At her address on January 17 to the liberal Center for American Progress Action Fund, Waters threw plenty of barbs at Trump and his officials from Secretary of Housing and Urban Development Ben Carson to chief of staff (and former Acting Director of the Consumer Financial Protection Bureau) Mick Mulvaney. But her statements on the bipartisan deregulation bills she helped craft give hope that this divided Congress can still help ordinary investors and entrepreneurs by reducing the red tape that hampers investment crowdfunding and encouraging the array of new financial technologies known collectively as fintech. Such legislation is increasingly urgent with an uncertain stock market, as ordinary investors and entrepreneurs are looking for new avenues of raising capital and building wealth.
In her speech, Waters lauded measures she had supported in previous sessions of Congress that would have lifted regulatory barriers to investing and raising capital. After stating at (around 38:00 in the video recording of her speech) that “throughout my career, I have looked for opportunities to build consensus and work across the aisle on common-sense solutions to benefit hard-working Americans,” Waters cited two specific deregulatory measures she helped craft with Rep. Patrick McHenry (R-NC), who is now the ranking minority member on the Financial Services Committee.
These bills were, in her words, “the Fix Crowdfunding Act to boost crowdfunding and enhance investor protection,” and “the Supporting America’s Innovators Act to make it easier for more angel investors to finance startup companies and small businesses.” As she noted, the latter bill became law. It was included as a provision of S. 2155, the bank and credit union regulatory relief legislation signed into law by President Trump in May (although she supported the startup provision, Waters ended up opposing the overall bill, as did most Democrats in Congress).
But even though the Fix Crowdfunding Act and similar measures passed the House overwhelmingly, they languished in the Senate, despite the fact that this body was also under Republican control at the time. The Fix Crowdfunding Act, which cruised through the House in July 2016 with a vote of 394-4, would have increased the size of firms eligible for the crowdfunding exemption enacted in the original JOBS (Jumpstart Our Business Startups) Act signed by President Obama in 2012. This would have enabled more small businesses to raise small amounts of capital from ordinary investors without being subject to the same array of regulations from laws like Sarbanes-Oxley and Dodd-Frank, that apply to Fortune 500 companies. The mandates from these laws force many firms to employ lawyers and accountants at the expense of developing cutting-edge new products and the new jobs to go with them.
The bill, praised by CEI in a 2016 letter to Waters and then-Committee Chairman Jeb Hensarling (R-TX), would have also allowed special-purpose vehicles with lead investors to negotiate with startup entrepreneurs. This is similar to the method in which venture capital and angel investor funds safeguard their investments. Waters was quoted by The Wall Street Journal as saying, “Both of these changes will help to provide investors with a larger choice of high-quality crowdfunding companies and a higher degree of finance savvy.”
After the Senate failed to take action on Fix Crowdfunding Act in the 114th Congress, similar provisions were placed into a bipartisan capital markets deregulation package called the Jobs and Investor Confidence Act. Again this legislation had Waters’ support, and again it passed the House overwhelmingly. Unfortunately, yet again, Senate Majority Leader Mitch McConnell (R-KY) failed to bring this measure to a floor vote in the Senate.
The Senate should rectify its mistake and make the first move. Senate Banking Committee Chairman Mike Crapo (R-ID) sounded the right note this week when he unveiled an agenda that called for “bipartisan bills...to encourage capital formation, reduce burdens for smaller businesses and improve corporate governance.”
Luckily, senators of both parties have voiced support for these measures and similar ones to benefit small entrepreneurs and ordinary investors. As a House member in the last session, newly elected Sen. Kyrsten Sinema (D-AZ) had cosponsored the Fostering Innovation Act, which was made part of the Jobs and Investor Confidence Act, that extended for some midsize public companies the JOBS Act’s exemption from the Sarbanes-Oxley “internal control” mandates. Removing these requirements, Sinema said in 2017, “allows innovative companies to spend valuable resources on product research and development instead of costly and unnecessary external audits. This commonsense solution cuts red tape and allows companies to move life-saving innovations forward.”
Overall, there will be plenty of acrimony between Republicans and Democrats on financial policy, just as there is on other issues. But hopefully, lawmakers can get together to lift burdens on access to capital for ordinary entrepreneurs and access to wealth building for middle-class investors. Republicans in Congress need to realize that they must stand with new entrants in making the case for deregulation, even if such stances irk established firms who benefit from regulation that harms smaller competitors. And Democrats need to realize that standing to the left of Maxine Waters is a bad place to be.
For more on bipartisan deregulatory measures to boost crowdfunding and fintech and benefit ordinary investors and entrepreneurs, please read CEI’s “Free to Prosper” agenda for the new Congress.
Cabe Crandall contributed to this blog post.