A couple of weeks ago, the Office of Advocacy of the Small Business Administration submitted a comment to the Securities and Exchange Commission’s proposed crowdfunding rules pursuant to Title III of the JOBS Act. Specifically, the Office of Advocacy claims that the SEC’s “Initial Regulatory Flexibility Analysis” (IRFA) was deficient. Under the Regulatory Flexibility Act (RFA), administrative agencies must consider the impact of their proposed rules on small businesses in the IRFA. In the SEC’s IRFA in the proposed crowdfunding rules, the Office of Advocacy claims that the SEC did “not adequately describe the impacts on small entities” or “discuss alternatives that might reduce those impacts”, most importantly the projected costs of these regulatory requirements. The Office of Advocacy had requested that the SEC publish a supplemental IRFA addressing its concerns and approve an additional comment period to the proposed crowdfunding rules before issuing final rules. The RFA requires that the SEC must give “appropriate consideration” to the Office of Advocacy’s comments, so it is increasingly likely that we will see both a revised proposal as well as an additional comment period. Going further into the Office of Advocacy’s comments, it also addresses substantive concerns with the proposed rules themselves that many entrepreneurs, attorneys, and crowdfunding industry experts have also expressed — in particular, the extensiveness of the disclosure requirements and the considerable expense that this will impose on issuers who use the crowdfunding exemption. The Office of Advocacy recommended that the SEC change the threshold for audited financial statements, as well as potentially providing a simplified question-and-answer form or boilerplate disclosures instead of the extensive list of informational disclosures currently proposed, which would lower the costs for conducting a crowdfunded offering, particularly for those with smaller targets
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