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SEC Modernizes the Accredited Investor Definition

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Re: SEC Modernizes the Accredited Investor Definition

#211

Post by __s »

zemo wrote: post #208
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.

let's say you want to permit gambling, because people should be free to gamble. Even in the case of permitting it, there are still legitimate reasons to have regulatory systems. For example, if you go to a casino to play craps, you as a consumer have an expectation that the casino is giving you fair dice. Now we could say that such a thing shouldn't be regulated, let the market decide or whatever, but now every time…

They aren't arguing against regulation

They're arguing that you shouldn't have fineprint that says "if you only let millionaires sit at your table, you can use loaded dice"

Re: SEC Modernizes the Accredited Investor Definition

#212

Post by beambot »

airstrike wrote: post #84
throwaway713 wrote: post #41

Earlier quoted context omitted.

Because intelligence is general and correlates well across fields, and intelligence has a loose causal link with a PhD in biology. So I wouldn’t say it "helps" with investment per se but there is a connection there.

A very small connection. Investments aren't exactly just intuitive knowledge one can grasp just by being "smart". It takes specialized training to know what you're doing – and even among those who study finance, you won't find consensus on any single investment.

To be fair, a PhD in biology likely makes the individual more savvy when it comes to certain classes of investments (e.g. BioTech startups) than most full-time investors... so the criticism cuts both ways. Case in point: Theranos.

Re: SEC Modernizes the Accredited Investor Definition

#213

Post by icedchai »

gojomo wrote: post #68
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.

Sure: replace all wealth tests with competence tests. Then, no competent poor person would be legally locked out of an investment opportunity, by state enforcement power, that would be legally-encouraged for any incompetent wealthy heir. Requiring that someone has to be able to deliver the funds, sure. Perhaps, that they have to prove competence via some testing certification. Perhaps, that they have to match some sc…

Are you eager to lose money or have it tied up for years and years with almost no likelyhood of ever seeing it again? Yes, there are some good private investments, of course. But the vast, vast majority, at the level you or I are going to see, without a network, are probably junk. You're better off investing in public markets.

Re: SEC Modernizes the Accredited Investor Definition

#214

Post by RayVR »

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…

Unfortunately, there’s no shortage of obscure public investments where people can lose lots of money. Options are a classic example. Leveraged ETFs are another. There are many more.

The idea that the SEC should limit access to hedge funds, private equity, and startups is antiquated. A modern approach could simply put the burden on the entity seeking investments. Access to investors with net worth less than $100k could simply require extensive disclosure. Many people would lose money investing in things they know nothing about but this would not be meaningfully different from our current situation.

Re: SEC Modernizes the Accredited Investor Definition

#215

Post by throw0101a »

mywittyname wrote: post #142
Ericson2314 wrote: post #127

Earlier quoted context omitted.

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.

Regulations are written in blood. We didn't have rules, then something extremely bad happened to make people say, "that should be illegal." So it's made illegal. A generation passes and young people look at said regulations, think, "that's a stupid rule," and they revoke it. Goto 10. Investments that require you to be accredited are often pretty bad ones. All the great opportunities get cherry-picked by those with th…

> A generation passes and young people look at said regulations, think, "that's a stupid rule," and they revoke it. Goto 10.

See the concept of "Chesterton's fence":

> In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

* https://www.chesterton.org/taking-a-fence-down/

First determine and be able to explain why something was put in place. If you cannot explain why, you have no right to tear it down. If you can explain the original reason, you may then be able to explain why it may no longer be needed.

Re: SEC Modernizes the Accredited Investor Definition

#216

Post by vmception »

CalChris wrote: post #210
vmception wrote: post #201

Earlier quoted context omitted.

Yes, there are plenty of smart people that can't meet the income requirements and that should be the crux of the constitutional challenge: the assumption that people with money are inherently smarter than those without, while other markets also allow for discretionary risk taking. Even the SEC commissioner's have pointed out this incongruency. The only thing supporting this difference is that gambling is regulated at…

Calling these investments securities would probably lose a broker their license.

The only time I wrote the word securities I was referring to securities. The other time I was referring to securities I wrote the word equities.

I really don’t know what you are talking about anymore. Turn down the trolling. Congratulations if you have enough money not to care what others are going through. Try not to discount the luck involved in that.

Re: SEC Modernizes the Accredited Investor Definition

#217

Post by jefftk »

RayVR wrote: post #214
mywittyname wrote: post #62

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…

Unfortunately, there’s no shortage of obscure public investments where people can lose lots of money. Options are a classic example. Leveraged ETFs are another. There are many more. The idea that the SEC should limit access to hedge funds, private equity, and startups is antiquated. A modern approach could simply put the burden on the entity seeking investments. Access to investors with net worth less than $100k coul…

> Access to investors with net worth less than $100k could simply require extensive disclosure.

That's not all that different from how it works now. Most of the difficulty of public listing is the higher level of disclosure required.

Re: SEC Modernizes the Accredited Investor Definition

#218

Post by gojomo »

alasdair_ wrote: post #205
gojomo wrote: post #167

Earlier quoted context omitted.

But none of your examples use the reductionist & discriminatory "how big is your bank account" standard as a proxy for a person's responsibility. What if you had to be rich - far beyond the sticker & insurance price - to buy a car? ("You're not a millionaire? We've decided you should only be allowed to take the bus.") Rich to buy a beer? Rich to buy a gun? Rich to buy a bunch of OTC medicines? (Poor people would stil…

A simple example: if you are poor and are on medicaid, it’s not possible to have a vasectomy without a 30 day mandatory waiting period to make sure that you are certain. If you are rich and have health insurance (or pay out of pocket) it’s completely fine to do it the same day.

That's still not 'wealth' but rather 'ability to pay the costs'. While correlated with wealth, that's not the same bar, and ability-to-pay is far more rationally related.

An entity paying – actually forgoing other possible expenditures of the same money, as in this example Medicaid or some other 3rd-party payor – should have some level-of-control. There's a budget constraint in effect - other priorities they are responsible for will suffer if this one is chosen.

But anybody, regardless of wealth, for whom it's important enough to scrape up the costs can skip that hurdle, in your example. There's no extra legal burden, of thousands of dollars of costs, added by the state just because they're poor. There's no extra complications the government forces onto the counterparty – the doctor – just because the patient is poor, thus deterring the otherwise-mutually-desired activity from happening at all.

(Of course, there are such complications if Medicaid actually pays – hence many doctors avoiding Medicaid-reimbursed patients/treatments.)

And in the end the poor patient still gets the treatment - unlike the permanent freeze-out of unaccredited investors – unless & until they bank $1,000,000.

Re: SEC Modernizes the Accredited Investor Definition

#219

Post by gojomo »

icedchai wrote: post #213
gojomo wrote: post #68

Earlier quoted context omitted.

Sure: replace all wealth tests with competence tests. Then, no competent poor person would be legally locked out of an investment opportunity, by state enforcement power, that would be legally-encouraged for any incompetent wealthy heir. Requiring that someone has to be able to deliver the funds, sure. Perhaps, that they have to prove competence via some testing certification. Perhaps, that they have to match some sc…

Are you eager to lose money or have it tied up for years and years with almost no likelyhood of ever seeing it again? Yes, there are some good private investments, of course. But the vast, vast majority, at the level you or I are going to see, without a network, are probably junk. You're better off investing in public markets.

I don't believe you know anything about the kinds of deals available to me or where I should best invest. (What's your record & credentials?) I trust my decades in this industry more than your hand-waving assertions-of-futility.

Re: SEC Modernizes the Accredited Investor Definition

#220

Post by clusterfish »

alasdair_ wrote: post #205
gojomo wrote: post #167

Earlier quoted context omitted.

But none of your examples use the reductionist & discriminatory "how big is your bank account" standard as a proxy for a person's responsibility. What if you had to be rich - far beyond the sticker & insurance price - to buy a car? ("You're not a millionaire? We've decided you should only be allowed to take the bus.") Rich to buy a beer? Rich to buy a gun? Rich to buy a bunch of OTC medicines? (Poor people would stil…

A simple example: if you are poor and are on medicaid, it’s not possible to have a vasectomy without a 30 day mandatory waiting period to make sure that you are certain. If you are rich and have health insurance (or pay out of pocket) it’s completely fine to do it the same day.

Wealth filter on access to healthcare is an even bigger problem than wealth filter on investments.
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