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Legislation to Further Reduce Impediments to Capital Formation

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LEGISLATION TO FURTHER REDUCE IMPEDIMENTS TO CAPITAL FORMATION HEARING BEFORE THE SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION OCTOBER 23, 2013 Printed for the use of the Committee on Financial Services Serial No. 113–46 ( U.S. GOVERNMENT PRINTING OFFICE 86–681 PDF WASHINGTON : 2014 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 14:47 May 06, 2014 Jkt 086681 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\86681.TXT TERRI HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman GARY G. MILLER, California, Vice Chairman MAXINE WATERS, California, Ranking SPENCER BACHUS, Alabama, Chairman Member Emeritus CAROLYN B. MALONEY, New York PETER T. KING, New York NYDIA M. VELA´ ZQUEZ, New York EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California SHELLEY MOORE CAPITO, West Virginia GREGORY W. MEEKS, New York SCOTT GARRETT, New Jersey MICHAEL E. CAPUANO, Massachusetts RANDY NEUGEBAUER, Texas RUBE´ N HINOJOSA, Texas PATRICK T. MCHENRY, North Carolina WM. LACY CLAY, Missouri JOHN CAMPBELL, California CAROLYN MCCARTHY, New York MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts KEVIN McCARTHY, California DAVID SCOTT, Georgia STEVAN PEARCE, New Mexico AL GREEN, Texas BILL POSEY, Florida EMANUEL CLEAVER, Missouri MICHAEL G. FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin LYNN A. WESTMORELAND, Georgia KEITH ELLISON, Minnesota BLAINE LUETKEMEYER, Missouri ED PERLMUTTER, Colorado BILL HUIZENGA, Michigan JAMES A. HIMES, Connecticut SEAN P. DUFFY, Wisconsin GARY C. PETERS, Michigan ROBERT HURT, Virginia JOHN C. CARNEY, JR., Delaware MICHAEL G. GRIMM, New York TERRI A. SEWELL, Alabama STEVE STIVERS, Ohio BILL FOSTER, Illinois STEPHEN LEE FINCHER, Tennessee DANIEL T. KILDEE, Michigan MARLIN A. STUTZMAN, Indiana PATRICK MURPHY, Florida MICK MULVANEY, South Carolina JOHN K. DELANEY, Maryland RANDY HULTGREN, Illinois KYRSTEN SINEMA, Arizona DENNIS A. ROSS, Florida JOYCE BEATTY, Ohio ROBERT PITTENGER, North Carolina DENNY HECK, Washington ANN WAGNER, Missouri ANDY BARR, Kentucky TOM COTTON, Arkansas KEITH J. ROTHFUS, Pennsylvania SHANNON MCGAHN, Staff Director JAMES H. CLINGER, Chief Counsel (II) VerDate Nov 24 2008 14:47 May 06, 2014 Jkt 086681 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\86681.TXT TERRI SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES SCOTT GARRETT, New Jersey, Chairman ROBERT HURT, Virginia, Vice Chairman CAROLYN B. MALONEY, New York, SPENCER BACHUS, Alabama Ranking Member PETER T. KING, New York BRAD SHERMAN, California EDWARD R. ROYCE, California RUBE´ N HINOJOSA, Texas FRANK D. LUCAS, Oklahoma STEPHEN F. LYNCH, Massachusetts RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin MICHELE BACHMANN, Minnesota ED PERLMUTTER, Colorado KEVIN McCARTHY, California DAVID SCOTT, Georgia LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut BILL HUIZENGA, Michigan GARY C. PETERS, Michigan MICHAEL G. GRIMM, New York KEITH ELLISON, Minnesota STEVE STIVERS, Ohio MELVIN L. WATT, North Carolina STEPHEN LEE FINCHER, Tennessee BILL FOSTER, Illinois MICK MULVANEY, South Carolina JOHN C. CARNEY, JR., Delaware RANDY HULTGREN, Illinois TERRI A. SEWELL, Alabama DENNIS A. ROSS, Florida DANIEL T. KILDEE, Michigan ANN WAGNER, Missouri (III) VerDate Nov 24 2008 14:47 May 06, 2014 Jkt 086681 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\86681.TXT TERRI VerDate Nov 24 2008 14:47 May 06, 2014 Jkt 086681 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\86681.TXT TERRI C O N T E N T S Page Hearing held on: October 23, 2013 ............................................................................................... 1 Appendix: October 23, 2013 ............................................................................................... 41 WITNESSES WEDNESDAY, OCTOBER 23, 2013 Abshure, A. Heath, Arkansas Securities Commissioner, on behalf of the North American Securities Administrators Association .............................................. 8 Arougheti, Michael J., Chief Executive Officer, Ares Capital Corporation ......... 10 Ertel, J. Michael, Managing Director, Legacy M&A Advisors, LLC ................... 11 Frank, Alexander C., Chief Financial Officer, Fifth Street Management LLC .. 13 Quaadman, Tom, Vice President, Center for Capital Markets Competitive- ness, U.S. Chamber of Commerce ....................................................................... 16 Weild, David, Founder, Chairman, and Chief Executive Officer, IssuWorks ..... 18 Wunderlich, Gary K., Jr., Chief Executive Officer, Wunderlich Securities, on behalf of the Securities Industry and Financial Markets Association (SIFMA) ................................................................................................................ 14 APPENDIX Prepared statements: Abshure, A. Heath ............................................................................................ 42 Arougheti, Michael J. ....................................................................................... 58 Ertel, J. Michael ............................................................................................... 64 Frank, Alexander C. ......................................................................................... 104 Quaadman, Tom ............................................................................................... 108 Weild, David ...................................................................................................... 154 Wunderlich, Gary K., Jr. .................................................................................. 174 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Garrett, Hon. Scott: Letter to Representatives Garrett and Maloney from the Financial Serv- ices Roundtable ............................................................................................. 180 Written statement of Joseph Ferraro, General Counsel, Prospect Capital Corporation .................................................................................................... 181 Letter to Representative Elizabeth Esty from Michael F. Foley, former President and CEO, Reflexite Technology Corporation ............................. 183 Letter to Representatives Garrett and Maloney from the Small Business Investor Alliance ........................................................................................... 185 Letter to SEC Chair Mary Jo White from various companies ...................... 187 Maloney, Hon. Carolyn: Letter to Representatives Garrett and Maloney from SEC Chair Mary Jo White ......................................................................................................... 191 Sherman, Hon. Brad: Letter to Representatives Garrett and Maloney from the National Asso- ciation of Federal Credit Unions ................................................................. 196 (V) VerDate Nov 24 2008 14:47 May 06, 2014 Jkt 086681 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\86681.TXT TERRI VerDate Nov 24 2008 14:47 May 06, 2014 Jkt 086681 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\86681.TXT TERRI LEGISLATION TO FURTHER REDUCE IMPEDIMENTS TO CAPITAL FORMATION Wednesday, October 23, 2013 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 2:28 p.m., in room 2128, Rayburn House Office Building, Hon. Scott Garrett [chair- man of the subcommittee] presiding. Members present: Representatives Garrett, Hurt, Royce, Huizenga, Grimm, Stivers, Mulvaney, Hultgren, Ross; Maloney, Sherman, Moore, Scott, Himes, Peters, Watt, Foster, Carney, Se- well, and Kildee. Ex officio present: Representative Hensarling. Also present: Representative Duffy. Chairman GARRETT. Good afternoon. The Subcommittee on Cap- ital Markets and Government Sponsored Enterprises is hereby called to order. And I welcome the panel and their indulgence as we just concluded votes for the morning until the next series of votes. Before we go to the panel, we will have opening statements, and I will begin by yielding myself 3 minutes. Today’s hearing, as you all know, is on legislation to further re- duce impediments to capital formation for who? For America’s small businesses. In a moment, I am going to recognize my col- leagues for opening statements to introduce their legislative pro- posals. But first, I would like to briefly highlight a mixed bag, if you will, of recent developments in the area of small business cap- ital formation. First, data continues to flow in on the early impact of the JOBS Act and the results are very encouraging. Thanks in large part to the law’s self-executing IPO on-ramp provisions, this is helping to shape up to be one of the best years for IPOs since 2007, and with more than 150 of them through the first three quarters and count- ing, it is a good track record. And so for our tech savvy crowd, I guess you could simply say with a hash tag the JOBS Act is work- ing. Now, in addition, while the SEC’s statutory mission to promote capital formation has largely been ignored over the past 4 years, it does seem that the Commission is finally getting around to its responsibilities under the JOBS Act. Back in July, the SEC issued
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