Recently, the SEC Small Business Capital Formation Advisory Committee (SBCFAC) issued a recommendation to the Commission to adjust the threshold when issuers using the Reg CF securities exemption are required to provide reviewed financials. The formal letter told the Commission the hurdle should be moved to $350,000 from its current $125,000 level.
As reviewed, financials can cost a firm around $10,000 or more a year the burden is substantial compared to the small amount of funding raised. Investors inevitably pay this amount, while siphoning funds away from operations.
During the SBCFAC meeting this week, SEC Commissioner Mark Uyeda complimented the Committee on their recommendation. He explained:
“While financial statements can be informative to investors, independent review by an outside accountant can be costly relative to both the modest amount of capital being raised and the benefits to investors for such review. The antifraud provisions of both federal and state securities laws are already strong deterrents against the presentation of false and misleading financial statements and other offering materials. By avoiding the costs of hiring an outside accountant, companies may be more likely to use Reg. CF. I encourage the Commission to consider this recommendation to improve capital formation.”
Some insiders believe the threshold should be even higher.
While SEC Chairman Gary Gensler opened the meeting with a statement discussing the agenda, he did not mention the recommendation to improve Reg CF for issuers. If a change were instituted at the Commission, it would need the chairman’s backing, which is unlikely.
