September 4, 2007
The International Association of Small Broker Dealers and Advisors 1620 Eye Street, NW, Suite 210 Washington, DC 20006 202-785-8940 ext. 108 , pchepucavage@plexusconsulting.comwww.iasbda.com
The International Association of Small Broker Dealers and Advisors,WWW.IASBDA.COM submits the following comments on the elimination of the SB disclosure framework. We believe the substitution of the SK disclosure framework will be beneficial to small issuers only if the legal and accounting costs associated will remain at least equal. We are concerned that the release does not exactly make this representation. If there is uncertainty we suggest that the SB regime be maintained for a two year pilot period along with the amended SK proposal. The Release makes very clear that many forms will be eliminated and that will make processing as a whole more efficient. However,we fail to see the individual firm cost estimate similar to that in the initial SARBANES OXLEY proposal of $91,000. There is an assumption that the legal and accounting fees will not change significantly for small issuers and indeed comments may come in supporting that assumption.In the Paperwork Reduction Analysis, the release concludes that as a whole,the use of the SK regime will result in fewer hours than continued use of the SB regime,but this cannot be true for lawyers and accountants who are currently familiar with SB and not amended SK. After these advisers become familiar with the amended SK format,costs should reduce just as the costs of SOX were to decrease after the familiarity phase.While the release notes that one framework will be simpler than two, it does not guarantee it will be cheaper than the current SB framework especially with respect to those counsel and accountants who have specialized in the SB framework and must now learn the amended framework..
On pp 61-62, the release notes that costs will actually increase for small real estate companies but will decrease for the universe of 1581 potential users in the total of $95,018,100 or on average $63,333 per firm. This average number would surely vary between New York City and smaller communities.Footnote 96 suggests an average cost of $400 per hour for lawyers involved in these efforts,but our experience is that many SB registrations are done on a fixed fee basis because the very nature of these offering precludes hourly fees. Thus the differential could be very low amongst small legal and accounting firms in non-metropolitan areas.We are also uncomfortable with these general average assessments because we know that certain filings are significantly more problematical than others especially when a new format is introduced.. We believe that a two year pilot period allowing issuers a choice of both frameworks would be much more definitive and has no downside.We would be persuaded otherwise, if the Commission receives agreement with their numbers from the SB legal and accounting community, so our thoughts are dependent on the overall response to this proposal. The SB framework is not broken and eliminating it should be done with a certainty that costs to small firms will be reduced.The Release at fn. 94 notes over 1000 SB registrations last year.We hope that the lawyers and accountants who worked on those filings will vigorously respond. If they don't, we suggest that it would be better to maintain the SB program for two years to let the marketplace decide.
We are also concerned about the anecdotal explanation for this proposal on pp 22-23 that the SB system is complex and lawyers advise against using it..Similar anecdotal analysis on p.33 suggests that SB filers have not achieved an "optimal level of marketplace acceptance".Finally on p.36 there is a suggestion that being an SB carries some stigma.We believe that in light of the historical record of SB filings and the vast experience of the Advisory Committee, these assertions require more than anecdotal support.Indeed it is not often that the word anecdotal is used in justifying an SEC rule change.
If as fn 94 indicates, over 1000 filings were made last year, surely we can go beyond anecdotal evidence and we would expect that members of the Advisory Committee involved in SB FILINGS would have spoken for the record rather than rely on anecdotes.Moreover,the SB-2 Attorneys Directory http://www.smecapitalmarkets.net/ provides contact information for 2,200+ attorney's who have worked on more than 7,000 SB-2 registration projects
If we extend SB for two years and the anecdote becomes the fact,we can be assured that the marketplace rather than the anecdotes have spoken. There is no downside to a pilot program here,but there is great downside for small firms in a miscalculation about actual costs.
Peter J. Chepucavage
General Counsel
Plexus Consulting