This evening, Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, took to the House floor to oppose H.R. 2799, the “Expanding Access to Fraud Act,” which is a Republican-led bill that would allow fraud and financial abuse to proliferate within our capital markets and raise costs on small businesses.

As prepared for delivery

Chair, I rise today in strong opposition to H.R. 2799—a bill that would cause significant, long-term harm to both small businesses trying to raise money, and mom and pop investors trying to save for their retirements.

A primary reason our capital markets are the envy of the world is because investors have confidence in the financial products they are investing in. That confidence is hard won, to be sure. It is the result of a robust disclosure regime that has been in place for decades and requires public companies to transparently and accurately tell investors about the innerworkings of their businesses, their financials, and the risks involved with purchasing their shares.

Investor confidence is also rooted in strong legal protections for investors and their right to have a say in the company’s direction through the proxy process.

And importantly, investor confidence is based on having a strong enforcer, the Securities and Exchange Commission, or S-E-C, that sets clear rules of the road, and keeps fraudsters out of the system.

While our capital markets are far from perfect, trillions of dollars are invested every year because investors are confident that they won’t be ripped off.

Unfortunately—the bill before us today threatens to undermine that investor confidence.

First, H.R. 2799 would expand the number of companies that are able to offer securities without needing to register with the SEC or provide critical disclosures to ordinary investors. This expansion will only benefit moderate to large companies rather than the small businesses this act purports to help.

By exempting more companies from public SEC registration requirements, this bill expands the size of the private securities markets—which are growing rapidly and already outnumber the public securities markets two-to-one.

Second, this bill makes it easier for financial middlemen to peddle opaque, illiquid, and high-risk private securities to retail investors who won’t receive the information they need to make informed investment decisions. This isn’t democratizing finance or creating investment opportunities. This is Wall Street creating another target to dump its “bottom of the barrel” investment products onto retail investors.

Private securities, compared to public securities, are significantly more risky and more volatile, less transparent, harder to cash out, and have fewer legal protections. With this bill, Republicans put Americans’ hard earned retirement savings in jeopardy.

Due to the risks inherent in private securities, our laws have important protections in place that generally prohibit stockbrokers from selling them to retail investors. But under this bill, these safeguards are weakened. For example, it will allow stockbrokers—who are permitted to favor high commissions rather than their clients’ best interest—to peddle highly risky “private investment opportunities” to unsuspecting investors, who lack the information to recognize the risks of what they are being sold or the financial ability to withstand them.

The “bottom-of-the-barrel” private securities that will be sold to retail investors as a result of this bill are especially dangerous, because they will only be offered to retail investors after private equity and venture capital funds have already passed on them. It is important to note that 90 percent of startups fail, and private equity would love to dump these stocks on your constituents.

Third, H.R. 2799 undermines the ability of state securities regulators to help small businesses raise capital and stop fraudsters. State securities regulators are on the front line of our capital markets, investigating complaints of investor fraud, enforcing state securities laws, educating investors about their rights, and helping small businesses to raise money to fund their goals and comply with the law. We should not preempt states by blocking these important overseers from doing their job.

To summarize, H.R. 2799 is a Wall Street wish list that collectively exempts big corporations and investment funds from transparency and accountability, while gutting critical legal safeguards for Main Street investors. By weakening investor protections in numerous ways, this bill would allow fraud to proliferate, and retirees and other mom and pop investors to be ripped off by bad actors. This bill will ultimately harm confidence in our capital markets while doing nothing to assist the very small businesses the bill purports to help. In fact, as investors lose confidence in our markets, small businesses would see their capital costs rise, not fall.

So, I want to thoroughly debunk the notion that this bill somehow helps small businesses because the truth is that it would do just the opposite. I am very supportive of small businesses, and in fact I have worked extensively this Congress with Chair McHenry on bipartisan ways that we can help small businesses raise capital. We have worked together to strengthen crowdfunding and to support angel investors. There are several policy solutions that we have agreed on that represent targeted ways to increase capital formation without harming investor protection.

In fact, we worked together to pass 13 bills last year that represent bipartisan, commonsense reforms that support small businesses, enabling those who are knowledgeable about the risks of private securities to make informed investments, while ensuring robust investor protections. Most of these bills also passed under suspension on the House floor. So, there is a bipartisan way forward on this issue, but instead of working with Democrats to get these bipartisan bills to the President’s desk, Republicans have packaged together this toxic combination of partisan bills and are focusing their time and energy here.

Democrats on the Financial Services Committee voted unanimously to oppose this bill at a markup last April, and I urge all of my colleagues to unanimously reject it on the floor today.

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