The document is a bill titled "H.R. 2799," also known as the "Expanding Access to Capital Act of 2023," introduced in the 118th Congress, 1st Session (current session as of this writing). It aims to reform the capital markets of the United States and introduces updates to the accredited investor standard, last updated by the SEC in 2020. The bill is structured into three main divisions, each focusing on different aspects of financial market reform:

Division A: Strengthening Public Markets

This division proposes changes to improve the public market environment, including:

  • Modifying the market cap test for target company financial statements to avoid aberrational results in requirements for acquisition and disposition financial statements.
  • Assisting startups in their growth phase by revising emerging growth company criteria.
  • Adjusting auditor requirements for newly public companies to ensure auditor independence for past audits.
  • Expanding the protection for research reports to cover all securities of all issuers.
  • Excluding Qualified Institutional Buyers (QIBs) and Institutional Accredited Investors (IAIs) from the record holder count for mandatory registration.
  • Expanding eligibility for well-known seasoned issuers (WKSI).
  • Adjusting the thresholds for smaller reporting companies concerning accelerated filer and large accelerated filer statuses.

Division B: Helping Small Businesses and Entrepreneurs

This division focuses on facilitating access to capital for small businesses and entrepreneurs through various measures, including:

  • Creating safe harbors for private placement brokers and finders.
  • Enhancing capital access for small business investors by adjusting inflation thresholds for investment advisers of private funds.
  • Improving capital allocation for newcomers by modifying venture capital fund criteria.
  • Empowering small entrepreneurs with a micro-offering exemption and improving Regulation A+ offerings.
  • Developing and empowering aspiring leaders with new provisions for venture capital investment.
  • Improving crowdfunding opportunities and restoring the secondary trading market by exempting certain activities from state regulation.

Division C: Increasing Access to Private Markets

This division aims to broaden access to private markets with specific focus on:

  • Extending Rule 701 to offer equity compensation to gig workers under similar conditions as employees.
  • Expanding investment opportunities by adjusting the definitions and thresholds for accredited investors.
  • Implementing risk disclosure requirements and investor attestation to better inform and protect potential investors.

Throughout the bill, numerous technical adjustments and clarifications are proposed to align the legal framework with the evolving needs of the capital markets, small businesses, entrepreneurs, and individual investors. The bill includes various titles under each division, detailing specific reforms and regulatory adjustments to achieve the stated goals of expanding access to capital, improving market regulations, and fostering economic growth.

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Why is it important?

The bill introduces provisions to expand the definition of an "accredited investor" to include individuals receiving individualized investment advice or recommendations from certain professionals. Specifically, it amends Section 2(a)(15) of the Securities Act of 1933 to add that any individual receiving individualized investment advice or recommendations regarding a transaction from a professional described under Section 203.501(a)(10) of Title 17, Code of Federal Regulations, qualifies as an accredited investor for the purposes of that transaction.

The requirements for becoming one of the qualified investment advisors, as mentioned in the context of the bill, are not detailed within the provided text. However, the reference to Section 203.501(a)(10) of Title 17, Code of Federal Regulations, suggests that the criteria for these advisors are set by existing regulations governed by the Securities and Exchange Commission (SEC).

To clarify, the specific criteria for an individual or entity to qualify as an investment advisor (and thus provide services that could allow their clients to be considered accredited investors) are detailed in the Investment Advisers Act of 1940 and the rules and regulations implemented by the SEC. Generally, to be considered a qualified investment advisor, an individual or firm must:

  1. Register with the SEC or a state securities authority (depending on the amount of assets managed, among other factors).
  2. Pass certain examinations, unless exemptions apply.
  3. Meet ethical and professional standards set forth by the SEC and any applicable state securities authorities.
  4. Comply with ongoing disclosure, recordkeeping, and operational requirements designed to protect clients' interests.