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.
> 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".
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.
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.
> 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.
> 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
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.
> 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.
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.
Yes, there are plenty of smart people that can't meet the income requirements and that should be the crux of the constitutional challenge: the assumption that people with money are inherently smarter than those without, while other markets also allow for discretionary risk taking.
Even the SEC commissioner's have pointed out this incongruency.
The only thing supporting this difference is that gambling is regulated at the state level, while securities are regulated by the Feds with a few exemptions so that states feel like they have power. Spot commodities and uncategorized property are ignored by both.
Smart people that are not born into a useful amount of money have to earn and hope absolutely nothing goes wrong for decades, while being cut out from many growth opportunities, but they are able to speculate in many other financial games anyway. There are plenty of smart people that were earning where nothing was going wrong, until suddenly the pandemic sent them back to their parent's house where they will stay for the next decade.
This dichotomy in opportunities wasn't an issue when the equities sector was structured differently. Before the 21st century, companies were going public much earlier and much more frequently. There simply are not Microsoft's and Amazons going public at $37 million valuations anymore.
The only time I wrote the word securities I was referring to securities. The other time I was referring to securities I wrote the word equities.
I really don’t know what you are talking about anymore. Turn down the trolling. Congratulations if you have enough money not to care what others are going through. Try not to discount the luck involved in that.
VC follows a power law and the vast majority of these investments will fail.