Securities Sales: Raising the Dollar Threshold for Additional Disclosures to Investors (H.R. 4571)

What is H.R. 4571?

(Updated January 31, 2017)

This bill deals with a company selling securities to its own employees. Two terms to know here are "issuers" and "aggregate." Issuers are any legal entity that develops, registers and sells securities for the purpose of financing its operations. Aggregate is the combination of several small investments treated as a single, large investment. Currently, if an issuer sells, in the aggregate, more than $5 million of securities in any consecutive 12-month period, the issuer is required to provide additional disclosures to investors, such as risk factors, the plans under which offerings are made, and certain financial statements. This bill would change the amount to $20 million, and adjust the amount for inflation every five years. 

companies can offer their own securities as part of written compensation agreements to employees, directors, general partners, trustees, officers, or certain consultants without having to comply with federal securities registration requirements. Under Rule 701, if total sales (not offerings) of stock during a twelve-month period do not exceed the greater of:

1. $1 million,

1. 15% of the issuer's total assets, or

1. 15% of all the outstanding securities of that class,

then the offerings are exempt from registration requirements. The offerings must be discrete (not included in any other offer). All optionees and shareholders must be provided with a copy of the benefit plan or contract under which the options or securities are granted. For total sales over $5 million during a twelve-month period to the specified class of people above, companies must disclose additional information, including risk factors, copies of the plans under which the offerings are made, and certain financial statements.

Argument in favor

Encouraging employees to own a stake of the company they work for promotes both pride and growth. (However, they can already as is.)

Argument opposed

Makes it too easy to manipulate a stock price by simply making your friends "advisors," selling the stock to them, and letting unwitting investors think big moves are happening. Promotes corporate trickery.

Impact

The bill impacts companies looking to sell securities to its employees, most often for compensation reasons.

Cost of H.R. 4571

A CBO cost is unavailable.

Additional Info

Of Note: