SEC Small Business Forum to Tackle Accredited Investor Definition, SEC Strategic Plan 2014-18 Released

On November 20, the Securities Exchange Commission (SEC) will hold its annual Government-Business Forum on Small Business Capital Formation in Washington, D.C. The forum will include a morning panel session and four afternoon breakout groups. During the morning panel, the SEC panel will kick off the event by tackling several topics including the hot-button issue of defining accredited investor. In the afternoon, attendees can register to attend one of four topic-specific breakout groups:

• Definition of Accredited Investor;
• Disclosure Effectiveness for Smaller Reporting Companies;
• Exempt Securities Offerings; and,
• Secondary Market Liquidity for Securities of Small Businesses.

The intent of these small breakout groups is to encourage public discussion between attendees and formulate specific policy recommendations.

Over the last year, the SEC has indicated they may raise the economic thresholds for accredited investor. Currently, the economic thresholds are:

• $200,000 income per individual;
• $300,000 for joint filers; or,
• $1 million net worth not including primary residence.

Under Dodd‐Frank, the SEC was mandated to review these economic thresholds for accredited investor in 2014 (Regulation D Exemption). Early stage investors across the country are concerned that the SEC might conclude their review with substantial increases to these economic thresholds. Proponents of higher economic thresholds contend that the SEC should adjust the threshold for inflation because they have not been raised since they were adopted in1982 and that inflation has effectively reduced the original thresholds in real, inflation-adjusted terms.

In contrast, several advocates for early stage investment including the Angel Capital Association (ACA) contend that raising the threshold could create more roadblocks for entrepreneurs to launch new enterprises and impede the capacity of small firms to grow, innovate, and create jobs. In a letter to SEC Chairperson Mary Jo White, ACA outlined some of the potential negative consequences include lowering that number of U.S. households eligible for accreditation to just 3 percent – currently over 7 percent of U.S. households are eligible. Almost 25 percent of ACA members would not be eligible under the SEC proposed economic thresholds.

The Government Accountability Office found the SEC proposed increase in the net worth thresholds for accredited investors would reduce the number of potential small business investors from 8.5 million to 3.4 million, a reduction of 60 percent. Adjusting the income thresholds would reduce the pool of small business investors from 6.1 million to 1.7 million, a reduction of 72 percent according to the Heritage Foundation. Both the ACA and Heritage Foundation conclude that the reduction in the number of accredited individuals will reduce early stage investment activity in metros across the country.

For those unable to attend the meeting, the SEC will offer a webcast of the panel session and hold teleconferences for each of the four breakout sessions. To participate in the afternoon breakout groups, either in person or by teleconference, individuals must register online by November 14, 2014. Read the announcement…

The SEC also released its Strategic Plan for FY 2014-18.  In the plan, the SEC identified four main strategic goals:

• Establishing and maintaining an effective regulatory environment;
• Fostering and enforcing compliance with the federal securities laws;
• Facilitating access to the information investors need to make informed investment decisions; and,
• Enhancing the SEC’s performance through effective alignment of human, information and financial capital.

To achieve these goals, the SEC identifies several objectives and initiatives including several of interest to early stage investors and entrepreneurs. These efforts will focus on ensuring that investors have access to high-quality disclosure materials and the provision of investor education to help them make informed investment decisions. Specific activities include:

• Updating disclosure and reporting requirements;
• Evaluate the effectiveness of filing review programs; and,
• Improve investor education resources using feedback from investors.

Read the SEC’s strategic plan for FY2014-18…