February 24, 108
RE:SR-NASD-2005-114
UNDER 2810 B 4--OFFERING EXPENSES--
SETTING A PERCENTAGE LIMIT AS IS DONE HEREBY WILL PRECLUDE SMALLER DIRECT PARTICIPATION PROGRAMS --
IF A MEMBER FIRM IS LIMITED TO 10% AS ITS GROSS SELLING COMPENSATION AND 5 % FOR THE "O AND O' OF THE ISSUER AND FIRM SO THAT OFFERING EXPENSES AND SELLING FEES TOTAL 15% REFERRED TO IN PROPOSED RULE CHANGE-- THEN A $5MM OFFERING WOULD BE LIMITED TO $250,000 IN OFFERING RELATED AND ISSUER COSTS--WHICH IS NOT PRACTICAL ---
CERTAINLY THE 5% IS SUFFICIENT ON TRANSACTIONS OVER $15MM-- BUT UNDER THAT THE 5% IS INSUFFICIENT--
ALL COSTS SUCH AS LEGAL, ACCTG AUDIT, PROFORMA ACCTG, DUE DILIGENCE COSTS, VALUATIONS OR APPRASALS, OR ENGINEERING REPORTS, WHETHER OF PROPERTY OR EQUIPMENT OR OTHER ASSETS, TANGIBLE AND/OR INTANGIBLE, WEB VPN ACCESS, SOFTWARE, CREATION, PROGRAMMING AND MAINTENANCE, BANK LOCKBOX FEES, DUE DILIGENCE MEETINGS, STAFF TRAINING MEETINGS, TRAVEL AND LODGING, BROKER SALES TRAINING, AND PRINTING OR DVD/WEBCAST AND MARKETING COSTS, HAVE RISEN SHARPLY IN THE LAST FEW YEARS AND CONTINUE TO RISE--
A 5% CUTOFF WILL preclude SMALLER ISSUES OF DIRECT PARTICIPATION PROGRAMS AND ESSENTIALLY CUT THEM OFF FROM CAPITAL.
IT IS DIFFICULT TO SPEND LESS THAN $400,000 IN TOTAL ISSUER AND OFFERING COSTS AND PROPERLY DISCLOSE THE TRANSACTION AND TRAIN BROKERS TO SELL IT PROPERLY TO THE PROPER QUALIFIED PURCHASERS. IN MOST CASES THIS REQUIRES EVEN MORE-- AT $500,000, THIS WOULD PRECLUDE ALL TRANSACTIONS UNDER $10,000,000. this should not be FINRA's or the SEC's intent.
WE believe that if the intent is to place a % limit on the deals, then exempt transactions under $10,000,000 from the % and place a $500,000 limit for deals under $10,000,000 for 2008, but index this number for inflation each year going forward. The rise in costs for offerings has risen far greater % wise in the last few years than the general federal inflation ratE, so you're going to be challenged here also on setting how much that amount should rise each year to be equitable in reflecting offering costs that are rising faster than the general inflation rate.