A small business investment bill that had appeared to enjoy wide bipartisan support was in danger of collapsing Tuesday after Senate Democrats and Republicans split over two attempts to amend it.
The legislation, which gives small businesses and startups a break from some federal regulations so they can more easily raise capital, hit a wall after Senate Republicans rejected Democratic attempts both to add investor protections and link the bill to extension and expansion of the Export-Import Bank.
The partisan clash came less than two weeks after the House passed the measure 390-23 and, with support from President Barack Obama, it seemed to be on a fast track toward becoming law.
Senate Majority Leader Harry Reid, D-Nev., said Republicans were making a "huge mistake" in blocking the reauthorization of the Ex-Im Bank, an agency that provides finances for U.S. companies trying to sell their products abroad, and called a closed-door meeting of Democrats to discuss how to proceed.
Reid's office said later there would be another procedural vote Wednesday on keeping the bill alive, and Democrats suggested the leadership would try to bring up another amendment. But it was unclear whether the bill now had enough Democratic support to pass.
Sen. Carl Levin, D-Mich., one of the sponsors of the amendment to increase investor protections, said making small changes to the bill were insufficient, and he couldn't vote for it.
The Ex-Im Bank, which in the past has been supported by both parties, also became the unexpected subject for an angry debate.
Senate Republican leader Mitch McConnell, R-Ky., said many Republicans support the Ex-Im Bank, but that adding it to the small business bill "would only delay passage of this bipartisan jobs bill." His Republican colleagues fell in line, including Sen. Richard Shelby of Alabama, top Republican on the Senate Banking Committee and a supporter of the measure to reauthorize the bank.
Reid issued a statement saying Republicans voted against the Ex-Im Bank provision "simply to provide cover for tea party extremists in the House."
He said the crowded Senate agenda would make it difficult to return to the bill, hurting U.S. companies trying to do business abroad. The bank's authorization expires on May 31, but it may soon reach its lending ceiling of $100 billion. The Democratic amendment would have extended the bank for four years and raised the lending limit to $140 billion.
Bank financing last year supported $41 billion in U.S. exports from more than 3,600 U.S. companies.
Some conservative groups, such as the Club for Growth, have urged conservatives to kill the bank, saying it distorts the market and picks winners and losers. The bank also divides the aircraft and airline industry: Boeing Co. is a major beneficiary of Ex-Im Bank financing, while Delta Air Lines has criticized the bank for providing loan guarantees that allow foreign airlines to save money on new U.S.-made planes, resulting in unfair competition.
Both amendments were defeated on near-party line 55-44 votes. Sixty votes were needed to advance the measures.
The small business bill, which its House Republican supporters refer to as the JOBS Act, would exempt small businesses and startups from some Securities and Exchange Commission regulations. The centerpiece for the six bills in the package is a provision that would reduce the costs of companies seeking to go public by phasing in over five years SEC regulations that apply to what are categorized as "emerging growth companies." That status would be in effect for companies with annual gross revenue of less than $1 billion.
Senate Democrats argued that it would exempt more than 80 percent of current initial public offerings or IPOs. Their defeated amendment would have narrowed the qualified companies to those with less than $350 million in annual revenues.
The measure also removes SEC regulations preventing small businesses from using advertisements to solicit investors, raises from 500 to 2,000 the shareholders a company or community bank can have before it must register with the SEC and allows smaller companies to sell up to $50 million in shares, up from the current $5 million, without filing some SEC paperwork.
One of the more hotly-debated provisions removes SEC restrictions on "crowdfunding," a practice of using the Internet to raise capital from a large number of smaller investors. The measure limits individual contributions to $10,000 or 10 percent of the investor's annual income and requires the intermediary or issuer of the offering to provide the SEC with information about the transaction.
Within days of the House vote, questions arose about consumer protections. Mary Schapiro, chairman of the SEC, listed a number of concerns, including that the bill would remove the firewall between research analysts who are supposed to provide objective information about investments and investment bankers in the same firm whose main function is to encourage people to invest. AARP said the elderly are disproportionately the victims of investment fraud and said it agreed with Schapiro that, absent safeguards, the House bill "may well open the floodgates to a repeat of the kind of penny stock and other frauds that ensnared financially unsophisticated and other vulnerable investors in the past."
The White House, while maintaining support for the bill, issued a statement last week saying it supported Senate efforts to ensure there are sufficient safeguards to prevent abuse and protect investors.
"None of us wants this legislation to be a boon to boiler room operators and Ponzi schemers targeting our nation's retirees or anyone else," Sen. Jack Reed, D-R.I., said.
Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, stressed Monday that the House bill contains strong investor protections and that Senate Democratic objections were part of a "cynical campaign strategy of running against a so-called do-nothing Congress."
House Majority Leader Eric Cantor, R-Va., the chief backer of the House bill, on Monday criticized what he said where "11th hour claims about phantom investor protection issues or adding partisan amendments like the Ex-Im Bank reauthorization that threaten to derail the bill."
Cantor's office said he was working on a separate Ex-Im Bank overhaul bill that he hopes to bring to the House floor before the end of the month.
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