The House voted Wednesday to exempt certain private equity firms from various SEC reporting requirements in the Dodd-Frank law. (J. Scott Applewhite/AP)

The House of Representatives has approved legislation that would exempt most private equity firms from registering with federal regulators, a move intended to ease the flow of capital to new and growing businesses.

Currently, in the interest of investor protection, most financial advisory firms that manage more than $150 million in private funds are required to register with and file regular reports to the Securities and Exchange Commission. Many of the requirements have become all the more onerous under the financial reform law known as Dodd-Frank.

Called the Small Business and Capital Access and Job Preservation Act, the proposal approved Wednesday would exempt from those requirements any private equity firm with an outstanding investment balance more than double its capital investment commitments. It passed by a vote of 254 to 159, with 36 Democrats backing the legislation.

Supporters say the changes would eliminate regulatory hurdles that deter private equity groups from forming in the first place, and as a result, it would increase the amount capital available to small, growing companies, which create a large share of the nation’s new jobs.

“The Dodd-Frank Act creates excessive red tape that inhibits growth, and the costly new requirements on smaller private equity funds is a clear example,” House Small Business Committee Chairman Sam Graves (R-Mo.) said in a statement, adding that the bill would “reduce that regulatory burden on private equity funds in a common sense way, so that private sector capital isn’t unnecessarily restricted.”

Marc Reich, president of Ironwood Capital, a mid-sized private equity firm in Avon, Conn., says it cost his company roughly $100,000 to register with the SEC, and it will likely cost twice that much each year to stay in line with the beefed-up regulations. He argued some of the rules, like one that requires his firm to review all e-mail messages in search of foul play like insider trading, don’t necessarily benefit the sort of investor who work with small equity firms, as those firms don’t generally handle publicly-traded securities.

“We’ve had some time to see what is right and what is wrong with [the Dodd-Frank] rules,” Reich, a member of the Small Business Investor Alliance, wrote in a column published by The Hill. “It is now time to clean up the parts we can all agree should not apply to certain financial firms, so that more investment capital can get to work for Main Street and our economy.”

Citing industry research, Graves’s office noted that more than 17,000 businesses have been fueled by private equity, and those companies employ more than 7.5 million people.

Some House Democrats say they don’t that track record as reason to allow those investment firms to operate with limited oversight.

“Yes, we appreciate investment. Yes, we want job creation,” Rep. Maxine Waters (D-Calif.), the ranking member on the House Financial Services Committee, said on the floor Wednesday. “But why should we have private equity funds that somehow have no oversight, that don’t have anybody scrutinizing what they’re doing?”

“That just doesn’t make good sense,” she added.

SEC chief Mary Jo White has criticized the legislation, too, and President Obama has threatened to veto it, should it ever make its way to the White House — giving the Senate little incentive to take up the bill anytime soon.

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