91–100 of 258 posts
These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…
Earlier quoted context omitted.
No, it's still easy for any asshole to get a margin or options account and lose a ton of money. Here's a recent news story: "20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance" https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y...
I didn't say it is impossible. It's just relatively rare. The point of the SEC is not prevent anyone from doing something stupid and losing a lot of money. The point is to keep lots of people from doing something stupid. And in particular, to keep lots of people from doing the same stupid thing at the same time! (1929, 2008.. )
These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…
I had an OMG experience trying to look up a very interesting non-public software company on SharePost a week ago. They will offer me a chance to buy something. I don't get any clarity on the cap table, so I'd be completely in the dark on preferences, dilution, etc. I'm being asked to offer a price range before seeing any trading history. And there's no availability (at first) of any financial history.
There's potential here to make a uniquely bad investment in what might be a uniquely great company. We won't cry a lot of tears for rich people who make some bad investments in the dark. For people living closer to the edge, having them get fleeced has spillover effects that are ugly enough to argue against letting it all play out with total laissez-faire.
Especially if lax rules invite the hustlers to overwhelm the market. (Gresham's law)
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This is a pretty clear Chesterton's Fence [1] example. The scams that occurred prior to enacting these standards were massive. If you want to look at a modern example of such things, consider the cryptocurrency ecosystem and the many scams that occurred [2] 1 - https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence 2 - https://twitter.com/patio11/status/1032024732214812673
Right, but it's not the 1920s any more. We live in this highly connected, information rich, rapidly changing world, that is fundamentally different than the 1920s in many ways. The general public is far more savvy about investments, risks, and bubbles in general than they were in the past. Today, private equity tends to capture almost all of the value before a company goes public. The crazy thing is that a foreign ci…
I'd argue the crypto currency and ico hysteria of late proves otherwise.
These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…
There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…
Earlier quoted context omitted.
There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…
It's a matter of principle though. You don't restrict the freedom of individuals to protect them from other individuals that are bad actors. You go hard and strong after the bad actors. What other examples of laws outside of finance can you cite where individuals are restricted in order to protect them from other bad actors? It's absurd and not in the scope of what government should be doing.
Controlled substances (ie: prescriptions,)
These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…
The problem is the cost of doing diligence. Not investor competence.
In public markets, the cost of producing reports on the issuer. In private markets, almost by definition, it's on the investor. Each investor must thus have the resources, legal at a minimum, to evaluate an opportunity.
Given these resources have a high minimum cost, an investor of limited means is faced with two options: forego the opportunity or gamble. When the latter is chosen, it doesn't just hurt the investor per se. It creates a fecund field for fraud, seedstock for scammers. (To say nothing of the fact that when retail investors lose money, it has social and systemic effects in a way that someone who loses 10% of their portfolio on a failed start-up investment does not.)
I agree that there might be room for a friends-and-family exemption. But private companies should not be allowed to solicit, directly or indirectly, retail investment dollars.
Earlier quoted context omitted.
There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…
Seems like there's at least one "third option". The rights of minority shareholders don't have to be as minimal as they are. How about "anyone who owns stock is entitled to look at the books?"
These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…
Is there a variant of this framing that doesn't also argue against all securities regulation and a return to the status quo ante of the Great Depression? Because the Accredited Investor standard essentially bypasses securities disclosure laws. Without it, every company would obtain the benefits of being public company, with none of the associated obligations.
https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
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1. Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.).
2. Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
3. To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
4. Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
5. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.
6. If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison.
Earlier quoted context omitted.
There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…
Seems like there's at least one "third option". The rights of minority shareholders don't have to be as minimal as they are. How about "anyone who owns stock is entitled to look at the books?"
Books and records inspections are expensive for both issuer and investor. For the issuer, it almost always requires legal counsel be retained.
If a company wants to raise private capital from retail investors, the JOBS Act created Reg A+ [1] for them.
[1] https://en.wikipedia.org/wiki/Regulation_A#Regulation_A+