After singing the praises of workers for Labor Day weekend, the House went back to what it does best: serving the interests of capital. The House passed two bills designed to hobble Dodd-Frank, as well as a bill to hobble prosecution of financial crimes.
On Friday, the House passed the Investment Advisers Modernization Act of 2016. Although this isn’t always the case, “modernization” is often code for “deregulation.” It is here.
The bill aims to eliminate oversight of private funds by either institutional investors or federal regulators:
This bill proposes to amend provisions included in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that provide financial regulators, particularly the Securities and Exchange Commission, the authority to regulate the advertising, transferring, and selling of funds and securities by “private funds” in their capacity as investment advisors to institutional investors, which include public and private pension funds, endowments, and foundations.
Prior to Dodd-Frank, private funds – which include lightly regulated private equity funds and hedge funds – were exempt from most reporting, marketing, and oversight requirements under the 1940 Investment Advisers Act, the Depression-era law enacted to curtail abuses and flaws in the financial markets that contributed to the 1929 stock market crash. Dodd-Frank sharply curtailed these exemptions and requires private funds to provide, on an annual basis, clearly written, standardized information in the form of a narrative brochure to institutional investors and the SEC about the securities they purchase and hold, fees and expenses they charge, and their investment strategies.
Dodd-Frank also requires private funds advising institutional investors to comply with various recordkeeping, reporting, and audit requirements designed to inform and protect institutional investors. Most notably, Dodd-Frank subjects private funds to independent annual audits and other financial exams to improve (1) the ability of institutional investors to effectively monitor the private funds in which they invest and (2) the ability of federal regulators to assess systemic risk at private funds. H.R. 5424 would exempt private funds from these audits and exams.
It passed 261 to 145.
226 Republicans and 35 Democrats voted for it. 142 Democrats and 3 Republicans voted against it.
The 3 Republicans were Jimmy Duncan (TN-02), Walter Jones (NC-03), and Frank LoBiondo (NJ-02).
Here are the 35 Democrats:
Pete Aguilar (CA-31)
Brad Ashford (NE-02)
Don Beyer (VA-08)
John Carney (DE-AL)
Gerry Connolly (VA-11)
Jim Cooper (TN-05)
Jim Costa (CA-16)
Henry Cuellar (TX-28)
John Delaney (MD-06)
Suzan DelBene (WA-01)
Elizabeth Esty (CT-05)
Bill Foster (IL-11)
Gwen Graham (FL-02)
Denny Heck (WA-10)
Jim Himes (CT-04)
Derek Kilmer (WA-06)
Ron Kind (WI-03)
Ann Kirkpatrick (AZ-01)
Rick Larsen (WA-02)
Sean Maloney (NY-18)
Seth Moulton (MA-06)
Ed Perlmutter (CO-07)
Scott Peters (CA-52)
Collin Peterson (MN-07)
Jared Polis (CO-02)
Mike Quigley (IL-05)
Kathleen Rice (NY-04)
Dutch Ruppersberger (MD-02)
Kurt Schrader (OR-05)
David Scott (GA-13)
Terri Sewell (AL-07)
Kyrsten Sinema (AZ-09)
Juan Vargas (CA-51)
Marc Veasey (TX-33)
Filemon Vela (TX-34)
On Thursday, the House passed the Accelerating Access to Capital Act of 2016.
What would this bill do? Eliminate investor protections:
H.R. 2357 is a package of three bills (H.R. 2357, H.R. 4850, and H.R. 4852) that would collectively weaken investor protections by reducing transparency and limiting the ability of the Securities and Exchange Commission (SEC) to effectively oversee and regulate capital markets.
Title I, which incorporates H.R. 2357, would harm investors by reducing the quality of information they depend on when making investment decisions with respect to “microcap companies,” companies with small market capitalizations that are generally not as well known or reported on as large publicly traded companies. Title I would permit microcap companies traded on an exchange to issue an unlimited number of shares within a 12 month period without issuing a separate prospectus for each stock offering. It would also permit unlisted microcap companies to sell as much as 1/3 of the market value of their common equity in a 12 month period without issuing a separate prospectus for each stock offering. Proponents of this provision argue that relaxing the rules governing the information smaller companies must disclose each time they issue stock will facilitate their access to capital and would simply extend existing rules as they apply to large companies. However, unlike microcap companies, which are often obscure, there is generally an abundance of public information about large companies beyond what the SEC requires because they are closely followed by professional financial analysts and are traded on well-regulated and transparent national stock exchanges.
Title II – which incorporates the text of H.R. 4850, “the Micro Offering Safe Harbor Act” – would remove protections for investors by allowing a company to sell up to $500,000 in shares without being required to give any information to investors or regulators, and without imposing any restriction on the resale of those shares, provided investors have a pre-existing relationship with an officer, director, or major shareholder of the company selling stock. It would also supersede state law by exempting micro-offerings from state regulations.
Title III – which incorporate the text of H.R. 4852, “the Private Placement Improvement Act” – would block the SEC from finalizing commonsense investor protections that the Commission has proposed as part of its implementation of the 2012 Jumpstart Our Business Startups (JOBS) Act, which relaxed a long-standing prohibition on advertising and general solicitation by issuers of unregistered securities. The SEC has proposed disclosure rules for such issuers, such as requiring them to file a notification form with the SEC before engaging in advertising or general solicitation to sell their unregistered stock and to file their advertising materials with the Commission – reasonable measures that would help the Commission detect possible fraud and expose potentially misleading statements made by issuers.
Put simply, H.R. 2357 would undo regulations put in place under Dodd-Frank that protect the American people from another financial crisis.
The bill passed 236 to 178.
Two Democrats—Henry Cuellar (TX-28) and Collin Peterson (MN-07)—voted for it. One Republican—Walter Jones (NC-03)—voted against it.
On Wednesday, the House passed the Stop Settlement Slush Funds Act of 2016.
The bill was an attempt to hobble the DOJ and other government agencies’ ability to prosecute corporate and organizational crime:
This bill would sharply limit the autonomy of the Department of Justice (DOJ) and other government agencies to address unlawful conduct, provide restitution, or to adequately address illegal conduct by prohibiting settlement agreements involving the U.S. government from requiring the defendant make payments to an organization or individual not a party to the litigation.
House Republicans argue that H.R. 5063 is necessary in order to ensure that the DOJ and other agencies do not use settlement agreements to unlawfully fund political or activists groups, but there are already laws in place to prevent civil enforcement agencies from directing funds to politically-favored groups. As a matter of public policy, H.R. 5063 will, if enacted, hamper the federal government’s ability to punish companies and organizations that engage in unlawful conduct, such as financial firms that engaged in mortgage fraud that contributed to the 2008 financial crisis. Amplifying the flaws of H.R. 5063 is that the legislation is so poorly and broadly written that it will severely deter agencies from pursuing settlements and invite legal challenges to proposed settlements.
It passed 241 to 174.
Five Democrats joined the GOP in voting for it:
Brad Ashford (NE-02)
Jim Cooper (TN-05)
Henry Cuellar (TX-28)
Scott Peters (CA-52)
Collin Peterson (MN-07)
Four amendments received roll call votes.
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Paul Gosar (AZ-04) offered an amendment to cap settlement payments for attorney fees provided in relation to environmental cases at $125 per hour.
It failed 155 to 262. One Democrat—Adam Smith (WA-09)—joined most of the GOP in voting for it. 83 Republicans voted against it.
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Sheila Jackson Lee (TX-18) offered an amendment to exempt settlement agreements that resolve a civil action or potential civil action in relation to sexual harassment, violence, or discrimination in the work place.
It failed 178 to 235.
Three Democrats—Jim Cooper (TN-05), Scott Peters (CA-52), and Collin Peterson (MN-07)—joined the GOP in voting against it. Two Republicans—Chris Gibson (NY-19) and Dana Rohrabacher (CA-48)—joined Democrats in voting for it.
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David Cicilline (RI-01) offered an amendment to exempt settlement agreements that strengthen the personal privacy of Americans from the blanket prohibition in the bill.
It failed 175 to 236.
Two Republicans—Jimmy Duncan (TN-02) and Chris Gibson (NY-19)—joined Democrats in voting for it.
Six Democrats voted against it:
Brad Ashford (NE-02)
Jim Cooper (TN-05)
John Garamendi (CA-03)
Jerry Nadler (NY-10)
Scott Peters (CA-52)
Collin Peterson (MN-07)
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John Conyers (MI-13) offered an amendment to exempt settlement agreements pertaining to discrimination based on race, religion, national origin, or any other protected category.
It failed 178 to 234.
Two Republicans—Charlie Dent (PA-15) and Chris Gibson (NY-19)—voted for it. Four Democrats—Ashford, Cooper, Peters, and Peterson—voted against it.