Legislation presented by U.S. Senate Banking Committee chairman, Chris Dodd is working its way through the legislative process. The proposed “Restoring American Financial Stability Act of 2009” could make it significantly harder for film producers to utilize some of the most common investor-financing models to fund the budgets of their films.
The bill is viewed by some as a way to sabotage the American creative dream machine by slipping in a little poison” and “the death knell of American leadership in the world.”
Specifically, three provisions are of significant concern to those who rely on so-called “angel” capital. These provisions would:
- increase the financial thresholds for qualification as “accredited investors,” who are, generally speaking, wealthy investors whose investments are not subject to significant federal securities regulation;
- allow the Securities and Exchange Commission (“SEC”) to make certain angel financing transactions subject to state regulation (previously, all so-called “Rule 506 offerings,” which were commonly used for angel financings, were preempted from state regulation); and
- require that those “Rule 506 offerings” that remain preempted from state regulation nonetheless be subject to a 120 day review process with the federal SEC.
Word on Capitol Hill is that the bill will undergo significant changes, but now is the time to contact your Senators and Representatives to voice your opposition to the above provisions.
Currently, an investor qualifies as “accredited if he or she has a net worth of $1 Million or more, or has an annual income over $200,000 ($300,000 for married couples). Under Rule 506, sales of securities to such investors are largely unregulated. This new bill would change that dramatically, increasing these limits, thus making it harder than ever to find qualified investors for high-risk investments like films, theatre projects or start-up ventures.
Hat tip to my colleague Peter Levitan for bringing this to my attention.