[deleted]
SEC Modernizes the Accredited Investor Definition
121–130 of 258 posts
Re: SEC Modernizes the Accredited Investor Definition
#122Putting up a basic barrier to entry to people with low net-worth people causes some people to say "if the market is sky-rocketing, why can't I get in on that".. but the problem is whether or not you can "afford" to lose the money.. like if you have 50k to your name that you saved up over 20 years, then you blow it all in one bad investment, then you see people doing rash things like trying to take out their revenge o…
What's weird is that there's nothing stopping someone with $1M from blowing it all on a risky investment, while someone with $900K can't invest even 1% of their net worth in the same thing. A limit on percentage of net worth invested, as in the JOBS Act, would make more sense.
Re: SEC Modernizes the Accredited Investor Definition
#123These 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…
How many of those are capable of creating systemic financial risk, though? People in the '20s were literally mortgaging their house and car to buy stocks on margin en masse because they took in advertising and word of mouth that told them it was a good idea. You could theoretically also do that at a casino, but practically speaking that's not a big problem. Look at the crypto hype-train that got latched onto by peopl…
My guess is that there is some amount of overlap between the crypto/WSB crowd and, say, the people who kickstarted (read: were structurally prohibited from investing in) Oculus.
Re: SEC Modernizes the Accredited Investor Definition
#124Earlier quoted context omitted.
How about a knowledge/skills test instead of a wealth test? Something like the bar exam, but for investing instead of law. That would keep out people who have no idea what they're doing, without unfairly keeping out knowledgeable middle-class citizens.
did you even read the SEC announcement? it is literally the first bullet point: * add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order. In conjunction with the adopti…
Cool, I was bummed when I googled Series 7 and saw I needed to be sponsored.
Looks like series 65 is the way to go since series 82 also requires sponsorship.
Re: SEC Modernizes the Accredited Investor Definition
#125The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough…
> then what is all the higher education for? How exactly does a PhD in Biology help you understand investments?
Maybe not biology, but maybe biotech or biochemistry.
A fundamental understanding of the primary scientific literature and patents necessary for a technology to be viable, can all be used to determine if a new technology will be profitable for a company, beyond the scope of overall risk and investment numbers. Both of which are used extensively in graduate research.
Re: SEC Modernizes the Accredited Investor Definition
#126Earlier quoted context omitted.
> Our securities markets work According to what standard? Is the fact that I can’t invest $5000 in my friend’s startup an example of our securities markets “working”? Not according to any rationally justifiable standard. Certainly the impulse to protect grandma’s life savings from predatory fraud is a good one. But the proper way to better society is through empowering individuals to make better decisions. An example…
What exactly is stopping you from investing $5000 in your friend's startup?
Presumably Rule 506(b) which prevents fundraising from nonaccredited investors. There is an exception for up to 35 non-accredited investors but taking money from even one non-accredited investor greatly increases the disclosure requirements on your startup. So the startup would essential need to do disclosure as though it were a public company.
Re: SEC Modernizes the Accredited Investor Definition
#127Earlier quoted context omitted.
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.
>What other examples of laws outside of finance can you cite where individuals are restricted in order to protect them from other bad actors? Pretty much any consumer safety or mandatory licensing law. Even something as simple as buying a beer - we insist that legal adults are not allowed to buy a beer until they are older. We insist that adults must be over 21 to buy a handgun in many states, or that (in other state…
I'm OK with these sorts of "in defense of us all" regulation, but I think the wealth test in particular is a bit perverse. I think this "anti-classism" critique is better than the libertarian critique.
Re: SEC Modernizes the Accredited Investor Definition
#128Earlier quoted context omitted.
> Our securities markets work According to what standard? Is the fact that I can’t invest $5000 in my friend’s startup an example of our securities markets “working”? Not according to any rationally justifiable standard. Certainly the impulse to protect grandma’s life savings from predatory fraud is a good one. But the proper way to better society is through empowering individuals to make better decisions. An example…
What exactly is stopping you from investing $5000 in your friend's startup?
[deleted]
Re: SEC Modernizes the Accredited Investor Definition
#129Did they really not have anything except a wealth test previously? Nothing for people working in the industry etc?
It was a "self-certified" wealth test People working in the industry know that self-certified means lie through your teeth all day every day with a straight face. People working in the industry know that you can create illiquid investments, trade one unit of it and say you own the rest at the same price, and viola you are a multimillionaire. I did it with crypto assets 6 years ago using Counterparty. People working i…
> People working in the industry know that you just need a lawyer or CPA to sign off on that.
In your experience how willing are CPAs or lawyers to do that for you?
In theory they're putting their credentials on the line for you, so I imagine it's either hard to find ones that will do that or very expensive to the point where it eats into the investment return with the amounts of capital being invested below the accredited investor limit.
Re: SEC Modernizes the Accredited Investor Definition
#130Earlier quoted context omitted.
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…
> The crazy thing is that a foreign citizen can invest in an American start up without any of these credentials, yet a US citizen cannot.
These rules are generally based on the residence of the investor, not their citizenship. I'm an American in Quebec currently, and it's the Quebec/Canadian rules which determine my eligibility to invest while I'm living here, not the SEC's. And in Canada's case, the accredited investor rules are broadly similar to what the US rules were before this announcement, with the same dollar amounts but in Canadian dollars and with a lot of other differences in the details.