The U.S. House of Representatives passed legislation yesterday to require investment companies located in Puerto Rico and other U.S. possessions to adhere to federal registration requirements imposed by the Securities and Exchange Commission (SEC). Current law exempts such companies from registration requirements with the SEC provided that their shares are sold solely to the residents of the territory or possession in which they are located.
The U.S. Territories Investor Protection Act of 2017, is sponsored by Rep. Nydia Velázquez and has a bipartisan list of cosonsors: Reps. Sean Duffy, [R-WI], Jose Serrano [D-NY], Thomas MacArthur [R-NJ], Jenniffer Gonzalez-Colon [R-PR], Brad Sherman [D-CA], Raul Grijalva [D-AZ], Luke Messer [R-IN], and Stacey Plaskett [D-VI].
An identical bill was introduced in the Senate in March by Sen. Bob Menendez [D-NJ], and is cosponsored by Senators Orrin Hatch [R-UT], Catherine Cortez Masto [D-NV], and Marco Rubio [R-FL].
Rep. French Hill (R-AR) called for the vote, saying, “When Congress first enacted the Investment Company Act in the 1940s, a nonregistration exemption for investment companies in the noncontiguous territories made a lot of sense as it was extremely expensive and difficult for the SEC to send staff to travel to these territories and inspect the local companies. In fact, Mr. Speaker, back in the 1940s, Eastern Air Lines bragged of their 6-hour-and-10-minute service between New York and San Juan one way for $1,700 in today’s money. So, in fact, it was challenging to get to the territories.”
Hill referred to the special provisions of the Investment Company Act for territories which would be difficult to reach and to monitor.
“But with all the significant advances in technology and travel,” Hill continued, “these logistical barriers no longer exist. As such, this bill repeals this archaic exemption and provides a reasonable and safe harbor to allow those companies currently subject to the exemption to transition.”
Velazquez said, referring to the 1940 bill, “The consequence of exemption falls squarely on the residents of U.S. territories. Investment companies can sell products to them without the important oversight, disclosure, and conflict-of-interest requirements to which mainland companies are subject.”
Gonzalez-Colon followed up with examples of problems caused by the exemption, saying, “The U.S. Territories Investor Protection Act will close a loophole in the current law. By passing this bill, Congress will bring to Puerto Rico’s investors the same protections enjoyed by investors residing in the 50 States.”
The bill passed by unanimous voice vote in the House and now goes to the Senate.