Fair Investment Opportunities for Professional Experts Act

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

Mr. Speaker, I rise in support of H.R. 835, the Fair Investment Opportunities for Professional Experts Act sponsored by the gentleman from Arkansas (Mr. Hill). This bill passed the committee by voice vote. I was there. I didn't hear a single ``no'' vote.

This bill deals with the overall process of investing in stock being sold by the company to investors to raise

money. We see this happen through public offerings, and most of us one way or another or through a pension plan are invested in publicly traded stocks.

The process for a company to go public is an expensive one, and so smaller companies also do private offerings.

We have a process of restricting investments in these private offerings to those who can afford and understand the risks and those who understand that they can't necessarily sell the security that they have purchased readily.

We do need a framework for accredited investors who are allowed to buy in these private offerings. Up until now, our definition of accredited investor has focused too much on wealth or income of the investor and not on the expertise of the investor.

This bill, I think, moves us in the right direction as far as allowing those with expertise to invest. I also look forward to narrowing the definition of those or eliminating those from investing solely because they are wealthy. Just because you have a million dollars does not mean that you have understanding or knowledge.

The accredited investor framework protects the general public from being sold high-risk, illiquid private securities. This is because private securities do not come with anywhere near the same level of financial or other disclosures to investors that public securities do. Nor do private securities come with the same legal protections for investors and oversight from the SEC and State regulators as compared to public securities.

Finally, they don't come with the same level of liquidity and ability to sell or a posted price where you can be assured that there is a big public market, and you know what the fair price is.

Both accredited investor bills being considered on suspension today aim to return to this concept of accredited investor but focus on the knowledge of the investor as to the high-risk nature of the private security offering.

We all know that just because you have a million dollars does not mean you understand the complexities of the private markets.

Conversely, you should not be prohibited from investing in these products if you do have knowledge of the risks involved but don't happen to have a million dollars.

This is why it is so important for the SEC to update its definition of accredited investors to protect investors who are not sufficiently informed while creating pathways for those who are or those who make themselves sufficiently knowledgeable.

Mr. Hill's bill would allow individuals with certain credentials, such as an MBA or a FINRA certification--that is a certification from the Financial Industry Regulatory Authority that would allow one to actually be a broker-dealer. People who meet those two qualifications would be deemed accredited investors without reference to their income or wealth.

I am under no illusion about the riskiness of these products. We will all hear the stories. Every friend I have who goes to Vegas and tells me about it, comes back saying they won everything. I have nine other friends who go to Vegas. They never tell me how well they did.

Likewise, we all will hear about somebody who invested in Apple at the beginning, but nobody talks about their investment in pear, tangerine, or kumquat.

This is an opportunity to make a lot of money. It is also an opportunity to lose a lot of money. I believe that the reforms to the definition of accredited investors are necessary and fair, and this bill is a reasonable expansion of the definition of people who can be expected to have the requisite knowledge or expertise to make an informed investment about the very risky private securities.

I support this bill. Every voice on the committee supports this bill, and I urge my colleagues to vote for it.

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

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

The accredited investor framework is in need of improvement. Today, millions of families can be targeted to invest in high-risk, illiquid, nontransparent financial products solely because of the inflated value of their assets, putting at risk their ability to live comfortably in retirement. At the same time, others who are knowledgeable are prevented from investing.

When the accredited investor framework was first established by the SEC in 1982, less than 2 percent of our population could be solicited by broker-dealers or companies raising capital on the basis of their income or on the basis of their assets.

Today, that has risen to 20 percent. That is not because investors are more knowledgeable and it is really not because there are more investors who can afford to take major losses. It is simply because we have had a lot of inflation since 1982, and so you can meet the asset requirements with real estate and your retirement nest egg.

To be clear, no one thinks that the amount you need for your retirement in 2023 is the amount you needed in 1982. That is why the SEC needs to revise the thresholds to better protect working families.

That said, Mr. Hill's bill is sensible. It would return to the original concept of the accredited investor, focusing on investors who are knowledgeable about the risks of private securities.

I would also point out that while we are protecting investors, another function of our securities laws is to help companies raise capital and, obviously, this bill will help many companies to raise the capital they need to expand; so I believe that is a balanced bill.

I look forward to other steps to change the accredited investor framework. I urge my colleagues to support this bill, and I yield back the balance of my time.

Mr. Speaker, this is an issue that is near and dear to me, having spent virtually my entire legislative career on the Capital Markets Subcommittee, including a time as the chair and ranking member, and this is something that many of us have been working on for a long time.

Thanks also to Chairman McHenry for setting out an ambitious agenda to strengthen and expand access to our capital markets.

The legislation being considered here today, both the previous bill, H.R. 835, and my bill, H.R. 1579, make good on this promise while increasing opportunity for small businesses, as well as investors in Michigan's Fourth Congressional District and across America.

Under Gary Gensler, the Securities and Exchange Commission continues to blow past their longstanding three-part mission to protect investors; maintain fair, orderly, and efficient markets; and to facilitate capital formation with a number of other things that are well beyond that. We are here today to refocus the SEC on its core mission to help more Americans participate in our capital markets.

During our bipartisan effort, we have heard uplifting stories from Americans who inspire a new generation of entrepreneurs.

Look, we all know some very hardworking, middle-income folks who know how to manage their money and manage their money well. Frankly, we probably all also know stories of wealthy people who, frankly, don't have a clue financially, and I would never turn over our money to them to manage or to invest.

So let's talk about a couple of those people in the first category. I start, first, with a woman named Omi Bell. Omi Bell founded Black Girl Ventures, an organization focused on providing women of color with access to community networks, capital, and capacity building to develop and grow their businesses. Omi does that right here in Washington, D.C.

Omi testified before our Subcommittee on Capital Markets that her mother invested $10,000 of her own retirement to support Omi's first business venture. Yet her mom was not considered an accredited investor and, despite her desire to support her daughter's ambitions, she could have been disallowed from investing in that.

We also heard testimony from David Olivencia. He is the CEO and cofounder of Angeles Investors, who, while earning his MBA from Notre Dame, learned about startups and how early-stage investments could lead to outsized returns.

Unfortunately for David, as he told his story, he said he did not qualify as an accredited investor because his immigrant family did not have wealth that he could inherit.

That is a horrible way, Mr. Speaker, to decide whether someone should or can invest in a dream and in something that they know about. I can tell you this: Both Omi and David are all too common in the investment world. While innovators often turn to their local communities for support, they often lack the ability to reach those investors, those truly accredited investors, who can make a huge impact.

Mr. Speaker, under current law, accredited investors are allowed to purchase securities that have not been registered with the SEC. These types of offerings carry more risk than public offerings. In theory, individuals with enough financial sophistication or net worth--again, those are two different things--can bear the potential losses that may be associated with these types of securities.

My bill, the Accredited Investor Definition Review Act, would require the SEC to incorporate ``certifications, designations, or credentials that further the purpose of accredited investor definition.''

The bill would expand investment opportunities for knowledgeable investors and provide small business job creators with additional sources of funding.

The current definition the SEC uses to identify accredited investors is outdated and based solely and wrongly on wealth and net income. You shouldn't have to be a millionaire to be an accredited investor.

The ability to participate in a private offering should not be limited to individuals that pass some sort of Federal Government assets test. Instead, participation should be expanded to include all individuals that can demonstrate they have sufficient understanding of the offering.

Mr. Speaker, my legislation is about leveling the playing field. Do you see the theme, by the way? The theme from the Republicans and, I believe, many on the other side is this: We want to make sure that we allow all Americans to participate in our economic system.

So whether it is in Kalamazoo or Portage, whether it is in Benton Harbor or St. Joe, or Battle Creek or in Springfield, investors should be able to support small business startups in their local community across southwest Michigan and around the Nation.

I look forward to continued bipartisan support for this issue. I thank the chairwoman of the Subcommittee on Capital Markets and the ranking member, Mr. Sherman, as well as Representative Lawler, for their work. I look forward to getting this across the finish line and helping the American people and American small businesses.

Mr. Speaker, I rise in support of H.R. 1579, and I yield myself such time as I may consume.

The Accredited Investor Definition Review Act is, of course, sponsored by the gentleman from Michigan. The accredited investor definition is out of date and needs changing. A lot of these comments relate to the comments I made on the previous bill.

The current definition is based on wealth, which is not really a proxy for an individual's knowledge or experience. It may, in part, be a proxy for their ability to absorb losses; but the wealth standard was established in 1982 and hasn't been revised, so it was either wrong then or it is wrong now.

Further, the amount of wealth required to meet the accredited investor threshold, of course, has been eroded and, as I said speaking of the prior bill, has gone from 2 percent of our Nation to 20 percent of our Nation.

So we need to define who Wall Street can sell risky and illiquid products to, and not those who have created a nest egg, which is so much smaller than the nest egg in terms of purchasing value that we required when these standards were developed.

The SEC may establish a definition to protect working families from these

high-risk products, while allowing those who are knowledgeable to make the investment.

Mr. Huizenga's Accredited Investor Definition Review Act reaffirms the authority of the SEC to review the credentials that will qualify an accredited investor and update the list of credentials. This ensures that the definition is not stagnant and changes with the times.

As a result, more investors will have access to private markets while ensuring that they have the adequate knowledge base to understand the risks involved.

I would add that perhaps wealth shouldn't be an entryway to investments. It should be exclusively based on one's knowledge. If we did that, we would want to look not only at the knowledge of the investor, but the knowledge of their advisers, but only if those advisers were truly independent, because an investor being advised by someone who earns a commission or someone who gets referrals from the promoter is not a truly independent adviser.

So this bill moves us forward to doing something that should have been done many years ago. We are stuck with rules drafted in 1982. This bill requires the SEC to begin the process of revising those rules. I urge my colleagues to vote ``yes'' on this important bill.

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

Mr. Speaker, I have no further speakers and I am prepared to close. I yield myself the balance of my time.

I want to respond to the comments from the gentleman from Michigan to some degree. I think I speak for the majority of the Democratic Caucus that we have a balanced view. We want investor protection, and we want investments to be made in private offerings by those who understand the risk and understand the company they are investing in.

The idea that we would open the door to every investment and allow an unlimited number of people with no particular expertise or meeting other standards would mean that we wouldn't have any initial public offerings. Every company would become a public company. We wouldn't have an SEC. That is not where we want to go.

This bill is consistent with that balanced view. The gentleman from Michigan also says he thinks the SEC is being distracted and is not carrying out its core mission.

Just today, they went after a crypto exchange, and I can't think of anything more essential to their core mission.

Another controversy is whether investors in public companies will be given information about the environmental and carbon effects of the company. Many investors want that information, and giving investors information that many of them want is a core definition of the SEC.

Finally, the gentleman from Michigan puts forward a very inaccurate view of our current law. It is not true that you can't invest in your brother-in-law's pizzeria unless you have a million dollars in net worth. If that were true, I couldn't get a pizza on Ventura Boulevard.

The fact is that we do allow up to 35 unaccredited investors in private offerings, and the vast majority of what we think of as the really small businesses, the ones up and down Ventura Boulevard--the pizzeria, the restaurant, whatever--fit into that category.

We do have a securities law system that works pretty well. We can improve it. This bill does that. The SEC should amend its accredited investor definition to better protect investors and retirees from being solicited for high-risk, unsustainable products just because they meet an asset threshold that hasn't been revised in 40 years.

I urge the SEC to review that asset threshold as part of the periodic review required by this bill.

Mr. Speaker, I urge my colleagues to support this bill and to support a balanced investor protection regime, and I yield back the balance of my time.

Mr. Speaker, I certainly thank Chair Wagner and Ranking Member Sherman for their strong words of support for my bill, the Fair Investment Opportunities for Professional Experts Act, which, as Ranking Member Sherman noted, passed out of our committee unanimously by voice vote, but it also has passed this House of Representatives, Mr. Speaker, twice already.

Most Americans are prohibited from investing in a wide variety of businesses. Unless you are rich enough, or what is called by the SEC, an ``accredited investor''--meaning that you make more than $200,000 per year or you are worth at least a million dollars, not including your house--you are not really allowed to easily invest in private markets, only in our public companies.

Meanwhile, new businesses are staying private for longer because bad policy from Washington has made it increasingly expensive for companies to become public, to go public, and to remain a public company.

In my view, Mr. Speaker, that is not fair, and it is not smart. The current accredited investor rules favor the rich and the affluent over people who have knowledge, that are working maybe in their own area of expertise, and then it effectively discriminates against someone who would be poor or potentially in a minority community.

In fact, the Securities and Exchange Commission argues that 1.3 percent of accredited investors are African American, and only 2.8 percent are Latino, even though they make up a third of our country.

Are you telling me they don't have the investment expertise or the knowledge to invest in a company they are interested in? Of course, they do.

Small businesses and startups in Arkansas and across the country are integral to our Nation's economic growth, innovation, and job creation.

From my years of experience in helping small firms raise capital, I know this bill will enhance capital formation and offer long-term wealth appreciation for those with the knowledge to apply it.

This legislation simply provides individuals who demonstrate a strong understanding of an offering the opportunity to invest in private offerings. This is good for Arkansas and good for entrepreneurs across our country.

This is about giving those previously limited to only investing in public market opportunities a chance to build savings and investment and wealth in private companies.

If you have the knowledge and expertise, you ought to be given the chance to invest in an industry that you know very well.

Mr. Speaker, I thank the gentleman from California (Mr. Vargas) as well as the gentleman from Arizona (Mr. Schweikert), an original cosponsor of this bill, for their support of this legislation. I thank the ranking member and the chairwoman for their support, and I urge all my colleagues to vote for this bill.

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 835) to amend the Securities Act of 1933 to codify certain qualifications of individuals as accredited investors for purposes of the securities laws, as amended.

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

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

Mr. Speaker, I rise in support of H.R. 835, the Fair Investment Opportunities for Professional Experts Act.

I thank my colleagues from both sides of the aisle, Congressmen Hill, Schweikert, Vargas, and others, for working on this important piece of bipartisan legislation that will expand the pool of eligible investors who can build wealth through private placements. The current ``accredited investor'' definition restricts access to investments in private markets to a select few, largely based on income or net worth. This excludes many individuals who have other types of expertise or experience that would make them sophisticated investors.

According to SEC estimates, only 13 percent of U.S. households actually qualified as accredited investors in 2016, and only a small percentage of accredited investors are Black or Latino. This shows that the current definition disproportionately excludes minorities from accessing investment opportunities.

H.R. 835 expands the definition to include individuals with certain licenses, educational qualifications, or job experience, opening up more investment opportunities for those who are knowledgeable in specific fields. I should also note that this bill passed on suspension by voice vote in the 115th Congress.

Mr. Speaker, passing H.R. 835 will help level the playing field for minority entrepreneurs who often struggle to secure funding due to lack of access to accredited investors. It will also help diversify the pool of eligible investors, providing more investment opportunities but also unlocking new sources of innovation and economic growth.

Mr. Speaker, for this reason, I urge my colleagues to support H.R. 835, and I reserve the balance of my time.

Mr. Speaker, I yield such time as he may consume to the gentleman from Arkansas (Mr. Hill), the author of this bill, who is also the chairman of the Digital Assets, Financial Technology and Inclusion Committee.

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

Mr. Speaker, I would just simply urge my colleagues to support H.R. 835, and I yield back the balance of my time.