H.R. 1585, the “Fair Investment Opportunities for Professional Experts Act,” passed the U.S. House of Representatives unanimously on November 1st. This bill liberalizes the definition of “accredited investor” to allow non-wealthy but knowledgeable investors to invest in startups free of red tape.
As I testified in July before the before the Capital Markets subcommittee of the House Financial Serivces Committee, despite the impressive recent performance of the U.S. stock market, “financial opportunities are being snapped up by the ‘accredited investor’ class that has the freedom to buy shares in companies that aren’t weighed down with…mandates” such as the costly regulations of Sarbanes-Oxley and Dodd-Frank.
Since the Sarbanes-Oxley Act was signed into law by President George W. Bush in 2002, many public companies have seen auditing costs quadruple as a result of the law, and these costs have soared even further with the Dodd-Frank regulations. There has been a steady decline in the number of initial public offerings (IPOs) per year, and the average size of IPOs has also dramatically increased. These trends make it more difficult for entrepreneurs to raise money, but as I testified, “it is middle-class investors who have been most harmed by being almost totally shut out of this early stage of growth of America’s fastest growing companies.”
Fortunately, members of both parties recognize the problem and are offering meaningful, if incremental, solutions. There are bills to build on the success of the Jumpstart Our Business Startup (JOBS) Act, a bipartisan deregulatory investment law signed by president Obama. H.R. 1585 is most prominent among them.
H.R. 1585 would allow non-wealthy Americans who have proven their investing competence, such as licensed brokers and investment advisers, to participate in private offerings free of most of the red tape from Sarbanes-Oxley, Dodd-Frank, and other securities laws. Under Regulation D, which the Securities and Exchange Commission promulgated in 1982, these “accredited investors” have been strictly defined as those who have at least $1 million in assets other than their principal residence, or who have made $200,000 per year for three of the last five years.
Now, if this bill is passed, some non-wealthy investors could join the “accredited” club for the first time. That’s why the Senate needs to get moving and pass this measure as well. But so far, a companion version of this bill that was unanimously passed in the House hasn’t even been introduced in the upper chamber.
So President Trump should use the bully pulpit of his State of the Union address to push for a law that would lessen the bullying by securities laws of ordinary investors and entrepreneurs.