Reforms to the Securities Act 1933 Passed Almost Unanimously with Congress Set to Chip Away at Investment Prohibitions

“This bill ensures that America’s garages have fewer old cars and more new startups.” So says Financial Services Committee Chairman Jeb Hensarling in a sign that lawmakers have finally heard us.

JOBS and Investor Confidence Act of 2018 (JOBS Act 3.0) passed the House of Representatives in a near unanimous vote of 406-4 yesterday, coinciding with a big price spike in most cryptos.

The bill would “cut down on regulations that are holding back small businesses and start-ups. It’s the third piece in a line of critical bipartisan bills aimed at creating jobs, unlocking innovation, and driving growth,” House Speaker Paul Ryan said.

Trump congratulated the house, with the Press Secretary stating: “As the bill moves back to the Senate for consideration, the Administration will work with Congressional leaders to make several technical and substantive changes to the legislation with the goal of presenting final legislation to the President as soon as possible.”

The Biotechnology Innovation Organization (BIO), which is is the world’s largest trade association representing biotechnology companies, said:

“House passage of the JOBS Act 3.0 is a tremendous step forward for small, pre-revenue innovators. If enacted, this legislation would allow these companies to invest more of their limited resources into advancing meaningful biomedical research, rather than complying with costly and unnecessary regulatory requirements.”

The 32 bills merged into one Jobs Act 3.0 address a number of matters that are relevant to this space. In particular, individuals will be able to invest in start-ups if they can show expertise or knowledge of the field and thus can show they are aware of the risks and have the ability to analyze the offering.

The final wording isn’t yet quite settled. As quoted above, there will be “substantive changes” with potentially the aim of making this act less a chipping away and more a reform of the century old Securities Act.

Where this specific exemption to the “accredited investors” rule is concerned, it appears you currently need to go through some test in some bureaucratic hall in what sounds like a very unappealing process.

Hopefully, considering we live in this century, this is amended to allow websites or companies to implement such tests aimed at showing knowledge of the field and risks, rather than requiring some license from the Securities and Exchanges Commission (SEC) to fall under the knowledge exemption.

Beyond this change there is a hint here that America’s civil service has finally gotten around to this space and has put Congress back in charge with SEC appearing to be very much in their sight.

SEC is asked to study and report within a year on a number of matters. Specifically, they have to look at the Initial Public Offering (IPO) process, costs and so on, and they have to look at disclosure rules in prospectuses to presumably streamline this process and make it more fit for a digital age.

A final relevant point is crowdfunding amendments which “allows crowdfunding investors to pool their money together into a fund that is advised by a registered investment advisor.”

In many ways this doesn’t quite go far enough, which might perhaps explain why Trump may have seen an opportunity to add some meat to what will probably be a closely followed piece of legislation.

Yet in many other ways, this does feel like it is just the beginning. Reforms to the Securities Act is clearly a matter where the left and right have significant common ground.

The act hasn’t really been looked at in a substantial manner in nearly a century, and even this law really doesn’t quite do so. Yet studies have to be undertaken and reports have to be produced within a year, but by SEC, which arguably is very biased.

It is biased because of course they want a bigger department and more and more fees through handing out permission slips when you should think the people want a government that works and preferably does so without costing us $21 trillion in debt.

Congress therefore should have their own civil service look at the Securities Act and adjacent regulations to provide America with proper reforms fit for the digital age where the value creation process is encouraged rather than strangled under pointless and often discriminatory red tape.