employment-related obligations. The joint

employer concept is an important, longstanding approach to

minimizing sweatshops and its elimination would result in a

return to an era in which sweatshops are more prevalent.

The joint employer concept also helps create consumer

confidence regarding their purchases. People want to feel

good about the food they eat. Agriculture has a reputation

for poor treatment of farmworkers that would be exacerbated

by the increases in abuses that would flow from this

legislation.

Congress should reject the Save Local Business Act because

it contradicts 130 years of experience in preventing

sweatshops in factories and at least 50 years of consensus

regarding policies needed to remedy and prevent abuses of the

people who labor on our farms and ranches to produce our

food.

Mr. Speaker, while government isn't meant to create jobs, with the help of the President, Congress can set Federal policies that establish a pro-worker, pro-business environment that lifts people out of poverty, helps families, and drives our country forward.

One problem today that is impeding job growth is access to capital for small businesses. American businessmen and -women are often unable to get the loans they need to start a new enterprise or to grow an existing one.

Additionally, if a firm would like to publicly sell stock to raise money, it must register with the Securities and Exchange Commission, which costs $2.5 million, on average; an amount most small businesses simply cannot afford.

Small and emerging businesses are a key to the economic engine in America. The Small Business Administration found that these businesses create over half of the new jobs on an annual basis in this country. More importantly, today's small businesses are tomorrow's success story.

Just think of all the great businesses in this country that started with a dream in a garage: Amazon, Apple, Microsoft, Disney, Harley- Davidson, and Minnesota's own Medtronic. We want to empower the entrepreneurs in this country to dream, innovate, and create jobs that grow our economy.

That is why I introduced the Micro Offering Safe Harbor Act. This bill will make it easier for entrepreneurs and

small businesses to raise money from family, friends, and their personal network without running afoul of the vague and undefined ``private offering'' safe harbor provisions in the Securities Act of 1933.

Thus, the Micro Offering Safe Harbor Act helps bring clarity to existing law so that our current and future job creators can easily raise capital within the confines of an easy-to-understand provision without the help of an expert.

This legislation requires three specific criteria to be met simultaneously in order to trigger a safe harbor exemption for a security offering instead of just one or more. These criteria ensure that: one, each purchaser has a substantive preexisting relationship with an owner; two, there are no more than 35 purchasers of securities from the issuer that are sold in reliance on the exemption during the 12 months proceeding; and, three, the aggregate amount of all securities sold by the issuers does not exceed $500,000 during the 12- month period preceding the offering. The bill also exempts any of the aforementioned security offerings from blue-sky laws, while maintaining antifraud provisions at the Federal and State level.

These provisions protect Americans from criminals trying to swindle them out of their hard-earned money, while making capital more accessible to businesses by investors from around the country.

In fact, I will be offering an amendment to enhance these antifraud provisions. This amendment, which incorporates the suggestions made by my colleagues on the other side of the aisle during a legislative hearing in the last Congress, will ensure that individuals who have been disqualified under the ``bad actor'' disqualification standard, as is listed under current law, are prohibited from using the exemption provided under H.R. 2201, establishing yet an additional layer of investor protection.

Entrepreneurs and small-business owners need access to capital in order to achieve the American Dream. Although small businesses accounted for 99.7 percent of all the businesses in the United States last year, only half of them will survive longer than 5 years, according to our Bureau of Labor Statistics.

Lack of capital or difficulty accessing capital is one of the main causes of failure for many of these small businesses. A 2015 survey conducted by BlueVine found that 75 percent of small and emerging businessowners reported their primary source of funding comes from their own personal finances, followed by banks at 16 percent and family and friends at 6 percent.

While banks and credit unions do their best to offer the funding these businesses need to grow and thrive, there are still 3 million fewer small business loans made annually, today, than there were before the 2008 financial crisis. H.R. 2201 seeks to build off the success of the Jumpstart Our Business Startups Act of 2012, better known as the JOBS Act, and will continue to spur capital formation for the true job creators and drivers of our country's economy.

The Micro Offering Safe Harbor Act helps small and emerging companies add another tool to the toolkit, enabling them to confidently find alternative ways of raising these funds without having to pay for costly securities experts and without the fear of lawsuits if they operate within these easy-to-understand parameters.

That is why the Micro Offering Safe Harbor Act is endorsed by the National Small Business Association; the Small Business & Entrepreneurship Council; the National Federation of Independent Business; the Chamber of Commerce; Heritage Action; and Engine, ``The Voice of Startups in Government.''

The House approved an identical version of this legislation during the 114th Congress as part of the Accelerating Access to Capital Act, and language similar to H.R. 2201 was included in the Financial CHOICE Act, which was adopted by this Chamber in June.

Mr. Speaker, the time has come for Congress to come together and help small businesses help themselves by making this important update and improvement to the Securities Act of 1933.

I want to thank Chairman Hensarling; Capital Markets, Securities, and Investment Subcommittee Chairman Huizenga; and all of the staff on the Financial Services Committee for their hard work on this legislation.

Mr. Speaker, I urge my colleagues to support this legislation and hope that both parties will use H.R. 2201 as a way to show their support for more opportunities and better lives for our job creators.

Mr. Speaker, I include in the Record letters from the National Small Business Association, the Small Business & Entrepreneurship Council, the United States Chamber of Commerce, Heritage Action for America, and Engine.

National Small Business Association.

Hon. Tom Emmer,

House of Representatives,

Washington, DC.

Dear Representative Emmer: On behalf of the National Small

Business Association (NSBA), the nation's first small-

business advocacy organization, with more than 65,000 small-

business members representing every state and every industry

across the country, I commend your leadership for introducing

the Micro Offering Safe Harbor Act (H.R. 2201) as it will

have an immediate and direct impact on small businesses

looking to raise capital. NSBA has long supported the kind of

simplification this legislation would bring for small

businesses.

Capital is the lifeblood of any small business, and often

small-business owners need capital at various stages; some at

their startup and others later when they are looking to

expand. Despite this ongoing need, small-business lending

from banks has decreased over the last decade and many small

businesses have few options for obtaining capital. According

to NSBA's 2016 Year-End Economic Report, small-business

access to capital remains stubbornly unchanged since the

previous year, with just 69 percent of small firms reporting

they are able to get adequate financing. This drop has real-

world implications: 41 percent said lack of capital is

hindering their ability to grow their business or expand

operations, and 20 percent said they had to reduce the number

of employees as a result of tight credit.

Therefore, raising capital though securities is an

attractive alternative option for many small-business owners.

However, the current regulatory requirements are quite

onerous for small businesses, often requiring expensive

specialized counsel for even very small securities offerings.

NSBA supports this targeted legislation that creates a safe

harbor for small securities offerings which meet requirements

clearly identified in the legislation. Under the legislation,

these exemptions include offerings in which each purchaser

has a substantive pre-existing relationship with the owners,

where the issuer has less than 35 purchasers utilizing the

exemption in the preceding 12 month period, or where the

total amount raised during the preceding 12 month period is

less than $500,000. By creating three safe harbor exemptions

for ``non-public offerings,'' businesses can operate with

clarity and a clear conscience knowing that they would be

exempted from registering with the Securities and Exchange

Commission (SEC). Additionally, the legislation also exempts

transactions meeting the specified requirements from state

registration requirements, commonly referred to as ``blue sky

laws.''

Raising capital for small businesses from friends and

family already takes place on a regular basis, except those

transactions often lack the legal protections and structure

of securities law. In addition to expanding access to capital

for small businesses, this legislation will bring those

transactions under a recognized legal framework, and make

resolving disputes that arise much more efficient. Finally,

bringing these existing transactions under an existing legal

framework will provide a sound legal basis for subsequent

larger offerings requiring registration with the SEC.

Access to capital continues to be one of the most pressing

issues facing the small-business community. All small

businesses need an injection of capital at one point or

another, unfortunately in the past several years it has

become difficult for small businesses to get the funds they

need to grow and expand. NSBA is pleased to support the Micro

Offering Safe Harbor Act as it will help small businesses

around the country expand and create new jobs in their

communities.

Sincerely,

Todd McCracken,

President & CEO.

Mr. Speaker, I have an amendment at the desk.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, the amendment I am offering today will enhance antifraud and consumer protections for small businesses and startups seeking to take advantage of the micro offering exemption outlined in the underlying bill.

While the legislation itself requires three specific criteria to be met simultaneously in order to trigger a safe harbor exemption for a security offering, my amendment adds an additional layer of protection to further safeguard investors from bad actors.

Specifically, my amendment prohibits the exemption from being available for those who have been disqualified under the bad actor disqualification standard established by the SEC. This language was included with the support of my colleagues from both sides of the aisle during consideration in committee in the 114th Congress, and I am hopeful they will support its inclusion again in the 115th.

I want to reiterate that nothing in the base text of this bill erodes or limits the ability of Federal or State regulators to prosecute fraud, nor would it prevent private common law causes of action for fraud or breach of contract between the interested parties.

This amendment builds upon these existing protections and drives home the point that the Micro Offering Safe Harbor Act is purely focused on helping our small businesses and entrepreneurs access the tools they need to grow and create jobs in an orderly and legal manner.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I will close at this point.

Mr. Speaker, I want to thank the ranking member for her encouragement and her compliments, and I want to just point out that the Micro Offering Safe Harbor Act was actually improved as a direct result of the ranking member's suggestions.

So, again, I want to thank her for her compliments here today, her encouragement in helping us make this an even better bill for entrepreneurs and small businesses across the country. At this point, I would encourage support for the amendment.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, pursuant to House Resolution 609, I call up the bill (H.R. 2201) to amend the Securities Act of 1933 to exempt certain micro-offerings from the registration requirements of such Act, and for other purposes, and ask for its immediate consideration in the House.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, we know that, unfortunately, after 8 years of bad economic policies from the Obama administration, working people did not receive a pay increase. We know that we had one of the lowest labor participation rates in modern history. We know that the economy was limping along at 1\1/2\ to 2 percent economic growth.

But, fortunately, Mr. Speaker, a new day has dawned and now, all of a sudden, we see that, with the policies of Republicans in Congress, with the policies of the Trump administration, we are seeing promising signs. What we are seeing all of a sudden now is 2 quarters, Mr. Speaker, of 3-plus percent economic growth. This means a difference to working families. They are finally seeing increases in their paychecks, increases in their take-home pay.

That is why one of the most exciting policies that are being worked upon today that we hope to see soon is fundamental, pro-growth tax reform for the entire American economy; one that would grow our economy and that makes a Tax Code fairer, flatter, simpler, more competitive; one that would lower rates for families and allow 90 percent of Americans to fill out their forms on something akin to a postcard; something that would help our small businesses and entrepreneurs.

I look forward, Mr. Speaker, to having that legislation on the floor soon. But we have legislation today that is also important to our small businesses and our entrepreneurs, H.R. 2201, by the gentleman from Minnesota.

What is so important about this legislation, Mr. Speaker, is that it would allow our entrepreneurs and our small businesses to more effectively be able to reach out to family and friends to get the needed capital to start their businesses.

A 2014 survey by the Kauffman Foundation found out that over 28 percent of startups raise their funding from their personal network. Mr. Speaker, we have a challenge, and that is the Securities Act does not clearly define what is a public offering or, conversely, a nonpublic offering. So this makes it very difficult for our early-stage entrepreneurial growth companies to go out and do any kind of private placement to raise funds from friends and family.

Now, we know that a private placement is already something that is established in law. But what isn't established is a bright line, safe harbor for these business enterprises to go out and raise these funds.

So what we also know, unfortunately, from our Securities and Exchange Commission is that a registered offering is simply not economically

feasible for a small business, an entrepreneur, an issuer who is seeking to raise less than $1 million.

So too often, Mr. Speaker, we have a number of these enterprises that, frankly, just never get jump-started because they don't have the opportunity for a private offering. That is why it is so important.

I want to thank the gentleman from Minnesota (Mr. Emmer) for his leadership in bringing this legislation to the House floor today.

So it is a simple piece of legislation. Again, it simply allows a bright line, safe harbor for very small offerings. It requires that each purchaser has a substantive preexisting relationship with an officer, director, or shareholder of the issuer.

The issuer must reasonably believe that there are no more than 35 purchasers of the securities, and the aggregate amount of all securities sold by the issuer cannot exceed $500,000 in a 12-month period.

So, Mr. Speaker, we are talking about a very small portion of startups, but a very vitally important section of our startups that need capital.

Mr. Speaker, a few decades ago there was a company where a gentleman borrowed money from his father to import Japanese sports shoes, and he purchased 200 pairs of these Japanese sports shoes. He started a business called Blue Ribbon Sports, and today we know it as Nike.

A few decades ago there was an investor out in Omaha, Nebraska, who borrowed money from seven friends and family members, including his sister Doris and Aunt Alice. Over the next 9 years, this initial investment grew, and this gentleman purchased something called Berkshire Hathaway, the textile company that has now led to the Berkshire Hathaway empire.

In 1994, there was a gentleman who took a loan from his parents, moved to a two-bedroom, small apartment, and launched a company called Amazon.

We want to make sure that the next Berkshire Hathaway, the next Amazon get launched, and that is why it is so critical we enact H.R. 2201.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks and submit extraneous material on the bill under consideration.

Mr. Speaker, I yield 5 minutes to the gentleman from Minnesota (Mr. Emmer), the sponsor of the legislation and an outstanding member of the Financial Services Committee.

Mr. Speaker, I yield an additional 30 seconds to the gentleman from Minnesota.

Mr. Speaker, I yield myself 30 seconds, just to say, as I listen to the gentleman from Rhode Island and the ranking member, their comments are very interesting, but everything they described is already illegal. Their remarks acknowledge that the SEC can and does bring actions to enforce the securities laws and shut down fraud when they discover the fraud.

Nothing in H.R. 2201 eliminates the DOJ's ability to pursue criminal prosecutions or fraud. Nothing in it impacts the SEC's ability to pursue civil actions against issuers who engage in fraud under section 17(a) of the Securities Act of 1933. It is just a red herring. It is one of the reasons we have had such poor economic growth under the Democratic regime.

Mr. Speaker, I yield 3 minutes to the gentleman from Missouri (Mr. Luetkemeyer), chairman of the Financial Institutions and Consumer Credit Subcommittee of our committee.

Mr. Speaker, number one, I was very pleased to hear one of the most compelling indictments of 8 years of the Obama administration I have ever heard on the House floor, and I thank the ranking member for it.

Mr. Speaker, I yield 3 minutes to the gentleman from Pennsylvania (Mr. Rothfus), who is the vice chairman of the Financial Institutions and Consumer Credit Subcommittee.

Mr. Speaker, I yield 3 minutes to the gentleman from Colorado (Mr. Tipton), who is the vice chairman of the Oversight and Investigations Subcommittee.

Mr. Speaker, I yield myself 10 seconds just to say I heard the word ``protection'' often used by my friend, the ranking member, but she and her friends on the other side of the aisle had 10 years to protect paychecks, protect savings, and protect economic opportunity and the American Dream, and they failed miserably.

Mr. Speaker, I yield 2 minutes to the gentleman from Ohio (Mr. Davidson), a member of the Financial Services Committee.

Mr. Speaker, I yield 2 minutes to the gentleman from Indiana (Mr. Hollingsworth), another member of the Financial Services Committee.

Mr. Speaker, I yield 2 minutes to the gentleman from South Carolina (Mr. Norman), he is not a member of the Financial Services Committee, but we would be proud if he were.

Mr. Speaker, I yield 1 minute to the gentleman from Wisconsin (Mr. Duffy), the chairman of the Housing and Insurance Subcommittee.

Mr. Speaker, I yield an additional 30 seconds to the gentleman from Wisconsin.

Mr. Speaker, I yield myself the balance of my time.

Mr. Speaker, as always, I listen very carefully to my friend, the ranking member. I know that she started off her closing remarks by saying: We don't need this bill, H.R. 2201, because the big banks can loan to the small businesses.

Well, that is fascinating to me, Mr. Speaker, because of the Dodd- Frank Act, which she so jealously supports, all of a sudden, the risk- based capital standards say that the banks have to reserve more for small business loans than they do for sovereign debt and municipal debt.

So all of a sudden, it is because of Dodd-Frank. In addition, we know that the ranking member supports the Federal Reserve policy of paying interest on excess reserves where the Federal Reserve takes taxpayer money to pay the big banks not to loan money. So if the ranking member was curious why the big banks aren't loaning to the small businesses, which they aren't--and prior to the Trump administration, we know that small business lending by banks was at a 25-year low--it is the very reason, Mr. Speaker, that we need the bill, the legislation of the gentleman from Minnesota (Mr. Emmer) so that we can unlock this.

Again, there is no surprise why, after 8 years of Obamanomics and the thinking from my friends on the other side of the aisle, small businesses have languished and why the economy has dropped down to a 1\1/2\ to 2 percent GDP growth. In fact, I think President Obama is one of the few Presidents in American history never to enjoy a year of 3 percent economic growth.

Now, he may personally have enjoyed it, but the American people didn't, Mr. Speaker. But the good news is that there is a change in administration and a change of attitude. That is why it is so important that we be able to get capital to our entrepreneurs, to our small businesses. Let them thrive again on Main Street.

We hear so often the ranking member decry Wall Street. We are talking about offerings of a half a million dollars. No on in Wall Street would touch that with a 10-foot pole. This is about Main Street, not Wall Street, Mr. Speaker.

It is interesting, as I listen to my friend, the ranking member, decry the fact that someone might be able to raise capital under this particular set of circumstances. Well, I have a news flash for all my colleagues. Already the SEC can grant a private offering for exactly the set of circumstances that my friend, the gentleman from Minnesota, puts into his bill. All the gentleman is doing is creating a bright line, safe harbor, so that the next Nike or the next Amazon isn't stopped from launching their enterprise by having to spend a million dollars on lawyers and accountants trying to navigate this uncertain murky labyrinth of SEC waters trying to determine what is a private offering and what is a public offering. That is all he is doing.

Again, this is already legal. It simply is discretionary to decide what is a private offering and what is a public offering by the Securities and Exchange Commission.

We now, Mr. Speaker, have had two quarters of 3-plus percent economic growth. We are seeing working Americans. We are seeing their paychecks increase yet again. We are seeing hope and resilience in the American Dream yet again, but we have so much more work to do, and that is why H.R. 2201 is so critical.

It takes small businesses today to be the big businesses of tomorrow. They are the creators. They are the job engine of America. They are the drivers of increased paychecks, greater economic opportunity, and a bigger, bolder American Dream. I thank the gentleman from Minnesota for this great legislation. I encourage all of my colleagues to adopt it.

Mr. Speaker, I yield back the balance of my time.