Bills
| 3.23.22

Reforming Crowdfunding Regulations (H.R. 4855)

Do you support or oppose this bill?

What is H.R. 4855?

(Updated July 19, 2017)

This bill would provide several regulatory reforms aimed at making it easier for businesses and individuals to use crowdfunding as a way to fundraise. Crowdfunding is where groups of people pool money that’s usually made up of small individual contributions over the internet to invest in a company or support others’ efforts to accomplish a certain goal.

The crowdfunding exemption from certain prohibitions related to interstate commerce would be raised from $1 million to $5 million for total amount of securities sold to all investors by an issuing company. Crowdfunding platforms that want to disqualify a securities issuer need to have a reasonable basis for doing so, which would include:

  • Making an untrue statement of a material fact;

  • Omitting a fact needed to avoid making misleading statements;

  • Engaging in fraud or deceit.

The company looking to offer securities through crowdfunding would be allowed to ask for non-binding indications of interest from potential investors that may be involved in the prospective offering if:

  • No investor funds are accepted by the issuer;

  • Any material change in the information furnished during the actual offering from the information furnished during the solicitation of interest is highlighted to potential investors in the information filed with the Securities and Exchange Commission (SEC).

Argument in favor

Congress needs to pass this bill to prevent burdensome regulations from standing in the way of investment crowdfunding. With these reforms crowdfunding will be a more attractive fundraising option for businesses, which will help them grow and create jobs.

Argument opposed

There’s no need to make changes to the regulatory structures for crowdfunding at this time. Eventually the changes this bill suggests may need to be considered, but Congress should leave crowdfunding alone so these regulations can take effect.

Impact

People and companies that would participate in investment crowdfunding; state and federal regulators; and the SEC.

Cost of H.R. 4855

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Patrick McHenry (R-NC) introduced this bill to ensure that onerous regulations don’t prevent crowdfunding from becoming a desirable option for small businesses looking to raise funds:

“Today marks a milestone in our efforts to realize the true promise of crowdfunding: allowing the American people to invest in small businesses and innovative ideas they believe in. But there is still more work to be done. The SEC’s nearly 700 page is overly complex and burdensome creating a credibility crisis for investment crowdfunding… I’ve introduced [this bill] which will fix the issues posed by the SEC’s rule by allowing investment crowdfunding to achieve its ultimate goal of helping small businesses across the country grow and succeed.”

This legislation was passed by the House Financial Services Committee on a 57-2 vote.



Media:

Summary by Eric Revell
(Photo Credit: Flickr user neetalparekh)