January 27, 2007
Re: File No. S7-25-06
Although I am sure that it is with best intentions that the rule changes to 17 CFR Parts 230 and 275 are being proposed, I read with great dismay that one more opportunity for the "common man," as opposed to a "natural person," will close unless someone runs in with a doorstop. I must temper that assertion by realizing that only a few percent of the U.S. population presently qualify under rule 501(a) of Regulation D as "accredited investors," so even now the "common man" opportunity is not so common.
The proposed rule change would seem to stanch a perceived dilution of special opportunities (previously available to those in the U.S. who were at the center of "power and riches," less than 1% of the population) at just the time when those who are at the cusp of realizing a modicum of wealth might wish (and need) to diversify their investments. I have noted, by personal experience and external observation, that the imposition of the Sarbanes-Oxley rules have forced up corporate operating overhead costs, driven business offshore, and have put many thousands of honest U.S. businessmen at serious criminal risk, by default, due only to their existence as a U.S.-based concern. All this to address a business practice matter that was, in fact, already illegal.
Given the practical result of Sarbanes-Oxley to investors in general (more Federal control over business at the expense of one more profit-damping burden), could it be that the SEC does not want to allow more than a controllable number of persons to participate in a "good thing?" If there were a real danger with personal monetary risks, I would think that the U.S. government would shut down Las Vegas or Atlantic City gambling venues first: that might prevent several hundred times more personal bankruptcies than even the current rules "protect" us against from private investment pool losses.
The proposal to increase the individual net worth and defined investment and income amount which would allow an individual to choose a private investment pool as a diversification option is an ill-timed and unnecessary additional constraint to the U.S. free market. It is very much like a prohibition that would be announced by the Governor of New York, the Empire State, allowing only armed persons to walk the side-streets of New York city shopping for bargains since they might be mugged (by those who do illegal acts using illegal weapons)and would need to defend themselves. But the Catch-22 is that only the Mayor's buddies are allowed the permits to carry weapons to legally defend themselves on the streets of New York. (If you think that this is "baloney," look up the rules, violation of which are penalized by a year in prison, for even "incorrectly" transporting a BB gun through New York city.) "Control" is the watchword - is this what this proposed Rule 509 and 216 change is really about, or is SEC's sense of proportion really so distorted such that a "common man" cannot also be viewed as an "accredited natural person?".
My conclusion is that the rule change should not be implemented solely for the purposes publicly stated: there are already a sufficient number of laws preventing fraud, and the balance of the proposed changes only further restrict those persons who might wish to willingly participate in a risky but more potentially rewarding investment vehicle. If there are contributing underlying factors not presented in the proposed rule change basis, then maybe they should be more publicly debated before we submit the U.S. citizens at large to additional constraints.