On July 17, 2018, in a 406-4 vote, the U.S. House of Representatives passed the JOBS and Investor Confidence Act of 2018, commonly referred to as the JOBS Act 3.0 (the Bill). The Bill combines provisions of 32 individual pieces of legislation that passed the House or the House Financial Services Committee.
In a press release, the Committee stated that, in order to foster economic growth and to remain competitive with countries like China, the Bill, among other things, would “ease regulations on ‘angel investors’ and expand the definition of ‘accredited investors’ to make it easier for startup companies and small businesses to attract investments needed to grow and create jobs; make it easier for companies to go public by extending on-ramp exemptions for emerging growth companies to give them more time to financially sustain costs and requirements associated with full compliance; ease securities regulations on IPOs to increase opportunities for everyday investors; and cut red tape on asset managers so that Main Street investors don’t have to shoulder the costs of burdensome, unnecessary regulations.”
Notably, the Bill incorporates certain provisions of interest to the investment management industry, including the following:
H.R. 79, Helping Angels Lead Our Startups (HALOS) Act
These provisions would define “angel investor group” for purposes of the federal securities laws and exclude from the prohibition on “general solicitation” and “general advertising” of securities offerings under Regulation D under the Securities Act of 1933 (the 1933 Act) presentations at certain events made by issuers in which no specific securities offering is referenced, including events sponsored by angel investor groups. As noted by Chairman Hensarling, these provisions are intended to “stimulate venture capital” by allowing angel investors and entrepreneurs to “interact without running afoul of securities laws.”
H.R. 1585, Fair Investment Opportunities for Professional Experts Act
These provisions would broaden the definition of “accredited investor” under the 1933 Act, with conforming amendments to Regulation D under the 1933 Act, in order to expand the pool of investors who can invest in private offerings. Specifically, the revised definition provides for an automatic inflation adjustment to the $1,000,000 net worth requirement and includes, as a new category of accredited investor, “any natural person the [SEC] determines, by regulation, to have demonstrable education or job experience to qualify such person as having professional knowledge of a subject related to a particular investment, and whose education or job experience is verified by [FINRA] or an equivalent self-regulatory organization.” Notably, this new category of accredited investor, unlike the current categories, focuses exclusively on the investor’s experience and expertise, rather than on the investor’s income or net worth.
H.R. 4566, Alleviating Stress Test Burdens to Help Investors Act
These provisions are partially incorporated into the Bill and would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) to exempt nonbank financial companies not under the supervision of the Board of Governors of the Federal Reserve System, including mutual funds and investment advisers, from the Dodd-Frank Act’s stress-testing requirements, in an effort to relieve such entities of burdensome requirements that are “structured and designed for banks and do not appropriately reflect risks to nonbanks.” These provisions would still allow, but not require, the SEC and the Commodity Futures Trading Commission to issue regulations requiring stress-testing. (The Alleviating Stress Test Burdens to Help Investors Act was described in our April 2018 issue, after passing the House in March 2018.)
The Bill will next go to the U.S. Senate for consideration.
The text of the Bill is available at: https://www.congress.gov/bill/115th-congress/senate-bill/488/text