[HN Gopher] SEC Modernizes the Accredited Investor Definition
___________________________________________________________________
SEC Modernizes the Accredited Investor Definition
Author : cdiddy2
Score : 214 points
Date : 2020-08-26 13:29 UTC (9 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| peter303 wrote:
| 16% of the US qualifies. Not a very high threshhold.
| obiefernandez wrote:
| Someone have the TLDR?
| zelly wrote:
| Seems like a top signal.
| johnrgrace wrote:
| I'm an accredited investor. I've had a series 7 license and was
| in a finance PHD program.
|
| I've had the chance to see a lot of investments that require you
| being an accredited investor. Almost all of them have had some
| highly problematic issues. Most of them have a outcomes where you
| can lose all of your money and there is NO WAY to get out of the
| investments.
|
| What I tell other people is run away from investments that
| require you to be accredited.
|
| Seed round investments are probably the "best" opportunity BUT
| you have the risks of being screwed by cap table games. A
| "regular" person could put money into a startup and get really
| screwed.
| icedchai wrote:
| The liquidity aspect is key. There is basically none with
| private investments. You can get in, but may not be able to get
| out for 5 or 10 years... or more likely, never. For this reason
| alone, the average person is better off with public markets.
| bufferoverflow wrote:
| This is classic gatekeeping. You can bring all your money to a
| casino, buy lottery tickets, make bets on horses. But somehow
| investing in early stage startups is suddenly an issue the
| government wants to protect you against.
| ffggvv wrote:
| wtf is a natural person?
| tathougies wrote:
| A natural person is an individual human being, rather than a
| corporation, the estate of a deceased individual, a trust, a
| partnership, etc, which are all legal persons, but not natural
| ones.
| beervirus wrote:
| As opposed to a "legal person" like a corporation.
| elamje wrote:
| My biggest problem with this is that I have had multiple
| opportunities as a young professional to invest in my friends'
| small funds, only to be turned away at the last minute when they
| decided to only accept accredited investors.
|
| On the other hand, I could participate in sh*tcoin ICO's, get
| rich quick "courses", and become a real estate "investor" by
| attending presentations at a Holiday Inn conference room.
|
| The law as it currently stands, does not work, period.
|
| I've been prevented from investing in the funds and businesses of
| my high integrity friends, while being allowed to participate in
| lotteries, gambling, MLMs, ICOs, the list goes on...
|
| I was really hoping this would be a huge announcement, but
| unfortunately its a couple tiny steps towards the ultimate end
| goal of opening up private markets to individuals.
|
| Many people like to reference scams that this law helps avoid,
| but I call BS.
|
| Has it limited some cons from raising money from middle class
| people, yes. Has it limited a lot of middle class people from
| participating in areas with the highest returns, yes.
|
| I've read about several people that weren't accredited checking
| the box anyways, and no enforcement actually happens, which makes
| me think it's a BS regulation to begin with.
| cryptica wrote:
| Of course, to people outside of the US, what was going on in
| the US was obvious. They should just get rid of these socialist
| laws which are supposedly designed to protect your comrades but
| which actually serve the interests of a small number of
| politically connected elite by hindering mobility... Let's face
| it, what you have in the US is textbook communism.
|
| It's ironic that Russia today is more capitalist than the US...
| It's like both countries lost the cold war against each other.
| SomewhatLikely wrote:
| Regulation is tantamount to communism and socialism?
| Ownership is still private in the US but has rules on what
| can be done. Russia has state ownership in many of that
| country's companies.
| cryptica wrote:
| Regulations designed to protect people from themselves are
| inherently socialist... The fact that these regulations
| actually end up creating a moat around the elites (by
| locking regular people out of opportunities) is inherently
| communist.
|
| This is exactly what the Soviet political elites did to
| keep living the good life at the expense of their poor
| citizens; all under the pretext of protecting people from
| themselves.
| mthoms wrote:
| Interestingly, many Canadian provinces have had accredited
| investor exemptions for some time. Here's an overview for anyone
| interested (note that the exact rules will vary by province):
|
| https://financialpost.com/personal-finance/managing-wealth/s...
| gojomo wrote:
| These are good steps, but abolishing all wealth-tests entirely
| would still be better.
|
| There's no wealth-test that prevents a person from losing all
| their money in highly-leveraged investments - from real-estate to
| fancy public-market securities. (Over-leveraging into real estate
| is practically encouraged by public policy.)
|
| There's no wealth test against putting all one's cash into
| gambling, which can be arbitrarily worse than even the riskiest
| non-fraudulent startup investment, depending on your choice of
| wagers. (Official state lotteries are among the worst games, with
| the most manipulative marketing - to a level of deception that
| would generate lawsuits & legislation if attempted by private
| actors.)
|
| There's no wealth test before purchasing legal but addictive &
| judgement-impairing substances like alcohol & marijuana.
|
| But if you want to put $5-$20K into a friend's business, or a
| business you know well, the SEC makes it hard unless you're
| already a millionaire. It's insanely paternalistic & economically
| destructive - a ghostly holdout from some bad experiences in
| another era, the 1930s, when the ranges of available information,
| experience, and alternative temptations were all tiny & quaint
| compared to the 2020s.
| RockIslandLine wrote:
| "But if you want to put $5-$20K into a friend's business, or a
| business you know well, the SEC makes it hard unless you're
| already a millionaire."
|
| What do you mean? Individuals are still allowed to sign
| contracts. So write up a specific contract.
| [deleted]
| GCA10 wrote:
| Actually, the information asymmetries in public vs. private can
| be huge -- and I don't mind a little SEC paternalism at all.
|
| I had an OMG experience trying to look up a very interesting
| non-public software company on SharePost a week ago. They will
| offer me a chance to buy something. I don't get any clarity on
| the cap table, so I'd be completely in the dark on preferences,
| dilution, etc. I'm being asked to offer a price range before
| seeing any trading history. And there's no availability (at
| first) of any financial history.
|
| There's potential here to make a uniquely bad investment in
| what might be a uniquely great company. We won't cry a lot of
| tears for rich people who make some bad investments in the
| dark. For people living closer to the edge, having them get
| fleeced has spillover effects that are ugly enough to argue
| against letting it all play out with total laissez-faire.
|
| Especially if lax rules invite the hustlers to overwhelm the
| market. (Gresham's law)
| awinder wrote:
| I always love to see the "fancy public-market securities" lingo
| upfront :-). I'm interested to see how this plays out, even
| though I'm not sure I agree, but this may be the last time to
| make the information density argument. This time should be a
| good test of that, and it's one of these things that I hope
| (not too hard) might just inform some policy and take a policy
| hostage off the table.
| bobthepanda wrote:
| How many of those are capable of creating systemic financial
| risk, though?
|
| People in the '20s were literally mortgaging their house and
| car to buy stocks on margin en masse because they took in
| advertising and word of mouth that told them it was a good
| idea. You could theoretically also do that at a casino, but
| practically speaking that's not a big problem.
|
| Look at the crypto hype-train that got latched onto by people
| who didn't do their homework on crypto, or the craziness of WSB
| on reddit. We are still capable of letting that happen today.
| vmception wrote:
| Which is why there shouldn't be any prohibition exclusively
| in the securities market. There are even higher wealth tests
| in some aspects of the commodities market.
|
| These things just haven't been challenged in the courts
| because those wealthy enough don't know or consider this is
| an issue, and people less wealthy aren't even exposed to
| these kinds of opportunities and probably also can't afford
| the court challenge.
|
| I think there is room for a challenge and invalidation of the
| entire concept because the wealth test actually used to be
| different kinds of tests as recently as the 70s. Those were
| no good because it led to arbitrary discrimination by the
| brokers and companies. And now we are back to that because
| FINRA licenses are more standardized.
|
| Can likely invalidate the entire concept with more recent
| case law such as spending is speech via 1st amendment, 5th
| amendment and 14th amendment equal application of laws in
| comparison to the wealth/access dichotomy as well as ability
| to speculate and gamble in other markets.
| bsanr2 wrote:
| My guess is that there is some amount of overlap between the
| crypto/WSB crowd and, say, the people who kickstarted (read:
| were structurally prohibited from investing in) Oculus.
| JumpCrisscross wrote:
| > _abolishing all wealth-tests entirely would still be better_
|
| The problem is the cost of doing diligence. Not investor
| competence.
|
| In public markets, the cost of producing reports on the issuer.
| In private markets, almost by definition, it's on the investor.
| Each investor must thus have the resources, legal at a minimum,
| to evaluate an opportunity.
|
| Given these resources have a high minimum cost, an investor of
| limited means is faced with two options: forego the opportunity
| or gamble. When the latter is chosen, it doesn't just hurt the
| investor _per se_. It creates a fecund field for fraud,
| seedstock for scammers. (To say nothing of the fact that when
| retail investors lose money, it has social and systemic effects
| in a way that someone who loses 10% of their portfolio on a
| failed start-up investment does not.)
|
| I agree that there might be room for a friends-and-family
| exemption. But private companies should not be allowed to
| solicit, directly or indirectly, retail investment dollars.
| tptacek wrote:
| Is there a variant of this framing that doesn't also argue
| against all securities regulation and a return to the status
| quo ante of the Great Depression? Because the Accredited
| Investor standard essentially bypasses securities disclosure
| laws. Without it, every company would obtain the benefits of
| being public company, with none of the associated obligations.
| mmm_grayons wrote:
| I'm of two minds about this - on one hand, we don't want
| shoe-shine boys losing their savings on a bad investment. On
| the other, if my friends and I want to pool our money to make
| an investment I resent being kept out of that sort of thing.
| Things like opening it to VC fund analysts make a ton of
| sense.
| stickfigure wrote:
| How about Matt Levine's "Certificate of Dumb Investment"?
|
| https://www.bloomberg.com/opinion/articles/2018-09-24/earnin.
| ..
|
| -----
|
| 1. Anyone can invest all they want in a diversified portfolio
| of approved investments (non-penny-stock public companies,
| mutual funds and exchange-traded funds with modest fees,
| insured bank accounts, etc.).
|
| 2. Anyone can also invest in any other dumb investment; you
| just have to go to the local office of the SEC and get a
| Certificate of Dumb Investment. (Anyone who sells dumb non-
| approved investments without requiring this certificate from
| buyers goes to prison.)
|
| 3. 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."
|
| 4. Then you take the form to an SEC employee, who slaps you
| hard across the face and says "really???" And if you reply
| "yes really" then she gives you the certificate.
|
| 5. Then you bring the certificate to the seller and you can
| buy whatever dumb thing he is selling.
|
| 6. If an article ever appears in the Wall Street Journal in
| which you (or your lawyer) are quoted saying that you were
| just a simple dentist, didn't understand what you were buying
| and were swindled by the seller's flashy sales pitch, then
| _you_ go to prison.
| WrtCdEvrydy wrote:
| LOL, that would be interesting, but would never happen.
|
| Someone will argue the language has some ambiguity and the
| lawsuit will impact the SEC for 'failing to protect the
| public'
| nokcha wrote:
| How about a knowledge/skills test instead of a wealth test?
| Something like the bar exam, but for investing instead of
| law. That would keep out people who have no idea what they're
| doing, without unfairly keeping out knowledgeable middle-
| class citizens.
| thursday0987 wrote:
| did you even read the SEC announcement? it is literally the
| first bullet point:
|
| * add a new category to the definition that permits natural
| persons to qualify as accredited investors based on certain
| professional certifications, designations or credentials or
| other credentials issued by an accredited educational
| institution, which the Commission may designate from time
| to time by order. In conjunction with the adoption of the
| amendments, the Commission designated by order holders in
| good standing of the Series 7, Series 65, and Series 82
| licenses as qualifying natural persons.
| madamelic wrote:
| Cool, I was bummed when I googled Series 7 and saw I
| needed to be sponsored.
|
| Looks like series 65 is the way to go since series 82
| also requires sponsorship.
| mindcrime wrote:
| _Looks like series 65 is the way to go since series 82
| also requires sponsorship._
|
| Depends. If simply passing the exam was enough, that does
| seem semi-reasonable. But if it requires you actually be
| licensed by your respective state, then the rabbit-hole
| goes much deeper. I looked at the requirements here in
| NC, although I don't know how representative they are of
| other states, but basically you'd have to register with
| the State as an investment management company (which
| would probably entail registering an LLC or something),
| and then pay them $300 / year to keep up your
| registration. Add the $200/ year or so for the LLC filing
| fees, as well as the paperwork requirements (annual
| report, etc), tax filings, and suchlike, and you're
| talking about a barrier that while not insurmountable, is
| still going to be fairly steep for most people.
| gojomo wrote:
| Yes, that's exactly in line with how I'd like the SEC to go
| further than these initial promising steps.
|
| More competence-evaluation - ideally constantly
| recalibrated according to the performance & satisfaction of
| those approved. Do some certifications/skills-tests
| strongly predict later competent investing? Increase their
| weights. Do others seem to be easy backdoors that lead to
| lots of burned investors? Decrease their weights.
|
| Manage for the goal - wealth expansion & a vibrant private
| investing ecosystem - without the archaic
| oversimplifications "rich are competent to do whatever they
| want, and young/poor are incompetent so must be kept on a
| short regulatory leash".
| gojomo wrote:
| Sure: replace all wealth tests with competence tests.
|
| Then, no competent poor person would be legally locked out of
| an investment opportunity, by state enforcement power, that
| would be legally-encouraged for any incompetent wealthy heir.
|
| Requiring that someone has to be able to deliver the funds,
| sure.
|
| Perhaps, that they have to prove competence via some testing
| certification.
|
| Perhaps, that they have to match some scaled risk threshold,
| when relying on systemic benefits: we only give you tax-
| advantaged retirement accounts, or full unemployment
| coverage, if you don't put more than X% of your net worth in
| 'risky'/non-public securities.
|
| Those would at least be objectively-linked to a person's
| abilities, or the magnitude of risks they're projecting on
| the community.
|
| But wealth tests in state regulation codify a class system:
| "You can't buy this, even if you have cash-in-hand, even if
| you're an expert, even if the spillover risks are
| infinitesimal, unless you're already rich." Such
| discrimination against the poor should be just as illegal as
| that based on race, gender, national origin, sexual
| preference, religion, etc.
| mywittyname wrote:
| There's a strong financial incentive for the market to engage
| in fraudulent activities against investors. And the smaller the
| investor, the greater then incentive.
|
| Public companies have regulations that help prevent such fraud
| by requiring things such as audits by third party accounting
| firms, and regulating how these audits may be performed. Such
| regulations came about specifically as the result of fraud
| committed by the owners and directors of companies.
|
| Private markets don't have these regulations because the
| assumption is that past financial success is indicative of
| financial sophistication. It doesn't prevent fraud, but at
| least it helps reduce the likelihood of success.
|
| If you start making private markets open to everyone, then
| there's no reason to differentiate between public and private
| markets anymore. Companies will go back to all being "private"
| because there are fewer regulations, then there will be another
| Enron, and a subsequent shift towards regulation to prevent
| another such scandal.
| [deleted]
| stickfigure wrote:
| Seems like there's at least one "third option". The rights of
| minority shareholders don't have to be as minimal as they
| are. How about "anyone who owns stock is entitled to look at
| the books?"
| nickff wrote:
| This is the rule for companies with a certain number of
| investors (500 IIRC). The problem is that producing the
| (audited) books is the most expensive part of being a
| public corporation.
| JumpCrisscross wrote:
| > _How about "anyone who owns stock is entitled to look at
| the books?"_
|
| Books and records inspections are expensive for both issuer
| and investor. For the issuer, it almost always requires
| legal counsel be retained.
|
| If a company wants to raise private capital from retail
| investors, the JOBS Act created Reg A+ [1] for them.
|
| [1]
| https://en.wikipedia.org/wiki/Regulation_A#Regulation_A+
| edoceo wrote:
| High Times (the weed mag, now media company) is doing a
| pretty visible RegA+ for anyone interested to see what
| that (mess?) looks like.
| jpeg_hero wrote:
| Shhhhhh.
|
| _" Specific statutes in the California Corporations Code
| provide shareholders the right to inspect bylaws,
| accounting books, records, minutes and financial
| statements. The California Corporations Code allows the
| court to enforce these rights."_
| stickfigure wrote:
| Does that apply to Delaware corporations headquartered in
| California?
| jpeg_hero wrote:
| no.
| millettjon wrote:
| Alternatively pass regulations to make private companies over
| a certain size report more.
| oh_sigh wrote:
| But isn't it also the SECs job to punish those who commit
| fraud against investors?
|
| In my mind it is like the NYPD making it illegal to walk down
| the street at night unless you are 6'2" or above, or have
| trained in martial arts. After all, there are a lot of people
| out there who would want to take advantage of a weaker,
| easier target. And it also just happens to make the NYPDs job
| easier.
| colordrops wrote:
| It's a matter of principle though. You don't restrict the
| freedom of individuals to protect them from other individuals
| that are bad actors. You go hard and strong after the bad
| actors. What other examples of laws outside of finance can
| you cite where individuals are restricted in order to protect
| them from other bad actors? It's absurd and not in the scope
| of what government should be doing.
| [deleted]
| aaronblohowiak wrote:
| > What other examples of laws outside of finance can you
| cite where individuals are restricted in order to protect
| them from other bad actors?
|
| Controlled substances (ie: prescriptions,)
| colordrops wrote:
| That's not why drugs are illegal. In fact you'd be far
| more protected from bad actors if they were legalized.
| alasdair_ wrote:
| >What other examples of laws outside of finance can you
| cite where individuals are restricted in order to protect
| them from other bad actors?
|
| Pretty much any consumer safety or mandatory licensing law.
|
| Even something as simple as buying a beer - we insist that
| legal adults are not allowed to buy a beer until they are
| older.
|
| We insist that adults must be over 21 to buy a handgun in
| many states, or that (in other states) they must show that
| they are sophisticated gun owners by passing a firearms
| safety course.
|
| We let people with special licenses and training
| (pharmacists) buy opiates openly, yet deny individuals the
| right to do so without receiving written permission.
|
| We don't allow non-specialists to buy certain kinds of
| explosives, but we allow others with credentials to do so.
| The same applies to all kinds of things, up to and
| including varieties of river frogs (!).
|
| We insist on documented "informed consent" for things like
| surgery, again to protect vulnerable people from bad
| actors.
|
| We don't let adults buy many kind of fireworks out of fear
| that they will harm themselves or others, yet if someone
| can prove (through obtaining a license) that they are
| competent, we let them buy and fire huge commercial
| fireworks.
|
| In short: there are an enormous number of similar
| restrictions. A lot of them exist because the previous
| state (no law) caused enough damage that restrictions were
| added.
| toby wrote:
| Most of your examples are designed to prevent unqualified
| people from hurting others, the main exception being the
| regulated drugs one.
|
| This raises the question of whether a similar system
| could exist for investments. Do you think there could be
| a "prescription" investment where you'd need a sign-off
| from someone with certain qualifications who'd consider
| your financial position and what you were planning to do?
| millettjon wrote:
| How about if we insisted you have 1,000,000 USD to buy
| guns or alcohol?
| colordrops wrote:
| Every one of your examples are of the case of protecting
| the individual from hurting themselves or others. This is
| quite different from the question, which is to cite a law
| that restricts someone in order to protect them from
| others.
| Retric wrote:
| _We insist on documented "informed consent" for things
| like surgery, again to protect vulnerable people from bad
| actors._ This and a lot of other medical rules are
| designed to protect people from bad actors.
|
| Arguably, the issue is with the accredited investor
| loophole not the general rule. It's regularly bilking new
| money (sports stars, actors, lottery winners) from their
| fortunes. I am not saying it's a bad idea to allow some
| people to make such investments, but perhaps an actual
| test might be a better idea than measuring their wealth.
| gojomo wrote:
| But none of your examples use the reductionist &
| discriminatory "how big is your bank account" standard as
| a proxy for a person's responsibility.
|
| What if you had to be rich - far beyond the sticker &
| insurance price - to buy a car? ("You're not a
| millionaire? We've decided you should only be allowed to
| take the bus.")
|
| Rich to buy a beer? Rich to buy a gun?
|
| Rich to buy a bunch of OTC medicines? (Poor people would
| still need a prescription - from a doctor, or perhaps,
| under the "rich makes smart" standard, just a rich
| sponsor.)
|
| Rich to buy fireworks?
|
| Rich to buy certain books, with dangerous knowledge?
| (Similar to how it is only by private investing that you
| get a full practical education in how such
| investments/firms work.)
| Ericson2314 wrote:
| I'm OK with these sorts of "in defense of us all"
| regulation, but I think the wealth test in particular is
| a bit perverse. I think this "anti-classism" critique is
| better than the libertarian critique.
| mywittyname wrote:
| Regulations are written in blood.
|
| We didn't have rules, then something extremely bad
| happened to make people say, "that should be illegal." So
| it's made illegal. A generation passes and young people
| look at said regulations, think, "that's a stupid rule,"
| and they revoke it. Goto 10.
|
| Investments that require you to be accredited are often
| pretty bad ones. All the great opportunities get cherry-
| picked by those with the right networks. What most people
| will be investing in are the scraps that all the smart
| investors passed on. That's how accredited investors get
| burned and go back to boring old index funds.
|
| If you open these markets up to average Joes, it's going
| to be a bloodbath. Fox News will switch from running ads
| to invest in gold to ones for scam companies with
| fraudulent books. Elderly women will get hounded by phone
| salesman. We'll go back to the way it was in the 80s.
|
| The problem with caveat emptor is society as a whole gets
| screwed as well. We all get to live with the economic
| collapse brought on by the situation.
| Ericson2314 wrote:
| My preferred solution is UBI + no gambling with the UBI
| rule. Similar effect in this area (ignoring all the other
| wonderful benefits a UBI has) but without the nastiness
| of a net worth rule.
| pc86 wrote:
| This is true for something like the FAA's FARs where
| they're trying to save lives.
|
| It is absolutely not true of every nonsensical
| paternialistic nonsense Congress has passed.
| malandrew wrote:
| There's a strong financial incentive for the market to lobby
| for regulations that reduces the amount of competition it
| experiences when making investments. Keeping out mom and pop
| investors until you've extracted most of the growth is a very
| effective strategy to keep prices for good investments down.
| otoburb wrote:
| >> _If you start making private markets open to everyone,
| then there 's no reason to differentiate between public and
| private markets anymore._
|
| Couple this with 401Ks now giving retail investors (likely
| high-fee) choices to invest in private equity[1], and the
| picture looks much more volatile as the next generation draws
| closer to retirement.
|
| [1]
| https://www.latimes.com/business/story/2020-06-19/private-
| eq...
| gvhst wrote:
| I don't think the direction we are going towards will erode
| the differentiation between private and public markets. A
| skill based assessment (required to have series 7/65/82,
| other designations like CFA will eventually be included) will
| be a strong barrier to entry. While those exams may be more
| or less trivial to many hackernews readers, for the general
| public they represent a significant investment in time and
| education.
|
| There will also be liquidity differences--even with a broader
| set of investors--between private and public markets. Thus if
| a company wants to have liquid equity (which benefits
| employees) they will need to be public. Additionally, many
| large institutions have caps on private market investments
| which are generally smaller than public equity caps. I don't
| see this changing given liquidity concerns, going public will
| still be the road to access more institutional capital.
|
| Lastly, your Enron example exemplifies the point that fraud
| will occur, regardless of private or public markets (and
| regardless if it is audited by an established third party
| accounting firm. Arthur Anderson signed off on Enron for
| years, at it took years for a big 4 accounting firm to
| recognize the fraud committed by Wirecard). On the flipside,
| public markets have regulatory requirements which make it
| easier to research, but just because private markets don't
| require disclosures doesn't mean there is no information to
| go off of. Investors can still get enough info to make
| reasonable investment decisions without disclosures following
| public company requirements. This gives investors the ability
| to make their own decisions regarding which disclosure
| standards are sufficient instead of differing to the SEC. In
| fact, I believe that Private Markets would experience less
| fraud if the only requirements were education based and not
| net-worth based,
| georgeecollins wrote:
| >> There's no wealth-test that prevents a person from losing
| all their money in highly-leveraged investments - from real-
| estate to fancy public-market securities.
|
| That is an exageration for publicly traded securities. It used
| to be possible (in the roaring '20s) to be 10:1 leveraged in
| public stocks. The SEC forbid that because so many people were
| wiped out. Nowadays retail stock accounts can under-perform,
| but it's a big deal when a lot of people see their portfolio
| decline by 30% -- think 2009.
|
| People have gotten wiped out in large numbers on real estate. I
| just think it is an exaggeration to say people are taking huge
| risks with a normal stock account
| nickpinkston wrote:
| No, it's still easy for any asshole to get a margin or
| options account and lose a ton of money.
|
| Here's a recent news story: "20-Year-Old Robinhood Customer
| Dies By Suicide After Seeing A $730,000 Negative Balance"
|
| https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y.
| ..
| bjt wrote:
| Worth noting that he didn't actually lose a ton of money.
| Bad UI just made it appear so.
| mbesto wrote:
| Correct. And there is technically an audit for options
| trading that says you need to understand how they work
| before a broker lets you use it. Honestly, options
| trading is not exactly easy to understand to the lay
| person and there are generally limits on how much you can
| lever in them.
| georgeecollins wrote:
| I didn't say it is impossible. It's just relatively rare.
| The point of the SEC is not prevent anyone from doing
| something stupid and losing a lot of money. The point is to
| keep lots of people from doing something stupid. And in
| particular, to keep lots of people from doing the same
| stupid thing at the same time! (1929, 2008.. )
| nickpinkston wrote:
| I'm unsure how rare it is, but even if it is rare, it may
| be because anyone motivated enough to know what a
| margin/options account is and to get one may be
| sophisticated enough to not lose all of their money doing
| it.
| nickpinkston wrote:
| There are even leveraged ETFs for those without margin
| accounts:
|
| https://www.investopedia.com/terms/l/leveraged-etf.asp
| georgeecollins wrote:
| Yes, but those ETFs are professionally managed high
| leverage accounts. It's not your uncle day trading at 10:1
| margin.
|
| And I know your uncle can probably find a way to make a
| crazy risky investment. The idea is just to try and cut
| down on that to avoid systemic risk.
| thekyle wrote:
| At least with a leveraged ETF you'll never lose more than
| you invested.
| gojomo wrote:
| You can trade futures, even in many retirement accounts,
| sometimes with just a few thousand dollars in the account.
| Such futures can wipe out any amount of principal in as
| little time as you could wire money to a sketchy private
| investment.
|
| Many of the people defending these 1930s-style regulations,
| as if these regs truly protected people from themselves, seem
| to also be stuck in a mid-20th-century view of what the
| investment & informational environment is like.
|
| If someone is truly gullible & risk-seeking, any amount of
| capital can be destroyed in any number of legally-approved
| investments/gambles, almost instantly. The 'Accredited
| Investor' rules just lock the less-wealthy out of one small
| and not even especially risky corner - a place where the
| less-wealthy could potentially better-deploy local knowledge.
| So this old rule is now just paternalistic friction, without
| any real personal or systemic wealth protection.
| elliekelly wrote:
| > It's insanely paternalistic & economically destructive - a
| ghostly holdout from some bad experiences in another era, the
| 1930s, when the ranges of available information, experience,
| and alternative temptations were all tiny & quaint compared to
| the 2020s.
|
| Over the last 90 years we have repeatedly learned very
| difficult lessons about the individual and societal costs of
| unregulated securities markets and made changes to mitigate
| those risks. And this same tired argument comes along,
| repeatedly, to justify rolling those regulations back so that a
| handful of people have a _chance_ at striking it rich while we
| as a group learn those same difficult and expensive lessons all
| over again.
|
| Our securities markets _work_. They are predictable, mostly
| fair, and most importantly, they are trusted. Are all of the
| rules perfect? No. Do some of the rules and regulations have
| compliance costs that outweigh their benefit? Of course. There
| is plenty of room for improvement and we should absolutely
| identify the areas in need of modernization but you're
| advocating we tear the whole house down when you haven't made
| an effort to understand why it was built this way in the first
| place.
| bsanr2 wrote:
| >Over the last 90 years we have repeatedly learned very
| difficult lessons about the individual and societal costs of
| unregulated securities markets and made changes to mitigate
| those risks.
|
| And then mostly dismantled those changes, in an environment
| when financial entities have more reach and capital to spin
| into dubious schemes than ever before. What could possibly go
| wrong?
| ibeckermayer wrote:
| > Our securities markets work
|
| According to what standard? Is the fact that I can't invest
| $5000 in my friend's startup an example of our securities
| markets "working"? Not according to any rationally
| justifiable standard.
|
| Certainly the impulse to protect grandma's life savings from
| predatory fraud is a good one. But the proper way to better
| society is through empowering individuals to make better
| decisions. An example of a better system along this principle
| would be a local (county/state) investment office that you go
| through that checks over the terms of the deal to make sure
| the terms are legal and the parties are fully aware of what
| they're getting themselves into. That would protect against
| fraud, without violating my right to freely and consensually
| associate with other consenting adults. "Others might do a
| bad thing, therefore you should be banned from doing a good
| thing" is not a logically coherent standard -- yet that is
| the essential argument of the SEC and it's "accredited
| investor" protections.
|
| Your view that these markets are "working" is merely an
| indication that you lack imagination. How much better would
| the world be if there weren't arbitrary restrictions on
| economic exchange? It's impossible to know, but history shows
| that advancements in liberty and justice have breed
| unprecedented wealth.
| elliekelly wrote:
| > "Others might do a bad thing, therefore you should be
| banned from doing a good thing" is not a logically coherent
| standard -- yet that is the essential argument of the SEC
| and it's "accredited investor" protections.
|
| No. That is not remotely close to summarizing the SEC's
| stance on accredited investors or the regulations the SEC
| enforces to protect retail investors. The securities
| regulations are, at their core, a _disclosure_ regime. They
| aren't intended to police for bad investments and they
| aren't intended to prevent you or I or anyone else from
| making stupid decisions with our money. They're merely
| about how much information must be furnished to potential
| investors before they invest. That's it.
|
| If you want to sell securities to everyday folks, they have
| to be registered. Full stop. Any unregistered sale is an
| exemption to the rule but anyone can register their
| securities for sale and provide potential investors with a
| prospectus and some basic information about the investment.
|
| Generally speaking the registration and disclosure
| _requirements_ are eased or exempted for people with a
| higher income not because they're smarter and can avoid bad
| investments or because they're better situated financially
| to absorb the loss. It's because they have the _resources_
| to do the diligence and hire people ask the questions and
| get the necessary information to make the investment. Think
| of it as outsourced compliance. Rather than the entity
| paying for the cost of registering the securities and
| everything that entails the investors pay for it up front.
|
| And that makes sense. If I have a question about Apple's
| prospectus I can't ring Tim Cook and ask for more
| information. What you see in the disclosures is what you
| get. But if I'm one of the 35 unaccredited investors in my
| friend's company and I have a question I can absolutely
| call the CEO and get the answers.
|
| And now think about the middle ground: JFrog, for example,
| before they filed their S-1. If you or I invested $5,000
| and we had a question about operations do you think we'd
| get answers? No way. If Elon Musk invested and he had the
| exact same question do you think he'd get answers? Of
| course.
| bpt3 wrote:
| What exactly is stopping you from investing $5000 in your
| friend's startup?
| otoburb wrote:
| To cross all the t's and dot all the i's, you might be
| able to join a friends-and-family round under Rule 504,
| but your founder friend should still do the due diligence
| to ensure the participating friends and family investors
| reside in states where such an offering is exempt from
| registration/qualification under state blue-sky laws[1].
|
| IANAL. Hopefully your founder friend will have had a
| startup attorney to ask about all of this.
|
| [1] https://www.law.cornell.edu/wex/blue_sky_law
| bpt3 wrote:
| Any founder who is looking to take funding from anyone
| should have a startup attorney to ask about this.
| voxic11 wrote:
| Presumably Rule 506(b) which prevents fundraising from
| nonaccredited investors. There is an exception for up to
| 35 non-accredited investors but taking money from even
| one non-accredited investor greatly increases the
| disclosure requirements on your startup. So the startup
| would essential need to do disclosure as though it were a
| public company.
|
| https://www.sec.gov/smallbusiness/exemptofferings/rule506
| b
| JumpCrisscross wrote:
| > _the startup would essential need to do disclosure as
| though it were a public company_
|
| Not quite that onerous. But the start-up and investor
| would each need to spend at least $5,000 on legal
| diligence. This would likely be true with or without the
| rule--if you don't understand the preferred investors'
| terms, you aren't qualified to invest.
| bpt3 wrote:
| Rule 506(b) doesn't prevent it entirely, and keep in mind
| that the vast majority of companies aren't venture backed
| startups, and I believe would be covered under Rule 504.
|
| You absolutely don't need to do disclosure like a public
| company if you have non-accredited investors.
| [deleted]
| m0zg wrote:
| It's not really a "wealth test". It's more of a "is this person
| likely to have proper legal counsel" test. Or at least that's
| how I understand its intent.
| gojomo wrote:
| The 'accredited investor' definition is absolutely &
| literally a "wealth test".
|
| It does not ask if you have legal counsel. Indeed, even being
| an investment-specialized, bar-licensed lawyer yourself,
| drafting agreements upon which other 'accredited investors'
| depend, wouldn't make you 'accredited'!
|
| But having $1,000,000 in the bank would. Prior wealth.
| nradov wrote:
| I know several regular middle class people who became
| "accredited" investors by simply lying on the form. While I
| don't condone that, it seems like no one really verifies assets
| in most cases.
| gojomo wrote:
| Indeed, & that's one of the things fueling my righteous anger
| here.
|
| Several now very-rich, even 'celebrity' tier investors have
| mentioned that they simply faked the accreditation at a
| crucial early stage.
|
| Of course, there's survivorship bias in such stories. But I
| feel like a sucker for not doing that - and thus losing money
| in approved things like NASDAQ instead. Or being over-
| concentrated in my own risky projects - which no SEC rule can
| protect a person from! - where other private investments
| would've been usefully uncorrelated.
|
| I could've survived a 100% loss in whatever dozen or two
| startups I might have taken a flyer in - but in fact, they
| wouldn't have all cratered, and even if they did I'd have had
| far more insight into investing, and a broader network, than
| otherwise. Instead, that valuable experience was reserved for
| the rich, and those willing to lie about their riches.
|
| So who is this rule protecting, exactly?
| tathougies wrote:
| This is a wonderful change. Before, you had to be rich to invest
| in funds. Now, the SEC has opened up the ability to participate
| simply after having met certain educational thresholds. The
| Series 65 exam can be undertaken by members of the public,
| without any requirements.
|
| Great news for small investors! And a vital change for minority
| and marginalized communities, who are often forced to seek
| capital outside their community, because it is incredibly
| difficult to meet accredited investor requirements otherwise.
| tempsy wrote:
| They also eased risk disclosure requirements
| https://www.sec.gov/news/press-release/2020-192
|
| It's honestly laughable that their top priorities in the height
| of what appears to be a massive stock bubble is weakening
| investor protections at a time when they should be strengthened
| tboyd47 wrote:
| The accredited investor restriction on private equity seems like
| the most anti-free-market law I've ever heard of. You're not
| allowed to put your own money into a business unless the
| government deems you Smart Enough (c) (tm) to do so. If the vast
| majority of citizens here are not smart enough to invest our own
| money, then what is all the higher education for?
|
| This change sounds like a good one but there's not enough
| information to know if it will really open up any opportunities
| for regular people.
| charliemil4 wrote:
| No the real injustice is $25,000 for FINRA day trading / margin
| accounts.
|
| Recent insane volatility could allow you trade from a couple
| thousand up to 25k in a few weeks - BUT you will most likely
| run out of day trades before that happens.
|
| It's highly annoying.
| TACIXAT wrote:
| What would you trade on in this environment?
| michaelbuckbee wrote:
| This is a pretty clear Chesterton's Fence [1] example. The
| scams that occurred prior to enacting these standards were
| massive.
|
| If you want to look at a modern example of such things,
| consider the cryptocurrency ecosystem and the many scams that
| occurred [2]
|
| 1 -
| https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence
|
| 2 - https://twitter.com/patio11/status/1032024732214812673
| [deleted]
| gojomo wrote:
| Modern scams don't show the 'accredited investor' rules are
| helpful.
|
| These "are you rich enough?" limits, on just a few classes of
| potential investments, did not and can not provide any
| protection against rampant risks like:
|
| * Enron (an audited public company approved for widow-and-
| orphan investing)
|
| * Madoff
|
| * Fake-documentation or risk-oblivious home lending
|
| * At-home Forex or securities trading in arbitrarily exotic
| or leveraged ways (Robinhood! Futures! Expiring options!)
|
| * State lotteries with awful odds & deceptive advertising
| preying on the decision-biases of the poorly-educated
|
| * Prosperity gospel solicitations
|
| So rather than proving the value of Accredited Investor
| restrictions, your example scams (some crypto), and others,
| just show them to be an ineffectual symbolic Maginot Line,
| not a wise Chesterton's Fence.
| chrisco255 wrote:
| Right, but it's not the 1920s any more. We live in this
| highly connected, information rich, rapidly changing world,
| that is fundamentally different than the 1920s in many ways.
| The general public is far more savvy about investments,
| risks, and bubbles in general than they were in the past.
| Today, private equity tends to capture almost all of the
| value before a company goes public. The crazy thing is that a
| foreign citizen can invest in an American start up without
| any of these credentials, yet a US citizen cannot.
| mrep wrote:
| > The general public is far more savvy about investments,
| risks, and bubbles in general than they were in the past.
|
| I'd argue the crypto currency and ico hysteria of late
| proves otherwise.
| jcranmer wrote:
| The 90's heralded a lot of optimism about the Internet's
| role in making information ever easier to access. What
| we've discovered in the 21st century is that it also makes
| _disinformation_ easier to access. And perhaps more so,
| since democratization of content generation means there 's
| fewer chances for curators to pull disinformation.
|
| I don't think it's easier for an average person in the
| 2020's to differentiate between investments, risky
| investments, and outright scams than the 1920's, were all
| the regulations to be waived away.
| chrisco255 wrote:
| I think a person in 2020 is far more savvy about the
| risks than someone in 1920. For one, they're aware of
| crashes, bubbles, etc. and have probably even lived
| through at least one of them. They also don't have to
| trust the advice of a single broker over the telephone.
| The 2008 real estate bubble was driven by the same kind
| of speculation that drove the 1920s stock bubble. We are
| probably already deep into a stock bubble today, in 2020.
| And yet retail investors can plop down tens of thousands
| of dollars on stocks through Robinhood or a myriad of
| other apps, paying no attention to underlying
| fundamentals in the business.
| jcranmer wrote:
| > For one, they're aware of crashes, bubbles, etc. and
| have probably even lived through at least one of them.
|
| The Panic of 1929 was far from the first crash of the
| 1900s, let alone the only large crash in history. The
| Panic of 1893 would have been the big crash that everyone
| was afraid of before 1929, but there were more minor
| crashes in 1901 and 1907. Railway manias and land
| speculation-driven crashes litter pretty much every
| decade of the 19th century. The 21st century is unusual
| because it's pretty much the first time in modern
| financial history you make it an entire decade _without_
| some sort of recession.
| jkaplowitz wrote:
| > The crazy thing is that a foreign citizen can invest in
| an American start up without any of these credentials, yet
| a US citizen cannot.
|
| These rules are generally based on the residence of the
| investor, not their citizenship. I'm an American in Quebec
| currently, and it's the Quebec/Canadian rules which
| determine my eligibility to invest while I'm living here,
| not the SEC's. And in Canada's case, the accredited
| investor rules are broadly similar to what the US rules
| were before this announcement, with the same dollar amounts
| but in Canadian dollars and with a lot of other differences
| in the details.
| elihu wrote:
| The thing about Chesterton's Fence in this case is that the
| fence might exist for more than one reason. A law that
| prevents poor people from being scammed can also enable rich
| people to cherry-pick all the most lucrative investments.
| hguant wrote:
| It cuts both ways - the most lucrative investments are also
| the riskiest ones. We tend to look down our noses
| (sometimes masking it as sympathy) at those who spend their
| money on lottery tickets or gambling, taking on large
| amounts of risk for a chance of an _extremely_ lucrative
| payoff. What's the difference between the state lottery
| saying you have a 1 in 650 million chance of winning, and
| someone pushing a new bio-tech stock, with all the
| financial disclosures attached?
| airza wrote:
| I guess i would refer you to the brief period of time where
| cryptocurrencies were skirting these regulations. I'm
| sympathetic to the argument that there was some value created
| there, but _hoo boy_ , a lot of people lost a considerable
| portion of their life savings there.
| chrisco255 wrote:
| A lot of people have gotten life-changingly rich from crypto
| investments. Bitcoin is already the best performing asset
| class of all time, and has minted plenty of millionaires.
| tboyd47 wrote:
| How many people lost money in cryptocurrency scams compared
| to the entirely legal and rule-following housing market crash
| of 2008?
| bpt3 wrote:
| Much of the losses in 2008 were caused by illegal and non-
| rule-following activity.
| baryphonic wrote:
| Since there was so much illegal activity, who went to
| jail?
| bpt3 wrote:
| Here's the list: https://ig.ft.com/jailed-bankers/
|
| Here's a good analysis of why more people didn't go to
| jail:
| https://www.theatlantic.com/magazine/archive/2015/09/how-
| wal...
|
| Lack of successful prosecution doesn't mean that illegal
| activity didn't occur. Are you ticketed every time you
| drive over the speed limit? I'm not.
| DetroitThrow wrote:
| Importantly we also implemented several new schemes to
| ensure that we were better able to evaluate illegal and
| non-rule-following activities after 2008 as well.
| bpt3 wrote:
| Right, this is the sort of regulation that people are now
| complaining about in the securities market because a long
| time has passed since it was originally enacted.
| airstrike wrote:
| > then what is all the higher education for?
|
| How exactly does a PhD in Biology help you understand
| investments?
| tboyd47 wrote:
| Perhaps it doesn't, but that's the point. Education should
| prepare you to engage with society gainfully. If one makes it
| through 20 years of rigorous school but at no point acquired
| the necessary cognitive skills to discern scams from
| legitimate opportunities, then the education itself is the
| scam.
| chrisco255 wrote:
| Yeah, financial education should be considered a standard
| subject and taught all years of high school and all
| degrees, in my opinion. Far more important and practical
| than almost any other basic subject. Even more important
| than trying to teach everyone to code. Teach everyone how
| the financial systems work and principles of personal
| finance.
| airstrike wrote:
| The most obvious scams should be easy to identify, but if
| you think about how easy it is for even "accredited
| investors" to lose a lot of money. Just look at the list of
| people affected in Madoff's Ponzi Scheme0
|
| Based on this evidence and many similar cases, I'm entirely
| in favor very stringent rules on who gets to place big bets
| on financial securities.
|
| __________
|
| 0. https://en.wikipedia.org/wiki/Madoff_investment_scandal#
| Affe...
| [deleted]
| text70 wrote:
| Maybe not biology, but maybe biotech or biochemistry.
|
| A fundamental understanding of the primary scientific
| literature and patents necessary for a technology to be
| viable, can all be used to determine if a new technology will
| be profitable for a company, beyond the scope of overall risk
| and investment numbers. Both of which are used extensively in
| graduate research.
| throwaway713 wrote:
| Because intelligence is general and correlates well across
| fields, and intelligence has a loose causal link with a PhD
| in biology. So I wouldn't say it "helps" with investment per
| se but there is a connection there.
| airstrike wrote:
| A very small connection. Investments aren't exactly just
| intuitive knowledge one can grasp just by being "smart". It
| takes specialized training to know what you're doing - and
| even among those who study finance, you won't find
| consensus on any single investment.
| dralley wrote:
| Ben Carson.
| throwaway713 wrote:
| One counterexample doesn't make a point. I could list
| many people who are simultaneous experts in multiple
| fields and it wouldn't help my argument either.
| refurb wrote:
| _like the most anti-free-market law I 've ever heard of_
|
| Do you know why the SEC created these rules? If you understand
| the history it makes a lot of sense.
| chrisco255 wrote:
| The world is quite a different place in 2020 than in 1933. We
| have access to unlimited digital forms of risk to speculate
| on as it is. It used to be seen as necessary to have taxi
| licenses in order to have trusted drivers who wouldn't scam
| out-of-towners. It turns out you can replace all that
| regulation with an online review system plus mobile GPS and
| payment app (Uber / Lyft). Similar innovations are being held
| back in securities because of red tape.
| refurb wrote:
| The existence of other risks isn't a strong argument for
| introducing more risks.
|
| It's easy for HN to say "this makes no sense", but I
| guarantee you if the rules changed we'd see some article in
| the NYTimes where some retiree lost their entire life
| savings in a private investment including quotes like "no
| one told me it was _that_ risky ".
| tathougies wrote:
| No it doesn't really. People should be allowed to fail. The
| response when someone loses all their money due to a business
| failing should be to have a social safety net, not to prevent
| them from ever having been able to invest their money in the
| first place.
| refurb wrote:
| Wait what?
|
| You're arguing we should have a social safety net so when
| some blue collar worker loses 100% of their retirement
| savings because they invested in a scam start-up, they're
| covered?
| [deleted]
| paxys wrote:
| Every SEC regulation and every financial law is anti-free-
| market, but that doesn't mean it isn't necessary.
| Animats wrote:
| Most of the changes involve organizations, not individuals. The
| main change for individuals is that having a Series 7 qualifies
| you. (A Series 7 is a test about finance you take to become a
| broker. Covers stocks, bonds, options, terminology, how to
| evaluate risk, trading rules, ethics. that sort of thing.)
|
| Mostly, this is about hedge funds, not startups. "Accredited
| investors" can invest in hedge funds that don't report their
| returns publicly in a standard way. Usually they don't report
| them because hedge funds as a class underperform the Dow.
|
| Useful rule: any investment where they call you is no good. If it
| needs paid salespeople, it's a dud.
| mindcrime wrote:
| Hilarious. I'm not sure how any of this counts as "modernizing",
| and none of it amounts to any substantive change. I'd compare
| this to rearranging the deck chairs on the Titanic, but doing
| that is probably more productive.
|
| So... now people who hold a couple of niche, finance industry
| specific licenses - _which you can 't obtain unless you work in
| the finance industry_ - can be "accredited investors." Wow, golly
| gee whiz, color me gobsmacked.
|
| So finance industry insiders get more access to opportunities to
| build wealth, and nothing changes for regular old everyday
| Americans? Am I supposed to be impressed by this?
|
| The ONLY way this would actually be worth trumpeting would be if
| anybody could study, sign up for, take, and (hopefully) pass the
| various FINRA exams mentioned, and get their license without
| needing to go to change jobs. But, sadly, as we see here[1]:
|
| _Candidates must be associated with and sponsored by a FINRA
| member firm or other applicable self-regulatory organization
| (SRO) member firm to be eligible to take FINRA representative-
| level qualification exams._
|
| and here[2]:
|
| _In order to enroll for FINRA qualifying exams, a candidate must
| be sponsored by a state regulator or regulatory authority
| approved to sponsor candidates for FINRA qualifying exams._
|
| Edit: there is some verbiage here[3] that claims that you can
| take the Series 65 exam without being associated with a member
| firm. IF true, I might change my opinion on this a bit. But this
| seems to contradict what is on the FINRA site itself.
|
| _Unlike many other FINRA Series exams, the Series 65 exam does
| not require an individual to be sponsored by a member firm. If
| you are not Form U4 registered or affiliated with a firm through
| FINRA's Web CRD system, you should use the Form U10 to request
| and pay for the Series 65 exam._
|
| [1]: https://www.finra.org/registration-exams-ce/qualification-
| ex...
|
| [2]: https://www.finra.org/registration-exams-ce/qualification-
| ex...
|
| [3]: https://www.kaplanfinancial.com/resources/career-
| advancement...
| sfshaw wrote:
| Matt Levine would be having a field day today. I hope he's having
| a nice time off.
| throwawaygh wrote:
| The two big changes:
|
| 1. permitting natural persons who have "professional
| certifications" or "credentials issued by an accredited
| educational institution".
|
| 2. include as accredited investors, with respect to investments
| in a private fund, natural persons who are "knowledgeable
| employees" of the fund.
|
| Most of the other changes fill in gaps that shouldn't have
| existed: expanding the definition of spouse and adding orgs with
| >$5MM assets (including tribes, family offices, etc.). YC
| relevant: "demo days" will not constitute a general solicitation.
|
| Overall a welcome change. I assume that they'll use an existing
| set of professional certifications in finance, which tend to
| require non-trivial self-study, so it'll probably also create a
| market for short educational programs offered by accredited
| institutions.
| bluedevil2k wrote:
| Do you think "credentials issued by an accredited educational
| institution" would include things like an MBA? Or even a BA in
| Business?
| edoceo wrote:
| I foresee questionable institutions basically selling these
| creds to eager startup personality types
| _jal wrote:
| Of course, it happens any time you create magic status
| differentiators.
|
| As just one example, stories pop up every few years about
| sheriff's offices selling 'honorary deputy' or similar
| status to rich people. I guess sometimes people buy them as
| symbols, but more frequently for the concealed-carry
| rights.
| SpicyLemonZest wrote:
| The SEC's phrasing is somewhat misleading. The amendments
| give them the right to designate some kinds of educational
| credentials as sufficient, but they haven't actually done so;
| the only credentials designated right now are a handful of
| securities licenses.
| Lazare wrote:
| In theory, the SEC _could_ decide to count those. In
| practice, that 's basically unthinkable.
| gojomo wrote:
| It's been discussed, so it's definitely thinkable.
|
| And if getting an accredited-institution MBA, for tuition
| payments of anywhere from $22K to $200K, after about 17
| years of other education (K-12, undergrad) isn't enough for
| someone to protect their own wealth from scams, what's the
| point of all that credentialing, anyway?
| nickpinkston wrote:
| Fully agree - though I bet it doesn't help that much TBH.
| elliekelly wrote:
| Given the state of student loans in the US I think there
| could be a fairly compelling argument that an MBA is
| indicative of a person's _inability_ to protect their
| wealth. Not all MBAs are created equal. Most of them
| aren't worth the price and the few that are worth it have
| a lot more to do with the network and connections than
| the education.
| zerkten wrote:
| An MBA is not a licensure. There are overlaps between
| what an MBA and an accountant may have studied, but the
| CPA is what gives you a license. Lots of MBA students do
| not pursue financial courses beyond what is requires to
| pass. They may have interests in marketing, innovation,
| or other areas. They can be ill-equipped to deal with
| investments.
|
| The same pattern exists for law and many other
| professions. There are plenty of people with law degrees
| who fail, or decide to not pursue the bar exam.
| gojomo wrote:
| But an MBA who's a millionaire _is_ competent to do any
| amount of private-investing?
|
| And an MBA who's not a millionaire _isn 't_ competent to
| do _any_ private investing, even with just a small amount
| of their own money?
|
| Why should their net-worth be legally dispositive?
| tick_tock_tick wrote:
| The millionaire can fuck up a few times and still be fine
| that's the real difference.
| gojomo wrote:
| Only if they're wise enough to leave themself that wiggle
| room. It's a binary test, the 'accredited' can risk any
| amount.
|
| So why not let anyone take a proportionate risk?
| asah wrote:
| Ah yes, Joe Schmoe's One Weekend Online "Executive" MBA,
| no GED required.
| gojomo wrote:
| Are those academically-accredited?
| otoburb wrote:
| Some of the earlier proposals and discussions from public
| discourse included comments referring to credentials such as
| CPA, CFA, CMA, being a registered representative, MBA, CIMA,
| or possibly having been a broker, lawyer or accountant.[1][2]
|
| But ultimately we'll need to wait for the final list.
|
| [1] https://www.sec.gov/rules/concept/2019/33-10649.pdf
|
| [2] https://www.sec.gov/rules/proposed/2019/33-10734.pdf
| Alex3917 wrote:
| What's the definition of a "knowledgeable employee" of a fund?
| E.g. would any GP be assumed to qualify as long as the fund
| wasn't specifically created as a vehicle for them to qualify,
| or are there specific requirements?
| zacherates wrote:
| Too bad they didn't adopt the "Dumb investment certificate" [1]
| instead.
|
| [1]
| https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
| gruez wrote:
| Is there a reason why the idea suggested _just before_ the
| "Dumb investment certificate"[1] can't be implemented? It can
| be implemented like a Roth IRA (ie. a special account type).
| IRS would be in charge of keeping track of how much "dumb
| money" was "spent" in total, and all the issuer has to do is
| ensure the money came from a "dumb money" account.
|
| [1] the paragraph starting with "A better approach might be to
| lower (or eliminate) the wealth bar for investing in private
| placements"
| LatteLazy wrote:
| Did they really not have anything except a wealth test
| previously? Nothing for people working in the industry etc?
| vmception wrote:
| It was a "self-certified" wealth test
|
| People working in the industry know that self-certified means
| lie through your teeth all day every day with a straight face.
|
| People working in the industry know that you can create
| illiquid investments, trade one unit of it and say you own the
| rest at the same price, and viola you are a multimillionaire. I
| did it with crypto assets 6 years ago using Counterparty.
|
| People working in the industry know that you just need a lawyer
| or CPA to sign off on that.
|
| The prohibition is on the companies selling securities, not on
| the investor, so the company just needs a way to cover their
| ass (CYA) and there is no consequence for the investor. "Self-
| certification" is a code word for lying, or stretching the
| truth, just checking the box.
| ninetax wrote:
| > People working in the industry know that you just need a
| lawyer or CPA to sign off on that.
|
| In your experience how willing are CPAs or lawyers to do that
| for you?
|
| In theory they're putting their credentials on the line for
| you, so I imagine it's either hard to find ones that will do
| that or very expensive to the point where it eats into the
| investment return with the amounts of capital being invested
| below the accredited investor limit.
| vmception wrote:
| lol _maybe_ 10 years ago and briefly.
|
| There have been a SaaS services for this the whole decade,
| and that's only because the issuer exemptions were expanded
| to even need a lawyer because an investor saying "yeah Im
| accredited" wasn't good enough for some securities issuance
| exemptions.
|
| You don't lie to the lawyer (or most lawyers), you show
| assets. Assets which so happen to have a value and are
| totally illiquid. You trade a single unit of something you
| create for $1 and you happen to have 2,000,000 more units.
| You're accredited by any standard. No different than your
| portfolio of houses in a place nobody wants to live in,
| which still happen to have appraisals totaling over $1mm.
|
| If that doesnt feel "right" to you then you might be
| confusing who actually has the consequence here and might
| have been unproductively conditioned to "follow the letter
| of the law" compared to the consequences and implementation
| of the law. Again its a prohibition on the securities
| issuer which they pass on to the investor. Its not a
| prohibition from the government on the investor or the
| lawyer. And the securities issuer simply has to go through
| the motions. Check, check and check. And the investor has
| to pony up the cash. If they don't have the $25K or $100K
| minimum anyway then get out. The government's role in this
| is just a redundant deterrent.
| ninetax wrote:
| I understand who has the consequences here.
|
| My curiosity is about that conversation with the lawyer
| when you say "I traded a single unit of something I
| created for $1 and I happen to have 2,000,000 more
| units." where something is cryptocurrency (what else
| could it be?).
|
| Would most lawyers go "Yep, just another routine
| accredited investor check, $200 please."
|
| Or would most say "I'm being asked to affirm this person
| has $1m in assets and in the off chance that somehow this
| is checked by someone I could be penalized because I
| didn't do my diligence to make sure this isn't just funny
| money".
| vmception wrote:
| the latter would only happen if dubious value
| propositions by poor/middle class people became too
| commonplace after they started complaining about losing
| their money and management in private securities
| offerings. the company will then double down on covering
| their ass by looking into who is making complaints.
|
| if they start predictably acting like non-accredited
| investors after jumping through those hoops, then there
| will be more scrutiny.
|
| right now not enough people that are actually poor jump
| through those hoops. there are a lot of people liquid
| with $25k-$100k or can get it, that don't make $200k/year
| or have $1mm in assets when not excluding their home. the
| wealth requirements also don't account for cost of living
| by area. Some of them jump through the hoops to get
| access to things they really should have access to. The
| rest don't and poorer people can't because the investment
| minimums so that nobody's time is wasted is too high.
| LatteLazy wrote:
| Thanks, that makes more sense!
| sbuccini wrote:
| Nope!
| LatteLazy wrote:
| I'm a brit, I looked into our equivalent regime a while back
| and I was amazed you could be considered sophisticated based
| solely on income/assets.
| vmception wrote:
| 'Murica!
|
| Although US is not a great place when you don't have enough
| income or assets, it would be just as foreign to us that
| you wouldn't be considered sophisticated from
| income/assets!
|
| "What do you mean an actual class system with a 1,000 year
| family history, crazy talk!"
|
| But back to investment choice, we don't agree that
| "sophisticated" can _only_ be from wealth. We want choice,
| the option to take risks.
| [deleted]
| [deleted]
| CalChris wrote:
| So these are 'smart' people who somehow can't meet the relatively
| low traditional income requirements ($200k/yr) but who are now
| assumed to be financially sophisticated enough to take on the
| risk of these securities without the protection provided by
| normal regulatory disclosure filings. This strikes me as insanely
| stupid akin to the ownership society nonsense which precipitated
| the housing crisis.
|
| VC follows a power law and the vast majority of these investments
| will fail.
| JumpCrisscross wrote:
| > _who somehow can 't meet the relatively low traditional
| income requirements ($200k/yr) but who are now assumed to be
| financially sophisticated enough to take on the risk of these
| securities_
|
| It looks like the current certifications are restricted to
| those of financial professionals [1] and employees of funds
| [2]. That doesn't strike me as nuts.
|
| [1] _holders in good standing of the Series 7, Series 65, and
| Series 82 licenses_
|
| [2] _natural persons who are "knowledgeable employees" of the
| fund_
| CalChris wrote:
| It says _in conjunction_ which means that yeah, stock brokers
| can now invest. But it also said _certain professional
| certifications, designations or credentials or other
| credentials issued by an accredited educational institution_.
| These educated folks don 't necessarily need even a Series 7.
|
| Yes, I would like to read Matt Levine rip this apart.
| JumpCrisscross wrote:
| > _certain professional certifications, designations or
| credentials or other credentials issued by an accredited
| educational institution_
|
| After specifying that "holders in good standing of the
| Series 7, Series 65, and Series 82 licenses as qualifying
| natural persons," the bullet point adds that the SEC chose
| this "approach [to provide] the Commission with flexibility
| to reevaluate or add certifications, designations, or
| credentials in the future."
|
| So no, at this point, only holders in good standing of
| those licenses are included in this part of the amendment.
| CalChris wrote:
| "which the Commission may designate from time to time by
| order".
| [deleted]
| nrmitchi wrote:
| > relatively low traditional income requirements ($200k/yr)
|
| $200k/year may be "relatively low" in certain areas, but it
| borderline unattainable in many parts of the country.
|
| People can be smart, and perfectly capable of understanding the
| risks with offerings in their own industry, without making
| 200k/year. Don't automatically discredit people with airquotes
| based on their salary alone.
|
| There are also many people who make more than $200k/year who
| are, quite frankly, not "financially sophisticated enough to
| take on the risk".
| topkai22 wrote:
| Yeah, the $200k/year threshold excludes something like 97% of
| individual income earners (https://dqydj.com/income-
| percentile-by-age-calculator/). That's not relatively low,
| its a significant barrier to entry. Worse, a $200k income in
| SF or NYC (where an outsized portion of those income earners
| live) is a different beast when it comes to disposable income
| if compared to Johnson City, Tennessee.
|
| Matt Levine has it right- just peg the total amount of
| investments in these sorts of vehicles to 10% of cash,
| stocks, and bonds, until the investor crosses the $X million
| dollar mark.
| CalChris wrote:
| Yes, it is a significant barrier to entry. That is its
| purpose.
|
| Upper-income households (double the national median)
| account for 20% (side note: yeah, we have a yawning wealth
| gap). Those household incomes are $207,400 in 2018. So I'm
| not going accept your 3% number.
|
| https://www.pewsocialtrends.org/2020/01/09/trends-in-
| income-...
| vonmoltke wrote:
| >> 97% of _individual_ income earners
|
| > Upper-income _households_ (double the national median)
| account for 20% (side note: yeah, we have a yawning
| wealth gap). Those _household_ incomes are $207,400 in
| 2018. So I 'm not going accept your 3% number.
|
| You are comparing two different things, so your objection
| is invalid.
|
| Also, as noted elsewhere, part of this change was to
| expand what incomes in the household count towards the
| accredited investor threshold. Some number of those
| households didn't qualify because some portion of their
| household income didn't.
| woah wrote:
| These rules aren't meant to stop anybody from losing their life
| savings. You can do that very easily with options in the stock
| market with no accreditation. They are meant to slow down the
| growth of Ponzi schemes etc. From that perspective, adding a
| few accountants and junior lawyers to the mix isn't going to
| change anything.
| JacobDotVI wrote:
| The 200k/yr also had a multi-year look back. So you weren't
| accredited until year ~3 of making such a salary.
| chowells wrote:
| This is great for employees of private funds and other things
| like that. It makes no difference at all to the average person
| complaining about the accredited investor rules preventing them
| from investing in sure-fire wins.
|
| It really doesn't matter how much of a genius you are at
| recognizing investment wins. If you can't give them enough cash
| to finance their operations for a significant period of time, the
| company isn't going to be interested in taking your money. If you
| can't meet the wealth guidelines, you're not gonna be able to
| give them enough money to be worth their time dealing with.
| woah wrote:
| If the company has a process set up to accept investment, they
| don't have to deal with each individual one at a time
| tathougies wrote:
| The average person can now take the Series 65 exam for $60 or
| so and, if they pass, become an accredited investor. This is a
| huge change. Taking the wealth requirement from 1 million
| dollars to $60.
|
| EDIT: It's not $60, but $175, still a far cry from a million.
| nkohari wrote:
| The series 65 is intended for people who want to manage other
| people's money. You should still be able to invest your _own_
| money as you wish.
| tathougies wrote:
| I completely agree with you and would like to see
| accredited investors go away as a concept. However, this
| new policy is strictly better than what we had, so it
| deserves praise.
| sgc wrote:
| I read it as requiring 3 licenses: "Series 7, Series 65,
| _and_ Series 82 " [Italics mine]. But your point stands in
| principle and it's a great change.
| scott00 wrote:
| This is likely not true. You can't just sign up for FINRA
| exams as an individual; an eligible entity (broker-dealer or
| investment advisor) has to sign you up. And even if you have
| passed the relevant exam recently enough, you're not
| considered licensed unless you're working for an eligible
| entity who has submitted the appropriate paperwork to claim
| you as a registered representative.
|
| The easiest path this opens for someone not in the securities
| industry is to become a state registered investment advisor.
| In my home state of Illinois, that would require paying $400
| a year to the state and $150 a year to FINRA, as well as
| subject you to a number of non-trivial regulatory
| requirements.
| tathougies wrote:
| You don't need a sponsor for Series 65. In my home state of
| Oregon, you have to pass the exam, and you have to be
| 'affiliated with a registered investment advising
| business', but this business can be owned by you. Which
| means that, if you take the exam, and register a
| corporation owned by you with the state (and pay a nominal
| tax of a few hundred dollars), post a 10k refundable bond,
| and maintain books properly, you can invest in previously
| inaccessible vehicles.
|
| Is this work... yes. But the capital requirements are so
| low that it broadens access to many more people. I'd expect
| companies to start forming around getting people their
| Series 65 and allowing them to affiliate themselves with
| the business for a fee. This is still significantly better
| in terms of accessibility than the $1million wealth
| requirement or income >$200k.
| jkaplowitz wrote:
| You need a sponsor for most FINRA exams, but Series 65 (and
| the introductory SIE exam) allows self-registration with no
| sponsor.
|
| I just reread the new accredited investor final rule, and
| as per footnote 102, people who qualify via Series 65 need
| to maintain in good standing a state-granted license or
| registration. No other requirements exist on top of that.
| mikestew wrote:
| _It makes no difference at all to the average person
| complaining about the accredited investor rules preventing them
| from investing in sure-fire wins._
|
| If it is a "sure-fire win", then individuals don't get to
| participate in those investments, institutions and people with
| a _lot_ more money than you have get to participate. As an
| individual of only moderately high worth, you get the shit
| portrayed in the movie _Boiler Room_.
|
| Which is why whining about accredited investor rules annoys me:
| they can change the rules, but that isn't going to make
| companies want to deal with your small potatoes. They're not
| knocking on your door now, why would a rule change make any
| difference? Even if you cross the magic threshold,
| opportunities will not immediately knock on your door out of
| the blue. But if you want dents in your door from all the
| knocking, up your net worth from single-digit millions to
| double-digit.
| throwawaypop wrote:
| Am i the only one who thinks we are not giving credit to Trump
| administration for more de-regulation specifically this one?
| Relaxing the regulation to be fair.
| edoceo wrote:
| Rule 14 ^^
| xt00 wrote:
| Putting up a basic barrier to entry to people with low net-worth
| people causes some people to say "if the market is sky-rocketing,
| why can't I get in on that".. but the problem is whether or not
| you can "afford" to lose the money.. like if you have 50k to your
| name that you saved up over 20 years, then you blow it all in one
| bad investment, then you see people doing rash things like trying
| to take out their revenge on people or other super destructive
| behaviors. If your annual income is high, then losing 50% of your
| annual income might hurt, but you can earn it back in a
| reasonable amount of time.. losing say 10 years of annual income
| would hurt basically anybody..
|
| So it makes more sense to have various lower risk investment
| vehicles that are attached to those markets -- like if real
| estate is booming in your part of the world, then it should be
| possible to create some kind of investment group where 100 people
| put together their money and buy various properties.
|
| Allowing people who don't know much about options to buy them in
| a leveraged position is incredibly risky for tons of reasons.
| Many people's understanding of options is basically like if the
| stock goes up, then the call option that is above the current
| stock price goes up -- the option price could easily could go
| down if the expectation was that it would go up even more than it
| did, or the price volatility decreases! Not easy to explain all
| of the horrible ways you can easily lose money in the markets...
| I've sometimes thought, maybe I should just do the opposite of
| everything I've thought I wanted to do.. maybe that'd be better
| than what I'm doing..
| DennisP wrote:
| What's weird is that there's nothing stopping someone with $1M
| from blowing it all on a risky investment, while someone with
| $900K can't invest even 1% of their net worth in the same
| thing. A limit on percentage of net worth invested, as in the
| JOBS Act, would make more sense.
| aerovistae wrote:
| Looking over it, it seems like it's still highly restrictive.
| cryptica wrote:
| Great, now that all the valuable companies have done their IPO
| and the stock market is about to collapse, let's allow the
| peasants to come in and buy all our bags of crap before they
| become worthless.
|
| It's all for their own protection of course. We really care about
| the peasants. Especially when they bail us out.
| renewiltord wrote:
| The "peasants" don't have to buy anything, dude. I know friends
| with all their money in bonds, metals, and Vanguard. No one's
| making you go by TSLA 4500 calls expiring this Friday.
| cryptica wrote:
| They don't have to, but they will, now that we finally allow
| them... At this very convenient time.
| renewiltord wrote:
| Let them do so, then. May we all be free men, acting for
| ourselves, not slave to the whims of states.
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