July 19, 2013
The SEC should lower the net worth and income thresholds required to be considered an accredited investor. Why is it that the "rich" are only allowed to invest in private securities offerings that are offered through general solicitation? The current laws discriminate against people who can't meet the income and net worth requirements and limits their investment choices.
The pundits, including some state securities regulators, say these laws protect investors and keep them from potentially risky investments. Anyone, accredited or not, can invest their entire paycheck in lottery tickets, where they are almost certain to lose all of their money. Many states, whose securities regulators oppose the changes in the JOBS Act, sponsor these lotteries. Any of these investors that are not accredited can speculate in "penny stocks", trade energy futures, buy lottery tickets, go to Vegas and other casinos, or find any number of other ways to gamble with their money. Why should these same investors, who are exposed to a potentially lucrative private investment offering by means of general solicitation, be prohibited from investing in that offering? It doesn't make sense. Also, a private investment offering in itself doesn't make an investment risky any more than registering a security makes it not risky. There are many conservative investment options that are only offered privately, without being registered.
Most proponents of reducing the number of accredited investors, by increasing the income and net worth limits, wrongly assume that all private investment offerings are risky, and some have suggested they should come with a warning label. I have seen many private investment offerings that I believe have much lower risk than many registered offerings. In fact, I believe many private investment offerings have much lower risk than even U.S. Treasury bonds, given todays low yields. Inflation, for example, can make current Treasury bonds substantially more risky than say, a well-located income-producing property, which may offer inflation protection, even if it is offered as a private investment offering. In fact, Warren Buffett has said that U.S. government bonds should come with a warning label for this very reason. The SEC should not be in the business of choosing which investments they think are more risky than others. There are all sorts of risks in any investment opportunity (even if it is an investment guaranteed by the full faith and credit of the United States of America), regardless of whether it is a private offering or an offering registered with the SEC. If the SEC wants warning labels, they should require them on all investments, not just private investment offerings.
The SEC should focus on making sure the laws are followed, and punishing those who choose not to follow the laws, instead of trying to pick and choose which investments it deems as more risky than others. The SEC should not be in the business of giving investment advice, but instead focusing on its important role of identifying wrongdoing and punishing wrongdoers. The SEC should no longer be allowed to limit the freedoms of the American people by deciding which investments they think are appropriate for people based on their income and/or net worth, or any other factors. Investors should have a choice to invest in anything they want, regardless of their net worth or income levels, and issuers should be allowed to reach as many potential investors as possible in an efficient and cost-effective manner.