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SEC proposes changes to “accredited investor” definition

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Re: SEC proposes changes to “accredited investor” definition

#41

Post by asciimike »

Mvandenbergh wrote: post #8
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.

Agreed. While I think it is sensible to have rules that prevent gullible members of the public from being bamboozled, I also think that a more sensible policy is what the UK has. Here you can self-certify as a "sophisticated investor" which is basically the same thing except that there is no obligation on anyone to check your self-certification i.e. there is no penalty to claiming to be one when you're not nor is the…

This is basically Matt Levine's argument [1], though he calls it a Certificate of Dumb Investment:

To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”

[1]: https://www.bloomberg.com/opinion/articles/2018-09-24/earnin... [2]: https://www.bloomberg.com/opinion/articles/2019-06-19/privat...

Re: SEC proposes changes to “accredited investor” definition

#43

Post by cortesoft »

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.

I think Matt Levine has a good explanation about accredited investing and what private markets really mean:

> But in fact the main thing that distinguishes public and private markets is not their legal status—private markets are mostly open to accredited investors, while public markets are open to everyone—but the fact that private companies get to choose their investors, and public companies don’t. Hedge funds, for instance, are mostly open only to accredited investors, but not all hedge funds are open to all accredited investors. The very best hedge funds mostly aren’t open to anyone: They are at capacity, won’t take new money, and mostly manage money for their own very rich employees. Other hedge funds with long track records of good performance are open to big institutional allocators who can write very large checks. If you are a dentist making $205,000 a year, and you want to invest in hedge funds … someone will definitely sell you a hedge fund! It will not be Renaissance.

Just because we legally allow people to invest in whatever they want doesn't mean it will make equal footing between investors. The investments that will accept the people who are currently 'non-accreddited investors' are going to be the worst of the private investments; it will do nothing to help the little guy compete with the rich guys.

Re: SEC proposes changes to “accredited investor” definition

#44

Post by carbocation »

baybal2 wrote: post #39
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.

The SEC doesn't make the laws, though. I tend to agree with both of you and I don't think that's a contradiction.

Re: SEC proposes changes to “accredited investor” definition

#45

Post by oh_sigh »

cortesoft wrote: post #37
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.

I understand the reason - I'm saying the name is a joke.

Re: SEC proposes changes to “accredited investor” definition

#46

Post by nullc »

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.

It has shut down some but it mostly seems to issue nominal penalties.

For example, the EOS ICO unlawfully raised over $4 billion dollars. The SEC settled with them where they paid the SEC $24 million and the SEC agreed to take no further action.

The only lesson here is that if you're going to ignore the law and sell sketchy assets with over-hyped claims to unsophisticated investors in the US... make sure you raise enough that the cost for good attorneys few million to the SEC is just a rounding error.

Re: SEC proposes changes to “accredited investor” definition

#47

Post by icedchai »

astura wrote: post #42

Does anyone here know if entities are required to actually verify their customers are accredited investors (eg with brokerage statements, bank statements, paystubs, etc.) or can they just take the person's word on it?

They can take a person's word.

I signed up for a few sites, to check out various opportunities, before I was actually an accredited investor. It's all "self certified." I am actually one now, FYI.

Re: SEC proposes changes to “accredited investor” definition

#48

Post by asciimike »

astura wrote: post #42

Does anyone here know if entities are required to actually verify their customers are accredited investors (eg with brokerage statements, bank statements, paystubs, etc.) or can they just take the person's word on it?

When you do the investment deal, you have to certify that you are an accredited investor (e.g. you'll get a SAFE and an "Accredited Investor Questionnaire" or similar document). They won't require proof beyond that (e.g. bank account statements, W-2), but if you lied about it you'll likely have zero recourse if shit hits the fan (which is the only time you would need it). I would also say that most of the time the parties involved know each other trust each other enough to where in practice this shouldn't be a big deal (if you have questions about the money or if someone shouldn't be able to do this, don't take their money).

It's the same logic used when cashiers ask you what your age is when purchasing alcohol: if you give them a fake ID and they accept it, that's on them, but if they ask you and you lie, that's on you.

Re: SEC proposes changes to “accredited investor” definition

#49

Post by nullc »

asciimike wrote: post #41
Mvandenbergh wrote: post #8

Earlier quoted context omitted.

Agreed. While I think it is sensible to have rules that prevent gullible members of the public from being bamboozled, I also think that a more sensible policy is what the UK has. Here you can self-certify as a "sophisticated investor" which is basically the same thing except that there is no obligation on anyone to check your self-certification i.e. there is no penalty to claiming to be one when you're not nor is the…

This is basically Matt Levine's argument [1], though he calls it a Certificate of Dumb Investment : To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want…

I was okay right up to the never complain part.

There is a lot of fraud that goes unpunished because the victims feel hopeless and embarrassed. As a result, it's a lot more attractive to defraud people.

A dumb investment might be dumb, it might be likely to be fraud. But if it turns out to actually be fraud, the victims should still be able to seek restitution or otherwise you are giving a free pass to commit fraud and creating a huge economic advantage for people willing to do it over people who aren't.

Re: SEC proposes changes to “accredited investor” definition

#50

Post by icedchai »

KoftaBob wrote: post #12

That's because its less about that and more about allowing a certain income class to have exclusive access to certain kinds of investments. A VC firm that offers nothing more than money (larger % of them than you'd think) doesn't want to compete with tons of syndicates consisting of average retail investors. The "accredited investor" gatekeeping allows them to provide very little value and say "doesn't matter, you ne…

If you work in tech, especially FAANG, you are likely surrounded by "accredited investors." There are a lot more of them you think.
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