Subject: File No. S7-07-12
From: Tim McCormack

September 20, 2012

Rather than simply eliminating the ban on advertising that has been ordered by Congress, the SEC has instead used this as an opportunity to do something else. As one restriction of Liberty is being torn down, the SEC is seizing this juncture as an opportunity to grasp for greater restrictions elsewhere. Within the proposed rule, the SEC wants to tighten its grip on a different restriction of Liberty that should also never have been forged into law in the first place.

Rather than seeking to create an architecture-of-laws that create a level field of competition and provide producers and consumers maximum Liberty, by creating a free and open market environment, the new rule being proposed by the SEC reveals a different agenda. The rule being proposed by the SEC seeks to more tightly restrict Liberty (of WHO can invest in Hedge Funds) and is using an arbitrary basis (net worth) to accomplish this.

The rule being proposed by the SEC appears to indicate that the SEC has a legacy fiefdom that it does not want to relinquish. Take away part of it, and the SEC seeks to quickly grab more power and authority elsewhere. The SEC appears to view Liberty as merely a symbolic statue in a harbor and not a valid principle. The proposed rule of the SEC directly conflicts with the principle of Liberty and its proper application to create free and open markets.

The proposed rule also appears to violate the US Constitution. The Fifth and Fourteenth Amendments to the U.S. Constitution, prohibits all levels of government from arbitrarily or unfairly depriving individuals of their basic constitutional rights to life, liberty, and property. Does the SEC have a reputable legal opinion that this restriction of Liberty does not violate these articles of the Constitution? If so, please release it. If not, why not?

Any restriction of Liberty based on net worth is arbitrary.

Government regulators have no problem if unaccredited investors go to Las Vegas and bet their entire net-worth in a casino (a rigged game). Government regulators have no problem if widows and orphans invest 100% of their money in stocks such as WorldCom, Enron, Bear Stearns, or even Lehman Brothers. Unaccredited investors can bet 100% of their money on virtually anything (stocks, bonds, commodities, real estate, gold, or antique cars). All of these forms of risk-taking are protected Liberties. Yet according to the SEC, this manufactured category of individuals (unaccredited) must now be stripped of this fundamental Liberty if they want to use their hard earned dollars to hire a professional money manager (in a pooled Fund).

How is using net worth only in this arena not an arbitrary restriction of Liberty?

Look at the facts. Broaden the lens to 30,000 feet and examine the Liberties allowed in society of much greater forms of risk-taking.

If this same category of individuals (unaccredited), want to risk their life rather than their money, this is a protected Liberty. Unaccredited individuals can swim in the ocean with sharks, skydive, ride motorcycles, or they play in the rain during a lightning storm. Such individuals can freely lick an electrical socket if they please. Unaccredited individuals can also hire professionals in extremely complex fields such as brain surgery. Any adult can hire a structural engineer to design a 100 story skyscraper, or hire a jet-pilot to take them anywhere. Any adult can sign a complex 100-page mortgage document, or sign an application for a credit card full of tiny fine print. All of these Liberties (risk taking) are vigorously protected. Laws do not prohibit adults from engaging in such risk taking. One must simply qualify as an ADULT.

As long as one is an adult, ones freedom within society to risk ones money, or ones life, is a universally protected in virtually all arenas except in one arbitrarily selected arena yes, the SECs arena - investing. The SEC likes it this way. And within this arena, one category has been manufactured out of thin air by the SEC and then arbitrarily used as a basis to greatly restrict individual Liberty. An abstract shell game of investment categories has been created by the SEC (accredited, unaccredited, private placement, etc). Yet when the abstract shells are lifted and the actual risk-taking examined, only similar risk-taking (Liberty) by individuals can be seen. One is simply hiring another type of specialized professional. No valid basis can be identified for restricting Liberty in the arbitrary fashion demanded by the SEC.

Within modern society, adults who do not have the skills to drive a car are not prohibited by government regulators from hiring a skilled professional -- a taxi driver. How is the SEC prohibition (restricting the Liberty) of only some individuals from hiring a qualified investment professional any different?

The laws within the Proposed Rule appear to violate certain economic freedoms inhered in the Due Process Clause of the Fifth Amendment, specifically its protection of liberty and what the Supreme Court has described as freedom or liberty of contract. This freedom means that individuals have the right to purchase or to sell labor or products without unreasonable interference by the government.

If the SEC believes restricting the Liberty of only some individuals (based on net worth), is not arbitrary, it should act responsibly and make its case. A valid case has NEVER been made by the SEC that using net worth as basis to restrict Liberty is not arbitrary.

Back up and look at the big-picture.

Fundamental questions:

Why is Adult not the proper basis for this form of risk-taking (simply risking ones money)?

How is using net worth solely in this one arena of society to restrict Liberty not an arbitrary way to restrict Liberty? If creating two classes of individuals using this basis is not arbitrary, then one should expect to see this basis being broadly used elsewhere in society, yet it is not. Why is this? (perhaps because it is an arbitrary creation of the SEC, that gives the SEC greater power and authority, at the direct expense of free and open markets)

It is important to note that a blind assertion of investor protection is not a valid basis. Invoking investor protection is simply an assertion without a supporting basis. If the net worth of an individual is truly a valid way to restrict Liberty, then this same category of dividing individuals into two groups should be used to restrict Liberty in other arenas of risk-taking. Yet facts reveal that is it not being used elsewhere. Why should individuals not be protected from sharks, skydiving, brain surgeons, structural engineers, jet-pilots, and mortgages, based on their accredited status?

(hint: because it is not a valid basis for restricting risk-taking. It is arbitrary.)

Since the dawn of time, government authorities have sought to restrict the Liberty of individuals under the guises of protecting them. The march of Liberty has fought this battle at every turn. This is a Rubicon that should not be crossed by government officials.

It threatens all individuals.

How is this restriction of Liberty not arbitrary?

Why should the SEC (alone among government regulators) be empowered to cross this Rubicon? The US Constitution bars Congress from restricting Liberty on an arbitrary basis. This means Congress cannot validly empower others with even greater powers. Where does the SEC get this power and authority?

The proposed rule strongly indicates the SEC is acting in its own interest (by defending a crumbling fiefdom of walls that should never have been erected in this way), rather than upholding and defending the Rights and Liberties of those it is supposed to serve -- ALL members of society.

The proposed rule upholds and defends the Liberty of the wealthy. Yet it usurps the Liberty of all others. It also destroys free and open markets.

The questions above deserve to be answered.

If the wall being built by SEC regulators cannot validly be defended, it should be torn down.


Tim McCormack
Santa Barbara, CA