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Senator Dodd Reform Bill Could Ruin Angel Investing

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Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#31

Post by hristov »

patio11 wrote: post #12

Have I missed a runaway profusion of investment scams targeting people with net worths between 1 million and 2.3 million? The perceived need for this just perplexes me.

There actually are such scams all over the place. Couple of years ago I was in a position where I was an accredited investor (based on income) and I had to basically reveal that information on the Internet. I was an attorney in one of the large international law firms and they required you to post a professional biography online. The biography did not mention your salary, but the top lawfirms pay lockstep and publish their salary info so anybody familiar with the legal profession could have figured out the salary from the posted information.

Anyways, as soon as I fit the criteria for an accredited investor I started getting calls for what seemed to be obvious scams. There were generally of two types. One type was a call from a boiler-room type operation from some guy with a hilariously exaggerated Jersey accent asking me to buy some over the counter stock. They would suggest a stock for me and then call a couple of months later and say "see the stock we suggested before doubled in price, you should have invested with us, why not try this new stock we are suggesting now." Of course OTC stocks are so thinly traded one can easily manipulate the price.

The other type of scams are calls that are made to sound like they were accidentally made by people that have their cell-phones in their pockets and accidentally press a button. It is usually conversation between two people that is supposed to be private and you are only hearing it by accident. The two people then disclose "important inside information" that is supposed to make you rush out and buy a certain stock.

So yes those scams are out there. There are boiler-room operations all over the place trying to bilk people that are on the lower end of the accredited investor spectrum.

Usually, they prefer accredited investors because stocks that require such investors do not require SEC filings so the scams are easier.

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#32

Post by hristov »

ajross wrote: post #24
patio11 wrote: post #12

Have I missed a runaway profusion of investment scams targeting people with net worths between 1 million and 2.3 million? The perceived need for this just perplexes me.

The article is behind a paywall, but I'd be curious how big this population is. How much actual funding derives from investors in that range? My guess is not much, and of that I suspect a lot of it is of the "rich uncle" form, where you can just make the trusted relative or friend a "founder" and get around the rule.

You do not need to make the relative a founder. When it comes to relatives you probably do not need to worry about the accredited investor stuff at all, as there is an exception for purely private placements. (this is not legal advice, do consult a lawyer).

Anyways, I agree that the lower end of the accredited investor range probably does not contribute much or anything to angel investing.

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#33

Post by yummyfajitas »

jbooth wrote: post #30
yummyfajitas wrote: post #29

Earlier quoted context omitted.

You asked for a second source, you have it: the CBO and the White House. The fact that heritage put CBO numbers onto a graph does not make them invalid.

I asked for a second source regarding the financial reform bill . I'm well aware of the approximate projected size of our federal deficit, thanks. The fact that Heritage supported Reagan, opposed Clinton, supported Bush and now claim to be concerned about deficits says a lot about the Heritage Foundation. EDIT: Awesome, downvoted for clarifying a willful misinterpretation of my original comment. Ladies and gentlemen,…

You were given several other sources for that as well, all of which were posted here. You also criticized another source simply for being conservative, which is what I was responding to.

Regardless, please clarify your point. Do you believe the WSJ is lying about the contents of the bill? If not, then what is the relevance of pointing out their opinion on other political matters?

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#34

Post by DanielBMarkham »

anigbrowl wrote: post #28
hga wrote: post #2

For the full text see http://www.google.com/search?q=%22minimum+interference+from+... A good official house editorial, it discusses the more likely worse regulatory aspects before getting into the mandated new worth threshold increase.

sob 'Mandated net worth transaction increase' Please, let's talk about the actual bill. It's at http://banking.senate.gov/public/_files/AYO09D44_xml.pdf and the relevant regulation is in Sec. 412. It says that the Securities & exchance commission should raise the threshold, using its existing authority, as the Commission determines is appropriate and in the public interest, in light of price inflation since those fig…

Can we have a little more risk and a little less nanny state please? I don't mean that in some kind of Republican or Libertarian or Randian sense, I just would like more opportunities to raise money. So I can create ideas and raise capital for a startup.

Instead of us being so happy about everything is working, and putting in our order early for just the kind of market we want regulators to create for us, is there really something that wrong with just being left alone? I'm not talking Madoff, I'm talking Bob's Pizza Parlor.

You've got 250K, I've got some hair-brained scheme, you pays your money and you takes your chances. Most of the time you lose. Sometimes I'm a crook. This is risk. Change is based on risk.

Somehow is this same size expenditure good for a drunken weekend in Vegas yet somehow terribly harms society when applied to startups?

Yes, the bill does not mindlessly jack up the rates. And yes, there are wonderful reasons for something getting done. If that makes you less grumpy, isn't it a reasonable thing to ask, while Dodd is writing this bill, to make things easier? I'm not trying to move the goal posts, but if you're under the hood anyway, could you try cutting us a little more slack? Why do we always have to gravitate to more "market management"?

I guess I'm grumpy as well. This is the 4th or 5th time I've read about this bill, and I'm just amazed that we're quibbling over reasons and precise language and missing the fact that, for us, we're heading in the wrong direction.

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#35

Post by prodigal_erik »

hristov wrote: post #32
ajross wrote: post #24

Earlier quoted context omitted.

The article is behind a paywall, but I'd be curious how big this population is. How much actual funding derives from investors in that range? My guess is not much, and of that I suspect a lot of it is of the "rich uncle" form, where you can just make the trusted relative or friend a "founder" and get around the rule.

You do not need to make the relative a founder. When it comes to relatives you probably do not need to worry about the accredited investor stuff at all, as there is an exception for purely private placements. (this is not legal advice, do consult a lawyer). Anyways, I agree that the lower end of the accredited investor range probably does not contribute much or anything to angel investing.

I seem to recall reading some advice that friends-and-family money is limited to a couple dozen people, and their involvement can make early VC rounds more complicated therefore harder to get. Is there anything to that?

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#36

Post by hristov »

prodigal_erik wrote: post #35
hristov wrote: post #32

Earlier quoted context omitted.

You do not need to make the relative a founder. When it comes to relatives you probably do not need to worry about the accredited investor stuff at all, as there is an exception for purely private placements. (this is not legal advice, do consult a lawyer). Anyways, I agree that the lower end of the accredited investor range probably does not contribute much or anything to angel investing.

I seem to recall reading some advice that friends-and-family money is limited to a couple dozen people, and their involvement can make early VC rounds more complicated therefore harder to get. Is there anything to that?

The exception for private placements is not limited as to people or amounts invested. But a lot of lawyers do not like using that exception because it is not entirely certain what constitutes a private placement. So if they are not very close "friends and family" you may get in trouble. Therefore, a lot of lawyers prefer to use other better defined exceptions.

Regarding VCs, they dislike any earlier investors, and they probably dislike laypeople more because they prefer to deal with professionals.

In any event, again please make sure you consult a securities lawyer for your particular situation. I am really an IP attorney, so while I know the securities laws I do not have much experience in that field.

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#37

Post by jbooth »

yummyfajitas wrote: post #33
jbooth wrote: post #30

Earlier quoted context omitted.

I asked for a second source regarding the financial reform bill . I'm well aware of the approximate projected size of our federal deficit, thanks. The fact that Heritage supported Reagan, opposed Clinton, supported Bush and now claim to be concerned about deficits says a lot about the Heritage Foundation. EDIT: Awesome, downvoted for clarifying a willful misinterpretation of my original comment. Ladies and gentlemen,…

You were given several other sources for that as well, all of which were posted here. You also criticized another source simply for being conservative, which is what I was responding to. Regardless, please clarify your point. Do you believe the WSJ is lying about the contents of the bill? If not, then what is the relevance of pointing out their opinion on other political matters?

I believe they're extremely prone to exaggerate any bad parts, and there was room for a lot of weaseling in their descriptions. Especially considering that the bill isn't finished yet.

I'm still waiting to see the death panels. Since they'd never lie, of course.

I didn't criticize Heritage for being conservative. I criticized Heritage for being Republican, regardless of principle or policy.

EDIT: To clarify, it's entirely possible that the provisions in the bill still being written are just as bad as the WSJ says. It's also possible that they're significantly less bad. Regardless of which they are, the WSJ would have written this exact article. Does that make my complaint regarding their worth more clear?

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#38

Post by hristov »

grellas wrote: post #14

Congress has not been friendly to startups this past decade. A few results of their well-intended efforts: 1. Startups today have little or no realistic hope of gaining liquidity through an IPO, leaving them in a position where M&A is their only realistic exit, with the result being that valuations are lowered for founder exits (the consequence of Sarbanes-Oxley, among other new laws). 2. Startups today can't simply…

Freddie and Fannie did absolutely nothing to fuel the subprime mess. They were not allowed to invest in any subprime mortgages during the bubble and were later forced by law to invest in them when the crash was already happening, because that was Bush's plan to stop the crisis. This is just an excuse that people that caused the sub-prime mess use.

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#39

Post by anigbrowl »

DanielBMarkham wrote: post #34
anigbrowl wrote: post #28

Earlier quoted context omitted.

sob 'Mandated net worth transaction increase' Please, let's talk about the actual bill. It's at http://banking.senate.gov/public/_files/AYO09D44_xml.pdf and the relevant regulation is in Sec. 412. It says that the Securities & exchance commission should raise the threshold, using its existing authority, as the Commission determines is appropriate and in the public interest, in light of price inflation since those fig…

Can we have a little more risk and a little less nanny state please? I don't mean that in some kind of Republican or Libertarian or Randian sense, I just would like more opportunities to raise money. So I can create ideas and raise capital for a startup. Instead of us being so happy about everything is working, and putting in our order early for just the kind of market we want regulators to create for us, is there re…

Can we have a little more risk and a little less nanny state please?

C'mon man, 3/4 of what I wrote was about legislatively reducing state oversight of capital management, and how strongly I favor the idea, for the same reasons that you do.

And in the other 1/4, I talked about using the mandatory public consultation period to shape the SECs decision, as has happened before and which (IMHO) is much easier to argue on its merits to a regulatory agency than in the febrile atmosphere of a legislative session.

Re: Senator Dodd Reform Bill Could Ruin Angel Investing

#40

Post by anamax »

anigbrowl wrote: post #28
hga wrote: post #2

For the full text see http://www.google.com/search?q=%22minimum+interference+from+... A good official house editorial, it discusses the more likely worse regulatory aspects before getting into the mandated new worth threshold increase.

sob 'Mandated net worth transaction increase' Please, let's talk about the actual bill. It's at http://banking.senate.gov/public/_files/AYO09D44_xml.pdf and the relevant regulation is in Sec. 412. It says that the Securities & exchance commission should raise the threshold, using its existing authority, as the Commission determines is appropriate and in the public interest, in light of price inflation since those fig…

> Please, let's talk about the actual bill. It's at http://banking.senate.gov/public/_files/AYO09D44_xml.pdf and the relevant regulation is in Sec. 412.

Yes, let's do that.

> It says that the Securities & exchance commission should raise the threshold, using its existing authority, as the Commission determines is appropriate and in the public interest, in light of price inflation since those figures were determined;

Actually, it says "shall". Should is a request. Shall is a mandate.

There's some wiggle room in "determines is appropriate and in the public interest" but the marching orders are pretty clear. Do you really think that they're going to come in significantly lower than where the inflation numbers come out?

I'm serious - the inflation numbers give us $2.3M. What's your "I was wrong" number? Is it anything over $2M? How about $1.5M?

Note that Section 412 has two parts. The second "(2) adjust that threshold not less frequently than once every 5 years, to reflect the percentage in crease in the cost of living." doesn't have any discretion.

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