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SEC Modernizes the Accredited Investor Definition

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Re: SEC Modernizes the Accredited Investor Definition

#131

Post by WrtCdEvrydy »

stickfigure wrote: post #99
tptacek wrote: post #50

Earlier quoted context omitted.

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.

How about Matt Levine's "Certificate of Dumb Investment"? https://www.bloomberg.com/opinion/articles/2018-09-24/earnin... ----- 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 l…

LOL, that would be interesting, but would never happen.

Someone will argue the language has some ambiguity and the lawsuit will impact the SEC for 'failing to protect the public'

Re: SEC Modernizes the Accredited Investor Definition

#132

Post by jkaplowitz »

scott00 wrote: post #88
tathougies wrote: post #25

Earlier quoted context omitted.

The average person can now take the Series 65 exam for $60 or so and, if they pass, become an accredited investor. This is a huge change. Taking the wealth requirement from 1 million dollars to $60. EDIT: It's not $60, but $175, still a far cry from a million.

This is likely not true. You can't just sign up for FINRA exams as an individual; an eligible entity (broker-dealer or investment advisor) has to sign you up. And even if you have passed the relevant exam recently enough, you're not considered licensed unless you're working for an eligible entity who has submitted the appropriate paperwork to claim you as a registered representative. The easiest path this opens for s…

You need a sponsor for most FINRA exams, but Series 65 (and the introductory SIE exam) allows self-registration with no sponsor.

I just reread the new accredited investor final rule, and as per footnote 102, people who qualify via Series 65 need to maintain in good standing a state-granted license or registration. No other requirements exist on top of that.

Re: SEC Modernizes the Accredited Investor Definition

#133

Post by millettjon »

mywittyname wrote: post #62
gojomo wrote: post #36

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…

Alternatively pass regulations to make private companies over a certain size report more.

Re: SEC Modernizes the Accredited Investor Definition

#134

Post by awinder »

gojomo wrote: post #36

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 always love to see the "fancy public-market securities" lingo upfront :-). I'm interested to see how this plays out, even though I'm not sure I agree, but this may be the last time to make the information density argument. This time should be a good test of that, and it's one of these things that I hope (not too hard) might just inform some policy and take a policy hostage off the table.

Re: SEC Modernizes the Accredited Investor Definition

#135

Post by millettjon »

alasdair_ wrote: post #103
colordrops wrote: post #80

Earlier 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…

How about if we insisted you have 1,000,000 USD to buy guns or alcohol?

Re: SEC Modernizes the Accredited Investor Definition

#136

Post by Animats »

Most of the changes involve organizations, not individuals. The main change for individuals is that having a Series 7 qualifies you. (A Series 7 is a test about finance you take to become a broker. Covers stocks, bonds, options, terminology, how to evaluate risk, trading rules, ethics. that sort of thing.)

Mostly, this is about hedge funds, not startups. "Accredited investors" can invest in hedge funds that don't report their returns publicly in a standard way. Usually they don't report them because hedge funds as a class underperform the Dow.

Useful rule: any investment where they call you is no good. If it needs paid salespeople, it's a dud.

Re: SEC Modernizes the Accredited Investor Definition

#137

Post by mindcrime »

Hilarious. I'm not sure how any of this counts as "modernizing", and none of it amounts to any substantive change. I'd compare this to rearranging the deck chairs on the Titanic, but doing that is probably more productive.

So... now people who hold a couple of niche, finance industry specific licenses - which you can't obtain unless you work in the finance industry - can be "accredited investors." Wow, golly gee whiz, color me gobsmacked.

So finance industry insiders get more access to opportunities to build wealth, and nothing changes for regular old everyday Americans? Am I supposed to be impressed by this?

The ONLY way this would actually be worth trumpeting would be if anybody could study, sign up for, take, and (hopefully) pass the various FINRA exams mentioned, and get their license without needing to go to change jobs. But, sadly, as we see here[1]:

Candidates must be associated with and sponsored by a FINRA member firm or other applicable self-regulatory organization (SRO) member firm to be eligible to take FINRA representative-level qualification exams.

and here[2]:

In order to enroll for FINRA qualifying exams, a candidate must be sponsored by a state regulator or regulatory authority approved to sponsor candidates for FINRA qualifying exams.

Edit: there is some verbiage here[3] that claims that you can take the Series 65 exam without being associated with a member firm. IF true, I might change my opinion on this a bit. But this seems to contradict what is on the FINRA site itself.

Unlike many other FINRA Series exams, the Series 65 exam does not require an individual to be sponsored by a member firm. If you are not Form U4 registered or affiliated with a firm through FINRA’s Web CRD system, you should use the Form U10 to request and pay for the Series 65 exam.

[1]: https://www.finra.org/registration-exams-ce/qualification-ex...

[2]: https://www.finra.org/registration-exams-ce/qualification-ex...

[3]: https://www.kaplanfinancial.com/resources/career-advancement...

Re: SEC Modernizes the Accredited Investor Definition

#138

Post by JumpCrisscross »

voxic11 wrote: post #126
bpt3 wrote: post #118

Earlier quoted context omitted.

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. https://www.sec.gov/smallbusiness/exemptofferings/rule506b

> the startup would essential need to do disclosure as though it were a public company

Not quite that onerous. But the start-up and investor would each need to spend at least $5,000 on legal diligence. This would likely be true with or without the rule—if you don’t understand the preferred investors’ terms, you aren’t qualified to invest.

Re: SEC Modernizes the Accredited Investor Definition

#140

Post by DetroitThrow »

bpt3 wrote: post #120
tboyd47 wrote: post #117

Earlier quoted context omitted.

How many people lost money in cryptocurrency scams compared to the entirely legal and rule-following housing market crash of 2008?

Much of the losses in 2008 were caused by illegal and non-rule-following activity.

Importantly we also implemented several new schemes to ensure that we were better able to evaluate illegal and non-rule-following activities after 2008 as well.
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