Overview
Title
To amend the Securities Act of 1933 to address emerging growth companies, and for other purposes.
ELI5 AI
The "Empowering Main Street in America Act of 2024" wants to change some rules to help small companies grow by making it easier for them to get money and for normal people to invest, while making sure everything is fair and safe. It's like giving small and new businesses a boost so they can do well but making sure everyone plays by the rules.
Summary AI
The "Empowering Main Street in America Act of 2024" seeks to amend the Securities Act of 1933 to better support emerging growth companies. It aims to facilitate greater capital formation in U.S. markets, enhance opportunities for retail investors, and ensure transparency and fairness in the securities market. The bill proposes changes to definitions, exemptions, and regulations around investment activities, and it mandates studies and reports to improve access to capital, particularly for small entities and rural job creators, while holding regulators accountable through increased oversight.
Published
Keywords AI
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Bill Statistics
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Language
Complexity
AnalysisAI
To amend the Securities Act of 1933 with respect to emerging growth companies and other aspects of the financial markets, Senate Bill S. 5139 aims to broaden capital formation, expand investment opportunities for retail investors, enhance investor confidence in market transparency, and increase regulatory oversight. This legislation is introduced with the intention of strengthening the reach and capacity of startups, adjusting financial thresholds, and demanding higher accountability from investment regulators.
General Summary
The Empowering Main Street in America Act of 2024 proposes changes that affect various parts of the financial ecosystem. Key elements include adjusting the definition of what constitutes an "emerging growth company," providing micro-offering exemptions, regulating crowdfunding processes, and modifying oversight for venture capital funds. The bill also intends to ease investment access for retail investors and boost confidence through improved financial literacy. It includes requirements for the SEC to report on various economic and market conditions. The bill also requires the head of the SEC to regularly engage with Congress to foster transparency and account for regulatory activities.
Significant Issues
Complex Definitions and Criteria: The bill introduces intricate criteria and monetary thresholds for the classification of "emerging growth companies," with periodic adjustments for inflation. Such complex conditions could create uncertainty and oscillation over time, affecting stakeholders unsure about their designation as "emerging growth companies."
Financial Literacy and Oversight: Section 203 proposes enhancing federal financial literacy programs, but it lacks a specified budget and oversight mechanism. Without clear accountability, this could lead to ineffective use of resources.
Self-Certification Risks: Section 201 includes a "self-certification" approach for accredited investors, which might be vulnerable to misuse. Without robust verification, this could increase the risk of market abuse or misrepresentation, negatively affecting financial integrity.
Reduced Oversight in Crowdfunding: The removal of an independent accountant's review for certain transactions could diminish oversight, enhancing the risk of financial misrepresentation, as outlined in Section 105.
Definition Ambiguities: Including "rural-area small businesses" in Section 108 without a clear framework for what constitutes a "rural area" introduces the risk of ambiguity. This might lead to potential favoritism without necessary metrics to qualify such areas.
Resource Demands for Data Collection: The extensive data collection requirement laid out in Section 303 could impose a substantial resource burden on the SEC's Division of Economic and Risk Analysis. The utility or benefit of such exhaustive data, unless effectively utilized, remains unclear.
Broad Public Impact
Overall, the bill aims to democratize investment opportunities and stimulate startup growth, potentially facilitating a more vibrant economic landscape. By amending securities laws, it could boost transparency and provide more investor confidence in accessing capital markets. However, the complexities of some provisions might impose challenges for small entities trying to navigate the updates. Clarity in implementation will be crucial to preventing unintended consequences like market confusion or financial instability.
Impact on Specific Stakeholders
Startups and Emerging Businesses: Startups could benefit significantly from the bill by gaining easier access to capital and maintaining classification as an "emerging growth company" for extended periods.
Retail Investors: The inclusion of new investor categories and opportunities for self-certification could potentially open doors for more individuals to participate in investment markets. However, insufficient guardrails might expose them to heightened risk.
Financial Regulators and Analysts: Increased reporting, data collection, and analysis mandates might add workload pressures on agencies like the SEC. These requirements need careful management to avoid inefficiencies and ensure valuable insights are gained from the data collected.
Overall, while the bill harbors potential for invigorating the investment landscape and elevating regulatory practices, careful consideration and precise implementation are key to maximizing benefits and safeguarding stakeholders against negative outcomes.
Financial Assessment
The "Empowering Main Street in America Act of 2024" contains several financial references and allocations that aim to amend the Securities Act of 1933. These modifications largely support emerging growth companies and broaden investment opportunities, particularly for individual retail investors. In examining this bill, several pertinent financial references arise, some of which are linked to identified issues.
Monetary Thresholds and Definitions
A significant aspect of the bill involves defining what constitutes an "emerging growth company," which is an entity with total annual gross revenues of less than $2,000,000,000, adjusted for inflation every five years. This adjustment is linked to the Consumer Price Index for All Urban Consumers. The mechanism for indexing these financial thresholds to inflation hints at responsiveness to economic changes but introduces potential complications for stakeholders who must navigate these fluctuations (Issue #1). The ambiguity in how these thresholds might change can lead to uncertain categorization of companies over time.
Investments and Exemption Caps
In Section 102, the bill specifies a $500,000 cap on "micro-offering" exemptions for transactions involving the sale of securities. This limit will also be adjusted for inflation every five years. While this offers a mechanism for smaller companies to raise capital with fewer regulatory burdens, it potentially risks misuse if not strictly monitored, aligning with the concern in Issue #4 regarding lowered oversight in crowdfunding activities.
The bill also addresses investment thresholds in Section 107, defining financial ceilings, such as $15,000,000 in any calendar year for single issuers and broader caps like $30,000,000 for combined issuers receiving private placement broker compensation. These financial thresholds encourage smaller-scale investments but could present challenges in effective regulation, as seen in Issue #3 with self-certification risks.
Accredited Investor Changes
Section 201 introduces criteria for "accredited investors," adding a new qualifying threshold for individuals with at least $500,000 worth of investments. This change intends to loosen the strictness of current definitions, thereby potentially broadening access to investment opportunities. However, this expansion poses potential risks of misrepresentation due to insufficient verification processes, echoing concerns about misuse (Issue #3).
Data Publication and Regulatory Costs
In Section 303, the bill mandates extensive data publication on economic metrics related to securities markets, which does not directly involve financial allocations. Still, this requirement may impose significant resource costs on the Division of Economic and Risk Analysis. The necessity and effectiveness of this data collection are questioned (Issue #8), as the resources used for these analyses might be excessive compared to their utility.
Conclusion
Overall, the bill includes several financial references aimed at reforming investment regulations and enhancing transparency. Nevertheless, issues arise around the clarity, practicality, and potential risks associated with these financial allocations. The identified concerns, such as fluctuating thresholds, self-certification, and data collection burdens, indicate areas where more explicit guidance and rigorous oversight might be necessary to maximize the bill's effectiveness and minimize any adverse consequences.
Issues
The definition of 'emerging growth company' in Section 101 includes complex criteria and monetary thresholds for inflation indexing, which might create ambiguity and fluctuations in categorizing companies over time, potentially causing uncertainty for stakeholders.
Section 203's lack of specified budget or oversight for enhancing Federal financial literacy programs may lead to wasteful spending, raising political and financial concerns about accountability and effective resource allocation.
Section 201 introduces a provision for 'self-certification' of accredited investors, which may be open to misuse without stringent verification processes, leading to potential misrepresentation and risk to financial markets.
The removal of the requirement for an independent accountant's review report for certain crowdfunding transactions in Section 105 poses significant risks of financial misrepresentation due to reduced oversight and verification.
Section 302 roles of the Ombudsman as a liaison under Regulation Crowdfunding lack specificity in funding and management, potentially causing inefficiencies and hindering effective regulatory support.
Section 108's amendment to include 'rural-area small businesses' might introduce ambiguity in defining 'rural-area', potentially leading to preferential treatment without clear justification, affecting fair economic development.
The broad latitude given to closed-end companies in Section 204 to invest in private funds could lead to increased exposure to high-risk investments with inadequate investor protections, potentially undermining financial stability.
Section 303's demand for extensive economic data collection and publication by the Division of Economic and Risk Analysis might result in a substantial resource burden, with unclear utility or benefits, raising questions about its necessity and effectiveness.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title; table of contents Read Opens in new tab
Summary AI
The Empowering Main Street in America Act of 2024 is organized into four main sections to boost capital formation, expand investment opportunities, foster investor confidence, and hold regulators accountable. It aims to help startups, encourage retail investments, enhance transparency and fairness in the market, and increase oversight of financial regulators.
2. Definition Read Opens in new tab
Summary AI
In this section, the term "Commission" is defined as the Securities and Exchange Commission.
101. Helping startups continue to grow Read Opens in new tab
Summary AI
The bill defines an "emerging growth company" as a business with yearly revenues under $2 billion, subject to inflation adjustments, and specifies when such a company loses this status based on revenue, debt, or time elapsed since first selling common stock. It also updates related definitions in securities legislation and modifies the registration process for these companies.
Money References
- (a) Definition of term.— (1) SECURITIES ACT OF 1933.—Section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended by striking paragraph (19) and inserting the following: “(19)(A) The term ‘emerging growth company’ means an issuer that had total annual gross revenues of less than $2,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) during its most recently completed fiscal year.
- “(B) An issuer that is an emerging growth company as of the first day of its most recently completed fiscal year shall, after submitting a draft registration statement or publicly filing an initial registration statement under this title, continue to be deemed an emerging growth company until the earliest of— “(i) the date that is 1 fiscal year after the last day of the fiscal year of the issuer during which it had total annual gross revenues of $2,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more; “(ii) the last day of the fiscal year of the issuer following the tenth anniversary of the date of the first primary sale of common equity securities of the issuer for cash pursuant to an effective registration statement under this title; or “(iii) the date that is 1 fiscal year after the last day of the fiscal year of the issuer in which such issuer has more than $2,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) in non-convertible debt securities outstanding.”
102. Micro-offering exemption Read Opens in new tab
Summary AI
The text describes an amendment to the Securities Act of 1933, creating a "micro-offering" exemption for securities transactions where the total amount sold is under $500,000 within a year. This amount will be adjusted for inflation every five years, and the exemption does not apply to anyone disqualified by certain regulatory events or statutory disqualifications. The amendment also updates state regulations to recognize this new exemption.
Money References
- — “(1) IN GENERAL.—The transactions referred to in subsection (a)(8) are transactions involving the sale of securities by an issuer (including all entities controlled by or under common control with the issuer) where the aggregate amount of all securities sold by the issuer, including any amount sold in reliance on the exemption provided under subsection (a)(8), during the 12-month period preceding such transaction, does not exceed $500,000.
- “(2) ADJUSTMENT.—The dollar amount in paragraph (1) shall be adjusted by the Commission not less frequently than once every 5 years and at the same time as the adjustments made under section 4A(h), by notice published in the Federal Register to reflect any change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $10,000.
103. Investment companies Read Opens in new tab
Summary AI
Under the proposed changes to the Investment Company Act of 1940, the number of people allowed in certain investment groups increases from 250 to 500. Additionally, adjustments are made to financial thresholds, raising them from $10 million to $50 million, and changing how these numbers are updated for inflation every five years.
Money References
- SEC. 103. Investment companies. Section 3(c)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)(1)) is amended— (1) in the matter preceding subparagraph (A), in the first sentence, by striking “250 persons” and inserting “500 persons”; and (2) in subparagraph (C)(i)— (A) by striking “$10,000,000” and inserting “$50,000,000”; and (B) by striking “with such dollar amount to be indexed for inflation once every 5 years by the Commission, beginning from a measurement made by the Commission on a date selected by the Commission, rounded to the nearest $1,000,000” and inserting the following: “which the Commission shall adjust not less frequently than once every 5 years by notice published in the Federal Register to reflect any change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $10,000”. ---
104. Public float Read Opens in new tab
Summary AI
The section requires the Commission to update a regulation within 180 days to change the financial threshold for public float to a 12-month rolling average of $700 million, which will be adjusted for inflation every five years. The adjustment will use the Consumer Price Index for All Urban Consumers and round the threshold to the nearest $100,000.
Money References
- Not later than 180 days after the date of enactment of this Act, the Commission shall amend section 229.10(f)(1)(i) of title 17, Code of Federal Regulations, or any successor regulation, to provide that the threshold in that provision shall be a 12-month rolling average of $700,000,000 (which the Commission shall index for inflation once every 5 years to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $100,000). ---
105. Crowdfunding Read Opens in new tab
Summary AI
In the crowdfunding section of the bill, it states that if a company offers to sell securities worth $500,000 or less, it doesn’t need a review report from an independent public accountant. Instead, the company can use financial statements from its most recent tax return if audited statements aren't available, as long as the company's top executive believes they are true and complete. Additionally, certain investors from investment companies are allowed to buy these securities.
Money References
- Notwithstanding any other provision of law or regulation, with respect to a transaction described in section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)), the following shall apply: (1) If the transaction involves an offer or sale of securities by an issuer that is not more than $500,000, the issuer— (A) shall not be required to submit a review report of a public accountant that is independent of the issuer; and (B) may provide financial statements and certain other information that is based on information reported on the Federal income tax return of the issuer for the most recently completed year (if any), if— (i) reviewed or audited financial statements are not available; and (ii) those financial statements, and that other information, is certified by the principal executive officer of the issuer to be true and complete in all material respects.
106. Regulatory definition of venture capital fund Read Opens in new tab
Summary AI
The section requires the Commission to update the definition of a venture capital fund within six months. The updates specify that certain equity securities and investments in other venture capital funds qualify as investments, and that most investments of a venture capital fund must come directly from a company or from another venture capital fund.
107. Unlocking capital for small businesses Read Opens in new tab
Summary AI
The text outlines proposed changes to the Securities Exchange Act of 1934 to create safe harbors for "finders" and "private placement brokers," who connect buyers and sellers in certain private investment transactions. These changes include requirements for registration and disclosures, limitations on state regulations, and conditions under which these entities are not considered brokers, aiming to simplify the process for small businesses to raise capital.
Money References
- “(B) FINAL REGULATIONS.—Not later than 270 days after the publication of the proposed regulations in the Federal Register, the Commission shall promulgate final versions of the regulations described in subparagraph (A). “(3) DEFINITION.— “(A) IN GENERAL.—In this subsection, the term ‘private placement broker’ means a person that— “(i) receives transaction-based compensation in connection with the sale of a business effected as the sale of securities or in connection with the placement of securities in transactions that are exempt from the registration requirements under the Securities Act of 1933 (15 U.S.C. 77a et seq.) with respect to a transaction for which transaction-based compensation is received; and “(ii) with respect to the transaction-based compensation described in clause (i), receives that compensation— “(I) in an amount that is not more than $500,000 in any calendar year; “(II) in connection with transactions that result in a single issuer selling securities valued at not more than $15,000,000 in any calendar year; “(III) in connection with transactions that result in any combination of issuers selling securities valued at not more than $30,000,000 in any calendar year; or “(IV) in connection with fewer than 16 transactions that are not part of the same offering or are otherwise unrelated in any calendar year.
108. Rural job creators Read Opens in new tab
Summary AI
The section amends the Securities Exchange Act of 1934 to include "rural-area small businesses" in the provisions that already mention "women-owned small businesses." This means that rural small businesses will now receive similar considerations or benefits as those given to women-owned small businesses under the specified parts of the Act.
109. Studies, reports, and rules regarding small entities Read Opens in new tab
Summary AI
In this section, the term "small entity" is defined in relation to the activities of the Commission, requiring regular studies and reports every five years to assess and potentially revise this definition. The Commission must update related rules and dollar figures to account for inflation, ensuring that more entities can qualify as small entities in a changing economic environment.
Money References
- (d) Inflation adjustments.—As soon as practicable following the date of enactment of this Act, and every 5 years thereafter, the Commission shall adjust all dollar figures under the definition of small entity established by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the Department of Labor.
201. Equal opportunity for all investors Read Opens in new tab
Summary AI
The section focuses on expanding the definition and certification process for accredited investors. It allows individuals to qualify through a new examination that ensures they understand investment risks and adds new categories based on financial holdings. The bill also sets a timeline for rule revisions and permits the Commission to adjust definitions for investor protection.
Money References
- — (1) IN GENERAL.—Not later than 270 days after the date of enactment of this Act, the Commission shall revise section 230.501(a) of title 17, Code of Federal Regulations, or any successor regulation, to make parallel changes set forth in subsection (a) of this section, and the amendments made by that subsection, and to add to the definition of the term “accredited investor” the following categories: (A) Any natural person with at least $500,000 worth of investments.
202. Encouraging investments in Main Street Read Opens in new tab
Summary AI
The section instructs the Commission to study the effects of preventing retail investors and certain retirement plans from investing in private placements, considering growth, fewer investment opportunities, and diversification. The findings are to be reported to specific Senate and House Committees within one year.
203. Main Street investor confidence Read Opens in new tab
Summary AI
The section requires the Financial Literacy and Education Commission to work with other offices to study how much people in the U.S. are involved, educated, and confident in the stock market. Within a year, they must give recommendations to several congressional committees on how to improve financial literacy programs and boost confidence and inclusion for regular investors.
204. Increasing investor opportunities Read Opens in new tab
Summary AI
The proposed amendments to the Investment Company Act and the Securities Exchange Act aim to allow closed-end companies more freedom to invest in private funds without the Commission imposing extra restrictions, except when unrelated to the funds themselves. Additionally, national securities exchanges are directed not to limit the listing or trading of closed-end companies investing in private funds unless it aligns with existing exchange rules.
205. Enhancement of 403(b) plans Read Opens in new tab
Summary AI
This section introduces changes to several laws, including the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to enhance 403(b) plans. It clarifies that plans meeting 403(b) requirements, which are similar to 401(k) retirement savings plans, can involve employers or fiduciaries in selecting investments, and it establishes the conditions under which these plans are exempt from certain regulatory provisions.
301. Study regarding retail investor readability of financial statements Read Opens in new tab
Summary AI
The section requires the Commission to conduct a study to evaluate how easy it is for regular investors to understand financial statements and suggests ways to make these documents clearer and more helpful. The study should also explore how to better educate investors, while the Commission is tasked with creating new rules to make financial disclosures simpler and remove unnecessary jargon.
302. Duties of Ombudsman relating to Regulation Crowdfunding Read Opens in new tab
Summary AI
The text outlines changes to the Securities Exchange Act of 1934, focusing on the role of the Ombudsman in Regulation Crowdfunding. It specifies that the Ombudsman should act as a liaison among the Commission, small businesses, and other stakeholders, and requires the Ombudsman to submit an annual report to Congress with recommendations to enhance regulatory efficiency and improve access to capital.
303. Publication on economic data on securities markets Read Opens in new tab
Summary AI
The Division of Economic and Risk Analysis of the Commission is required to annually publish detailed data about the securities market, including for the past ten years. This data includes information like the number and size of offerings, costs related to these offerings, compliance expenses with certain financial laws, enforcement actions, market capitalization, trading volumes, and market participants, with all information made available in an open and easily accessible format.
304. Study on IPO fees Read Opens in new tab
Summary AI
The section requires the Commission, with input from the Financial Industry Regulatory Authority, to study the costs associated with small- and medium-sized companies launching IPOs. The study will analyze direct and indirect costs, compare IPO costs with other financing options, and consider the impact on capital formation and retail investor access, with a report due to Congress one year after the Act's enactment.
Money References
- (2) SMALL- AND MEDIUM-SIZED COMPANY.—The term “small- and medium-sized company” means an issuer with an initial public float determination of less than $700,000,000.
305. Exclusions available regardless of significant social policy issue Read Opens in new tab
Summary AI
An issuer can choose not to include a shareholder's proposal in certain official documents, even if the proposal is about an important social issue, according to specific regulations.
401. Required testimony Read Opens in new tab
Summary AI
The section amends the Securities Exchange Act of 1934 to require the Chairman of the Securities and Exchange Commission to appear before certain Senate and House committees every six months to discuss the Commission's activities.
402. Semiannual report Read Opens in new tab
Summary AI
The amended section of the Securities Exchange Act requires the Chairman of the Commission to send Congress a report every six months that covers the U.S. capital markets system, outlines the Commission's regulatory actions, details enforcement actions particularly concerning capital access for small businesses including minority and women-owned ones, and includes published economic data on securities markets.
403. Rulemaking requirements Read Opens in new tab
Summary AI
The section amends existing laws to require that when the Securities and Exchange Commission (SEC) creates new rules, it must evaluate the potential costs and benefits, consider various alternatives, and ensure that the rules are clear, consistent, and minimally burdensome. Additionally, the SEC is directed to make its economic analyses publicly available online while protecting sensitive information.
404. Senate confirmation of Inspector General of the Securities and Exchange Commission Read Opens in new tab
Summary AI
The section amends the United States Code to require Senate confirmation for the position of Inspector General of the Securities and Exchange Commission by adding the Commission to the list in one section and removing it from another.