U.S. House Approves Looser SEC Rules for Closely Held Firms

The U.S. House passed two measures aimed at removing barriers to investments in closely held firms, including a proposal President Barack Obama’s administration backed in its jobs package.

House lawmakers voted 407-17 to pass a measure that would exempt from Securities and Exchange Commission registration firms that solicit and pool small investments, often online, of up to $1 million. The practice, known as crowdfunding, garnered bipartisan support after Obama’s Sept. 8 speech to Congress.

“What we’re doing is giving investors the power, the opportunity and relieving this restriction that prevents them from having an equity stake in their favorite business, their favorite idea, their local coffee shop, their favorite band or even the next Facebook,” Patrick McHenry, a North Carolina Republican and the sponsor of the measure, said on the House floor before the vote.

Lawmakers in the Republican-led House have found bipartisan consensus this week on four measures that would loosen SEC rules.

Representative Kevin McCarthy, the third-ranked Republican in the House, sponsored a second bill passed today that would allow closely held firms to market offerings to accredited investors. The SEC currently bans closely held firms from soliciting funding from investors.

“This opens up a whole new group of capital for someone that has an idea, even if they don’t have a prior relationship,” McCarthy, of California, said today in an interview. “If you have an idea, you have another opportunity to try to raise capital to go to the market.”

The House passed the measure 413-11.


Both measures now move to the Senate, where lawmakers have yet to consider similar legislation. McCarthy said he hoped the bipartisan support would serve as the impetus for action in the other chamber.

Both measures have drawn opposition from state securities regulators, with McHenry’s crowdfunding proposal originally drawing objections from Democrats on the Financial Services Committee. The sponsors agreed to changes that would give states notifications of offerings and allow state regulators to continue to take enforcement action against fraud or unlawful content.

“We need to have protection for investors as businesses seek to form and develop capital,” Representative Ed Perlmutter, a Democrat from Colorado, said today on the House floor.

McHenry’s measure would allow companies to raise up to $2 million if they provide audited financial statements to regulators. Investors would be able to contribute up to $10,000 or 10 percent of their annual income, whichever is less.

The White House, in a statement of administration policy yesterday, said the bill is “is broadly consistent” with the president’s proposal.

“This bill will make it easier for entrepreneurs to raise capital and create jobs,” the Office of Management and Budget said in the release.

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