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Bill to Expand Definition of ‘Accredited Investor’ Sails Through House of Representatives

The House of Representatives overwhelmingly passed a bill on Monday in a 391-2 vote that could reduce regulations on small businesses, increase access to capital, and amend the definition of accredited investor under Regulation D rules.

The Creating Financial Prosperity for Businesses and Investors Act (H.R. 6427), sponsored by Rep. Scott Garrett (R-NJ), seeks to change various laws administered by the Securities and Exchange Commission. The bill is a compilation of six Financial Services Committee measures that previously passed the House with bipartisan support.

“The Creating Financial Prosperity for Businesses and Investors Act can make a positive difference in people’s lives and help build a healthier economy with more opportunities for all,” said Chairman Jeb Hensarling (R-TX). “I am proud to see another important piece of bipartisan Financial Services Committee legislation pass the House.”

The vote was taken under a House procedure called “suspension of the rules” which is typically used to pass non-controversial bills. Votes under suspension require a two-thirds majority.

One of the bipartisan bills included in the roll-up is the Fair Investment Opportunities for Professional Experts Act (H.R. 2187), sponsored by Rep. Schweikert (R-AZ) and Rep. Kyrsten Sinema (D-AZ).

H.R. 2187, which passed the House in a 347-8 vote in February, seeks to amend the definition of an accredited investor to include licensed brokers or investment advisers, regardless of their income or net worth.

In addition, those with professional knowledge relating to a particular investment can also participate in private placements if qualified based on education history or job experience.

Currently, all accredited investors must have an individual income of $200,000, a joint income of $300,000, or a net worth that exceeds $1 million – not including a primary residence.

The Creating Financial Prosperity for Businesses and Investors Act also includes the following:

The SEC Small Business Advocate Act (H.R. 3784) introduced by Reps. John Carney (D-DE) and Sean Duffy (R-WI) passed the House unanimously on February 1, 2016. The bill establishes the Office for Small Business Capital Formation within the SEC to assist small businesses and their investors to resolve significant problems with the SEC or self-regulatory organizations.

The Supporting America’s Innovators Act (H.R. 4854) introduced by Rep. Patrick McHenry (R-NC) passed the House by a vote of 388 to 9 on July 5, 2016. The bill amends an exemption from registration under the Investment Company Act of 1940 by increasing the investor limitation from 100 to 250 persons for a qualifying venture capital fund. A qualifying venture capital fund may not purchase more than $10 million in securities in any one issuer, adjusted for inflation.

The Fix Crowdfunding Act (H.R. 4855) introduced by Rep. Patrick McHenry (R-NC) passed the House by a vote of 394 to 4 on July 5, 2016. Among other things, the bill raises the dollar amount limit on funds that can be invested by special crowdfunding vehicles and clarifies certain requirements and exemptions for issuing companies

The Small Business Capital Formation Enhancement Act (H.R. 4168) introduced by Rep. Bruce Poliquin (R-ME) and Rep.Juan Vargas (D-CA) passed the House by a vote of 390 to 1 on February 1, 2016. The bill requires the SEC to respond to any findings and recommendations put forth by the Securities and Exchange Commission’s annual Government-Business Forum on Small Business Capital Formation.

The U.S. Territories Investor Protection Act (H.R. 5322) introduced by Rep. Nydia Velazquez (D-NY) passed by voice vote on July 11, 2016. The bill amends the Investment Company Act to terminate an exemption for investment companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States. Under current law, such entities are exempt so long as they sell their shares only to the residents of the territory or possession in which they operate. The bill provides a 3-year safe harbor for investment companies that currently enjoy this exemption. Additionally, the bill authorizes the SEC to further delay the effective date for a maximum of three years following the initial 3-year safe harbor.

Rep. Michael Capuano (D-MA) and Rep. Stephen Lynch (D-MA) voted against the measure, which is expected to reach the Senate before the end of the year.

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