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SEC proposes changes to “accredited investor” definition

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Re: SEC proposes changes to “accredited investor” definition

#61

Post by gist »

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.

> While at the same time anybody is allowed to buy TVIX, a 2x leveraged VIX ETF, which is basically gambling.

Nobody is hyping that and most 'anybodies' don't even know that exists. (I never heard of it but everyday I read about all the wins with startups but typically almost none of the losses).

Re: SEC proposes changes to “accredited investor” definition

#62

Post by bsder »

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…

> The stated mission of the SEC is "to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation."

The problem with small investors is that it is really damn hard to bring a CEO doing obviously fraudulent things to heel. It takes a significant fraction of a million dollars to bring a successful lawsuit--and what you get in the end isn't worth much.

The SEC needs to be much more vigilant on this front if they want to increase the investor pool significantly.

Re: SEC proposes changes to “accredited investor” definition

#63

Post by kyrieeschaton »

carbocation wrote: post #44
baybal2 wrote: post #39

Earlier quoted context omitted.

> 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.

They do though; they have incredibly wide discretion and things like insider trading effectively exist only via SEC regulation.

Re: SEC proposes changes to “accredited investor” definition

#64

Post by kenneth »

gist wrote: post #60
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…

> Would love to see them go even further and let just anyone invest Very broad statement. 'Anyone' in 'any' amount? Surely you are not advocating that. Are you? In what way do you think the average person 'anyone' knows enough to essentially bet on a typical startup (called it 'gambling')? So you have a typical person living paycheck to paycheck but yes let them put whatever savings they might have into a startup?

Actually, I am.

I don't believe that restrictions on private investments make sense. If anything, they perpetuate the "rich get richer, poor get poorer" problem. Unaccredited investors are kept out of great potential wealth creation. The problem is not bad investments, it's fraudulent ones. Fraud is still illegal even if you kill the accredited investors restrictions.

Re: SEC proposes changes to “accredited investor” definition

#65

Post by icedchai »

SpicyLemonZest wrote: post #54
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 retail investor syndicates can successfully compete with VCs, why aren't squads of senior FAANG engineers doing it today? They're comfortably over the accredited investor threshold.

Probably because they make enough extra money investing in public markets with less hassle and much more liquidity. Why even bother with private investments? 90% of them are going to zero.

Re: SEC proposes changes to “accredited investor” definition

#66

Post by dragonwriter »

kyrieeschaton wrote: post #63
carbocation wrote: post #44

Earlier quoted context omitted.

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.

They do though; they have incredibly wide discretion and things like insider trading effectively exist only via SEC regulation.

> They do though; they have incredibly wide discretion and things like insider trading effectively exist only via SEC regulation.

No, insider trading is the subject of laws passed by Congress; at a minimum, the Insider Trading Sanctions Act of 1984 and Insider Trading and Securities Exchange Act of 1988. And those laws are where the SEC enforcement powers over insider trading come from.

Re: SEC proposes changes to “accredited investor” definition

#67

Post by kenneth »

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?

It depends on whether they're doing a 506(b) or a 506(c) offering. The difference being that the latter can be publicly advertised, whereas the former doesn't allow any public solicitation of investments.

In the former case, you can take people at their words (they just declare that they are, and how they are an accredited investor in a statement).

In the latter case, you must verify via a statement from a licensed professional (e.g. their CPA) or via their bank.

Re: SEC proposes changes to “accredited investor” definition

#68

Post by wave_function »

cortesoft wrote: post #43
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…

Side question: does anyone know the origin of “dentist” being shorthand for “someone who is fairly educated/wealthy and thinks they’re sophisticated, but is actually just dumb money”? I’ve heard it quite a bit, curious about where it comes from.

Re: SEC proposes changes to “accredited investor” definition

#69

Post by kenneth »

bsder wrote: post #62
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…

> The stated mission of the SEC is "to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation." The problem with small investors is that it is really damn hard to bring a CEO doing obviously fraudulent things to heel. It takes a significant fraction of a million dollars to bring a successful lawsuit--and what you get in the end isn't worth much. The SEC needs to be much mor…

The lawsuit isn't worth it for large investors either. It's much easier to write off your investment than to try to spend a ton of money and energy fighting for scraps, nuking your reputation as a founder-friendly investor in the process. That's why VCs suing portfolio companies is so rare. Only major case of recent memory is Benchmark and Uber, when a $10B+ position was at stake.

Re: SEC proposes changes to “accredited investor” definition

#70

Post by kenneth »

wave_function wrote: post #68
cortesoft wrote: post #43

Earlier quoted context omitted.

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…

Side question: does anyone know the origin of “dentist” being shorthand for “someone who is fairly educated/wealthy and thinks they’re sophisticated, but is actually just dumb money”? I’ve heard it quite a bit, curious about where it comes from.

A self-reinforcing meme, I'd imagine. The more you hear it, the more you're likely to use it as an example. I've certainly used the phrase "dentist from Ohio" a few times myself — no offense meant to dentists and Ohioans.
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