SEC proposes changes to “accredited investor” definition • Hacker News Board

Re: SEC proposes changes to “accredited investor” definition

#31

Post by nullc » Mon, Feb 17, 2020, 6:54 PM UTC

imeron wrote: post #9

travisoneill1 wrote: post #3

The whole thing should be scrapped. This is supposed to be protecting unsophisticated investors, but most of the investments prevented here are equity investments in small businesses. While at the same time anybody is allowed to buy TVIX, a 2x leveraged VIX ETF, which is basically gambling.

Or any of the weird coin offerings. Which - if you believe in the thing not being a scam - is essentially a way of financing a company. Just like buying an investment in a small business.

Woah watch out there. I have never seen a 'coin offering' that was remotely like buying an investment in a business, certainly not "just like".

Instead, they have mountains of fine print that with extraordinary care make sure the recipient has absolutely no property right in the business, no claim to any title, no voting rights, usually no rights to share in profits, etc.

If you wanted to liken them to something offline, they're structured more like making a donation and getting a limited edition t-shirt in return. Maybe with some vague suggestion, but no guarantee, that the t-shirt may entitle you to discounted services in the future should the business actually begin operations.

And this is before getting into the fact that a great many of them are essentially outright scams.

The fact that many people are thinking that ICOs are "just like buying an investment in a small business"-- is a great example of how the SEC is pretty much flat out failing at this part of their job.

Re: SEC proposes changes to “accredited investor” definition

#32

Post by [deleted] » Mon, Feb 17, 2020, 6:55 PM UTC

travisoneill1 wrote: post #3

The whole thing should be scrapped. This is supposed to be protecting unsophisticated investors, but most of the investments prevented here are equity investments in small businesses. While at the same time anybody is allowed to buy TVIX, a 2x leveraged VIX ETF, which is basically gambling.

[deleted]

Re: SEC proposes changes to “accredited investor” definition

#33

Post by icedchai » Mon, Feb 17, 2020, 6:56 PM UTC

travisoneill1 wrote: post #3

The whole thing should be scrapped. This is supposed to be protecting unsophisticated investors, but most of the investments prevented here are equity investments in small businesses. While at the same time anybody is allowed to buy TVIX, a 2x leveraged VIX ETF, which is basically gambling.

One major difference is liquidity. Small business investments have almost none. You're going to be tied up for years, and may actually never be able to get out. If I screw up with TVIX, it's a couple of clicks.

Re: SEC proposes changes to “accredited investor” definition

#34

Post by johnbrodie » Mon, Feb 17, 2020, 6:57 PM UTC

gruez wrote: post #30

conanbatt wrote: post #5

Earlier quoted context omitted.

A walk down r/WallStreetBets shows you that if there is an argument about a gov agency protecting unsophisticated investors, its failing spectacularly.

I think you're misunderstanding the threat model. It's designed to protect unsophisticated investors from fraudsters, not from the investors themselves.

If that's the case, why do Pattern Day Trader rules exist? They seem to generally cover "protecting you from yourself", not from some third-party.

Re: SEC proposes changes to “accredited investor” definition

#35

Post by kenneth » Mon, Feb 17, 2020, 6:58 PM UTC

ve55 wrote: post #6

travisoneill1 wrote: post #3

The whole thing should be scrapped. This is supposed to be protecting unsophisticated investors, but most of the investments prevented here are equity investments in small businesses. While at the same time anybody is allowed to buy TVIX, a 2x leveraged VIX ETF, which is basically gambling.

There have been considerations to up the requirements of purchasing leveraged ETFs, which go up to 3x. But also keep in mind most people can easily be approved to buy options, and easily lose 100% or more of their net work in hours.

Most people who take unlimited-downside positions (like selling option contracts or short selling) on a broker will be limited to losing however much cash on hand they have in liquid markets. Their broker will issue a margin call (ask for further capital to be deposited to cover any further losses), and if no further deposit is made, will automatically liquidate their position if necessary. So you're unlikely to see your net worth wiped out, you'll simply lose the amount you put in to the account to trade with.

Re: SEC proposes changes to “accredited investor” definition

#36

Post by nullc » Mon, Feb 17, 2020, 7:00 PM UTC

MR4D wrote: post #29

nullc wrote: post #24

Earlier quoted context omitted.

At least the risk profile of a leveraged ETF is fairly unambiguous and easily discovered. Its very real potential for downside is also matched by a real potential for upside and the available pricing is fair-- even if its risk profile not necessarily matched to your (or anyone elses) financial needs. I think a bigger risk to investors is dishonest/deceptive marketing and extremely risky and often illiquid investments…

> Its very real potential for downside is also matched by a real potential for upside This actually isn't true (and that's a big problem). Leveraged ETFs (such as TVIX) typically are very leaky. [0] [0] - https://seekingalpha.com/article/1864191-what-you-need-to-kn...

I originally wrote very real potential for upside and weakened it by dropping the "very", specifically thinking about the drag on leveraged ETFs... :) Guess I didn't go far enough.

I feel like this is in the weeds though: some bad investments people get suckered into have extremely high and diversified risk of total loss, but at _best_ can only return a few percent in a year.

Not only are they negative EV, but even if you get lucky and it pays off you only end up with money market fund like income. Deals that no one who was informed and knew how to do the relevant math would ever take.

Re: SEC proposes changes to “accredited investor” definition

#37

Post by cortesoft » Mon, Feb 17, 2020, 7:00 PM UTC

oh_sigh wrote: post #7

It's an interesting name they gave this concept. According to Wikipedia, "accreditation is the process in which certification of competency, authority, or credibility is presented" But to be an accredited investor, all you need to do is have some money. There is no logical way that you can certify that a person's "competency, authority, or credibility" by merely knowing how much money is in their bank account.

They let people with enough money be accredited investors on the idea that if you have enough money you won't be devastated if you are a victim of fraud.

Re: SEC proposes changes to “accredited investor” definition

#38

Post by sillysaurusx » Mon, Feb 17, 2020, 7:03 PM UTC

gruez wrote: post #26

sillysaurusx wrote: post #18

Earlier quoted context omitted.

Which raises the question of whether securities laws are beneficial in this regard.

The SEC has shut down/suspended numerous ICOs. That sounds like they're working to me.

Or the value is being transferred out of the US and toward other countries, because you can't even start an ICO in the US unless you have the right connections.

Re: SEC proposes changes to “accredited investor” definition

#39

Post by baybal2 » Mon, Feb 17, 2020, 7:04 PM UTC

kenneth wrote: post #20

Welcome changes to the accredited investor rules. Of course, would love to see them go even further and let just anyone invest — but this is already a step in the right direction. In all my dealings with the SEC (from working at multiple regulated investment platforms, AngelList and Republic, and now as a VC), it's become clear to me that they're extremely pragmatic and want to support innovation and create a level p…

> it's become clear to me that they're extremely pragmatic and want to support innovation and create a level playing field for everyone

USA has by far world's most byzantine and bizarre securities laws.

To me, this doesn't seem to be going well along that statement.

Re: SEC proposes changes to “accredited investor” definition

#40

Post by Keverw » Mon, Feb 17, 2020, 7:04 PM UTC

Kinda interesting they limit who can invest in things, yet you can go to the casino or blow all your money on lottery tickets. Seems like just another way for the rich to keep getting richer. Also always found it odd, the age for lottery and casino were different too, at least in the US. 18 for lotto, 21 for casino.