will recognize myself for five minutes. you know, from the whole panel, from your review of the crowd funding provisions of the jobs act, do you all agree that the s.e.c. holds a great deal of discretion over the implementation of this section? >> going to start with me. >> if you can just say briefly. >> i will be brief. i understand i can sometimes not be so brief. >> no, thank you. >> mr. hillel-tuch, we'll come back. >> clearly true. >> yes. >> thanks. >> it's that simple. i mentioned in my testimony one example is audited financials. it's at their discretion to change it. >> okay. professor bradford? >> yes, although i believe that discretion goes more in the direction of adding additional regulation than it does in the direction of cutting some of the existing requirements. >> you want an answer and the answer would be yes but it's largely because congress has delegated in every provision of

the jobs act rule-making discretion to the s.e.c. the s.e.c. can't duck this. they were told to consider rules. >> right. so the -- the legislation we passed, there were 400 votes that i authored here in the house with the help of carolyn maloney was a different construct, so -- so does this discretion, professor bradford, place at risk the viability of crowd funding to actually take place in the real world? does that -- you know, even if the s.e.c. acts counter to the bipartisan support of this provision and the idea and even the president of the same party of the majority of the s.e.c. commissioners. >> well, as i said, for these small offerings cost is an extremely important consideration. the more regulation the s.e.c. adds, the stronger that regulation, the greater the cost of, number one, understanding

what the requirements are and, number two, complying with that regulation, and at some point, if the statute itself hasn't already reached that point, we reach a point where the regulatory costs makes use of the crowd funding exemption infeasible. >> so what are the areas of greatest concern for you, professor bradford in how the law is actually written dealing with crowd funding? what are the number one through -- what are your top-level concerns, you know? number them and tell me the level of importance. >> are you talking about in the way the law is written or in the way the regulations the s.e.c. has to add to it? >> yes. >> oh. >> and i have the rare opportunity, oftentimes before these panels you don't get a chance to answer, but i'm giving you the rare opportunity to school congress, so -- >> my greatest concern is in the disclosure requirements imposed on issuers, particularly some of

the accounting disclosure audited financial statements for companies raising a relatively small amount of money and even for really small offerings financial statements required of all issuers, even for say a $10,000 offering. that, and then there are some disclosure provisions in the statute that are relatively difficult to understand. for example, issuers have to describe the risk to investors associated with possible future deals that the company might do. i'm not using the exact language, and so that requires these relatively unso fisted brewers to think about future buyouts, mergers, ipos, whatever, to predict what the effect of that could be on these crowd funding funders and tray

it a disclose it subject to a liability provision that makes them liable if they are negligent in doing so and failing to disclose properly, and so that portion of the crowd funding act is probably my primary concern. i guess my secondary concern is a general one that i sort of mentioned in the -- in my opening statement, and that is just the lack of clarity, the complexity, the need for entrepreneurs and intermediaries to understand various provisions in the act. for example, i mentioned in my written statement the prohibition on solicitation. solicitation as interpreted by the s.e.c. is a very broad conce concept, and people like mr. hillel-tuch -- did i get that right? >> you did. >> need to know exactly what they may or may not do in terms of advertising their site.

>> so the concern that i had with the senate provision from the get-go was as simple as the origin of congress' action, and i could say the origin of congress' action because i filed the first bill and the reason i filed the first bill was because of pbr, right, and many of you have heard this stories. you had an advertising guy who put up. he tweeted. he said let's buy a beer company. pabst plus ribbon was putting themselves up for sale or was going to close. sort of on a whim until federal agents visited him and then he realized he was breaking federal securities law because he tweet that had he wanted to buy a beer company. well, later he put up a website so, you know, the idea. crowd buying their favorite beer company. i don't think these individuals were pledging money because they thought they were going to make a million off of it. they wanted to support brand

this they liked, so this is what i see on crowd funding sites as they exist now. you have an idea that you like, could be your local coffee shop. could be your favorite cupcake and you invest in it because you believe in the product, not because you're going to make a million. it's the same reason why a lady i know, her father was a fan of the boston celtics. he invested in the boston celtics so he could say he owned a piece of the team. he's an irish immigrant, of course, he loved that, right? it's a slightly differenteneded a motivation to this -- to this point. and so the disclosure piece it important, whether or not the expense of that is too great to bear for small issuances. mr. hillel-tuch, you talk about your current platform that you have, and that is on the charitable side. you can't -- you can pre-order a

product. you can get a t-shirt. you can do a number of things. what are your offerings? what's the smallest offering you've had on your site roughly? >> we've had offerings as shawl as $500. >> and how large, what was your big nest. >> over 100,000. it really depends on your community. >> okay. so in that range, from $500 which getting financials on that would be a little -- make it a little unworthwhile, right? >> ludicrous is a mild way of putting it, you know. you're asking, for example, on an offering, for a new company to put up historicals on a timeline of zero. it just didn't make sense. i mean, it's an education issue. i think what happened, and i read your original bill and i've seen all the changes, a lot of the changes that happened were due to educational issues where we're trying to approach this from an old world perspective while you're spot on in your statement is not everybody is

looking for a million dollar return. that's not what this is about. we're really democratizing access to capital in a way that doesn't exist before and that is allowing your cupcake store, your t-shirt to get financing to not run debt. they don't have to run a credit card, don't have to run a mortgage. saw what happened with that a few years ago. this is completely different. you're getting support from the whole other side of the community that wants to invest in you and simply is not allowed to do so right now. >> mr. cartwright, to that end this cost of going public, at what point under current regulations does it just -- under what point of money that you have to raise going public does it simply make it not possible to go public? is it not economical to go public? is that -- >> that's an investment banking question, and i'm not -- >> i know. >> but you're a good lawyer. you're willing off into areas

you tonight -- kidding, kidding. >> 100 million, these days it's larger than that and what's sad is so often companies that might meet that threshold cannot -- don't want to go public even then. >> okay. so you're talking about a much higher threshold. >> vastly higher fresh hold. >> different world. >> different world, different world. >> so the idea of having light touch regulation on the intermediary and regulate this security in a very different way, is that something that -- that could be done, that we could do? speaking from your former hat as an s.e.c. -- >> yeah. i think the original idea behind crowd funding was to have a quite different mode available now that the internet, among other things, makes communication so easy to raise quite modest sums for entrepreneurial purposes, and whaes happened is we've overlaid

on that original idea the model of an offering so you need lawyers and financials and intermediaries and they all need complaint infrastructure, and you need financials that in accordance with the -- you have all these requirements which are the model of a big-dollar offering but it doesn't work if you're raising $40,000 for a co going to make cases foripads. >> mm-hmm. >> well, thank you for your testimony. i'll now recognize the ranking member, mr. quigley. >> thank you, mr. chairman. mr. chairman, as to your earlier point about pabst blue rib bob. i want you to know we're in total agreement about purchasing beer. i've served here three years now. the longer i serve the more i support purchasing beer. in a letter to the s.e.c. on may 24th of this year, professor

coffee, the consumer federation of america,suior several thers, wrote the ing,nd i quot we are concerned that the ss.e.c.' slow pace on dfrank while vestinresources and oth wer priority initiative and testifying to its prompt efforts to implement the jobs act creates at least the appearance of bowing to political expediency. we believe that leap-frogging ruling-making whose deadlines is months away ahead of rule-making whose deadlines are months past and in some cases cherry picking which congressional mandates the commission will even choose to follow violates both the spirit and the letter of the law and is inconsistent with the s.e.c.'s duty to protect investors and facilitate capital formation. obviously the question gets to how important it is to dodd/frank to be implemented but in your view as well, is there any reason that the implementation of jobs should be prioritized over the

implementation of dodd/frank? >> i'm not sure i call a priority because dodd/frank was passed in 2010 and it was two years ahead of the line, but would i tell you in the simplest terms is that the biggest problems in our financial economy are the problems associated with systemic risk. we have not yet solved those problems. issues like the volcker rule and how you can keep banks that are too big to fail from taking on risk that could cause them to fail or the problems with the money market funds where there could be a bank run on money market funds, those are huge, difficult problems, they affect not only investors but affect everyone in the united states because a major failure will push us back a dprempingts therefore, i would say the problems associated wh systemic risk serve a priori. i do agree, however, the ms ll issue ofs, aferingess capital for smaller companies, are quite prominent and they should be

pursued. >> you see no position to leapfrog one set of priorities over another. >> i think one is enormously important. systemic risk, all of the future of our economy depends upon being able to solve in a credible fashion the problems of major bank failure, and we all are under the shadow of what could happen in europe within a matter of weeks. >> thank you, mr. chairman. i yield back. >> i certainly appreciate it. i've got a few final clean-up questions, if the panel couldn't mind, and the ranking member doesn't mind. professor coffee, to your comment. i -- i am grateful for you saying this. the s.e.c. prioritize their rule-making. for instance, they spent enormous resources trying to write a rule on conflict minerals that was in dodd/frank. that certainly isn't systemically important especially in light of the whole world we're going through. your point is exactly right. i do appreciate that. now, we also have the general

solicitation, the change in relief of the ban on general solicitation contained in the jobs act, and they had to write various -- you know, very basic rules, i would -- i would foresee seeing it's a lifting of something. it's supposed to be done by july fourth. now, what do you foresee the consequences of them not doing this by the time line? mr. coffee, mr. cartwright, this is your stock and trade. we'll start -- we'll start with you, mr. coffee. >> the simplest rules are those associated with private placements. what i would tell you, which i think i have to tell to you add reality to this discussion, if any entrepreneur advised by any of the great majority of securities lawyers were to consider what's the most feasible option today to raise capital for a small business, they would basically choose between the new liberalized private placement and the new

expanded 3b small issue exemption. they are much more attractive and more feasible than a still novel and still very esoteric crowd funding exemption. >> well, crowd funding is still not allowed because we're still waiting for the s.e.c. to write regs by the end of the year. >> even if they write the regs they have to address so much different things that it's simpler using a very time-honored path with a general solicitation. i think that would be very feasible and testified in favor of it in december and still think it will work and those are easy to write. >> to take that to the next step. is it because you think that crowd funding as was written into law is too cumbersome, too complicated, too complex? >> remember that the ceiling is low. the amount you can sell any investor is 10,000 if they are fairly wealthy. they are restricted securities and they come with a intelligence-based liability regime. an issuer hears that and the

alternative is a private placement to a credit investors who are numerous and to assume you've got to prove intent to defraud. most issuers would say regardless of the s.e.c. rules i want that way in which i can't get sue and i can sell unlimited amounts. >> well, you've made professor bradford's point on the liability provision within the crowd funding. >> that's not the s.e.c. >> oh, no, i know, i know, and it's my colleagues, my good friends on the other side of this institution that put in imperfect language that if you read it, you realize that they did not reconcile their differences between paragraphs. ah the wisdom of the great debating society of the senate. no offense. this is not a partisan matter because we can agree the senate is the true enemy, not -- no division between parties there. >> cul-de-sac, not an enemy. >> that's a better point, absolutely. so -- so to your point.

that provision, that liability provision is higher than what you'd have in private placement. >> yes. >> it just affects the choice an issuer will make. >> well, this is fantastic. you know, we've got a bipartisan, you know, whole variety of views on this panel, but there's consensus here. >> i would add, too, i would agree with my colleague on one other thing, there is a rule known as the private placement rule in regulation "d." it's known to most lawyers as the innocent and immaterial exemption. if your mistake and innocent and immaterial and not intentional the offering to most of those people will still be good. i think that rule could be generalized for both 3b and crowd funding as well, and right now it's totally ambiguous what the standards will be. >> okay.

wow. thank you. that's -- yeah, that's amazing. mr. cartwright, the ban on general solicitation, this removal. the s.e.c. is supposed to write regs by july fourth. if they fail to do that, what are the consequences? to the marketplace? >> and -- and i will just, you know, second much of what was just said, and with respect to general solicitation, as has been said, those rules should be relatively easy to write so we shouldn't have to wait too long for them, i don't think, and if they are not written, then the existing regime will continue which is an imed by meant and makes it harder to raise sufficient funds to reach enough investors. lots of offerings are completed nonetheless but presumably at the margins it's slowing down capital formation and at this time in our economic history we could use more, so i think the

s.e.c. ought to be urged to promulgate those fourthwith. >> mr. hillel-tuch, you mentioned that you desire to become a crowd funding portal for equities, so this provisions that the jobs act open up, you desire, and your firm desires to do that, to become a portal. so, as the law is currently written, how can you compete against broker dealers given the disadvantages the law imposes on portals? is that a distinct challenge? >> the -- the way the jobs act is written right now, we're still at a place where if the s.e.c.'s given the education awareness and the proper nudging, it could fall out in a way that we could actually become an equity-based platform. that said there is a risk that if they make it too tight, they add additional requirements, we

will not do it, and the reason is we don't think it will serve the issuer or the investor properly. when it properly. when it comes to making this actually happen and what is our motivation to do so, we believe that you need to make sense to different individuals. one of the things that we haven't addressed here, and i was hoping to bring up is the concept around job creation. by providing clear communication, which is our intent, is very empowering to individuals right now he are dependant on very are costly access forms of capitol. broker dealers are not the

cheapest forms out there. and for small business, the ones who create the largest job growth numbers out there, they are looking at $50,000, maybe 100 or 200, a broker deeper is an expensive way to access capitol. you are not able to get support from or community. under section 304, that undermines a portal's ability to interact between investors. and holding, managing or possessing managing funds ar securities. in addition, national security association presumably, we presume may exercise very broad

expression over portals. that seem to me to be affecting portals to the benefit of well, the exsiting regime of broker dealers. >> what we did to combat that was a lot of education. the sec and the other group both is a copy of it. this requirement is out there and offer investment advice is way more strict than some of the things out there. it is the level of oversight that they are providing here is excessive and sometimes right. we are probably leaning more -- >> stricter or more costly? >> they go hand in hand. it is an issue where going back

to what is the eastiest way to how to access capitol. it is expensive and we have to recognize that. that should not be your cheapest option when there are other mean to do so. >> how would you fix the jobs act so that it could work, function and doe so in a costly manner with as minimal amount of fraud as possible. >> i don't think the bill is as bad as others think. right now, if you were to make one sale to one qualified person, because they didn't get the right materials or answer questions that prove they understood them, there would be an issue whether the whole

offering was bad. which we have under private placement and it might as well be applied to 3 b as well. any mistakes should not cost the offering. >> must that be done legislatively? >> 508 is not based on legislation. >> well, we are hopeful that the sec is either watching this, and if so hello. >> i'll get angry e-mail if they are. >> if not we hope they will read the transcripts and i will read her the transcript thursday morning. it should make for an entertaining and lengthy hearing. >> same question, how would you improve the job funding section

of the act so that the offerings can occur in an affordable fashion? >> the way to say that is to move it back in the direction of the bill that came out of the house. what we have done is overlaid the bible for big offerings with gatekeepers who are expensive on an original idea who was designed for small offerings for small scale businesses and they are income patible so there is probably lots of places where you could move things back that would be helpful. you probably need to do a number of those before you get to the point where there has been enough change to make this approach viable. i think as it is kurnlly quinn

it may have been strangled in it's crib. there has been so much added to it that it may be on the lower end of the range. the costs will be prohibitive. i have suggestive in my written testimony, it ought to carefully evaluate what those costs will be. if it turns out that, that layering turns out to be more, they should take appropriate action. >> mr. holtoc are k same question.

going back to the example mentioned to you before, that 500 raised came at a cost of only $20. that is not expensive. i'm able to track funds and how they are handled and spent. the web-based platform that we are still using, naturally if

the sec is still using, i would love to explain to them how it works. one of the issues right now is there is a big difference in education. they move back to the old roots of understanding. we ne we need to be one of the last developing nations not doing so. that for me is personally troubling considering we have a huge opportunity here. >> professor bradford same question final word. >> i have it right here.

for those of you who are watching this professor brad fort has written the bible and crowd funding and something that my whole staff has read and i have read as well. there are a lot of things unclear exactly what the meaning of the language is. i would reduce the regulatory burden.