Library of Congress Summary
The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress.
Venture Capital Marketing Association Charter Act - Amends the Small Business Investment Act of 1958 (the Act) to establish the Venture Capital Marketing Association (VCMA) as a private, tax-exempt corporation in the Washington, D.C., metropolitan area.
Requires a permanent VCMA Board of Directors of 15 members.
Outlines administrative provisions with respect to VCMA, including provisions regarding an interim Board, member terms, and general powers.
Requires VCMA to have and issue voting and nonvoting common stock, as well as nonvoting preferred stock.
Directs VCMA to require each small business investment company (SBIC) to make payments to VCMA of a specified percentage of its nonrefundable capital contributions, so that VCMA may accumulate funds for its capital surplus account (account).
Requires VCMA to issue voting common stock to such SBICs in an amount equal to their contributions.
Authorizes VCMA, in order to accumulate additional funds in the account, to issue voting common stock to private investors other than SBICs. Outlines rights of holders of nonvoting common and preferred stock.
Authorizes depository institutions to make payments of capital contributions to VCMA and to receive VCMA stock.
Authorizes VCMA to issue and have outstanding obligations having such maturities and bearing such rates of interest as may be determined by a Board majority.
Authorizes the Secretary of the Treasury to purchase and sell any obligation issued by VCMA, but limits to $1 billion the total outstanding VCMA obligations authorized to be held by the Secretary. Treats all obligations issued and guaranteed by VCMA as lawful investments and exempt securities as defined under the Federal Reserve Act and public finance law.
Authorizes VCMA, after its permanent Board is elected, to purchase, sell, and otherwise deal in small business investment securities (securities).
Provides for perfection of interests in such securities under the Uniform Commercial Code. Authorizes and directs the Small Business Administration (SBA) to enter into a contract with VCMA under which VCMA manages and services all securities and commitments outstanding, and all assets held by SBA in default or liquidation status, as the result of liquidation or default proceedings by SBICs. Provides contract terms and conditions.
Requires a VCMA report to the Senate and House Small Business Committees (small business committees) describing the activities of SBA and VCMA under such contract.
Directs VCMA to:
(1) establish appropriate criteria for the qualification of SBICs to conduct business with VCMA; and
(2) redetermine such qualifications upon a change of control due to a transfer of ownership.
Requires each SBIC authorized to operate with VCMA to have private capital of no less than $5 million, with an exception for licensees in good standing at the time SBA receives notice that VCMA is ready to do business with a permanent Board. Makes national banks of the Federal Reserve System and nonmember insured banks as permitted under State law eligible to purchase ownership interests in SBICs. Authorizes each SBIC to purchase VCMA stock and to borrow money and issue debentures and other obligations or securities, subject to VCMA rules.
Makes certain provisions of the Act inapplicable to SBICs. Directs VCMA to contract with qualified SBICs to carry out the purposes of this Act. Authorizes or directs qualified SBICs to:
(1) provide equity capital and loans to small business concerns;
(2) follow VCMA conflict-of-interest rules, as well as rules restricting SBIC control of small businesses that have borrowed from such SBIC;
(3) invest only in small business concerns which are independently owned and operated, are not dominant in their field of operations, and maintain specified limits on net worth and income; and
(4) provide financings of small businesses for a minimum of five years, with a limitation on the amount of obligations and securities invested in a single enterprise.
Prohibits SBICs from financing a small business for purposes of relending, foreign or passive investments, or the acquisition of real estate.
Directs the Board to require each SBIC to adopt rules for the determination of the value of investments made by such company.
Requires the Board to adopt rules to minimize the risk of loss to VCMA on the total amount of securities issued by any individual SBIC or by SBICs under common control.
Requires each SBIC to undergo financial audits at least annually, and compliance audits at least every two years.
Directs VCMA to adopt appropriate measures to ensure compliance by SBICs with the requirements of this section.
Provides penalties for SBIC noncompliance.
Preempts State law with respect to any business loan made by an SBIC under this Act. Limits the total amount of leverage that may be provided by VCMA to an SBIC to 300 percent of such company's private capital, as determined under a specified leveraging formula.
Requires VCMA accounts to be audited annually, and a report on such audit results to be made by the Office of Investment Oversight to the President and the small business committees.
Establishes in SBA an Office of Investment Oversight (Office), headed by a Director, to review and report on the regulatory and financial performance of VCMA. Requires the Director to establish a risk-based capital test to determine the amount of regulatory capital sufficient for VCMA to maintain positive capital during a ten-year period in which specified circumstances occur.
Provides considerations for establishing such test and requires the Director to examine and revise such test six years after the enactment of this Act. Provides, for purposes of such test, the amount of:
(1) risk- based capital level;
(2) minimum capital level;
(3) critical capital level; and
(4) VCMA enforcement levels (requiring such enforcement level to be determined no less than semiannually).
Requires notification to the Congress when VCMA reaches levels II or III (poorer levels as to minimum capital and critical capital levels).
Requires specified mandatory VCMA actions when its enforcement levels fall to II or III, including submission to the Director for approval of a capital restoration plan.
Provides mandatory and discretionary Director supervisory actions applicable to a VCMA that reaches a level III enforcement level.
Provides access by the small business committees of VCMA books and records and subjects such records to examination by the General Accounting Office (GAO). Authorizes the Office to review the VCMA's criteria for the qualification of SBICs to conduct business with VCMA, as well as VCMA's rules governing SBIC operations.
Requires an annual VCMA report to the President, SBA, and the small business committees on its operations and activities during the previous fiscal year.
Requires a GAO report to the small business committees on the impact of VCMA. Directs SBA to furnish to VCMA all necessary books and records to carry out their purposes under this Act. Allows licensees (SBICs currently in good standing with the SBA under loan agreements) three months to qualify for loans and guarantees from VCMA.