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.<p>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 playing field for everyone. They have great intentions, but are obviously quite careful and conservative about their approach.<p>I think it's important to note two things:<p>1/ The stated mission of the SEC is "to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation." — the last part is important, and these changes go towards furthering that goal.<p>2/ The SEC is a civilian enforcement agency. They do not write the rules, they are here to interpret them and enforce them. They issue guidance, monitor, and sue entities that break the rules. The rules are written by congress. Even if the SEC wanted to change a rule, they could not do it without following the laws written by congress. At best, they can slightly tweak their interpretations of the rules (as we're seeing here).
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.
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.
Official document describing the amendments: <a href="https://www.sec.gov/rules/proposed/2019/33-10734.pdf" rel="nofollow">https://www.sec.gov/rules/proposed/2019/33-10734.pdf</a>
We are entering the Euphoria stage of the business cycle: Microsoft, Apple, Google and Amazon worth over $5 trillion, while the White House is considering tax benefits so more people can buy stocks and the SEC is ditching investment regulation.<p>Hang on to your hats!
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"<p>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.
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.<p>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?<p>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.
A similar bill was passed unanimously in the house in 2017, which seems to have a more broad definition of a professional expert.<p>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?<p><a href="https://www.congress.gov/bill/115th-congress/house-bill/1585/all-info" rel="nofollow">https://www.congress.gov/bill/115th-congress/house-bill/1585...</a>
That's because its less about that and more about allowing a certain income class to have exclusive access to certain kinds of investments.<p>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.<p>The "accredited investor" gatekeeping allows them to provide very little value and say "doesn't matter, you need us because we're the very few that are allowed to invest in your company".
One thing I didn't understand about hedge funds is why they limit themselves to only accepting large sums of money from individuals. That concept appeared a lot in the movie about Bernie Madoff. Is it harder to manage a hedge fund with more investors? Once you get the money from them shouldn't the hedge fund be able to use the money just the same as if it came from few rich people?
The SEC has no way of knowing whether someone understands the risks of investing or not.<p>If the reasoning is to protect ignorant investors and prevent fraud, it would be more effective and equatable to have a test/certification to be a qualified/investor, rather than banning large swaths of the population from investing.<p>The current SEC rules are inherently discriminatory whereas the law should treat people equally.
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?
Proposal comments to post: all current and former FINRA and NASD license holders should be eligible as accredited.<p>A new unsponsored FINRA test for this specific purpose should be created as well (doesnt need to be in a federal proposal, just what can happen)<p>Finance and econ degree holders eligible too<p>I think this still sets the bar too high. There needs to be some way to opt out of the paternalism and take a chance in the securities market.<p>People are going to lose their shirts, just add a little disclaimer just like in public markets and on gambling posters.<p>Sometimes this will be an efficient allocation of capital for issuers that VCs dont share affinity for.
I may be in the minority here, but I don't think the changes we needed were to make it easier for higher-ups to cash out of a company before rank-and-file get a chance to.
I'm convinced that hedge funds and venture capitalists are against this because it will require their own investors to have a certain level of knowledge about their investments that makes the managers uneasy.
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.<p>It seems that being an accredited investor isn't protecting anyone from fraud.