The Senate this week passed H.R. 3606 — colloquially referred to as “the JOBS Act” or “the crowdfunding bill” — on a 73-26 vote. The package, which loosens a number of federal regulations, will allow startups and small businesses to solicit investments via the Internet.
The Senate also approved an amendment from Senators Jeff Merkley (D-OR) and Scott Brown (R-MA) on a 64-35 vote. The S. 1884 amendment includes a number of safeguards for investors: it requires publicly audited financials for companies seeking over $500,000, additional accountability for companies, industry registration for funding portals, scalable investment caps for investors, a three-week waiting period after funding closes (before funds are received) to uncover potential fraud, and disclosure of capital-raising fees. (Click here for more details on the Merkley-Brown amendment.)
The House voted 380-41 to concur on H.R. 3606 with the Senate amendment, sending it to the President’s desk. His signature will make crowdfunding the law of the land and direct the SEC to begin drafting regulations.
The bill, crafted by politicians in both parties and endorsed by the Obama administration, was hailed as a bipartisan success in this staunchly divided political climate. “The JOBS Act is a great example of the type of legislation we should all be able to agree on,” said Senate Minority Leader Mitch McConnell (R-KY).
Praise quickly followed from the business community:
“This was a key recommendation of the President’s Council on Jobs & Competitiveness last year, and it has been gratifying to watch Democrats and Republicans come together in a bipartisan manner to support crowdfunding and an on ramp for IPOs,” wrote Steve Case, the AOL founder who now serves on the President’s Council on Jobs & Competitiveness.
Karen Kerrigan of the Small Business and Entreprenuership Council also applauded the Senate vote, but voiced her opposition to the Merkley-Brown amendment:
“We would prefer that the crowdfunding provision be less onerous and complex, and feel the Securities and Exchange Commission has been given too much reign from a regulatory perspective,” said Kerrigan. “Still, the Merkley amendment to H.R. 3606 was an improved measure from the original Senate bills.”
Kerrigan has been among those lobbying hard for legislation similar to the original McHenry bill, along with others led by Sherwood Niess and Jason Best of the Startup Exemption, which was responsible for crafting and pushing much of the original language for establishing a crowdfunding framework in law.
The bill was not without its detractors, however. “We are about to embark upon the most sweeping deregulatory effort and assault on investor protection in decades,” lambasted Senator Carl Levin (D-MI).
“The risk is that the legal ability to crowd-fund to investors with less than $10,000 will cause charlatans to focus their scams in that direction,” wrote Steve Goldstein in a Marketwatch editorial.
A second amendment to the bill, proposed by Senator Jack Reed (D-RI), failed on a voice vote. It would have tightened the definition of “shareholder” so that companies don’t undercount to avoid SEC registration.
The bill will raise the number of shareholders required for SEC registration from 500 to 2,000. It will also allow smaller companies to sell up to $50 million in shares, as opposed to the present $5 million limit, without filing additional SEC paperwork.