(Ed. Note: This story was updated to note that the House Committee on Financial Services will be marking up this bill.)
Rep. Patrick McHenry, R-N.C., Deputy Republican Whip and member of the House Financial Services Committee, has introduced the Equity Crowdfunding Improvement Act of 2014 into the House of Representatives.
The bill, H.R. 4564, is aimed at ensuring investor protections while reducing bureaucracy. It would also increase the amount a company could raise through crowdfunding.
The JOBS Act of 2012 included two provisions for crowdfunding. Title II, which allows entrepreneurs to engage in general solicitation, came into effect last year, allowing companies to publicly share and advertise that they are looking for investments.
Title III, which would allow companies to raise capital from non-accredited investors, has been mired in a review of more than 500 proposed rules by the SEC since last October.
Under these controversial rules, a company could raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
Investors with both annual income and net worth less than $100,000 could invest the greater of $2,000 or 5% of their annual income or net worth over the 12-month period, while those with more than $100,000 of annual income and net worth could invest the greater of $5,000 or 10%.
Companies conducting a crowdfunding offering would be required to file certain information with the SEC that critics say is onerous.
This documentation would include information about a company’s officers, directors and owners, information about the offering and disclosures of its financial condition along with financial statements accompanied by audited tax returns.
Title III’s proposed investor protections—most of which are uncontroversial—provide that crowdfunding transactions take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal.
Intermediaries would have to do the following:
- Provide investors with educational materials
- Take measures to reduce the risk of fraud
- Make available information about the issuer and the offering
- Provide communication channels to permit discussions about offerings on the platform
- Facilitate the offer and sale of crowdfunded securities
Funding portals would be prohibited from offering investment advice or making recommendations, soliciting purchases, sales or offers to buy securities offered or displayed on its website. They could not impose restrictions on compensating people for solicitations, nor could they hold, possess or handle investor funds or securities.
McHenry’s Bill and Prospects