September 11, 2019
The definition of a Accredited Investor has had the effect of fundamentally transforming the means of capital formation since its inception in the 30s.
Prior to that time local stores and local building projects often solicited capital from neighbors and community members. Capital flowed from the bottom up, and builders and entrepreneurs would float bonds locally or issue shares locally.
The evidence of the transformation to top down capital formation is seen in national fund managers' domination of ultimate investment decisions. Our cities are more homogeneous, local neighbors are dis-empowered and cut off from the opportunity to build their own communities, and investment decisions are divorced from purposes of community rebuilding and reinvestment.
Local access to capital early in a venture's life is critical, but so is access to venture-stage investment opportunities for average middle class Americans. Removing the wealth/asset test from the definition of Accredited Investor is probably the single most effective means to improve BOTH middle class wealth mobility AND the Kauffman Index of startup generation. Just after Dodd Frank when the SEC was considering whether to further raise the wealth tests in the Accredited Investor definition, the angel investing community wrote that had the definition kept pace with inflation since the 70s over 90% of angel investors would be ineligible to participate.
Finally, unequal legal classification based on net assets is a fundamentally unjust idea that denies poor and middle class Americans equality under the law, disproportionately affecting the poor and people of color.
Rather than restructuring securities law, the commission could solve the most foundational problems surrounding legal access by introducing alternative means of qualification as an Accredited Investor, such as a standard examination proving requisite knowledge, or a notarized acknowledgement of the risks of investing in private securities offerings, held thereafter in IRS taxpayer files and attached to a one-time-only waiting period after signing the form for the first time.
It is paramount that the SEC act to rectify this longstanding government policy of unequal access to capital.
Thank you very much.