Statement of Dissent from the Investor Advisory Committee Recommendation Regarding Accredited Investor Definition
On October 9, 2014, the Investor Advisory Committee made a recommendation regarding the accredited investor definition. As discussed in the attached opinion piece, I dissented from that recommendation on the grounds that the committee should have undertaken a more fundamental rethinking of the approach for determining who is eligible to participate in investor opportunities. Legislators, regulators, and others genuinely concerned about protecting investors too often rush to substitute their judgment for that of retail investors. The committee's recommendation perpetuates the idea that investors cannot think for themselves. Investor protection ought to include protecting investors' autonomy to make their own investment decisions.
As the committee acknowledges, there are drawbacks to using wealth and income as indicators of ability to invest wisely. Accordingly, the committee recommended new categories of accredited investors based on factors other than income and net worth, such as professional expertise. Expanding the pool of eligible investors would be a positive change.
The committee's recommendation, however, suggests that such expansions be accompanied by changes that would contract the pool of accredited investors. For example, the committee hints that current dollar thresholds should be raised and certain assets — such as nonfinancial assets and retirement accounts — should not count toward a person's net worth. Dodd-Frank already effectively raised the net worth threshold by excluding the value of a person's home from the net worth calculation. The committee also suggested limiting the percentage of income or net worth an investor could invest in private offerings.
Rather than advocating tweaks to the existing accredited investor framework, the committee should take a fresh look at how well our securities laws are working. As the committee's statutory framework makes clear, it is well within the committee's mandate to consider whether existing securities laws unintentionally harm investors and those whom the law prohibits from investing. The committee should work to restore a person's right to decide, in light of her own circumstances and informed by her own expertise, whether and how to invest.