The “Accredited Investor” Racket

Intelligence will always find a way... [Gilder's Daily Prophecy] July 29, 2021 [UNSUBSCRIBE]( | [ARCHIVES]( URGENT - Top Biotech Expert Spots Potential Alzheimer’s Breakthrough [Money flying in the air]( you like small stocks with HUGE upside potential, [you’ve gotta see this right away.]( Because this could be the biggest breakthrough in how we treat and view Alzheimer’s Disease in over 40 years! So if you’re looking to take a small amount of money and swing for the fences… [Check this out immediately.]( [Warning] Do you enjoy receiving Gilder's Daily Prophecy? Please [Click Here Now]( so we know to continue sending you Gilder's Daily Prophecy for free! The “Accredited Investor” Racket [Jeffrey Tucker]Dear Daily Prophecy Reader, Most people never have reason to look deeply deep into how securities regulation works, so the following will naturally be lost on most. But the details of the designation called “accredited investor” provide a revealing look into the nature of this type of regulation. It is designed to support and reward big shots, and exclude the little guy in incredibly obvious ways. Fortunately, there are some ways around this today, and we’ll get to that. The first encounter I had with this machinery came when I became a founding partner in a hedge fund. We were looking not just for our first round of clients, but also investors in the enterprise itself. The regulatory requirements were beyond anything I had previously encountered. I signed a phonebook-sized stack of papers that took six months to put together. A major question came up concerning whether — and to what extent — we could rely on the exemptions provided to “accredited investors.” (By the way, I sold my ownership shares in the venture a few years back — a story for another day — so that you know I have no conflicts of interest behind what I write here.) The SEC since 1933 has required that companies offering securities for sale to the public register with the government and adhere to all the disclosure requirements — as supposed protection for the public against fraudsters, scamsters, pump-and-dumps, and other forms of malfeasance. Registration and compliance are extremely expensive and too much stringency here can kill off upstarts before they can even get going. By 1974, it became obvious that enforcing this universally was a problem for too many people and funds with political access. They successfully carved out some exceptions that eventually made their way into law — and rightly so. The idea is that certain well-heeled people are sophisticated enough to assess risk on their own, and thus, do not need the benevolent hand of the SEC to protect them. These people are identifiable by their high net worth, later known as accredited investors. Generally, it came to mean people with $1M in net worth and $200K plus in annual income, a definition variously tweaked through the years. [Will this weird device be in your home soon?]( The Rich Buy Their Way Out And yet, there is a tremendously bitter irony here. The SEC is there to gum up the works of all public offerings of securities, all in the name of protecting the public. It’s a service to you, don’t you know? However, if you are rich enough, the SEC says to you “Hey, we decline to provide our brilliant and protective services to you, so you are on your own.” As Brer Rabbit said, “Roast me if you want but please don’t throw me into that briar patch!” Of course, the briar patch is precisely where the rabbit wanted to be. And to be free from SEC regulatory compliance is precisely where companies and their investors want to be. The SEC can flatter itself all day about its glorious services but the truth is that most people want nothing to do with them, and would prefer to go it alone, taking all necessary risks along the way. The SEC said, “Ok, here you go: god’s speed and all that.” This exemption immediately created a two-tier system of access to securities markets. There is one system for the rich and one system for everyone else. It will further not surprise you that the system carved out for the rich is precisely the sector where there is the most money to be money. If you qualify as an accredited investor, you are free to take your riches and make more; if you do not, you are stuck with public markets like everyone else. The first time I encountered this, I could hardly believe my eyes. I was stunned that a system like this could exist that so openly and brazenly seems designed to make the rich richer, while subjecting everyone else to a thicket of compliance that only adds vast burdens to the possibility of financial success. Given this, I completely understand why the political left is forever harping about the problem of legal privileges for the rich: in this, they are exactly correct. Billionaire Leaves Crowd In Shock [sky]( audience of a few hundred (including myself) quietly gathered in Washington D.C. a few months back. That’s when the world’s richest man, Elon Musk, took the stage… and shocked the entire room. It all has to do with this image you see on your screen… showing a surprising new discovery he’s made. Not only will this blow you away… it could also transform the American economy forever. [Click here for Elon’s shocking reveal (plus see what it means for you)…]( [This New Technology is about to reach “Critical Mass”]( Changing Terms The first step in this direction came with the initial assault on the freedom to own and buy securities in 1933. The exemptions started opening up in 1974. Four years later, the term accredited investor entered the vernacular. Four years after that, the concept of this “safe harbor” became entrenched in the law. In 1988, the SEC suspended its rule requiring a minimum purchase of $150K, another step toward liberalization. Finally, in 2015 and following, we began to see some substantial democratization of this securities feudalism take place. Regulation A-plus — cobbled together after a major review — finally opened up capital markets for private funding to any investor. It is a huge change, and all to the good. Five years later, it became codified as the new way for the future. Hence this [emancipating press release]( from the SEC dated August 26, 2020: The Securities and Exchange Commission today adopted amendments to the “accredited investor” definition, one of the principal tests for determining who is eligible to participate in our private capital markets. Historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied the opportunity to invest in our multifaceted and vast private markets. The amendments update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets. “Today’s amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition,” said Chairman Jay Clayton. “For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication. I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations, that may qualify to participate in certain private offerings.” The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth. The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify. [Emphasis my own.] There is nothing wrong and everything right about this change. Isn’t it rather remarkable that such a liberalizing and meritorious change in regulatory law would happen during the year of the most egregiously universal violations of human rights and liberties in American history? It’s ironic, but real nonetheless. Open at Last It finally gets us closer to the world we had before 1933, and in the preceding many hundreds of years in which access to financial capital markets was available to anyone. Not just those who could jump through thousands of hoops or can afford to buy their way around them. That change has been deployed by thousands of companies, especially in the realm of new technologies such as crypto and blockchain. The next step for those who want to participate in the high-earnings markets of private equity offerings is “to qualify as among those who have the knowledge and expertise,” to quote the SEC. This comes through information access, which is not now, nor never has been democratically distributed. There is no world in which access to high earnings is equally available to all, despite the dreams of socialists. Intelligence will always find a way that others miss. 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