HIGH COSTS OF SEC APPROACH

By Yin Wilczek

In recent comment letters, small businesses and other industry representatives warned that the Securities and Exchange Commission must lower the costs for issuers and intermediaries if equity-based crowdfunding is to be viable.

Many commenters, including the Small Business Administration’s Office of Advocacy, also are questioning the commission’s estimated compliance costs for those that may want to offer crowdfunded securities.

Conversely, a far smaller group of commenters–including state securities regulators–urged the SEC to increase investor safeguards by, among other measures, eliminating its proposed issuer safe harbor for “insignificant deviations” from the rules.

PROPOSED RULES

To implement the Jumpstart Our Business Startups Act, the SEC in October proposed Regulation Crowdfunding, a series of rules that would allow startups and small issuers to raise capital through the online offer and sale of crowdfunded securities .

The SEC’s proposal would impose tiered financial disclosure requirements based on three groups of crowdfunded offerings: below $100,000; from $100,000 to $500,000; and above $500,000. Issuers trying to raise $500,000 or more would have to provide, on an ongoing basis, audited financial statements.

According to commission estimates, it would cost issuers about:

• $12,960 to $17,960 for an offering below $100,000;

• $25,460 to $55,460 for an offering between $100,000 to $500,000; and

• $47,960 to $122,960 for an offering above $500,000.

 

Issuers would not be allowed to raise more than $1 million within a 12-month period.

The comment period for the proposal ended Feb. 3, and the commission’s website so far shows that it received more than 250 comments on the rulemaking.

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