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SEC Modernizes the Accredited Investor Definition

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Re: SEC Modernizes the Accredited Investor Definition

#191

Post by refurb »

tathougies wrote: post #187
refurb wrote: post #29

Earlier quoted context omitted.

like the most anti-free-market law I've ever heard of Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.

No it doesn't really. People should be allowed to fail. The response when someone loses all their money due to a business failing should be to have a social safety net, not to prevent them from ever having been able to invest their money in the first place.

Wait what?

You're arguing we should have a social safety net so when some blue collar worker loses 100% of their retirement savings because they invested in a scam start-up, they're covered?

Re: SEC Modernizes the Accredited Investor Definition

#192

Post by hguant »

elihu wrote: post #145
michaelbuckbee wrote: post #32

Earlier 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

The thing about Chesterton's Fence in this case is that the fence might exist for more than one reason. A law that prevents poor people from being scammed can also enable rich people to cherry-pick all the most lucrative investments.

It cuts both ways - the most lucrative investments are also the riskiest ones. We tend to look down our noses (sometimes masking it as sympathy) at those who spend their money on lottery tickets or gambling, taking on large amounts of risk for a chance of an _extremely_ lucrative payoff. What's the difference between the state lottery saying you have a 1 in 650 million chance of winning, and someone pushing a new bio-tech stock, with all the financial disclosures attached?

Re: SEC Modernizes the Accredited Investor Definition

#194

Post by smabie »

nickpinkston wrote: post #61
georgeecollins wrote: post #51

Earlier quoted context omitted.

>> 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. That is an exageration for publicly traded securities. It used to be possible (in the roaring '20s) to be 10:1 leveraged in public stocks. The SEC forbid that because so many people were wiped out. Nowadays retail stock accounts can under-perform, but it's…

There are even leveraged ETFs for those without margin accounts: https://www.investopedia.com/terms/l/leveraged-etf.asp

It's not particularly hard to get much higher leverage using futures. Leveraged ETFs don't go above 3x, so they're kind of middle of the road between margin accounts (2x) and futures (10-20x). Or with forex trading, retail investors can get like (50-400x).

In terms of risk, it's important to consider the volatility of the underlying and the leverage ratio.

New home owners are taking on massive leverage on a new home purchase, but usually the low volatility of real estate protects them from too much pain.

Re: SEC Modernizes the Accredited Investor Definition

#195

Post by paulgb »

colordrops wrote: post #179
alasdair_ wrote: post #103

Earlier quoted context omitted.

>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…

Every one of your examples are of the case of protecting the individual from hurting themselves or others. This is quite different from the question, which is to cite a law that restricts someone in order to protect them from others.

I agree that some of the examples GP gave don't quite fit, but their insight about consumer protection laws is key.

Say a consumer protection law that prohibits an appliance company from selling me a cheap heater that isn't up to code. That law restricts the appliance company's freedom, but it also restricts my freedom to contract with the appliance company. The law is restricting my freedom to protect me.

(Personally, I'm fond of Matt Levine's "stupid investment license" proposal, but I would not be in favor of an "unsafe heater" license)

Re: SEC Modernizes the Accredited Investor Definition

#196

Post by throwawaygh »

gojomo wrote: post #175
asah wrote: post #107

Earlier quoted context omitted.

Ah yes, Joe Schmoe's One Weekend Online "Executive" MBA, no GED required.

Are those academically-accredited?

Executive MBAs are accredited, yes. And, although parent exaggerates a bit, their admissions standards are pretty close to "can you pay".

IMO: A real MBA with an emphasis on finance probably should count as sufficient education. An executive MBA definitely should not. Although a program with the same structure as an executive MBA but exclusively focused on finance, accounting, and contracts might be reasonable.

Re: SEC Modernizes the Accredited Investor Definition

#197

Post by smabie »

jcranmer wrote: post #110
chrisco255 wrote: post #102

Earlier quoted context omitted.

I think a person in 2020 is far more savvy about the risks than someone in 1920. For one, they're aware of crashes, bubbles, etc. and have probably even lived through at least one of them. They also don't have to trust the advice of a single broker over the telephone. The 2008 real estate bubble was driven by the same kind of speculation that drove the 1920s stock bubble. We are probably already deep into a stock bub…

> For one, they're aware of crashes, bubbles, etc. and have probably even lived through at least one of them. The Panic of 1929 was far from the first crash of the 1900s, let alone the only large crash in history. The Panic of 1893 would have been the big crash that everyone was afraid of before 1929, but there were more minor crashes in 1901 and 1907. Railway manias and land speculation-driven crashes litter pretty…

Not much more than a decade, it seems.

Re: SEC Modernizes the Accredited Investor Definition

#198

Post by colordrops »

paulgb wrote: post #195
colordrops wrote: post #179

Earlier quoted context omitted.

Every one of your examples are of the case of protecting the individual from hurting themselves or others. This is quite different from the question, which is to cite a law that restricts someone in order to protect them from others.

I agree that some of the examples GP gave don't quite fit, but their insight about consumer protection laws is key. Say a consumer protection law that prohibits an appliance company from selling me a cheap heater that isn't up to code. That law restricts the appliance company's freedom, but it also restricts my freedom to contract with the appliance company. The law is restricting my freedom to protect me . (Personal…

But they aren't restricting your freedom. They would be restricting your freedom if some people could buy those appliances but not you. Saying they are restricting your freedom using your example is like saying your friend was put in jail, and thus they are restricting your freedom to hang out with that friend, which IMHO is a bad interpretation.

Re: SEC Modernizes the Accredited Investor Definition

#199

Post by vmception »

elamje wrote: post #149

My biggest problem with this is that I have had multiple opportunities as a young professional to invest in my friends’ small funds, only to be turned away at the last minute when they decided to only accept accredited investors. On the other hand, I could participate in sh*tcoin ICO’s, get rich quick “courses”, and become a real estate “investor” by attending presentations at a Holiday Inn conference room. The law a…

> I’ve read about several people that weren’t accredited checking the box anyways, and no enforcement actually happens

That's because it's not a prohibition on individuals as it wouldn't be constitutional. It is a prohibition on issuers, who can face civil and criminal sanctions while also having the entire offering rescinded retroactively. The government effectively achieves what they were going for either way. (A strategy to curb/steer any behavior is to regulate the intermediary.)

So if you, the individual, want to lie and constructively get into a private offering and be quiet like an actual wealthy investor, there is no consequence except you might overextend yourself due to the minimum investment amount set by the issuer.

Regarding law, the government can still place any number of restrictions on issuers, but the current law does not work and I think it can be argued that it "chills speech", and doesn't make sense. Always remember, the entire SEC is a creature of the New Deal, and although this is heralded in our history books, most of the new deal was quickly declared unconstitutional, and the rest wasn't challenged. Here we have something that doesn't affect rich people and they might not be aware of it, while issuers are prohibited from marketing to poor people and poor people generally aren't aware of it either. There are just a few upper middle class people that get to say "what the heck is this"

Re: SEC Modernizes the Accredited Investor Definition

#200

Post by paulgb »

colordrops wrote: post #198
paulgb wrote: post #195

Earlier quoted context omitted.

I agree that some of the examples GP gave don't quite fit, but their insight about consumer protection laws is key. Say a consumer protection law that prohibits an appliance company from selling me a cheap heater that isn't up to code. That law restricts the appliance company's freedom, but it also restricts my freedom to contract with the appliance company. The law is restricting my freedom to protect me . (Personal…

But they aren't restricting your freedom. They would be restricting your freedom if some people could buy those appliances but not you. Saying they are restricting your freedom using your example is like saying your friend was put in jail, and thus they are restricting your freedom to hang out with that friend, which IMHO is a bad interpretation.

They're restricting my freedom in the sense that, in the absence of government, I would be free to contract with the seller of the non-certified heater.
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