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SEC proposes changes to “accredited investor” definition

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Re: SEC proposes changes to “accredited investor” definition

#71

Post by Ididntdothis »

dragonwriter wrote: post #59
Ididntdothis wrote: post #55

Earlier quoted context omitted.

I think a lot of weirdness in US regulation is because of Congress having lost the ability to make clear headed laws. There is so much friction in the partisan fights that they don’t have time and energy to write clear laws that make sense.

> ...Congress having lost the ability to make clear headed laws. When do you imagine they had such ability, and does much of th Byzantine nature of the securities laws really post-date that period? > There is so much friction in the partisan fights. No more than usual, except in the sense that because of the partisan realignment (or two overlapping realignments, one stemming from the New Deal itself, the other from J…

“bitter ideological fights were somewhat less often aligned with party boundaries.”

This is what has made things worse in my view. The people in Congress don’t vote anymore for what they personally think is right but what the party tells them to do.

Re: SEC proposes changes to “accredited investor” definition

#72

Post by travisoneill1 »

tptacek wrote: post #19
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.

Doesn't accreditation largely influence how securities are marketed? Isn't the liability issue with accreditation on the security seller, and not on the buyer? Why would we want more shady investments marketed to people, even if some what's marketed today turns out to be shady?

This makes a lot of sense, but I don't support it because in this case the price of having less shady investment marketed to people is cutting off access to a large number of legit (though risky) investments.

Re: SEC proposes changes to “accredited investor” definition

#73

Post by throw17ebfruary »

kenneth wrote: post #35
ve55 wrote: post #6

Earlier quoted context omitted.

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…

I wouldn't count on that. The market might move so fast that the broker can't liquidate the account before the balance goes negative. In that case the broker has an incentive to try to extract the amount from the customer (if they can), instead of eating the loss on the negative balance.

Re: SEC proposes changes to “accredited investor” definition

#74

Post by dragonwriter »

Ididntdothis wrote: post #71
dragonwriter wrote: post #59

Earlier quoted context omitted.

> ...Congress having lost the ability to make clear headed laws. When do you imagine they had such ability, and does much of th Byzantine nature of the securities laws really post-date that period? > There is so much friction in the partisan fights. No more than usual, except in the sense that because of the partisan realignment (or two overlapping realignments, one stemming from the New Deal itself, the other from J…

“bitter ideological fights were somewhat less often aligned with party boundaries.” This is what has made things worse in my view. The people in Congress don’t vote anymore for what they personally think is right but what the party tells them to do.

> The people in Congress don’t vote anymore for what they personally think is right but what the party tells them to do.

They don't vote any less for what they think is right, either. Political expediency has always been a major factor, even during the realignment when the national party may not have been as big of a factor (though it was always a big factor) in the expediency calculation.

Re: SEC proposes changes to “accredited investor” definition

#75

Post by kelnos »

kenneth wrote: post #64
gist wrote: post #60

Earlier quoted context omitted.

> 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.

I do generally agree with you that the accredited investor definition should just be scrapped entirely, but the problem with fraud is that you usually don't find out about it until your investment is gone, and prosecutions often aren't able to recover anywhere near enough to make the investors whole again. And even when they do, it can take months or years.

Someone with a $20M net worth can deal with losing $1M. It sucks, but it's not going to put them on the streets. Someone who puts all of their savings into a fraudulent investment then becomes one car break-down away from not paying their bills. Consider also if that person is retired and is living on a fixed income.

The kind of people in the latter group are probably more likely to fall for a scam or fraud. I would love to lift investment restrictions -- I absolutely agree that this is a "richer get richer, poor get poorer" issue -- but not without a way to better protect more vulnerable investors.

The first thing that comes to mind is some sort of government-provided investment fraud insurance. But then I worry about perverse incentives: every time someone's investment tanks, they're incentivized to try to prove that the investment was a fraud.

Re: SEC proposes changes to “accredited investor” definition

#76

Post by pochamago »

kenneth wrote: post #64
gist wrote: post #60

Earlier quoted context omitted.

> 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.

I think there's an argument to be made that the current rules create obstacles for Ponzi schemes and other conmen, but I'm genuinely in agreement that restricting action based on personal wealth is a great way to keep the poor from moving up. I think day trading is the worst example, especially when you compare its risks to options which have no such restrictions

Re: SEC proposes changes to “accredited investor” definition

#77

Post by relaunched »

I have a hard time understanding who this helps. Clearly there are exceptions for family offices and the spousal exception is strangely broadened in a way that includes same sex, non married couples (and I believe that's a win) - though arguably is much broader. But, an exception for people that pass some relatively basic SEC certifications (who also don't meet some reasonable financial thresholds) or folks that are non-significant wage earners, that work for a VC and want to invest. It's really strange considering now, investment brokers / managers who don't make enough to participate under the old rules can participate AND convince their clients / the market to participate...that seems odd.

If there is a reasonable reason to create an income threshold, presumably to protect investors from risky investments who can't withstand the loss, then why create exceptions for people who don't meet the income / asset requirement?

If you believe that investment in startups should be regulated, to save us from ourselves, it's hard to imagine this helps the average potential investor.

Re: SEC proposes changes to “accredited investor” definition

#78

Post by gnopgnip »

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.

In many cases small businesses can take on non accredited investors. Like a rule 504 offering if less than $1m is being raised. And if you are raising more than $1m, a 506 offering allows for up to 35 non accredited investors. If you are raising more than $1m and have more than 35 non accredited investors a public offering is compelling.

Re: SEC proposes changes to “accredited investor” definition

#79

Post by jonas21 »

relaunched wrote: post #77

I have a hard time understanding who this helps. Clearly there are exceptions for family offices and the spousal exception is strangely broadened in a way that includes same sex, non married couples (and I believe that's a win) - though arguably is much broader. But, an exception for people that pass some relatively basic SEC certifications (who also don't meet some reasonable financial thresholds) or folks that are…

The point of the accredited investor regulation is to protect unsophisticated investors who don't understand the risk of investing in startups and other unregistered offerings.

These exceptions will let people without a high income or net worth qualify as accredited investors by proving that they have the financial knowledge to understand these risks. For example, anyone can take the Series 65 exam.

It sounds like this could be very helpful in allowing people who are not rich to invest in startups while still protecting people who have no idea what they're doing.

Re: SEC proposes changes to “accredited investor” definition

#80

Post by petercooper »

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?

So you have a typical person living paycheck to paycheck but yes let them put whatever savings they might have into a startup?

While I think there is some merit in restricting what purchases people can make beyond their means, only applying it to certain types of speculative investment (which doesn't even include things like real estate) seems arbitrary to me when it's not applied to something with even more risk like gambling, say.

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