Bloomberg BNA: Graves Wants Disclosure Adjustments In Proposed SEC Crowdfunding Rules

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Washington, February 4, 2014 | comments

The Securities and Exchange Commission should relax some of its proposed rules on crowdfunding, the chairman of the House Small Business Committee told the agency in a Feb. 3 comment letter.

The letter from Rep. Sam Graves (R-Mo.) recommended that the SEC change its proposed disclosure thresholds and audit requirements, as well as the mandated accounting methods and limits on intermediaries, for small companies trying to raise capital through crowdfunding.

Title III of the Jumpstart our Business Startups Act requires the SEC to make rules for how small businesses and startups can raise capital by issuing crowdfunded securities. The SEC proposed rules Oct. 23 (206 DER EE-17, 10/24/13).

Comment letters were due Feb. 3, and Graves's was one of more than 100 received by the SEC and posted to its website (see related story in this issue).

The Graves letter came after a Jan. 16 hearing on the proposed rules, held by the Subcommittee on Investigations, Oversight and Regulations.

Tiers of Disclosure

The JOBS Act sorts issuers into three tiers depending on how much they are trying to raise through crowdfunded securities: The first tier applies to those seeking $100,000 or less, the second for more than $100,000 up to $500,000, and the third for more than $500,000.

The amount of information that must be disclosed to intermediaries and investors increases as the size of the offering target increases. Issuers in the bottom tier must provide income tax returns and self-reported financial statements, the middle tier must give financial statements reviewed by a CPA and the top must provide audited financial statements.

The bottom tiers are set by the statute, but the SEC has discretion to raise the qualifying threshold for the top tier.

The proposed rules keep it at $500,000, but Graves asked the SEC to revise it to $900,000.

Other Recommendations

His letter also asked the SEC to relax the proposed ongoing disclosure requirements for issuers, calling it “burdensome for small businesses.”

The proposed rules require accrual-based accounting methods for certain disclosures and limit issuers to using one intermediary when making an offering.

Graves recommended that the commission allow cash-based accounting for companies with less than $5 million in revenue and allow issuers to use multiple intermediaries to raise capital.

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