February 12, 2007
I write opposed to the proposed rulemaking, SEC File No. S7-25-06, to the extent that it concerns the definitiion of "accredited investor" found in Rule 501(a) of Regulation D. The proposed change (in a nutshell, raising accreditation from $1m in assets to $2.5 million in assets, excluding primary residences) is undesirable. I urge the Commission to reject the proposed rule change and leave the rule intact.
The Commission's proposal is based, at the core, on the idea that $1m is no longer a lot of money. If that were true, then "mere millionaires" should not be subject to the Alternative Minimum Tax, estate taxes, "mansion taxes" and the other wealth taxes that were intended to affect only the very rich. Of course, "mere millionairs" are taxed that way, and perhaps rightly so. But, the notion that citizens who accumulate $1m nest eggs should be taxed as if they were rich, but barred from investing like the rich, is abhorent. Limiting financial opportunities for Americans who have the gumption to get ahead, and barring them from making the kinds of investments that keep the wealthy living like kings, seems like an play to keep the rich rich and prevent others from joining their ranks. This erodes economic freedom and social mobility. It is un-American.
The Commission's proposal is also based on the idea that the value of a primary residence should not count as an investment, or as evidence that the homeowner is a savvy investor. In some circumstances that may be true. But, the current-income requirements of Rule 501(a) are likely to exclude those people whose only substantial asset is their homes, and who perhaps cannot survive the loss of other assets.
Yet, the Commission's proposed rule sweeps in everyone else, including those who have achieved a measure of the American Dream by investing in real estate, instead of intangible financial products. In particular, those who live in our burgeoning cities -- the professionals who have fueled the new information economy -- are as sophisticated as they come. Like the Astors, the Rockefellers and the Trumps, they have made a calculated decision to invest in urban real estate, despite the high cost, in the belief that it is a sound investment. So far, they have been right. An investor's decision to spend, on average, more $1m for a home (the average price of an apartment in New York, New York), demonstrates an understanding of risk and high level of sophistication: you could lose your home and the shirt off your back. Even if $1m is no longer very much money (and, for most Americans, it is still a distant dream), who wouldn't make an investment for 10% down at a cost, after taxes, of about 4% a year on the balance, with the possibility of tripling or quadrupling the investment in 6 to 8 years, as has happened in Manhattan and other cities? Many investors would jump at the chance to make such a play in stocks, bonds, or hedge funds. If the Commission decreed that such investors lacked the sophistication to mange their money and were no longer "accredited," the outcry would be overwhelming. What's next, Americans with annual incomes of less than $200,000 cannot buy homes worth more than $1 million because they're not smart enough and don't make enough money?
For these reasons, among others, the proposed rule change should be rejected. Thank you.