As you may remember, the South Carolina Small Business Chamber of Commerce has been working toward a new vehicle for small businesses to have access to investors and private loans. The current law allows for high net worth individuals (individuals with annual incomes of $200,000 or couples with joint incomes of $300,000 or residents with $1 million in net worth excluding primary residents) to invest directly with businesses. The average American can’t do this, well at least for now but that day is coming.
So the Small Business Chamber wants to enable the 100,000 or so “accredited investors” in our state who meet these financial criteria to be able to use a portal we are developing where they can shop for local businesses looking for equity investors. In this way we will be helping to create a culture of investing locally. This we desperately need to do.
But now there is a problem. The Dodd-Frank Act of 2012 (Congressional legislation we supported to protect us from another Great Recession) requires the Security and Exchange Commission to reassess the criteria for an “accredited investor”. Our fear is that the definition set in 1982 might be changed to seriously raise the financial qualification and thus dramatically reduce the potential number of “accredited investors” in South Carolina.
Today I have sent the letter below to Secretary of the SEC arguing for not raising the financial criteria. A decision by the SEC is expected next month at the earliest.
September 17, 2014
Elizabeth M. Murphy, Secretary
U.S. Securities and Exchange Commission
100 F Street NE Washington, DC 20549
Re: Accredited Investor Standards Review (File S7-06-13)
Dear Ms. Murphy,
As your agency reviews the Accredited Investor Standards as required by the Dodd-Frank Act, the South Carolina Small Business Chamber of Commerce encourages you to consider the potential negative consequences of revisions to the standards for states like ours that do not have the numbers of high income and high net worth individuals as other states.
As the recent opinion editorials (here and here) indicate, South Carolinians must start investing in our own local businesses if we are to reverse some very troubling poverty demographics. Achieving this goal is already difficult using today’s vehicles designed for accredited investors. We simply don’t have a large pool of individuals meeting today’s standards and those that do are difficult to locate in order to educate about the investment opportunity. Consequently, very few South Carolinians even under the 1982 income test are practicing accredited investors.
Our organization is in the process of trying to identify and educate our citizens who can qualify as accredited investors under today’s standards in an effort to grow our own local and state economies. In doing so, we hope to create a culture of investing locally. This is our best opportunity for increasing the per capita income of the vast number of our citizens who live in the growing poverty areas in our state.
Therefore we are very concerned that the Security and Exchange Commission might adjust the annual income and net worth standards based on some national formula that ignores the relatively lower income levels of South Carolina residents. Such a one-size-fits-all approach could deliver a fatal blow to our efforts to turn our already limited number of potential accredited investors into a small army willing and able to raise our state’s economy through their private investments.
We ask that the Security and Exchange Commission make no change in today’s accredited investor standards for South Carolina and for similarly situated states.
Frank Knapp Jr.
President & CEO
South Carolina Small Business Chamber of Commerce