Senate version of small business capital formation reform is very different . . .

You can be forgiven if you have the impression that the Senate is taking House passage of - and Presidential support for - HR 3606, the Jumpstart Our Business Startups (JOBS) Act, to heart. You might well suppose that Senators are scrambling to pass the House bill post-haste.

Here's what Majority Leader Reid said on the Senate floor last week about the importance of this package of capital formation reforms:

"Last week the House passed the pending small business capital formation bill by a vote of 390 to 23. President Obama has endorsed the bill very publicly; thus, this is a measure the Senate should consider expeditiously and pass in short order."

But the measure Sen. Reid means to have the Senate move on early this week is not really HR 3606. The measure Sen. Reid intends to move on is instead a substitute bill, SA 1833. This substitute bill amends, and in many respects overhauls, HR 3606.

Sleight of handNot that Sen. Reid and his friends make it easy to see what is changing!

I've cobbled together a redline to show how SA 1833 differs from the House bill that, as Sen. Reid noted, so overwhelmingly passed the House earlier this month. The redline is not of that purely mechanical sort generated purely by software. I've altered the order of the provisions to yield a more readable and more useful markup. I've also manually added page references.

Here's that comparison:

How SA 1833 amends HR 3606 (or, how the Senate's "Invigorate New Ventures and Entrepreneurs to Succeed Today (INVEST) in America Act" differs from the House's "Jumpstart Our Business Startups (JOBS) Act").

(Note on the color coding: red means deletions; blue means additions; green means text is the same but has been moved. Also, the software is good, but not perfect; I think some verbiage in the crowdfunding section might have merited more green.)

There is a lot going on with this substitution. I haven't digested it all. For now, at least, I'll stick to that subset of capital formation reform topics we've been covering on this blog. On those themes - the prohibition on general solicitation; the angel platform and incubator amendment; and an equity crowdfunding amendment - here's how the Senate substitute differs:

  • Representative McHenry's angel platform and incubator amendment has been eviscerated (see page 12 of the redline);
  • Representative McCarthy's general solicitation prohibition reform bill has been modified to give the SEC a shot to rein in what kind of solicitation or advertising may be permissible (but setting rules "to include the terms and conditions relating to the forms of permissible solicitation and advertising");
  • Rep. McHenry's crowdfunding exemption has been gutted and superseded by what looks like the Merkley/Brown bill.

As noted above, there are many other changes offered in the Senate substitute. Among them are changes to the IPO on-ramp, Reg A reform, and number-of-shareholder components of HR 3606. (Quickly on that last component: the Senate version takes the number of permitted shareholders from 2,000 down to 750.)

Couple comments on the loss of the McHenry crowdfunding exemption:

(1) it's a shame, because the Merkley/Brown version of equity crowdfunding is useless for tech and growth startups; and

(2) it's ironic that the supposedly more conservative Merkley/Brown version should take center stage (at least for the moment), when it never had a committee markup, and it certainly didn't pass a chamber of Congress with the overwhelming support the McHenry bill had last year (Barney Frank was touting it as a triumph of bipartisanship).

Photo, "Sleight of Hand," by Glen Bledsoe / Flickr.


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