[kenneth]

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 playing field for everyone. They have great intentions, but are obviously quite careful and conservative about their approach.

I think it's important to note two things:

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.

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).

[gumby]

> Of course, would love to see them go even further and let just anyone invest

Are you aware of the history of the accredited investor rules? When just anyone could invest there was too much opportunity for swindlers .. a problem that goes back the Mississippi company back in 1719.

Televangelists defrauding poor people is bad enough; we don’t need wall atreet bucket shops doing the same.

[ibeckermayer]

Fraud is already illegal, and if it's happening then the defrauded parties should take the swindlers to court and prove it, and the justice system should punish them.

The fact that some people might get swindled is not an argument for why I shouldn't be allowed to invest my money how I see fit. Just like the the fact that somebody might sell a defective toothbrush doesn't justify forcing me to get the approval of some bureaucrat in order to buy one.

[alasdair_]

> Fraud is already illegal, and if it's happening then the defrauded parties should take the swindlers to court and prove it, and the justice system should punish them.

Non-accredited investors, by definition, don’t have a lot of money.

If that money is stolen from them via fraud, where does the money to fund the lawsuit come from?

What if the total potential judgement is less than the cost of the court case?

Regulations exist, in part, because legal remedies are incredibly inefficient.

[kosievdmerwe]

Even if you have the money to push the civil suit. There might not be money to recover!

By definition the people you could rightfully sue are misusing the money and likely living it large with it.

[octodog]

That's a nice idea. But here in the real world financial fraud happens and it is frequently not resolved by the courts and the justice system.

[toast0]

> I shouldn't be allowed to invest my money how I see fit.

To my knowledge, the investees only need to ask you if you're an accredited investor, and tell you what that means. They don't need to actually verify that you meet the requirements. If you'ld like to invest in shady things, go right ahead.

[chachachoney]

Verification is necessary. Have you managed to invest in an endeavor which requires accredited investors while not actually meeting requirements yourself?

[kenneth]

This is false. Most offerings are done under 506b which only requires a self-declaration by the investor that he is accredited.

[JDiculous]

While we're at it why don't we ban poor people from trading stocks because they're too stupid to manage their own money? /s

Funny how these rules don't apply to gambling and lottery tickets.

[CamperBob2]

Both of those things are far more strictly regulated than conventional investments are.

[conanbatt]

They are used by the state to raise revenue!

[jrs95]

If anyone in power actually gave a shit about that why do we still have lotteries and casinos?

[alasdair_]

Because a lot of the money from lotteries and casinos goes to the people (or at least controlled by the people) in power?

Contrast that with small angel investments from “widows and orphans” - that money generally doesn’t end up controlled by the government.

[bsder]

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

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

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

[kenneth]

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

[briandear]

> it is really damn hard to bring a CEO doing obviously fraudulent things to heel.

If it’s “obviously” fraudulent, why isn’t law enforcement involved? No lawsuit required since fraud is a crime.

[bsder]

They could. But the FBI, SEC and IRS probably won't move unless you present them with an absolute slam dunk worth $5 million or more in direct penalties. If you're below that range, you're probably going to have to file a civil lawsuit. And, after your win that, one of the TLA's might pay attention.

This is a problem if you genuinely want more small companies funded by more small investors.

If the SEC doesn't figure out how to police the $1-$5 million range of companies, all they are doing is creating a nice fertile ground for conmen.

[qtplatypus]

Because "obvious" might not rise to the level of "beyond reasonable doubt".

[bsder]

Monetary penalty cases generally are "preponderance of the evidence".

"Beyond reasonable doubt" is generally only when jail is involved.

[alasdair_]

As someone who has raised angel and VC money in the past, I find the accredited investor rules useful for the company as well as for protecting individuals.

Having a clear standard that I can point to to say “these investors are grown-ups that knew what they were investing in” helps minimize things like superfluous lawsuits from people that really shouldn’t have been risking their only savings in an angel investment.

I don’t want to dig deep into an angel’s personal finances to determine if they can really afford to invest or not based on savings and risk profile and having a legal bar an investor has to meet makes the process of raising money slightly less onerous.

[nradov]

Anyone already can invest through the simple expedient of lying about their assets and income. I know people who did this in order to invest in pre-IPO stock. Some financial services companies do minimal verification, and even if an unaccredited investor gets caught there's no real punishment.

(I am not recommending breaking the law.)

[alasdair_]

Exactly.

And if you lie, you (righly) don’t get the default protections available to small investors.

[gist]

> Would love to see them go even further and let just anyone invest

Very broad statement. 'Anyone' in 'any' amount? Surely you are not advocating that. Are you?

In what way do you think the average person 'anyone' knows enough to essentially bet on a typical startup (called it 'gambling')? So you have a typical person living paycheck to paycheck but yes let them put whatever savings they might have into a startup?

[kenneth]

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.

[kelnos]

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

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

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

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

[ativzzz]

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.

[nicd]

Isn't this just called a "public company"? (Not sure if your comment was tongue-in-cheek. If not, I'm genuinely unclear how this is different from the current situation.)

[ativzzz]

Hahaha yea you're right, looks like I invented public companies a few hundred years after other people.

[briandear]

You should never invest capital you can’t afford to lose.

[lazyasciiart]

"The law, in its majestic equality, allows the rich as well as the poor to use their resources to bring a fraudulent CEO to justice"

[pochamago]

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

[g10r]

For the most part, the government shouldn't get to tell people what they can or can not do with their money. We don't currently stop people from going to vegas, buying lotto tickets, buying expensive cars, clothes, buying education, etc.

Said another way, 'anyone' can invest 'any' amount in a public stock today and lose it all tomorrow. Heck people were even suckered into mortgages they couldn't afford by our trusty banks.

[petercooper]

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

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

[briandear]

If the average person could bet their life savings on red at the Roulette table, what’s different about allowing them the freedom to bet on risky investments? At some point adults should be adults and be responsible for themselves. Of course fraud should remain illegal, but assuming fraud isn’t involved, why not let anyone invest in anything?

[baybal2]

> it's become clear to me that they're extremely pragmatic and want to support innovation and create a level playing field for everyone

USA has by far world's most byzantine and bizarre securities laws.

To me, this doesn't seem to be going well along that statement.

[carbocation]

The SEC doesn't make the laws, though. I tend to agree with both of you and I don't think that's a contradiction.

[kyrieeschaton]

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

[dragonwriter]

> 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.

[kyrieeschaton]

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.

[Retric]

Stock trading is over 400 hundred years old so terms like insider trading are meaningful even without a strict definition. The SEC’s role is one of clarification not lawmaking.

Consider, the proposed law uses the word espionage does that cover say counting the number of trucks leaving a factory? That’s the kind of thing where any specific choice is reasonable as long as everyone operates under the same rules.

[dragonwriter]

> That's true to a point, but neither of those pieces of legislation actually define "insider trading"

That's true in the narrow sense that they don't have a definitions section with the term “insider trading” and a definition. They both use “insider trading” in their titles and internal headings of the code sections they add, and specify the covered behavior (which differs slightly between the two) in the body, “purchasing or selling a security while in possession of material, nonpublic information” (15 USC 78t-1) and “purchasing or selling a security or security-based swap agreement while in possession of material, nonpublic information, or...communicating such information in connection with, a transaction on or through the facilities of a national securities exchange or from or through a broker or dealer, and which is not part of a public offering by an issuer of securities other than standardized options or security futures products” (15 USC 78u-1.)

While Congress did give the SEC the ability to set the rules around insider trading, it didn't give the SEC a blank check which the SEC used to pull the idea of insider trading and regulating it out of thin air.

[AdamN]

Which countries have less bizarre and byzantine securities laws?

[alasdair_]

Somalia and Sealand.

[empath75]

It also has the most successful stock markets.

[Ididntdothis]

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

[dragonwriter]

> ...Congress having lost the ability to make clear headed laws.

When do you imagine they had such ability, and does much of th Byzantine nature of the securities laws really post-date that period?

> There is so much friction in the partisan fights.

No more than usual, except in the sense that because of the partisan realignment (or two overlapping realignments, one stemming from the New Deal itself, the other from Johnson's signing on to civil rights) from the New Deal until the 1990s the bitter ideological fights were somewhat less often aligned with party boundaries.

[Ididntdothis]

“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.

[dragonwriter]

> 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.

[DaiPlusPlus]

> 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.

[lazyasciiart]

> No more than usual

Is that true? Is there a similar period in history where the Senate simply didn't hear the bills being passed by the House?

[celdon25]

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...