House: Vote NO on Invest Act/HR 3383
Honorable Member
U.S. House of Representatives
Washington, DC 20515
Please Vote NO on HR 3383, INVEST Act
Dear Representative,
On behalf of more than one million members and supporters of Public Citizen, we urge you to vote NO on HR 3383, the INVEST Act (the Increasing Investor Opportunities Act). Public Citizen is a national, nonprofit consumer advocacy organization that fights to protect democracy, strengthen consumer protections, and hold corporations and government accountable to the public interest. We represent more than one million members and supporters nationwide who believe markets should serve people—not Wall Street insiders. For more than five decades, Public Citizen has led campaigns to defend investor protections, promote transparent and fair capital markets, and prevent corporate abuses that harm consumers, workers, and retirees.
We oppose the INVEST Act because it weakens long-standing investor protections that Main Street families rely on to invest their savings safely and with confidence. By reducing disclosure requirements and steering everyday investors toward riskier, lightly regulated products, the bill increases the likelihood that teachers, retirees, and workers will bear the costs of Wall Street-driven deregulation. Strong, transparent public markets are the backbone of honest capital formation for small businesses and community investors alike, and this legislation undermines that foundation. Ultimately, it puts Main Street at greater risk while benefiting financial intermediaries who profit from complexity and reduced oversight.
This legislative terminal moraine composed largely of Wall Street-favored deregulatory rubble promoted over the last decade by the House Financial Services Committee disserves investors and will discourage honest capital formation. Generally, these bills aim to increase the ability of sales agents to unload dubious deals that sophisticated investors have rightly rejected by reducing disclosure requirements that would otherwise reveal weaknesses. Simultaneously, the bill enlarges the population of marks for such dubious deals.
A very few provisions of this legislation do little harm. But Republican sponsors have chosen to infest thoroughly the INVEST bill with so many problematic provisions that, we believe, must compel responsible Representatives to vote against this package.
Analysis of Bill
Title I generally reduces disclosures. Sec. 102 allows small firms to promote their shares at certain events known as “demo days” without previous registration with the Securities and Exchange Commission (SEC). This eliminates an important step for companies that hope to win public investment. Stock shouldn’t be sold in church meetings, or through whispered encounters in dark allies. Firms that solicit public investment should file necessary information with the SEC; that applies to large firms and especially small firms with limited histories that could pose a greater investment risk.
Section 103 excuses more companies from publishing independent financial statements when selling stock to average investors. In fact, companies with little track record should both be more able than large companies to recount that history, and which is even more important where there may be an absence of sophisticated, institutional investors assessing the stock and establishing a fair price.
Section 109 exposes more average investors to speculative venture capital deals that lack conventional disclosure. Venture capital deals constitute some of the most perilous.
Title II proposes to open the hunting field for purveyors of high-risk projects by adding additional categories of average investors. The title accomplishes this by eroding the definition of “accredited investor.” Accredited investors, defined as those earning more than $200,000 annually with more than $1 million in assets (beyond the value of a home), may be offered higher risk investment opportunities than those with more modest means. The SEC established these thresholds in 1982, so inflation renders them irresponsible low, already exposing too many investors to risky ventures. The SEC should dramatically increase these thresholds. Instead, Section 201 locks in these perilously low, outdated income and wealth thresholds for individuals to qualify as accredited investors and prevents the SEC from establishing a safer level.
Section 202 proposes to open so-called 403(b) plans widely used by public school teachers to unregistered brokers who sell unregistered securities. These securities may be unsafe, and the sales representatives do not adhere to investor protection standards that apply to registered brokers. We believe investors in these plans shouldn’t be exposed to such lightly overseen products; plenty of safe investment alternatives abound for these teachers. Again, the push for this comes from Wall Street.
Section 203 expands the definition of accredited investor to those individuals who pass an exam. Permitting a test devised by an agency such as the current one bent on reducing investor protections will insufficiently qualify an investor. Moreover, growth in the private markets (open only to accredited investors) subverts growth in public markets. We urge Congress to take steps to bridle the flow of investor capital away from public markets, which should be the gold standard, into private markets. We support studies on this issue, but oppose rulemaking, especially by the current SEC commission which lacks a majority committed to investor protection.
This debasement of accredited investors originates not from appeals by retail investors but from Wall Street brokers. Investors with modest accounts don’t reject the opportunity to invest in the thousands of public companies with robust disclosures and instead wish they could risk their savings in unproven ventures that lack complete audited disclosures with only a small chance of surviving. Instead, the push for this change comes from the sales side.
Sec. 205 would reduce the paper mailings of financial disclosures to investors, forcing internet-only access. Many Americans do not enjoy ready access to the internet, such as some seniors. Pew Research quantifies the millions of Americans including those aged 50 and older or living in rural areas who lack regular broadband internet access. Seventeen percent of adults above the age of 65 can access the internet only on their smartphones. A small screen isn’t ideal for studying a large balance sheet. Ending mailings would harm their ability to remain informed about foundational company information.
Section 206 allows certain mutual funds, which cater to average investors, to invest in private funds. Private funds pose greater risks than those available to average investors. If accredited investors avoid these investments, they must not be pawned off on average investors.
Title III reduces disclosure requirements, which fails average investors. Sec. 301 allows certain smaller companies to file draft registration statements with the SEC for confidential review. It would also allow these firms to submit only two years, instead of three years, of audited financial statements before an initial public offering (IPO). Smaller firms with limited track records should disclose more, not less information to investors as they represent higher risk.
Sec. 303 allows an issuer to communicate with potential investors to determine interest in a securities offering before filing registration. We believe registration should precede sales efforts; a company should stand on the cold numerical facts of its performance and not the hot pitch of a salesman.
Sec. 304 allows an emerging growth company (EGC) to provide only two years of audited financial statements. Such firms can be large and should issue more financial statements, not fewer.
Conclusion We believe this bill threatens investor safeguards that form the foundation of honest capital markets, and therein, challenges the investor faith that legitimate entrepreneurs depend on when selling securities. We appreciate HR 3383 rolls up many bills sponsored by many Republican members of the committee of jurisdiction that allows them to oblige his or her Wall Street donors. But such a dynamic is no basis for responsible lawmaking.
We ask members to Vote NO on HR 3383.
For questions, please contact Bartlett Naylor at bnaylor@citizen.org
Sincerely,
Public Citizen