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SEC Modernizes the Accredited Investor Definition

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Re: SEC Modernizes the Accredited Investor Definition

#221

Post by colordrops »

alasdair_ wrote: post #206
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.

It is mandatory to have car insurance (to protect others) unless you are rich (if you can prove you have assets to cover a $250k claim, you don’t need insurance). Obviously varies by state.

> What other examples of laws outside of finance

Your example still sits within finance.

Re: SEC Modernizes the Accredited Investor Definition

#222

Post by colordrops »

paulgb wrote: post #200
colordrops wrote: post #198

Earlier quoted context omitted.

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.

You are still free to contract with the seller, they are just unable to deliver to you.

Re: SEC Modernizes the Accredited Investor Definition

#223

Post by icedchai »

gojomo wrote: post #219
icedchai wrote: post #213

Earlier quoted context omitted.

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.

That's fine. I've been in this industry since the 90's. My opinion is unless you have literally millions of spare cash to make a ton of seed investments (like 50+), it's not worth it. You will probably not see a pay off.

I qualify as an accredited investor based on net worth. I have invested in private companies, both through employee stock options and as a preferred seed-stage investor. However, I keep most of my funds in self managed brokerage accounts. I will not quote returns here, I am not here to boast, I'll just say I do beat the S&P by a significant percentage.

Re: SEC Modernizes the Accredited Investor Definition

#224

Post by elamje »

vmception wrote: post #199
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 s…

Good explanation of it. I’ve yet to find a single case this has actually happened for.

I get the gut feeling that the SEC doesn’t have the audit capacity to focus on the likely smaller deals where non accredited people lie.

Please share any cases you’ve found

Re: SEC Modernizes the Accredited Investor Definition

#225

Post by freedomben »

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…

Absent government regulation doesn't necessarily lead to the scenario you described of everyone having to test the dice all the time.

Third party certifiers could (and many believe would) emerge as trusted testers. For example, if you own a casino you can request certification from the "Fair Dice Association." They can then certify that your dice are fair. I as a consumer know they're reputation, and I trust their due diligence.

This also has the benefit of utilizing free-market competition to drive down costs and ensure quality. It also avoids granting an authorization of violence, which some people believe is wrong whether it's a "government" or not.

This isn't purely theoretical. It already happens. SOC 2 certification from the AICPA is a great example.

Re: SEC Modernizes the Accredited Investor Definition

#226

Post by vmception »

elamje wrote: post #224
vmception wrote: post #199

Earlier quoted context omitted.

> 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 s…

Good explanation of it. I’ve yet to find a single case this has actually happened for. I get the gut feeling that the SEC doesn’t have the audit capacity to focus on the likely smaller deals where non accredited people lie. Please share any cases you’ve found

Thats because you are looking for the wrong thing.

Companies and individuals get fined and sanctioned for non-exempt offerings of securities all the time all day every day.

Non-exempt means that the issuer either didn't bother to care, or tried to comply with a registration exemption but failed. One way of failing is the inclusion of non-accredited investors. Depending on the exemption being leveraged.

No sanction will say “aha we found non accredited investors” it will just say the exemption wasn't used correctly.

Sometimes its just a fine.

Sometime the sanction is proper registration and financial reporting like a publicly traded company has to. This is often a death knell to small issuers due to the time and expense of ongoing compliance as well as unsavory information that deters future investment, which is why so much energy goes into avoiding it, even in VC backed companies which now aim to go public at the end of their growth cycle.

And in egregious cases the company and individuals behind it will have a criminal securities fraud and wire fraud charge.

Its not because a “poor person” lied. You really have nothing to worry about.

Re: SEC Modernizes the Accredited Investor Definition

#227

Post by CalChris »

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.

Hiring an unlicensed electrician.

Re: SEC Modernizes the Accredited Investor Definition

#229

Post by hinkley »

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…

There’s an old Jerry Lewis bit where the clerk has no ink pad so she just slams the stamp into the back of your hand so hard that it cramps up into a claw.

The claw is how the next clerk knows you’ve been through the other line. That could replace the slap part of the process.

Re: SEC Modernizes the Accredited Investor Definition

#230

Post by RockIslandLine »

gojomo wrote: post #202
RockIslandLine wrote: post #112

Earlier quoted context omitted.

"But if you want to put $5-$20K into a friend's business, or a business you know well, the SEC makes it hard unless you're already a millionaire." What do you mean? Individuals are still allowed to sign contracts. So write up a specific contract.

The SEC makes it easy to use standard arrangements if the investors are 'accredited'. But mixing in any 'unaccredited' investors drives up the legal complexities and costs, through extra liabilities. A generous (or desperate) founder might still go through the extra headaches to take money from a wider circle, but many potential knowledgeable investors are encumbered and essentially frozen out, simply because they ar…

"legally complex" is different from "impossible".

And yes, people who have years worth of expenses saved are clearly better able to accept risk than someone with $10K in an IRA.

You're not making persuasive arguments here at all. An in both theory and in practice I'm on your side.

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