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SEC proposes changes to “accredited investor” definition

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Re: SEC proposes changes to “accredited investor” definition

#81

Post by DaiPlusPlus »

dragonwriter wrote: post #74
Ididntdothis wrote: post #71

Earlier quoted context omitted.

“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.

> They don't vote any less for what they think is right, either

I’d like to avoid the use of the all-encompassing “they” when referring to US politics. It’s demonstrable that one, specific, major political party lost all semblance of a moral compass (or even an ideological compass) in the past couple of decades and it would be an error of judgement to presume they vote for and support what they actually believe is morally right - even by their own definition of what is right and good.

Re: SEC proposes changes to “accredited investor” definition

#82

Post by kyrieeschaton »

dragonwriter wrote: post #66
kyrieeschaton wrote: post #63

Earlier quoted context omitted.

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.

That's true to a point, but neither of those pieces of legislation actually define "insider trading" (although they do establish penalties for it). The power is more or less delegated to the SEC. There have been recent attempts to codify their present interpretation in statutory law.

https://www.natlawreview.com/article/house-passes-proposed-l...

Congress in general gives extremely wide power to particular administrative bodies that does result in conduct being treated as legal or illegal purely as a result of shifting regulations. You can argue that it "derives from" legislation at some level of removal so they're not "making law"; that's a distinction without a difference.

Re: SEC proposes changes to “accredited investor” definition

#83

Post by celdon25 »

A similar bill was passed unanimously in the house in 2017, which seems to have a more broad definition of a professional expert.

I am thinking out loud here but what if this is a scenario where the SEC is trying to pass a more restrictive version, so that the more relaxed house bill never gets passed into law?

https://www.congress.gov/bill/115th-congress/house-bill/1585...

Re: SEC proposes changes to “accredited investor” definition

#84

Post by celdon25 »

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…

Congress did pass a bill unanimously, actually, but the Senate was too busy bickering about Trump to take it up on their end: https://www.congress.gov/bill/115th-congress/house-bill/1585...

Re: SEC proposes changes to “accredited investor” definition

#85

Post by say_it_as_it_is »

The people who invested in Bernie Madoff funds were accredited. They believed they ought not ask questions and rock the boat. Trump University also had accredited investors. Softbank has accredited investors.

It seems that being an accredited investor isn't protecting anyone from fraud.

Re: SEC proposes changes to “accredited investor” definition

#86

Post by tptacek »

travisoneill1 wrote: post #72
tptacek wrote: post #19

Earlier quoted context omitted.

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.

Lots of investments that have no business being marketed to retail investors are both (1) not reasonable or safe enough to be marketed and (2) believed in good faith by their marketers to be "legit".

So, two responses here:

First, when you think about the products that could be marketed without accreditation, you can't just think about the marginal cases where there is some plausible value; you have to think about all of them, bearing in mind that there is virtually no correspondence between how well something is marketed and how plausible it is an investment. See, for instance, the unregulated nutritional supplement market, which is is a hive of scum and villainy that kind of perfectly encapsulates this problem while being self-limited (in the non-pyramid-scheme case) to the amount of colloidal silver solution any person could reasonably purchase --- unlike an investment, which begs its purchaser to plow their life's savings into.

Second, contrary to the perspective you get on this issue by just looking at tiny startups, you have to consider that the entire securities industry is in a sense gated on accreditation, because the difference between a security that requires accreditation and one that doesn't is "keeping timely audited findings with the SEC". So for example: if you did away with accreditation, why would companies need to produce audited financials?

If your belief is that the edifice of securities regulation is entirely pointless and people should be able to buy any investment product they want and companies should be able to sell any investment product they want, that's a coherent take, but not one ("let's do away with companies having to file official statements") that most mainstream people would find persuasive.

Re: SEC proposes changes to “accredited investor” definition

#87

Post by [deleted] »

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…

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Re: SEC proposes changes to “accredited investor” definition

#88

Post by ativzzz »

kelnos wrote: post #75
kenneth wrote: post #64

Earlier quoted context omitted.

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 s…

It sounds then, instead of accredited investors, we need an accredited capital investment designation. Allow anyone to invest, but require those who would seek investment from anyone to be under more scrutiny. Of course, this is only if the one seeking investment choose to do so.

Re: SEC proposes changes to “accredited investor” definition

#89

Post by rolltiide »

gruez wrote: post #22
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.

>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. My understanding is that it's supposed to protect investor from fraud (eg. along the lines of ICOs), not necessarily from risky/volatile investments.

I too think it should be scrapped and I look at how other places do it. Often in other countries I see lower wealth requirements and copy the general US SEC framework but sometimes over countries just have no registration exemptions for a private market, which is even worse.

The wealth requirements in US are so aggravating because they pass muster by putting the consequence on the issuer, not actually barring the person from investing. Almost impossible to challenge! But how we got here is that this is a successor to a test, which had horrible guidance and resulted in rampant discrimination - a sign of the times. This proposal reintroduces the test but inherits a more established FINRA testing infrastructure. FINRA tests are still barriers of entry that will hardly make the world more egalitarian as almost all of them require sponsorship from a financial institution - even the test prep materials aren't supposed to be shared. There are ways around it like a bucketshop cant you on payroll and offer you the test but its still an unnecessary and pretentiously exclusionary hurdle, built on purpose.

Re: SEC proposes changes to “accredited investor” definition

#90

Post by [deleted] »

jonas21 wrote: post #79
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 th…

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